Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule To Adopt Certain Connectivity Fees, 101057-101064 [2024-29336]
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Federal Register / Vol. 89, No. 240 / Friday, December 13, 2024 / Notices
Secretarys-Office@sec.gov and serving
the Applicants with a copy of the
request by email, if an email address is
listed for the relevant Applicant below,
or personally or by mail, if a physical
address is listed for the relevant
Applicant below. Hearing requests
should be received by the Commission
by 5:30 p.m. on January 3, 2025, and
should be accompanied by proof of
service on the Applicants, in the form
of an affidavit, or, for lawyers, a
certificate of service. Pursuant to rule 0–
5 under the Act, hearing requests should
state the nature of the writer’s interest,
any facts bearing upon the desirability
of a hearing on the matter, the reason for
the request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
emailing the Commission’s Secretary.
The Commission:
Secretarys-Office@sec.gov. Applicants:
David C. Sullivan, Ropes & Gray LLP,
800 Boylston Street, Boston,
Massachusetts 02199, David.Sullivan@
Ropesgray.com, with a copy to Clara
Kang, Capital Research and
Management Company, 333 South Hope
Street, 55th Floor, Los Angeles,
California 90071, Clara.Kang@
Capgroup.com.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Trace W. Rakestraw, Senior Special
Counsel, at (202) 551–6825 (Division of
Investment Management, Chief
Counsel’s Office).
For
Applicants’ representations, legal
analysis, and conditions, please refer to
Applicants’ application, dated
November 7, 2024, which may be
obtained via the Commission’s website
by searching for the file number at the
top of this document, or for an
Applicant using the Company name
search field on the SEC’s EDGAR
system. The SEC’s EDGAR system may
be searched at https://www.sec.gov/
edgar/searchedgar/legacy/
companysearch.html. You may also call
the SEC’s Public Reference Room at
(202) 551–8090.
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SUPPLEMENTARY INFORMATION:
For the Commission, by the Division of
Investment Management, under delegated
authority.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–29316 Filed 12–12–24; 8:45 am]
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101057
SECURITIES AND EXCHANGE
COMMISSION
Bartlett LLP, jacqueline.edwards@
stblaw.com.
[Investment Company Act Release No.
35408; 812–15657]
FOR FURTHER INFORMATION CONTACT:
Global X Venture Fund and Global X
Management Company, LLC
December 9, 2024.
Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’).
ACTION: Notice.
AGENCY:
Notice of an application under section
6(c) of the Investment Company Act of
1940 (the ‘‘Act’’) for an exemption from
sections 18(a)(2), 18(c) and 18(i) of the
Act, under sections 6(c) and 23(c) of the
Act for an exemption from rule 23c–3
under the Act, and for an order pursuant
to section 17(d) of the Act and rule 17d–
1 under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit certain
registered closed-end investment
companies to issue multiple classes of
shares and to impose early withdrawal
charges and asset-based distribution
and/or service fees.
APPLICANTS: Global X Venture Fund and
Global X Management Company, LLC
FILING DATES: The application was filed
on November 14, 2024.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing on any application by
emailing the SEC’s Secretary at
Secretarys-Office@sec.gov and serving
the Applicants with a copy of the
request by email, if an email address is
listed for the relevant Applicant below,
or personally or by mail, if a physical
address is listed for the relevant
Applicant below. Hearing requests
should be received by the Commission
by 5:30 p.m. on January 3, 2025, and
should be accompanied by proof of
service on the Applicants, in the form
of an affidavit, or, for lawyers, a
certificate of service. Pursuant to rule 0–
5 under the Act, hearing requests should
state the nature of the writer’s interest,
any facts bearing upon the desirability
of a hearing on the matter, the reason for
the request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
emailing the Commission’s Secretary.
ADDRESSES: The Commission:
Secretarys-Office@sec.gov. Applicants:
Jasmin Ali, Esq., Global X Management
Company, LLC, jali@globalxetfs.com,
with a copy to Ryan P. Brizek, Esq.,
Simpson Thacher & Bartlett LLP,
ryan.brizek@stblaw.com, and Jacqueline
Edwards, Esq., Simpson Thacher &
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Trace W. Rakestraw, Senior Special
Counsel, at (202) 551–6825 (Division of
Investment Management, Chief
Counsel’s Office).
For
Applicants’ representations, legal
analysis, and conditions, please refer to
Applicants’ application, dated
November 14, 2024, which may be
obtained via the Commission’s website
by searching for the file number at the
top of this document, or for an
Applicant using the Company name
search field on the SEC’s EDGAR
system. The SEC’s EDGAR system may
be searched at https://www.sec.gov/
edgar/searchedgar/legacy/
companysearch.html. You may also call
the SEC’s Public Reference Room at
(202) 551–8090.
SUPPLEMENTARY INFORMATION:
For the Commission, by the Division of
Investment Management, under delegated
authority.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–29314 Filed 12–12–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101851; File No. SR–LTSE–
2024–09]
Self-Regulatory Organizations; LongTerm Stock Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Amend
the Fee Schedule To Adopt Certain
Connectivity Fees
December 9, 2024
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 November
27, 2024, Long-Term Stock Exchange,
Inc. (‘‘LTSE’’ 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 selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
1
2
15 U.S.C. 78s(b)(1).
17 CFR 240.19b–4.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to amend the LTSE Fee Schedule (the
‘‘Fee Schedule’’) to adopt certain
connectivity fees effective October 1,
2024. The text of the proposed rule
change is available at the Exchange’s
website at https://longtermstock
exchange.com/, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement on 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
self-regulatory organization 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
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1. Purpose
The Exchange is proposing to
establish a new section (C. Connectivity
Fees) in the Long-Term Stock Exchange
Fee Schedule. Prior to the launch of the
new trading system on September 23,
2024, the Exchange offered connectivity
(both physical and logical) at no cost to
all market participants. With the launch
of the new trading system and the
significant costs detailed below, the
Exchange determined it was reasonable
and appropriate to begin to charge
market participants for their
connectivity to the Exchange. The
Exchange notes that the transition
between trading systems required all
market participants to set up new
connectivity to the new trading system,
and after the successful launch the
Exchange decommissioned all the
historical connections within the old
trading system. The Exchange also notes
that market participants were not
charged simultaneously for both their
old connections and new connections
during the transition as the Exchange
never charged for connectivity to the old
trading system.
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Cross-Connect Fees
The Exchange proposes to offer to
both Members 3 and non-Members the
option to utilize a 10 Gigabit (‘‘Gb’’)
ultra-low latency (‘‘ULL’’) fiber crossconnection to the Exchange’s Primary
and Disaster Recovery facilities, as well
as a 10Gb ULL fiber cross-connection to
the Test Environment. The Exchange
proposes to establish a Cross-Connect
fee of $5,500 per 10Gb physical
interface per month that will be
assessed to Members and non-Members
for connecting to the Primary facility.
The Exchange proposes to establish a
Cross-Connect fee of $2,750 per 10Gb
physical interface per month that will
be assessed to Members and nonMembers for connecting to either the
Disaster Recovery facility or the Test
Environment.
Monthly network connectivity fees for
Members and non-Members for
connectivity will be assessed in any
month the Member or non-Member is
credentialed to use any of the LTSE
Application Programming Interfaces
(‘‘APIs’’) in the Primary facility, Disaster
Recovery facility or Test Environment.4
Port Fees
The Exchange proposes to establish a
$450 fee for all Logical Connectivity
sessions. These application sessions,
commonly known as ports, are utilized
to perform a particular function on the
Exchange, such as order entry or order
cancellation, receipt of drop copies,
proprietary market data dissemination,
or requesting data to be backfilled (i.e.,
‘‘gap ports’’). All market participants
(Members and non-Members) will be
charged per session per month. The
Exchange will waive the fees for three
sessions per month per market
participant.
In proposing to charge fees for
connectivity to LTSE, the Exchange has
sought to be especially diligent in
assessing those fees in a transparent way
against its own aggregate costs of
providing the related services, and also
carefully and transparently assessing the
impact on market participants—both
generally and in relation to other market
participants, i.e., to assure the fee will
not create a financial burden on any
participant and will not have an undue
impact in particular on smaller market
3 The term ‘‘Member’’ shall mean any registered
broker or dealer that has been admitted to
membership in the Exchange. See LTSE Rule 1.160.
4 As proposed, fees for connectivity services
would be assessed based on each active
connectivity service product at the close of business
on the first day of each month. If a product is
canceled prior to such fee being assessed, then the
Member will not be obligated to pay the applicable
product fee.
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participants and competition among
market participants in general. The
Exchange believes that this level of
diligence and transparency is called for
by the requirements of Section 19(b)(1)
under the Act,5 and Rule 19b–4
thereunder,6 with respect to the types of
information self-regulatory
organizations (‘‘SROs’’) should provide
when filing fee changes, and Section
6(b) of the Act,7 which requires, among
other things, that exchange fees be
reasonable and equitably allocated,8 not
designed to permit unfair
discrimination,9 and that they not
impose a burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.10 This rule
change proposal addresses those
requirements, and the analysis and data
in each of the sections that follow are
designed to clearly and
comprehensively show how they are
met.11
Cost Analysis
The Exchange notes it operates a
unique model where the LTSE trading
system and services are provided on an
outsourced basis by MEMX
Technologies.12 As such, a large portion
of the Exchange’s technology costs,
including those related to connectivity,
are incorporated into the overall fees
that the Exchange pays MEMX
Technologies as part of its multi-year
arrangement to provide a trading system
and associated services.13 Because of
this arrangement, the Exchange does not
possess the same level of specificity for
cost drivers related to connectivity as
15 U.S.C. 78s(b)(1).
17 CFR 240.19b–4.
7 15 U.S.C.78f(b).
