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, 22345-22353 [2025-09389]
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Federal Register / Vol. 90, No. 100 / Tuesday, May 27, 2025 / Notices
above, the proposed fees are associated
with usage of Exchange Data Feeds by
each market participant based on the
type of business they operate, and the
decision to subscribe to one or more
Exchange Data Feeds is based on
objective differences in usage of
Exchange Data Feeds among different
firms, which are still ultimately in the
control of any particular firm, and such
fees do not impose a barrier to entry to
smaller participants. Accordingly, the
proposed fees for Exchange Data Feeds
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
reflects the types of Exchange Data
Feeds consumed by various market
participants and their usage thereof.
Intermarket Competition
The Exchange does not believe the
proposed fees place an undue burden on
competition on other SROs that is not
necessary or appropriate. In particular,
market participants are not forced to
subscribe to any of the Exchange Data
Feeds, as described above. Additionally,
another exchange has similar market
data fees in place for their participants,
but with comparable and in many cases
higher rates for market data feeds.37 The
proposed fees are based on actual costs
and are designed to enable the Exchange
to recoup a portion of its costs related
to providing market data. Competing
equities exchanges are free to adopt
comparable fee structures subject to the
SEC rule filing process.
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.
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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 38 and paragraph (f)(2) of Rule 19b–
4 thereunder.39 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
37 See supra, footnote 28 [sic] referencing MEMX
Exchange.
38 15 U.S.C. 78s(b)(3)(A)(ii).
39 17 CFR 240.19b–4(f)(2).
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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–2025–08 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–2025–08. 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–2025–08 and should be
submitted on or before June 17, 2025
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025–09391 Filed 5–23–25; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–103074; File No. SR–LTSE–
2025–07]
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
May 20, 2025.
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 May 12,
2025, Long-Term Stock Exchange, Inc.
(‘‘LTSE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
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 establish Section C
and adopt Connectivity Fees for CrossConnects at the Primary, Disaster
Recovery and Test Environment
facilities. The Exchange also proposes to
adopt Connectivity Fees for Logical
Connectivity (all environments),
effective May 12, 2025.
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.
40 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
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.
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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
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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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 which the Exchange believes
will encourage Members to connect to
the Exchange’s backup trading systems
and to conduct appropriate testing of
their use of the Exchange.
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
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.
5 15 U.S.C. 78s(b)(1).
6 17 CFR 240.19b–4.
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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 certain associated services
are provided on an outsourced basis by
MEMX Technologies LLC (‘‘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 multiyear 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 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 the associated costs
incurred by MEMX Technologies. These
services and costs include maintaining
a team of highly skilled network
engineers, fees charged to MEMX
7 15
U.S.C.78f(b).
U.S.C. 78f(b)(4).
9 15 U.S.C. 78f(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/about/staff-guidance-sro-rulefilings-fees.
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. The Exchange used
both types of costs when determining aggregated
monthly costs detailed below.
8 15
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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 that are borne by the
Exchange. Most of the specific expenses
for connectivity services and the
Exchange’s DSLA with MEMX
Technologies are combined, and
therefore the Exchange discusses these
expenses, and the portion allocated to
connectivity as part of the ‘‘Third-Party
Expenses’’ Cost Driver below.
Further, while the Exchange has been
operating since September 2020, it only
entered the DLSA with MEMX
Technologies in January of 2024 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, as the costs
associated with the MEMX system
began in 2024. 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 $596,840 for 2025.14
Because LTSE offered all connectivity
free of charge from its launch in
September 2020 until October of 2024,
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
avoidance of doubt, no expense amount
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
that such costs represent for such area
(e.g., as set forth below, the Exchange
allocated approximately 15% of its
overall Human Resources cost to
offering connectivity for a total of
$490,213 per year of costs related to
providing connectivity).
Allocated yearly
costs
% of all
Third-Party Expenses ................................................................................................
Human Resources .....................................................................................................
Data Center ...............................................................................................................
$539,276
40,851
15,713
$6,471,312
490,213
188,552
60
8
31
Total ....................................................................................................................
595,840
7,150,076
..............................
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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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
connectivity versus the total annual
revenue the Exchange projects to collect
in connection with providing those
services. Based on connectivity services
usage as of May 1st, 2025, as well as
projected use through the remainder of
the year, the Exchange would generate
monthly revenues for 2025 of
approximately $475,000, which will
result in a loss for the Exchange.