8 15 U.S.C. 78f(b)(4).
9 15 U.S.C. 78(f)(b)(5).
10 15 U.S.C. 78f(b)(8).
11 In 2019, Commission staff published guidance
suggesting the types of information that SROs may
use to demonstrate that their fee filings comply
with the standards of the Act (‘‘Fee Guidance’’).
While LTSE understands that the Fee Guidance
does not create new legal obligations on SROs, the
Fee Guidance is consistent with LTSE’s view about
the type and level of transparency that exchanges
should meet to demonstrate compliance with their
existing obligations when they seek to charge new
fees. See Staff Guidance on SRO Rule Filings
Relating to Fees (May 21, 2019). Available at
https://www.sec.gov/tm/staff-guidance-sro-rulefilings-fees.gov.
12 The Exchange and MEMX Technologies
executed a Development, License and Services
Agreement on January 23, 2024, with accompanying
Schedules (collectively, the ‘‘DLSA’’). MEMX
Technologies, an affiliate of the MEMX Exchange,
is in the business of developing technology systems
for use in the financial industry. See SR–LTSE–
2024–03, supra note 3 [sic].
13 The DSLA with MEMX Technologies entails
both fixed and variable costs. To Exchange used
both types of costs when determining aggregated
monthly costs detailed below.
5
6
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other exchanges have detailed within
their own similar filings. However, the
Exchange recognizes that the fees it pays
MEMX Technologies are for the services
MEMX Technologies provides to the
Exchange and their costs, these services
and costs include maintaining a team of
highly-skilled network engineers, fees
charged to MEMX Technologies by the
third-party data center operator for the
servers and equipment LTSE utilizes,
costs associated with projects and
initiatives designed to improve overall
network performance and stability, and
costs associated with fully-supporting
advances in infrastructure and
expansion of network level services,
including customer monitoring, alerting
and reporting. There are also significant
technology expenses related to
establishing and maintaining
Information Security services, enhanced
network monitoring and customer
reporting, as well as Regulation SCI
mandated processes, associated with the
MEMX Technologies network
technology. While these cost drivers are
known, because of the unique structure
laid out above the Exchange is unable to
separate out most of the specific
expenses for connectivity services, as
these are intricately combined in its
DSLA with MEMX Technologies.
Further, while the Exchange has been
operating since September 2020, it only
entered the DLSA with MEMX
Technologies LLC in January of this year
and launched the new trading system in
September 2024. Therefore, the
Exchange’s most recent publicly
available financial statement (2023
Audited Unconsolidated Financial
Statement) does not reflect LTSE’s
actual current costs associated with the
development and operation of
connectivity on LTSE. Accordingly, the
Exchange believes it is more appropriate
to justify its fees utilizing a recent
monthly billing cycle and extrapolated
annualized costs on a going-forward
basis.
LTSE recently calculated its aggregate
monthly costs for providing
connectivity services to the Exchange at
approximately $485,000 beginning
October 1, 2024.14 Because LTSE offered
all connectivity free of charge from its
launch in September 2020 until October
of this year, LTSE has borne 100% of all
connectivity costs. Now, in order to
cover some of the aggregate costs of
providing connectivity to market
participants (both Members and nonMembers) 15 the Exchange is proposing
to modify its Fee Schedule and charge
the fees for connectivity detailed herein.
In order to determine the Exchange’s
costs for providing the services
associated with connectivity, the
Exchange conducted an extensive
review in which the Exchange analyzed
every expense item in the Exchange’s
general expense ledger to determine
whether each such expense relates to
the services associated with the
connectivity, and, if such expense did
so relate, what portion (or percentage) of
such expense actually supports those
services. The sum of all such portions
of expenses represents the total cost of
the Exchange to provide the services
associated with connectivity. For the
Costs Related to Offering Connectivity
The following chart details the
individual line-item costs considered by
LTSE to be related to offering
connectivity as well as the percentage of
the Exchange’s overall costs per year
such costs represent for such area (e.g.,
as set forth below, the Exchange
allocated approximately 10% of its
overall Human Resources cost to
offering connectivity for a total of
$538,400 per year of costs related to
providing connectivity).
Allocated yearly
costs
% of all
Third-Party Expenses ................................................................................................
Human Resources .....................................................................................................
Data Center ...............................................................................................................
$427,279
44,866
13,170
$4,594,998
538,400
158,040
32
10
30
Total ....................................................................................................................
485,315
5,291,438
..............................
Below are additional details regarding
each of the line-item costs considered
by LTSE to be related to offering
connectivity.
Third-Party Expenses
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avoidance of doubt, no expense amount
was allocated twice. The Exchange is
also providing detailed information
regarding the Exchange’s cost allocation
methodology—namely, information that
explains the Exchange’s rationale for
determining that it was reasonable to
allocate certain expenses described in
this filing towards the total cost to the
Exchange to provide connectivity.
The Exchange believes that the
Connectivity Fees are fair and
reasonable because they will only cover
a portion of the total annual expense
that the Exchange projects to incur with
providing the services associated with
the proposed Connectivity Fees versus
the total annual revenue of the
Exchange projects to collect in
connection with providing those
services. Based on current connectivity
services usage, the Exchange would
generate monthly revenues for the rest
of 2024 of approximately $192,000,
which will result in a loss for the
Exchange.
Allocated monthly
costs
Cost drivers
101059
As discussed above, LTSE has
undertaken a unique model where it has
outsourced its trading system and
related technology to a third-party
technology provider MEMX
Technologies. With this arrangement
14 The aggregate monthly costs were determined
by taking the individual cost drivers detailed below
and their yearly costs and dividing by twelve
months.
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LTSE receives (1) access to technology
used to complete connections to the
Exchange and to connect to external
markets, (2) physical connectivity in the
data centers where MEMX Technologies
maintains equipment for LTSE use—
such as dedicated space, security
services, cooling and power, (3) use of
physical ports and logical ports, and (3)
use of physical assets and software,
which also includes assets used for
testing and monitoring of infrastructure.
Also included in this section are the
costs from a second third-party vendor
which assists LTSE with services related
to member gateways.
The Exchange took the annual costs
for each of these third-party providers to
determine what portion (or percentage)
of these costs related to connectivity
services and thus bears a relationship
that is, ‘‘in nature and closeness,’’
directly related to connectivity services.
There are four major core services
15 Types of market participants that obtain
connectivity services from the Exchange but are not
Members include service bureaus and extranets.
Service bureaus offer technology-based services to
other companies for a fee, including order entry
services to Members, and thus, may access
application sessions on behalf of one or more
Members. Extranets offer physical connectivity
services to Members and non-Members.
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associated with the Exchange (member
gateways, the matching engine, the SIP
and then downstream services). The
services provided by these third party
vendors touches each of these major
core services, therefore the Exchange
believed a conservative allocation of
32% of costs for connectivity services
was appropriate.
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Human Resources
For personnel costs not related to its
outsourced third-party providers, LTSE
then calculated an allocation of LTSE
employee time for employees whose
functions include providing and
maintaining connectivity and
performance thereof (technical
operations personnel, market operations
personnel, and software engineering
personnel). The Exchange notes that
network support services to Members
and Non-Members provided by the
Exchange and its staff, including
network monitoring, reporting and
support services, are all handled
directly by LTSE and not MEMX
Technologies.
The Exchange also allocated Human
Resources costs to provide connectivity
to a limited subset of personnel with
ancillary functions related to
establishing and maintaining such
connectivity (such as information
security and finance personnel), for
which the Exchange allocated cost on an
employee-by-employee basis (i.e., only
including those personnel who do
support functions related to providing
connectivity) and then applied a smaller
allocation to such employees. The
Exchange notes that it has fewer than
fifty (50) employees and each
department leader has direct knowledge
of the time spent by each employee with
respect to the various tasks necessary to
operate the Exchange. The estimates of
Human Resources cost were therefore
determined by consulting with such
department leaders, determining which
employees are involved in tasks related
to providing connectivity, and
confirming that the proposed allocations
were reasonable based on an
understanding of the percentage of their
time such employees devote to tasks
related to providing connectivity. The
Exchange notes that senior level
executives were only allocated Human
Resources costs to the extent the
Exchange believed they are involved in
overseeing tasks related to providing
connectivity. The Human Resources
cost was calculated using a blended rate
of compensation reflecting salary, equity
and bonus compensation, benefits,
payroll taxes, and 401(k) matching
contributions.
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Data Center
In addition to the data center costs
incurred by MEMX Technologies which
are allocated in the Third-Party
Expenses above, the Exchange also
maintains its own footprint in a thirdparty data center.16 Data Center costs
include an allocation of the costs the
Exchange incurs to monitor its trading
platform (both the Primary facility and
Disaster Recovery facility) as well as the
costs to maintain its equipment in the
data center. The Exchange does not own
the data center facilities, but instead,
leases space in a data center operated by
a third party).
The Exchange took the annual data
center costs to determine what portion
(or percentage) of these costs related to
connectivity services and thus bears a
relationship that is, ‘‘in nature and
closeness,’’ directly related to
connectivity services. As stated above,
there are four major core services
associated with the Exchange (member
gateways, the matching engine, the SIP
and then downstream services). The
services related to these costs include
network packet capture for performance
monitoring, security information and
event management, network
connectivity and security monitoring.
The Exchange therefore believes a
conservative allocation of 30% of costs
for connectivity services was
appropriate.
Physical Connectivity Fees
With the launch of the new trading
platform, LTSE required Members and
Non-Members to establish all new
connections (both physical and logical)
to the Exchange in order to transmit
orders to and receive information
through the new trading platform.
Members and Non-Members can also
choose to connect to LTSE indirectly
through physical connectivity
maintained by a third-party extranet.
Extranet physical connections may
provide access to one or multiple
Members and Non-Members on a single
connection. Users of LTSE physical
connectivity services (both Members
and non-Members) seeking to establish
one or more connections with the
Exchange submit a request directly to
Exchange personnel. Upon receipt of the
completed instructions, LTSE
establishes the physical connections
requested by the market participant. The
number of physical connections
assigned to each firm as of September
30, 2024, ranges from one to three,
depending on the scope and scale of the
firm’s trading activity on the Exchange
16 LTSE has a data center presence in Secaucus
NY4.
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as determined by the firm, including the
firm’s determination of the need for
redundant connectivity. The Exchange
notes that 58% of its Members do not
maintain a physical connection directly
with the Exchange in the Primary Data
Center (though many such Members
have connectivity through a third-party
provider) and another 42% have either
one or two physical connections to the
Exchange in the Primary Data Center.
As described above, to cover a portion
the aggregate costs of providing physical
connectivity to Members and NonMembers, as described below, the
Exchange is proposing to charge a fee of
$5,500 per month for each physical
connection in the Primary facility and a
fee of $2,750 per month for each
physical connection in the Disaster
Recovery and Test Environment
facilities. There is no requirement that
any Member or Non-Member maintain a
specific number of physical connections
and a Member or Non-Member may
choose to maintain as many or as few
of such connections as each Member or
Non-Member deems appropriate. The
Exchange notes, however, that pursuant
to Rule 2.250 (Mandatory Participation
in Testing of Backup Systems), the
Exchange does require a small number
of Members to connect and participate
in functional and performance testing as
announced by the Exchange, which
occurs at least once every 12 months.
Specifically, Members that have been
determined by the Exchange to
contribute a meaningful percentage of
the Exchange’s overall volume must
participate in mandatory testing of the
Exchange’s backup systems (i.e., such
Members must connect to the Disaster
Recovery facility). The Exchange notes
that Members that have been designated
are still able to use third-party providers
of connectivity to access the Exchange
at its Disaster Recovery facility, in that
these Members do not need one full
10Gb connection, and that four of the
designated Members use a third-party
provider instead of connecting directly
to the Disaster Recovery facility through
connectivity provided by the Exchange.
Nonetheless, because some Members are
required to connect to the Disaster
Recovery facility pursuant to Rule 2.250
and to encourage Members and NonMembers to connect to the Disaster
Recovery facility generally, the
Exchange has proposed to charge onehalf of the fee for a physical connection
in the Primary facility. The Exchange
believes that charging a higher fee for
physical connections at the Disaster
Recovery facility would be inconsistent
with its objective of encouraging
Members to connect at such a facility.
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Further, other exchanges also provide
discounted connectivity fees for
connections to their respective disaster
recovery facilities.17
The Exchange notes that while
Members are required to connect to the
Test Environment in some way for
initial protocol certification, they do not
have to connect directly and can use an
extranet provider to connect or access
the LTSE Test Environment directly.
The proposed fee will not apply
differently based upon the size or type
of the market participant, but rather
based upon the number of physical
connections a Member of Non-Member
requests, based upon factors deemed
relevant by each firm (either a Member,
service bureau or extranet). The
Exchange believes these factors include
the costs to maintain connectivity,
business model and choices Members
and Non-Members make in how to
participate on the Exchange, as further
described below. The proposed
connectivity fees are designed to permit
the Exchange to cover a portion of costs
allocated to providing connectivity
services. The Exchange also reiterates
that the Exchange did not charge any
fees for connectivity services prior to
October 2024, and its allocation of costs
to physical connections was part of a
holistic allocation that also allocated
costs to other core services without
double-counting any expenses. As noted
above, the Exchange proposes a
discounted rate of $2,750 per month for
physical connections at its Disaster
Recovery facility and Test Environment.
The Exchange has proposed this
discounted rate for Disaster Recovery
and Test Environment connectivity in
order to encourage Members and NonMembers to establish and maintain such
connections. Also, as noted above, a
small number of Members are required
pursuant to Rule 2.4 to connect and
participate in testing of the Exchange’s
backup systems, and the Exchange
believes it is appropriate to provide a
discounted rate for physical connections
at the Disaster Recovery facility given
this requirement. The Exchange notes
that this rate is well below the cost of
providing such services and the
Exchange will offer connectivity to the
Disaster Recovery facility and Test
Environment without recouping the full
amount of such cost through
connectivity services.
Logical Connectivity Fees
Similar to other exchanges, LTSE
offers its Members application sessions,
17 See, e.g., the CBOE BZX equities fee schedule,
available at: https://markets.cboe.com/us/equities/
membership/fee_schedule/bzx/.
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also known as logical ports, for order
entry and receipt of trade execution
reports and order messages. Members
can also choose to connect to LTSE
indirectly through a session maintained
by a third-party service bureau. Service
bureau sessions may provide access to
one or multiple Members on a single
session. Users of LTSE connectivity
services (both Members and nonMembers) seeking to establish one or
more application sessions with the
Exchange shall submit a request to the
Exchange. Upon receipt of the
completed instructions, LTSE assigns
the Member or Non-Member the number
of sessions requested. The number of
sessions assigned to each Member as of
September 30, 2024, ranges from one (1)
to more than 58 depending on the scope
and scale of the Member’s trading
activity on the Exchange (either through
a direct connection or through a service
bureau) as determined by the Member.
For example, by using multiple
sessions, Members can segregate order
flow from different internal desks,
business lines, or customers. The
Exchange does not impose any
minimum or maximum requirements for
how many application sessions a
Member or service bureau can maintain,
and it is not proposing to impose any
minimum or maximum session
requirements for its Members or their
service bureaus.
As described above, to cover the
aggregate costs of providing application
sessions to Members and Non-Members,
as described below, the Exchange is
proposing to charge a fee of $450 per
session per month. The Exchange notes
that it is proposing to waive the fees for
Members and Non-Members their first
three sessions, so that market
participants can have no cost to initiate
order entry in all three environments
(Production, Disaster Recovery and Test
Environments). Further, the Exchange
believes that providing three free
sessions will encourage Members to
connect to the Exchange’s backup
trading systems and to conduct
appropriate testing of their use of the
Exchange.
The proposed fee of $450 per month
for each Logical Connectivity session is
designed to permit the Exchange to
cover some of the costs allocated to
providing application sessions.
The proposed fee is also designed to
encourage Members and Non-Members
to be efficient with their application
session usage, thereby resulting in a
corresponding increase in the efficiency
that the Exchange would be able to
realize in managing its aggregate costs
for providing connectivity services.
There is no requirement that any
PO 00000
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101061
Member maintain a specific number of
application sessions and a Member may
choose to maintain as many or as few
of such ports as each Member deems
appropriate. The platform has been
designed such that each logical
connectivity session can handle a
significant amount of message traffic
(i.e., over 50,000 orders per second), and
has no application flow control or order
throttling.
The proposed fee will not apply
differently based upon the size or type
of the market participant, but rather
based upon the number of application
sessions a Member of Non-Member
requests, based upon factors deemed
relevant by each firm (either a Member
or service bureau on behalf of a
Member). The Exchange believes these
factors include the costs to maintain
connectivity and choices Members make
in how to segment or allocate their order
flow.18
Proposed Fees—Additional Discussion
As discussed above, the proposed fees
for connectivity services do not by
design apply differently to different
types or sizes of Members or NonMembers. As discussed in more detail
in the Statutory Basis section, the
Exchange believes that the likelihood of
higher fees for certain Members or NonMembers subscribing to connectivity
services usage than others is not
unfairly discriminatory because it is
based on objective differences in usage
of connectivity services among different
Members and Non-Members. The
Exchange’s costs for connectivity
services are directly proportional to the
impact Members and Non-Members
with higher message traffic and/or
Members and Non-Members with more
complicated connections established
with the Exchange, as such Members
and Non-Members: (1) consume the
most bandwidth and resources of the
network; (2) transact the vast majority of
the volume on the Exchange; and (3)
require the high-touch network support
services provided by the Exchange and
18 The Exchange understands that some Members
(or service bureaus) may also request more sessions
to enable the ability to send a greater number of
simultaneous order messages to the Exchange by
spreading orders over more Order Entry Ports,
thereby increasing throughput (i.e., the potential for
more orders to be processed in the same amount of
time). The degree to which this usage of sessions
provides any throughput advantage is based on how
a particular Member sends order messages to LTSE,
however the Exchange notes that the architecture
reduces the impact or necessity of such a strategy.
All sessions on LTSE provide the same throughput,
and as noted above, the throughput is likely
adequate even for a Member sending a significant
amount of volume at a fast pace, and is not
artificially throttled or limited in any way by the
Exchange.
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its technology service provider,
including network monitoring, reporting
and support services, resulting in a
much higher cost to the Exchange to
provide such connectivity services. For
these reasons, LTSE believes it is not
unfairly discriminatory for the Members
and Non-Members with higher message
traffic and/or Members and NonMembers with more complicated
connections to pay a higher share of the
total connectivity services fees. While
Members and Non-Members with a
business model that results in higher
relative inbound message activity or
more complicated connections are
projected to pay higher fees, the level of
such fees is based solely on the number
of physical connections and/or
application sessions deemed necessary
by the Member and Non-Members and
not on the business model or type of
firm. The Exchange notes that the
correlation between message traffic and
usage of connectivity services is not
completely aligned because Members
and Non-Members individually
determine how many physical
connections and application sessions to
request, and Members and NonMembers may make different decisions
on the appropriate ways based on facts
unique to their individual businesses.
The Exchange believes that a Member
even with high message traffic would be
able to conduct business on the
Exchange with a relatively small
connectivity services footprint.