Allocated monthly
costs
Cost drivers
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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, among other things, (1)
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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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 (4) use of
physical assets and software, which also
includes assets used for testing and
monitoring of infrastructure. MEMX
Technologies provides personnel to
support the use and operation of the
LTSE trading platform including but not
limited to, monitoring the network,
managing system development and
testing, facilitating connection changes
and access changes, as well as
performing normal maintenance
operations. The Exchange has an
additional third-party vendor which
assists the Exchange with services
related to member gateways. Together
these two third-parties account for all
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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the Third-Party expenses detailed
above.
The Exchange took the annual costs
for each of these two third-party
providers to determine what portion (or
percentage) of these costs related to
providing connectivity and thus bears a
relationship that is, ‘‘in nature and
closeness,’’ directly related to offering
connectivity. There are four major core
technology cost buckets associated with
operating the Exchange: (1) the Member
Gateways which include physical and
logical connectivity, (2) connectivity to
the Securities Information Processor
(‘‘SIP’’), (3) the Trading Engine, and (4)
any downstream services which include
system reporting, etc. The Exchange
then reviewed each of these technology
cost buckets in great detail and
determined the percentage each of these
buckets should be allocated to the total
cost of the third-party expense, with
Member Gateways, the SIP and the
Trading Engine each accounting for
30% of the costs related to a third-party
provider, and downstream services
being allocated the remaining 10%.
Using this breakdown for both thirdparty providers, the Exchange
determined the portion of each of these
costs that was associated with providing
market data, connectivity services or
neither. Here, the Exchange determined
that most of the allocation for the cost
of the Gateways (25%) should be
associated with the cost of offering
connectivity, as well as 5% (of the
overall 10%) to downstream services.
Blended together, the Exchange
allocated 29% of its overall Third-Party
costs to offering connectivity.16
Human Resources
In addition to the cost of personnel of
outsourced third-party providers that
are allocated in the Third-Party Expense
section above, 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
while MEMX Technologies maintains
its own network support services, due to
its independent regulatory oversight
obligations, direct network support
services to Members and non-Members
provided by the Exchange and its staff,
including network monitoring, reporting
16 The Exchange notes that this percentage is
based on set costs in both Third-Party contracts.
The variable costs that are directly related to
offering connectivity are 100% allocated to the
overall Third-Party costs. Without these variable
costs the percentage allocated to offering connecting
for Third-Party costs would be 29%.
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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 LTSE 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. Blended
together, Human Resources costs to
provide connectivity accounted for 15%
of all Human Resource costs. 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 thirdparty data center.17 Data center costs
include an allocation of the costs the
Exchange incurs to monitor its trading
platform (including the Primary facility,
Disaster Recovery facility and Test
Environment 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 has two third-party
vendors that account for the Data Center
17 LTSE has a presence in the Secaucus NY4 data
center that is operated by Equinix.
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expenses. Consistent with the exercise
above, the Exchange took the annual
costs for each of these two Data Center
vendors to determine what portion (or
percentage) of these costs related to
offering connectivity and thus bears a
relationship that is, ‘‘in nature and
closeness,’’ directly related to
connectivity. The Exchange then
reviewed each of the technology cost
buckets detailed above and determined
the percentage each of these buckets
should be allocated to the total cost of
the Data Center expenses, with Member
Gateways, the SIP and the Trading
Engine each accounting for 30% of the
costs related to a third-party provider,
and downstream services being
allocated the remaining 10%. Using this
breakdown for all Data Center vendors
the Exchange determined the portion of
each of these costs was associated with
providing market data, connectivity
services or neither. Here, the Exchange
determined that the 31% of the Data
Center costs were appropriate to allocate
to offering connectivity as they included
services such as network packet capture
for performance monitoring, security
information and event management,
network connectivity and security
monitoring. In comparison the Exchange
allocated 39% of Data Center costs to
the offering of market data. The
remaining 30% of Data Center costs
were not allocated to either Market Data
or Connectivity.
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.18
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 May 1st,
18 The Exchange notes that these third-party
extranet providers were also required to establish
new connections to LTSE as all of the old
connections were deemed obsolete with the launch
of the new trading platform.
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2025, 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
facilities (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 facilities.