Finally, the fees for connectivity
services will help to encourage
connectivity services usage in a way
that aligns with the Exchange’s
regulatory obligations. As a national
securities exchange, the Exchange is
subject to Regulation Systems
Compliance and Integrity (‘‘Reg SCI’’).19
Reg SCI Rule 1001(a) requires that the
Exchange establish, maintain, and
enforce written policies and procedures
reasonably designed to ensure (among
other things) that its Reg SCI systems
have levels of capacity adequate to
maintain the Exchange’s operational
capability and promote the maintenance
of fair and orderly markets.20 By
encouraging Users to be efficient with
their usage of connectivity services, the
proposed fee will support the
Exchange’s Reg SCI obligations in this
regard by ensuring that unused
application sessions are available to be
allocated based on individual Member
or Non-Member needs and as the
Exchange’s overall order and trade
volumes increase. Additionally, because
the Exchange will charge a lower rate
19
20
17 CFR 242.1000–1007.
17 CFR 242.1001(a).
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for a physical connection to the Disaster
Recovery and Test Environment
facilities and will waive the first three
logical connectivity sessions each
month, the proposed fee structure will
further support the Exchange’s Reg SCI
compliance by reducing the potential
impact of a disruption should the
Exchange be required to switch to its
Disaster Recovery Facility and
encouraging Members to engage in any
necessary system testing with low or no
cost imposed by the Exchange.21
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6(b) 22 of the
Act in general and furthers the
objectives of Section 6(b)(4) 23 of the
Act, in particular, in that it is designed
to provide for the equitable allocation of
reasonable dues, fees and other charges
among its Members and other persons
using its facilities. Additionally, the
Exchange believes that the proposed
fees are consistent with the objectives of
Section 6(b)(5) 24 of the Act in that they
are designed to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
a free and open market and national
market system, and, in general, to
protect investors and the public interest,
and, particularly, are not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes that the
proposed fees for connectivity services
to LTSE are reasonable, equitable and
not unfairly discriminatory because, as
described above, the proposed pricing
for connectivity services is directly
related to the relative costs to the
Exchange to provide those respective
services and does not impose a barrier
to entry to smaller participants.
The Exchange does not believe the
proposed pricing for connectivity
services imposes a barrier to entry to
21 While some Members might directly connect
to the Disaster Recovery Center and incur the
proposed $2,750 per month fee, there are other
ways to connect to the Exchange, such as through
a service bureau or extranet, and because the
Exchange is waiving fees for the first three logical
connectivity sessions, a Member connecting
through another method would not incur any fees
charged directly by the Exchange. However, the
Exchange notes that a third-party service provider
providing connectivity to the Exchange likely
would charge a fee for providing such connectivity;
such fees are not set by or shared in by the
Exchange.
22 15 U.S.C. 78f.
23 15 U.S.C. 78f(b)(4).
24 15 U.S.C. 78f(b)(5).
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smaller market participants. As detailed
above, the Exchange recognizes that
there are various business models and
varying sizes of market participants
conducting business on the Exchange.
The Exchange’s costs for its connectivity
services are directly proportional to the
impact that Members and Non-Members
with higher message traffic and/or
Members and Non-Members with more
complicated connections established
with the Exchange, as such Members
and Non-Members: (1) consume the
most bandwidth and resources of the
network; (2) transact the vast majority of
the volume on the Exchange; and (3)
require the high-touch network support
services provided by the Exchange and
its staff, including network monitoring,
reporting and support services, resulting
in a much higher cost to the Exchange
to provide such connectivity services.
Accordingly, the Exchange believes the
allocation of the proposed fees that
increase based on the number of
physical connections or application
sessions is reasonable based on the
resources consumed by the respective
type of market participant (i.e., lowest
resource consuming Members and NonMembers will pay the least, and highest
resource consuming Members and NonMembers will pay the most),
particularly since higher resource
consumption translates directly to
higher costs to the Exchange.
With regard to reasonableness, the
Exchange understands that when
appropriate given the context of a
proposal the Commission has taken a
market-based approach to examine
whether the SRO making the proposal
was subject to significant competitive
forces in setting the terms of the
proposal. In looking at this question, the
Commission considers whether the SRO
has demonstrated in its filing that: (i)
there are reasonable substitutes for the
product or service; (ii) ‘‘platform’’
competition constrains the ability to set
the fee; and/or (iii) revenue and cost
analysis shows the fee would not result
in the SRO taking supra-competitive
profits. If the SRO demonstrates that the
fee is subject to significant competitive
forces, the Commission will next
consider whether there is any
substantial countervailing basis to
suggest the fee’s terms fail to meet one
or more standards under the Exchange
Act. If the filing fails to demonstrate that
the fee is constrained by competitive
forces, the SRO must provide a
substantial basis, other than
competition, to show that it is
consistent with the Exchange Act,
which may include production of
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relevant revenue and cost data
pertaining to the product or service.
LTSE believes the proposed fees for
connectivity services are fair and
reasonable as a form of cost recovery for
the Exchange’s aggregate costs of
offering connectivity services to
Members and non-Members. The
proposed fees are expected to generate
monthly revenue of approximately
$192,000 25 providing partial cost
recovery to the Exchange for the
aggregate costs of offering connectivity
services, based on a methodology that
narrowly limits the cost drivers that are
allocated to those closely and directly
related to the particular service. In
addition, this revenue will allow the
Exchange to continue to offer, to
enhance, and to continually refresh its
infrastructure as necessary to offer a
state-of- the-art trading platform. The
Exchange also believes the proposed fee
is a reasonable means of encouraging
firms to be efficient in the connectivity
services they reserve for use, with the
benefits to overall system efficiency to
the extent Members and non-Members
consolidate their usage of connectivity
services or discontinue subscriptions to
unused physical connectivity.
The Exchange further believes that the
proposed fees, as they pertain to
purchasers of each type of connectivity
alternative, constitute an equitable
allocation of reasonable fees charged to
the Exchange’s Members and nonMembers and are allocated fairly
amongst the types of market participants
using the facilities of the Exchange.
As described above, the Exchange
believes the proposed fees are equitably
allocated because the Exchange’s
incremental aggregate costs for all
connectivity services are
disproportionately related to Members
with higher message traffic and/or
Members with more complicated
connections established with the
Exchange, as such Members: (1)
consume the most bandwidth and
resources of the network; (2) transact the
vast majority of the volume on the
Exchange; and (3) require the hightouch network support services
provided by the Exchange and its staff,
including network monitoring, reporting
and support services, resulting in a
much higher cost to the Exchange to
provide such connectivity services.
Commission staff previously noted
that the generation of supra-competitive
profits is one of several potential factors
in considering whether an exchange’s
proposed fees are consistent with the
25 As stated above, the Exchange launched its
new trading platform on September 23, 2024. This
expected revenue is based on a model for Q4 2024.
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Act.26 As described in the Fee
Guidance, the term ‘‘supra- competitive
profits’’ refers to profits that exceed the
profits that can be obtained in a
competitive market. The proposed fee
structure would not result in excessive
pricing or supra-competitive profits for
the Exchange. As stated above, the
proposed fee structure is merely
designed to permit the Exchange to
cover some of the costs allocated to
providing connectivity services. Thus,
the Exchange believes that its proposed
pricing for Connectivity Fees is fair,
reasonable, and equitable. Accordingly,
the Exchange believes that its proposal
is consistent with Section 6(b)(4) of the
Act because the proposed fees will
permit recovery of the Exchange’s costs
and will not result in excessive pricing
or supra-competitive profit.
The proposed fees for connectivity
services will allow the Exchange to
cover a portion of costs incurred by the
Exchange for offering connectivity to
Members and Non-Members. As
detailed above, the Exchange has
numerous internal and third-party
expenses associated with providing
connectivity. Including maintaining
necessary hardware and other network
infrastructure as well as network
monitoring and support services;
without such hardware, infrastructure,
monitoring and support the Exchange
would be unable to offer the
connectivity services. Further, the
Exchange routinely works with its
MEMX Technologies to improve the
performance of the network’s hardware
and software. The costs associated with
maintaining and enhancing a state-ofthe-art exchange network is a significant
portion of the overall expense of the
technology provider’s services, and thus
the Exchange believes that it is
reasonable and appropriate to help
offset those costs by adopting fees for
connectivity services. The Exchange’s
Cost Analysis estimates the monthly
costs to provide connectivity services at
$485,000. Based on current connectivity
services usage, the Exchange would
generate monthly revenues for the rest
of 2024 of approximately $192,000,
which will result in a loss for the
Exchange. Even if the Exchange earns
that amount or incrementally more, the
Exchange believes the proposed fees for
connectivity services are fair and
reasonable because they will not result
in excessive pricing or supracompetitive profit, when comparing the
total expense of LTSE associated with
providing connectivity services versus
the total projected revenue of the
26
PO 00000
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101063
Exchange associated with network
connectivity services.
The Exchange notes that other
exchanges offer similar connectivity
options to market participants and that
the Exchange’s proposed connectivity
fees are lower.27 The Exchange further
notes that several of these exchanges
charge for all logical connectivity
sessions, and do not offer the three free
sessions per month the Exchange is
proposing to offer.28
In conclusion, the Exchange submits
that its proposed fee structure satisfies
the requirements of Sections 6(b)(4) and
6(b)(5) of the Act 29 for the reasons
discussed above in that it provides for
the equitable allocation of reasonable
dues, fees and other charges among its
Members and other persons using its
facilities, does not permit unfair
discrimination between customers,
issuers, brokers, or dealers, and is
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and in
general to protect investors and the
public interest, particularly as the
proposal neither targets nor will it have
a disparate impact on any particular
category of market participant.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,30 the Exchange does not believe
that the proposed rule change would
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
Intramarket Competition
The Exchange does not believe that
the proposed rule change to establish
connectivity fees would place certain
market participants at the Exchange at a
relative disadvantage compared to other
market participants because the
proposed connectivity pricing is
associated with relative usage of the
Exchange by each market participant
and does not impose a barrier to entry
to smaller participants. The Exchange
believes its proposed pricing is
reasonable and lower than what other
exchanges charge and, when coupled
with the availability of third-party
providers that also offer connectivity
solutions, that participation on the
Exchange is affordable for all market
participants, including smaller trading
27 See, e.g., the MEMX Connectivity fee schedule,
available at: https://info.memxtrading.com/
connectivity-fees/.
28 See id.
29 15 U.S.C. 78f(b)(4) and (5).
30 15 U.S.C. 78f(b)(8).
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firms. As described above, the
connectivity services purchased by
market participants typically increase
based on their additional message traffic
and/or the complexity of their
operations. The market participants that
utilize more connectivity services
typically utilize the most bandwidth,
and those are the participants that
consume the most resources from the
network. Accordingly, the proposed fees
for connectivity services do not favor
certain categories of market participants
in a manner that would impose a
burden on competition; rather, the
allocation of the proposed fees for
connectivity reflects the network
resources consumed by the various size
of market participants and the costs to
the Exchange of providing such
connectivity services.
Intermarket Competition
The Exchange does not believe the
proposed fees for connectivity to LTSE
places an undue burden on competition
on other SROs that is not necessary or
appropriate. Additionally, another
exchange has similar connectivity
alternatives for their participants, but
with higher rates to connect.31 The
Exchange is also unaware of any
assertion that the proposed fees for
connectivity services would somehow
unduly impair its competition with
other exchanges. In sum, LTSE’s
proposed fees for connectivity for
Members and Non-Members are
comparable to and generally lower than
fees charged by another exchange for the
same or similar services.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
This proposed rule change establishes
dues, fees or other charges among its
members and, as such, may take effect
upon filing with the Commission
pursuant to Section 19(b)(3)(A)(ii) of the
Act 32 and paragraph (f)(2) of Rule 19b–
4 thereunder.33 Accordingly, the
proposed rule change would take effect
upon filing with the Commission.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
See supra notes 28–29 [sic].
15 U.S.C. 78s(b)(3)(A)(ii).
33 17 CFR 240.19b–4(f)(2).
31
32
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temporarily suspend the rule change if
it appears to the Commission that the
action is necessary or appropriate in the
public interest, for the protection of
investors, or would otherwise further
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.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
LTSE–2024–09 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–LTSE–2024–09. 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 (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 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
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subject to copyright protection. All
submissions should refer to file number
SR–LTSE–2024–09 and should be
submitted on or before January 3, 2025.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–29336 Filed 12–12–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101844; File No. SR–NYSE–
2024–47]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Amendment No. 1 and Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change, as Modified by
Amendment No. 1, To Amend Section
102.01 of the NYSE Listed Company
Manual To Provide That the
Stockholder Requirements Set Forth
Therein Will Be Calculated on a
Worldwide Basis When Listing a
Company From Outside North America
That Is Listing in Connection With Its
Initial Public Offering and Is Not Listed
on Any Other Regulated Stock
Exchange
December 9, 2024.
On August 22, 2024, New York Stock
Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Exchange
Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to amend Section
102.01 of the NYSE Listed Company
Manual (‘‘Manual’’) to provide that the
distribution standard therein would be
calculated on a worldwide basis. The
proposed rule change was published for
comment in the Federal Register on
September 10, 2024.3 The Commission
has received no comment letters on the
proposed rule change.
On October 22, 2024, pursuant to
Section 19(b)(2) of the Exchange Act,4
the Commission designated a longer
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 100918
(September 4, 2024), 89 FR 73463 (September 10,
2024) (SR–NYSE–2024–47) (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
34
1 15
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]]>Agencies
[Federal Register Volume 89, Number 240 (Friday, December 13, 2024)]
[Notices]
[Pages 101057-101064]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29336]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101851; File No. SR-LTSE-2024-09]
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the Fee Schedule To Adopt Certain Connectivity Fees
December 9, 2024
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 November 27, 2024, Long-Term Stock Exchange, Inc. (``LTSE'' 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 self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
[[Page 101058]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Securities and Exchange Commission
(``Commission'') a proposed rule change to amend the LTSE Fee Schedule
(the ``Fee Schedule'') to adopt certain connectivity fees effective
October 1, 2024. The text of the proposed rule change is available at
the Exchange's website at https://longtermstockexchange.com/, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement on 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 self-regulatory organization 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 is proposing to establish a new section (C.
Connectivity Fees) in the Long-Term Stock Exchange Fee Schedule. Prior
to the launch of the new trading system on September 23, 2024, the
Exchange offered connectivity (both physical and logical) at no cost to
all market participants. With the launch of the new trading system and
the significant costs detailed below, the Exchange determined it was
reasonable and appropriate to begin to charge market participants for
their connectivity to the Exchange. The Exchange notes that the
transition between trading systems required all market participants to
set up new connectivity to the new trading system, and after the
successful launch the Exchange decommissioned all the historical
connections within the old trading system. The Exchange also notes that
market participants were not charged simultaneously for both their old
connections and new connections during the transition as the Exchange
never charged for connectivity to the old trading system.
Cross-Connect Fees
The Exchange proposes to offer to both Members \3\ and non-Members
the option to utilize a 10 Gigabit (``Gb'') ultra-low latency (``ULL'')
fiber cross-connection to the Exchange's Primary and Disaster Recovery
facilities, as well as a 10Gb ULL fiber cross-connection to the Test
Environment. The Exchange proposes to establish a Cross-Connect fee of
$5,500 per 10Gb physical interface per month that will be assessed to
Members and non-Members for connecting to the Primary facility. The
Exchange proposes to establish a Cross-Connect fee of $2,750 per 10Gb
physical interface per month that will be assessed to Members and non-
Members for connecting to either the Disaster Recovery facility or the
Test Environment.
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\3\ The term ``Member'' shall mean any registered broker or
dealer that has been admitted to membership in the Exchange. See
LTSE Rule 1.160.
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Monthly network connectivity fees for Members and non-Members for
connectivity will be assessed in any month the Member or non-Member is
credentialed to use any of the LTSE Application Programming Interfaces
(``APIs'') in the Primary facility, Disaster Recovery facility or Test
Environment.\4\
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\4\ As proposed, fees for connectivity services would be
assessed based on each active connectivity service product at the
close of business on the first day of each month. If a product is
canceled prior to such fee being assessed, then the Member will not
be obligated to pay the applicable product fee.
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Port Fees
The Exchange proposes to establish a $450 fee for all Logical
Connectivity sessions. These application sessions, commonly known as
ports, are utilized to perform a particular function on the Exchange,
such as order entry or order cancellation, receipt of drop copies,
proprietary market data dissemination, or requesting data to be
backfilled (i.e., ``gap ports''). All market participants (Members and
non-Members) will be charged per session per month. The Exchange will
waive the fees for three sessions per month per market participant.
In proposing to charge fees for connectivity to LTSE, the Exchange
has sought to be especially diligent in assessing those fees in a
transparent way against its own aggregate costs of providing the
related services, and also carefully and transparently assessing the
impact on market participants--both generally and in relation to other
market participants, i.e., to assure the fee will not create a
financial burden on any participant and will not have an undue impact
in particular on smaller market participants and competition among
market participants in general. The Exchange believes that this level
of diligence and transparency is called for by the requirements of
Section 19(b)(1) under the Act,\5\ and Rule 19b-4 thereunder,\6\ with
respect to the types of information self-regulatory organizations
(``SROs'') should provide when filing fee changes, and Section 6(b) of
the Act,\7\ which requires, among other things, that exchange fees be
reasonable and equitably allocated,\8\ not designed to permit unfair
discrimination,\9\ and that they not impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Act.\10\
This rule change proposal addresses those requirements, and the
analysis and data in each of the sections that follow are designed to
clearly and comprehensively show how they are met.\11\
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\5\ 15 U.S.C. 78s(b)(1).
\6\ 17 CFR 240.19b-4.
\7\ 15 U.S.C.78f(b).
\8\ 15 U.S.C. 78f(b)(4).
\9\ 15 U.S.C. 78(f)(b)(5).
\10\ 15 U.S.C. 78f(b)(8).
\11\ In 2019, Commission staff published guidance suggesting the
types of information that SROs may use to demonstrate that their fee
filings comply with the standards of the Act (``Fee Guidance'').
While LTSE understands that the Fee Guidance does not create new
legal obligations on SROs, the Fee Guidance is consistent with
LTSE's view about the type and level of transparency that exchanges
should meet to demonstrate compliance with their existing
obligations when they seek to charge new fees. See Staff Guidance on
SRO Rule Filings Relating to Fees (May 21, 2019). Available at
https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.gov.
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Cost Analysis
The Exchange notes it operates a unique model where the LTSE
trading system and services are provided on an outsourced basis by MEMX
Technologies.\12\ As such, a large portion of the Exchange's technology
costs, including those related to connectivity, are incorporated into
the overall fees that the Exchange pays MEMX Technologies as part of
its multi-year arrangement to provide a trading system and associated
services.\13\ Because of this arrangement, the Exchange does not
possess the same level of specificity for cost drivers related to
connectivity as
[[Page 101059]]
other exchanges have detailed within their own similar filings.
However, the Exchange recognizes that the fees it pays MEMX
Technologies are for the services MEMX Technologies provides to the
Exchange and their costs, these services and costs include maintaining
a team of highly-skilled network engineers, fees charged to MEMX
Technologies by the third-party data center operator for the servers
and equipment LTSE utilizes, costs associated with projects and
initiatives designed to improve overall network performance and
stability, and costs associated with fully-supporting advances in
infrastructure and expansion of network level services, including
customer monitoring, alerting and reporting. There are also significant
technology expenses related to establishing and maintaining Information
Security services, enhanced network monitoring and customer reporting,
as well as Regulation SCI mandated processes, associated with the MEMX
Technologies network technology. While these cost drivers are known,
because of the unique structure laid out above the Exchange is unable
to separate out most of the specific expenses for connectivity
services, as these are intricately combined in its DSLA with MEMX
Technologies.
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\12\ The Exchange and MEMX Technologies executed a Development,
License and Services Agreement on January 23, 2024, with
accompanying Schedules (collectively, the ``DLSA''). MEMX
Technologies, an affiliate of the MEMX Exchange, is in the business
of developing technology systems for use in the financial industry.
See SR-LTSE-2024-03, supra note 3 [sic].
\13\ The DSLA with MEMX Technologies entails both fixed and
variable costs. To Exchange used both types of costs when
determining aggregated monthly costs detailed below.
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Further, while the Exchange has been operating since September
2020, it only entered the DLSA with MEMX Technologies LLC in January of
this year and launched the new trading system in September 2024.
Therefore, the Exchange's most recent publicly available financial
statement (2023 Audited Unconsolidated Financial Statement) does not
reflect LTSE's actual current costs associated with the development and
operation of connectivity on LTSE. Accordingly, the Exchange believes
it is more appropriate to justify its fees utilizing a recent monthly
billing cycle and extrapolated annualized costs on a going-forward
basis.
LTSE recently calculated its aggregate monthly costs for providing
connectivity services to the Exchange at approximately $485,000
beginning October 1, 2024.\14\ Because LTSE offered all connectivity
free of charge from its launch in September 2020 until October of this
year, LTSE has borne 100% of all connectivity costs. Now, in order to
cover some of the aggregate costs of providing connectivity to market
participants (both Members and non-Members) \15\ the Exchange is
proposing to modify its Fee Schedule and charge the fees for
connectivity detailed herein.
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\14\ The aggregate monthly costs were determined by taking the
individual cost drivers detailed below and their yearly costs and
dividing by twelve months.
\15\ Types of market participants that obtain connectivity
services from the Exchange but are not Members include service
bureaus and extranets. Service bureaus offer technology-based
services to other companies for a fee, including order entry
services to Members, and thus, may access application sessions on
behalf of one or more Members. Extranets offer physical connectivity
services to Members and non-Members.
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In order to determine the Exchange's costs for providing the
services associated with connectivity, the Exchange conducted an
extensive review in which the Exchange analyzed every expense item in
the Exchange's general expense ledger to determine whether each such
expense relates to the services associated with the connectivity, and,
if such expense did so relate, what portion (or percentage) of such
expense actually supports those services. The sum of all such portions
of expenses represents the total cost of the Exchange to provide the
services associated with connectivity. For the avoidance of doubt, no
expense amount was allocated twice. The Exchange is also providing
detailed information regarding the Exchange's cost allocation
methodology--namely, information that explains the Exchange's rationale
for determining that it was reasonable to allocate certain expenses
described in this filing towards the total cost to the Exchange to
provide connectivity.
The Exchange believes that the Connectivity Fees are fair and
reasonable because they will only cover a portion of the total annual
expense that the Exchange projects to incur with providing the services
associated with the proposed Connectivity Fees versus the total annual
revenue of the Exchange projects to collect in connection with
providing those services. Based on current connectivity services usage,
the Exchange would generate monthly revenues for the rest of 2024 of
approximately $192,000, which will result in a loss for the Exchange.
Costs Related to Offering Connectivity
The following chart details the individual line-item costs
considered by LTSE to be related to offering connectivity as well as
the percentage of the Exchange's overall costs per year such costs
represent for such area (e.g., as set forth below, the Exchange
allocated approximately 10% of its overall Human Resources cost to
offering connectivity for a total of $538,400 per year of costs related
to providing connectivity).
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Allocated monthly Allocated yearly
Cost drivers costs costs % of all
----------------------------------------------------------------------------------------------------------------
Third-Party Expenses................................... $427,279 $4,594,998 32
Human Resources........................................ 44,866 538,400 10
Data Center............................................ 13,170 158,040 30
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Total.............................................. 485,315 5,291,438 .................
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Below are additional details regarding each of the line-item costs
considered by LTSE to be related to offering connectivity.
Third-Party Expenses
As discussed above, LTSE has undertaken a unique model where it has
outsourced its trading system and related technology to a third-party
technology provider MEMX Technologies. With this arrangement LTSE
receives (1) access to technology used to complete connections to the
Exchange and to connect to external markets, (2) physical connectivity
in the data centers where MEMX Technologies maintains equipment for
LTSE use--such as dedicated space, security services, cooling and
power, (3) use of physical ports and logical ports, and (3) use of
physical assets and software, which also includes assets used for
testing and monitoring of infrastructure. Also included in this section
are the costs from a second third-party vendor which assists LTSE with
services related to member gateways.
The Exchange took the annual costs for each of these third-party
providers to determine what portion (or percentage) of these costs
related to connectivity services and thus bears a relationship that is,
``in nature and closeness,'' directly related to connectivity services.
There are four major core services
[[Page 101060]]
associated with the Exchange (member gateways, the matching engine, the
SIP and then downstream services). The services provided by these third
party vendors touches each of these major core services, therefore the
Exchange believed a conservative allocation of 32% of costs for
connectivity services was appropriate.
Human Resources
For personnel costs not related to its outsourced third-party
providers, LTSE then calculated an allocation of LTSE employee time for
employees whose functions include providing and maintaining
connectivity and performance thereof (technical operations personnel,
market operations personnel, and software engineering personnel). The
Exchange notes that network support services to Members and Non-Members
provided by the Exchange and its staff, including network monitoring,
reporting and support services, are all handled directly by LTSE and
not MEMX Technologies.
The Exchange also allocated Human Resources costs to provide
connectivity to a limited subset of personnel with ancillary functions
related to establishing and maintaining such connectivity (such as
information security and finance personnel), for which the Exchange
allocated cost on an employee-by-employee basis (i.e., only including
those personnel who do support functions related to providing
connectivity) and then applied a smaller allocation to such employees.
The Exchange notes that it has fewer than fifty (50) employees and each
department leader has direct knowledge of the time spent by each
employee with respect to the various tasks necessary to operate the
Exchange. The estimates of Human Resources cost were therefore
determined by consulting with such department leaders, determining
which employees are involved in tasks related to providing
connectivity, and confirming that the proposed allocations were
reasonable based on an understanding of the percentage of their time
such employees devote to tasks related to providing connectivity. The
Exchange notes that senior level executives were only allocated Human
Resources costs to the extent the Exchange believed they are involved
in overseeing tasks related to providing connectivity. The Human
Resources cost was calculated using a blended rate of compensation
reflecting salary, equity and bonus compensation, benefits, payroll
taxes, and 401(k) matching contributions.
Data Center
In addition to the data center costs incurred by MEMX Technologies
which are allocated in the Third-Party Expenses above, the Exchange
also maintains its own footprint in a third-party data center.\16\ Data
Center costs include an allocation of the costs the Exchange incurs to
monitor its trading platform (both the Primary facility and Disaster
Recovery facility) as well as the costs to maintain its equipment in
the data center. The Exchange does not own the data center facilities,
but instead, leases space in a data center operated by a third party).
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\16\ LTSE has a data center presence in Secaucus NY4.
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The Exchange took the annual data center costs to determine what
portion (or percentage) of these costs related to connectivity services
and thus bears a relationship that is, ``in nature and closeness,''
directly related to connectivity services. As stated above, there are
four major core services associated with the Exchange (member gateways,
the matching engine, the SIP and then downstream services). The
services related to these costs include network packet capture for
performance monitoring, security information and event management,
network connectivity and security monitoring. The Exchange therefore
believes a conservative allocation of 30% of costs for connectivity
services was appropriate.
Physical Connectivity Fees
With the launch of the new trading platform, LTSE required Members
and Non-Members to establish all new connections (both physical and
logical) to the Exchange in order to transmit orders to and receive
information through the new trading platform. Members and Non-Members
can also choose to connect to LTSE indirectly through physical
connectivity maintained by a third-party extranet. Extranet physical
connections may provide access to one or multiple Members and Non-
Members on a single connection. Users of LTSE physical connectivity
services (both Members and non-Members) seeking to establish one or
more connections with the Exchange submit a request directly to
Exchange personnel. Upon receipt of the completed instructions, LTSE
establishes the physical connections requested by the market
participant. The number of physical connections assigned to each firm
as of September 30, 2024, ranges from one to three, depending on the
scope and scale of the firm's trading activity on the Exchange as
determined by the firm, including the firm's determination of the need
for redundant connectivity. The Exchange notes that 58% of its Members
do not maintain a physical connection directly with the Exchange in the
Primary Data Center (though many such Members have connectivity through
a third-party provider) and another 42% have either one or two physical
connections to the Exchange in the Primary Data Center.
As described above, to cover a portion the aggregate costs of
providing physical connectivity to Members and Non-Members, as
described below, the Exchange is proposing to charge a fee of $5,500
per month for each physical connection in the Primary facility and a
fee of $2,750 per month for each physical connection in the Disaster
Recovery and Test Environment facilities. There is no requirement that
any Member or Non-Member maintain a specific number of physical
connections and a Member or Non-Member may choose to maintain as many
or as few of such connections as each Member or Non-Member deems
appropriate. The Exchange notes, however, that pursuant to Rule 2.250
(Mandatory Participation in Testing of Backup Systems), the Exchange
does require a small number of Members to connect and participate in
functional and performance testing as announced by the Exchange, which
occurs at least once every 12 months. Specifically, Members that have
been determined by the Exchange to contribute a meaningful percentage
of the Exchange's overall volume must participate in mandatory testing
of the Exchange's backup systems (i.e., such Members must connect to
the Disaster Recovery facility). The Exchange notes that Members that
have been designated are still able to use third-party providers of
connectivity to access the Exchange at its Disaster Recovery facility,
in that these Members do not need one full 10Gb connection, and that
four of the designated Members use a third-party provider instead of
connecting directly to the Disaster Recovery facility through
connectivity provided by the Exchange. Nonetheless, because some
Members are required to connect to the Disaster Recovery facility
pursuant to Rule 2.250 and to encourage Members and Non-Members to
connect to the Disaster Recovery facility generally, the Exchange has
proposed to charge one-half of the fee for a physical connection in the
Primary facility. The Exchange believes that charging a higher fee for
physical connections at the Disaster Recovery facility would be
inconsistent with its objective of encouraging Members to connect at
such a facility.
[[Page 101061]]
Further, other exchanges also provide discounted connectivity fees for
connections to their respective disaster recovery facilities.\17\
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\17\ See, e.g., the CBOE BZX equities fee schedule, available
at: https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
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The Exchange notes that while Members are required to connect to
the Test Environment in some way for initial protocol certification,
they do not have to connect directly and can use an extranet provider
to connect or access the LTSE Test Environment directly.
The proposed fee will not apply differently based upon the size or
type of the market participant, but rather based upon the number of
physical connections a Member of Non-Member requests, based upon
factors deemed relevant by each firm (either a Member, service bureau
or extranet). The Exchange believes these factors include the costs to
maintain connectivity, business model and choices Members and Non-
Members make in how to participate on the Exchange, as further
described below. The proposed connectivity fees are designed to permit
the Exchange to cover a portion of costs allocated to providing
connectivity services. The Exchange also reiterates that the Exchange
did not charge any fees for connectivity services prior to October
2024, and its allocation of costs to physical connections was part of a
holistic allocation that also allocated costs to other core services
without double-counting any expenses. As noted above, the Exchange
proposes a discounted rate of $2,750 per month for physical connections
at its Disaster Recovery facility and Test Environment. The Exchange
has proposed this discounted rate for Disaster Recovery and Test
Environment connectivity in order to encourage Members and Non-Members
to establish and maintain such connections. Also, as noted above, a
small number of Members are required pursuant to Rule 2.4 to connect
and participate in testing of the Exchange's backup systems, and the
Exchange believes it is appropriate to provide a discounted rate for
physical connections at the Disaster Recovery facility given this
requirement. The Exchange notes that this rate is well below the cost
of providing such services and the Exchange will offer connectivity to
the Disaster Recovery facility and Test Environment without recouping
the full amount of such cost through connectivity services.
Logical Connectivity Fees
Similar to other exchanges, LTSE offers its Members application
sessions, also known as logical ports, for order entry and receipt of
trade execution reports and order messages. Members can also choose to
connect to LTSE indirectly through a session maintained by a third-
party service bureau. Service bureau sessions may provide access to one
or multiple Members on a single session. Users of LTSE connectivity
services (both Members and non-Members) seeking to establish one or
more application sessions with the Exchange shall submit a request to
the Exchange. Upon receipt of the completed instructions, LTSE assigns
the Member or Non-Member the number of sessions requested. The number
of sessions assigned to each Member as of September 30, 2024, ranges
from one (1) to more than 58 depending on the scope and scale of the
Member's trading activity on the Exchange (either through a direct
connection or through a service bureau) as determined by the Member.
For example, by using multiple sessions, Members can segregate order
flow from different internal desks, business lines, or customers. The
Exchange does not impose any minimum or maximum requirements for how
many application sessions a Member or service bureau can maintain, and
it is not proposing to impose any minimum or maximum session
requirements for its Members or their service bureaus.
As described above, to cover the aggregate costs of providing
application sessions to Members and Non-Members, as described below,
the Exchange is proposing to charge a fee of $450 per session per
month. The Exchange notes that it is proposing to waive the fees for
Members and Non-Members their first three sessions, so that market
participants can have no cost to initiate order entry in all three
environments (Production, Disaster Recovery and Test Environments).
Further, the Exchange believes that providing three free sessions will
encourage Members to connect to the Exchange's backup trading systems
and to conduct appropriate testing of their use of the Exchange.
The proposed fee of $450 per month for each Logical Connectivity
session is designed to permit the Exchange to cover some of the costs
allocated to providing application sessions.
The proposed fee is also designed to encourage Members and Non-
Members to be efficient with their application session usage, thereby
resulting in a corresponding increase in the efficiency that the
Exchange would be able to realize in managing its aggregate costs for
providing connectivity services. There is no requirement that any
Member maintain a specific number of application sessions and a Member
may choose to maintain as many or as few of such ports as each Member
deems appropriate. The platform has been designed such that each
logical connectivity session can handle a significant amount of message
traffic (i.e., over 50,000 orders per second), and has no application
flow control or order throttling.
The proposed fee will not apply differently based upon the size or
type of the market participant, but rather based upon the number of
application sessions a Member of Non-Member requests, based upon
factors deemed relevant by each firm (either a Member or service bureau
on behalf of a Member). The Exchange believes these factors include the
costs to maintain connectivity and choices Members make in how to
segment or allocate their order flow.\18\
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\18\ The Exchange understands that some Members (or service
bureaus) may also request more sessions to enable the ability to
send a greater number of simultaneous order messages to the Exchange
by spreading orders over more Order Entry Ports, thereby increasing
throughput (i.e., the potential for more orders to be processed in
the same amount of time). The degree to which this usage of sessions
provides any throughput advantage is based on how a particular
Member sends order messages to LTSE, however the Exchange notes that
the architecture reduces the impact or necessity of such a strategy.
All sessions on LTSE provide the same throughput, and as noted
above, the throughput is likely adequate even for a Member sending a
significant amount of volume at a fast pace, and is not artificially
throttled or limited in any way by the Exchange.
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Proposed Fees--Additional Discussion
As discussed above, the proposed fees for connectivity services do
not by design apply differently to different types or sizes of Members
or Non-Members. As discussed in more detail in the Statutory Basis
section, the Exchange believes that the likelihood of higher fees for
certain Members or Non-Members subscribing to connectivity services
usage than others is not unfairly discriminatory because it is based on
objective differences in usage of connectivity services among different
Members and Non-Members. The Exchange's costs for connectivity services
are directly proportional to the impact Members and Non-Members with
higher message traffic and/or Members and Non-Members with more
complicated connections established with the Exchange, as such Members
and Non-Members: (1) consume the most bandwidth and resources of the
network; (2) transact the vast majority of the volume on the Exchange;
and (3) require the high-touch network support services provided by the
Exchange and
[[Page 101062]]
its technology service provider, including network monitoring,
reporting and support services, resulting in a much higher cost to the
Exchange to provide such connectivity services. For these reasons, LTSE
believes it is not unfairly discriminatory for the Members and Non-
Members with higher message traffic and/or Members and Non-Members with
more complicated connections to pay a higher share of the total
connectivity services fees. While Members and Non-Members with a
business model that results in higher relative inbound message activity
or more complicated connections are projected to pay higher fees, the
level of such fees is based solely on the number of physical
connections and/or application sessions deemed necessary by the Member
and Non-Members and not on the business model or type of firm. The
Exchange notes that the correlation between message traffic and usage
of connectivity services is not completely aligned because Members and
Non-Members individually determine how many physical connections and
application sessions to request, and Members and Non-Members may make
different decisions on the appropriate ways based on facts unique to
their individual businesses. The Exchange believes that a Member even
with high message traffic would be able to conduct business on the
Exchange with a relatively small connectivity services footprint.
Finally, the fees for connectivity services will help to encourage
connectivity services usage in a way that aligns with the Exchange's
regulatory obligations. As a national securities exchange, the Exchange
is subject to Regulation Systems Compliance and Integrity (``Reg
SCI'').\19\ Reg SCI Rule 1001(a) requires that the Exchange establish,
maintain, and enforce written policies and procedures reasonably
designed to ensure (among other things) that its Reg SCI systems have
levels of capacity adequate to maintain the Exchange's operational
capability and promote the maintenance of fair and orderly markets.\20\
By encouraging Users to be efficient with their usage of connectivity
services, the proposed fee will support the Exchange's Reg SCI
obligations in this regard by ensuring that unused application sessions
are available to be allocated based on individual Member or Non-Member
needs and as the Exchange's overall order and trade volumes increase.
Additionally, because the Exchange will charge a lower rate for a
physical connection to the Disaster Recovery and Test Environment
facilities and will waive the first three logical connectivity sessions
each month, the proposed fee structure will further support the
Exchange's Reg SCI compliance by reducing the potential impact of a
disruption should the Exchange be required to switch to its Disaster
Recovery Facility and encouraging Members to engage in any necessary
system testing with low or no cost imposed by the Exchange.\21\
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\19\ 17 CFR 242.1000-1007.
\20\ 17 CFR 242.1001(a).
\21\ While some Members might directly connect to the Disaster
Recovery Center and incur the proposed $2,750 per month fee, there
are other ways to connect to the Exchange, such as through a service
bureau or extranet, and because the Exchange is waiving fees for the
first three logical connectivity sessions, a Member connecting
through another method would not incur any fees charged directly by
the Exchange. However, the Exchange notes that a third-party service
provider providing connectivity to the Exchange likely would charge
a fee for providing such connectivity; such fees are not set by or
shared in by the Exchange.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) \22\ of the Act in general and
furthers the objectives of Section 6(b)(4) \23\ of the Act, in
particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees and other charges among its Members
and other persons using its facilities. Additionally, the Exchange
believes that the proposed fees are consistent with the objectives of
Section 6(b)(5) \24\ of the Act in that they are designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to a free and open market and
national market system, and, in general, to protect investors and the
public interest, and, particularly, are not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
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\22\ 15 U.S.C. 78f.
\23\ 15 U.S.C. 78f(b)(4).
\24\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed fees for connectivity
services to LTSE are reasonable, equitable and not unfairly
discriminatory because, as described above, the proposed pricing for
connectivity services is directly related to the relative costs to the
Exchange to provide those respective services and does not impose a
barrier to entry to smaller participants.
The Exchange does not believe the proposed pricing for connectivity
services imposes a barrier to entry to smaller market participants. As
detailed above, the Exchange recognizes that there are various business
models and varying sizes of market participants conducting business on
the Exchange. The Exchange's costs for its connectivity services are
directly proportional to the impact that Members and Non-Members with
higher message traffic and/or Members and Non-Members with more
complicated connections established with the Exchange, as such Members
and Non-Members: (1) consume the most bandwidth and resources of the
network; (2) transact the vast majority of the volume on the Exchange;
and (3) require the high-touch network support services provided by the
Exchange and its staff, including network monitoring, reporting and
support services, resulting in a much higher cost to the Exchange to
provide such connectivity services. Accordingly, the Exchange believes
the allocation of the proposed fees that increase based on the number
of physical connections or application sessions is reasonable based on
the resources consumed by the respective type of market participant
(i.e., lowest resource consuming Members and Non-Members will pay the
least, and highest resource consuming Members and Non-Members will pay
the most), particularly since higher resource consumption translates
directly to higher costs to the Exchange.
With regard to reasonableness, the Exchange understands that when
appropriate given the context of a proposal the Commission has taken a
market-based approach to examine whether the SRO making the proposal
was subject to significant competitive forces in setting the terms of
the proposal. In looking at this question, the Commission considers
whether the SRO has demonstrated in its filing that: (i) there are
reasonable substitutes for the product or service; (ii) ``platform''
competition constrains the ability to set the fee; and/or (iii) revenue
and cost analysis shows the fee would not result in the SRO taking
supra-competitive profits. If the SRO demonstrates that the fee is
subject to significant competitive forces, the Commission will next
consider whether there is any substantial countervailing basis to
suggest the fee's terms fail to meet one or more standards under the
Exchange Act. If the filing fails to demonstrate that the fee is
constrained by competitive forces, the SRO must provide a substantial
basis, other than competition, to show that it is consistent with the
Exchange Act, which may include production of
[[Page 101063]]
relevant revenue and cost data pertaining to the product or service.
LTSE believes the proposed fees for connectivity services are fair
and reasonable as a form of cost recovery for the Exchange's aggregate
costs of offering connectivity services to Members and non-Members. The
proposed fees are expected to generate monthly revenue of approximately
$192,000 \25\ providing partial cost recovery to the Exchange for the
aggregate costs of offering connectivity services, based on a
methodology that narrowly limits the cost drivers that are allocated to
those closely and directly related to the particular service. In
addition, this revenue will allow the Exchange to continue to offer, to
enhance, and to continually refresh its infrastructure as necessary to
offer a state-of- the-art trading platform. The Exchange also believes
the proposed fee is a reasonable means of encouraging firms to be
efficient in the connectivity services they reserve for use, with the
benefits to overall system efficiency to the extent Members and non-
Members consolidate their usage of connectivity services or discontinue
subscriptions to unused physical connectivity.
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\25\ As stated above, the Exchange launched its new trading
platform on September 23, 2024. This expected revenue is based on a
model for Q4 2024.
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The Exchange further believes that the proposed fees, as they
pertain to purchasers of each type of connectivity alternative,
constitute an equitable allocation of reasonable fees charged to the
Exchange's Members and non-Members and are allocated fairly amongst the
types of market participants using the facilities of the Exchange.
As described above, the Exchange believes the proposed fees are
equitably allocated because the Exchange's incremental aggregate costs
for all connectivity services are disproportionately related to Members
with higher message traffic and/or Members with more complicated
connections established with the Exchange, as such Members: (1) consume
the most bandwidth and resources of the network; (2) transact the vast
majority of the volume on the Exchange; and (3) require the high-touch
network support services provided by the Exchange and its staff,
including network monitoring, reporting and support services, resulting
in a much higher cost to the Exchange to provide such connectivity
services.
Commission staff previously noted that the generation of supra-
competitive profits is one of several potential factors in considering
whether an exchange's proposed fees are consistent with the Act.\26\ As
described in the Fee Guidance, the term ``supra- competitive profits''
refers to profits that exceed the profits that can be obtained in a
competitive market. The proposed fee structure would not result in
excessive pricing or supra-competitive profits for the Exchange. As
stated above, the proposed fee structure is merely designed to permit
the Exchange to cover some of the costs allocated to providing
connectivity services. Thus, the Exchange believes that its proposed
pricing for Connectivity Fees is fair, reasonable, and equitable.
Accordingly, the Exchange believes that its proposal is consistent with
Section 6(b)(4) of the Act because the proposed fees will permit
recovery of the Exchange's costs and will not result in excessive
pricing or supra-competitive profit.
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\26\ See Fee Guidance, supra note 13 [sic].
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The proposed fees for connectivity services will allow the Exchange
to cover a portion of costs incurred by the Exchange for offering
connectivity to Members and Non-Members. As detailed above, the
Exchange has numerous internal and third-party expenses associated with
providing connectivity. Including maintaining necessary hardware and
other network infrastructure as well as network monitoring and support
services; without such hardware, infrastructure, monitoring and support
the Exchange would be unable to offer the connectivity services.
Further, the Exchange routinely works with its MEMX Technologies to
improve the performance of the network's hardware and software. The
costs associated with maintaining and enhancing a state-of-the-art
exchange network is a significant portion of the overall expense of the
technology provider's services, and thus the Exchange believes that it
is reasonable and appropriate to help offset those costs by adopting
fees for connectivity services. The Exchange's Cost Analysis estimates
the monthly costs to provide connectivity services at $485,000. Based
on current connectivity services usage, the Exchange would generate
monthly revenues for the rest of 2024 of approximately $192,000, which
will result in a loss for the Exchange. Even if the Exchange earns that
amount or incrementally more, the Exchange believes the proposed fees
for connectivity services are fair and reasonable because they will not
result in excessive pricing or supra-competitive profit, when comparing
the total expense of LTSE associated with providing connectivity
services versus the total projected revenue of the Exchange associated
with network connectivity services.
The Exchange notes that other exchanges offer similar connectivity
options to market participants and that the Exchange's proposed
connectivity fees are lower.\27\ The Exchange further notes that
several of these exchanges charge for all logical connectivity
sessions, and do not offer the three free sessions per month the
Exchange is proposing to offer.\28\
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\27\ See, e.g., the MEMX Connectivity fee schedule, available
at: https://info.memxtrading.com/connectivity-fees/.
\28\ See id.
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In conclusion, the Exchange submits that its proposed fee structure
satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of the Act
\29\ for the reasons discussed above in that it provides for the
equitable allocation of reasonable dues, fees and other charges among
its Members and other persons using its facilities, does not permit
unfair discrimination between customers, issuers, brokers, or dealers,
and is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system and in general to protect investors
and the public interest, particularly as the proposal neither targets
nor will it have a disparate impact on any particular category of
market participant.
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\29\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\30\ the Exchange
does not believe that the proposed rule change would impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act.
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\30\ 15 U.S.C. 78f(b)(8).
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Intramarket Competition
The Exchange does not believe that the proposed rule change to
establish connectivity fees would place certain market participants at
the Exchange at a relative disadvantage compared to other market
participants because the proposed connectivity pricing is associated
with relative usage of the Exchange by each market participant and does
not impose a barrier to entry to smaller participants. The Exchange
believes its proposed pricing is reasonable and lower than what other
exchanges charge and, when coupled with the availability of third-party
providers that also offer connectivity solutions, that participation on
the Exchange is affordable for all market participants, including
smaller trading
[[Page 101064]]
firms. As described above, the connectivity services purchased by
market participants typically increase based on their additional
message traffic and/or the complexity of their operations. The market
participants that utilize more connectivity services typically utilize
the most bandwidth, and those are the participants that consume the
most resources from the network. Accordingly, the proposed fees for
connectivity services do not favor certain categories of market
participants in a manner that would impose a burden on competition;
rather, the allocation of the proposed fees for connectivity reflects
the network resources consumed by the various size of market
participants and the costs to the Exchange of providing such
connectivity services.
Intermarket Competition
The Exchange does not believe the proposed fees for connectivity to
LTSE places an undue burden on competition on other SROs that is not
necessary or appropriate. Additionally, another exchange has similar
connectivity alternatives for their participants, but with higher rates
to connect.\31\ The Exchange is also unaware of any assertion that the
proposed fees for connectivity services would somehow unduly impair its
competition with other exchanges. In sum, LTSE's proposed fees for
connectivity for Members and Non-Members are comparable to and
generally lower than fees charged by another exchange for the same or
similar services.
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\31\ See supra notes 28-29 [sic].
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
This proposed rule change establishes dues, fees or other charges
among its members and, as such, may take effect upon filing with the
Commission pursuant to Section 19(b)(3)(A)(ii) of the Act \32\ and
paragraph (f)(2) of Rule 19b-4 thereunder.\33\ Accordingly, the
proposed rule change would take effect upon filing with the Commission.
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\32\ 15 U.S.C. 78s(b)(3)(A)(ii).
\33\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend the rule
change if it appears to the Commission that the action is necessary or
appropriate in the public interest, for the protection of investors, or
would otherwise further 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.
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-LTSE-2024-09 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-LTSE-2024-09. 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 (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 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or
withhold entirely from publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to file number SR-LTSE-2024-09 and should be submitted on or
before January 3, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29336 Filed 12-12-24; 8:45 am]
BILLING CODE 8011-01-P