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 each have to
purchase a separate connection to the
Disaster Recovery facility. 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. Further, other
exchanges also provide lower
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connectivity fees for connections to
their respective disaster recovery
facilities.19
While Members are required to
connect to the Test Environment for
initial protocol certification and may be
required to connect to the Test
Environment at other times throughout
the year (i.e., if the Exchange adopts a
new order type that requires testing),
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 or non-Member
requests, which number is 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 lower
rate of $2,750 per month for physical
connections at its Disaster Recovery
facility and Test Environment. The
Exchange has proposed this lower 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
lower 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.
19 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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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 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 a portion
of 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 nonMembers for their first three sessions, so
that market participants can have no
cost to initiate order entry in all three
environments (Primary, 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
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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 or non-Member
requests, which number is 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.20
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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 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
number of connections utilized.
Members and non-Members with higher
message traffic and/or Members and
non-Members with more complicated
connections established with the
Exchange: (1) consume the most
bandwidth and resources of the
20 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 market participant 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 market
participant 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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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 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’’).21
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.22 By
encouraging market participants to be
efficient with their usage of connectivity
services, the fees 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
21 17
22 17
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CFR 242.1001(a).
Frm 00127
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or non-Member needs and as the
Exchange’s overall order and trade
volumes increase. This will encourage
market participants to purchase only
what they need. 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.23
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6(b) 24 of the
Act in general and furthers the
objectives of Section 6(b)(4) 25 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) 26 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
23 While some Members might directly connect to
the Disaster Recovery or Test Environment
Facilities 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.
24 15 U.S.C. 78f.
25 15 U.S.C. 78f(b)(4).
26 15 U.S.C. 78f(b)(5).
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Exchange to provide those respective
services and does not impose a barrier
to entry to smaller 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 connectivity services are directly
proportional to the number of
connections utilized. Members and nonMembers with higher message traffic
and/or Members and non-Members with
more complicated connections
established with the Exchange: (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
technology service provider, 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
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consistent with the Exchange Act,
which may include production of
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
$475,000 27 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 costs
for connectivity services are directly
proportional to the number of
connections utilized. Members and nonMembers with higher message traffic
and/or Members and non-Members with
more complicated connections
established with the Exchange: (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
technology service provider, including
network monitoring, reporting and
support services, resulting in a much
higher cost to the Exchange to provide
such connectivity services.
27 As stated above, the Exchange launched its new
trading platform on September 23, 2024. This
expected revenue is based on connectivity services
usage as of May 1st, 2025, as well as projected use
through the remainder of the year.
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22351
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.28 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 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
approximately $600,000. Based on
connectivity services usage as of May
1st, 2025, as well as projected use
through the remainder of the year, the
Exchange would generate monthly
revenues for 2025 of approximately
$475,000, 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
28 See
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27MYN1
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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
Exchange associated with network
connectivity services.
The Exchange notes that another
exchange offers similar connectivity
options to market participants and that
the Exchange’s proposed connectivity
fees are lower.29 The Exchange further
notes that this exchange charges for all
logical connectivity sessions and does
not offer the three free sessions per
month the Exchange is proposing to
offer.30
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 31 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.
The Exchange notes that the Cost
Analysis was based on the Exchange’s
first year of outsourcing the LTSE
trading system and certain associated
services and projections. As such, the
Exchange believes that its costs will
remain relatively similar in future years.
It is possible however that such costs
will either decrease or increase. To the
extent the Exchange sees growth in use
of connectivity services it will receive
additional revenue to offset future cost
increases. However, if use of
connectivity services is static or
decreases, the Exchange might not
realize the revenue that it anticipates or
needs in order to cover applicable costs.
Accordingly, the Exchange is
committing to conduct a one-year
review after implementation of these
fees. The Exchange expects that it may
propose to adjust fees at that time, to
increase fees in the event that revenues
fail to cover costs and a reasonable
29 See, e.g., the MEMX Connectivity fee schedule,
available at: https://info.memxtrading.com/
connectivity-fees/.
30 See id.
31 15 U.S.C. 78f(b)(4) and (5).
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mark-up of such costs. Similarly, the
Exchange would propose to decrease
fees in the event that revenue materially
exceeds our current projections. In
addition, the Exchange will periodically
conduct a review to inform its decision
making on whether a fee change is
appropriate (e.g., to monitor for costs
increasing/decreasing or subscribers
increasing/decreasing, etc. in ways that
suggest the then-current fees are
becoming dislocated from the prior costbased analysis) and would propose to
increase fees in the event that revenues
fail to cover its costs and a reasonable
mark-up, or decrease fees in the event
that revenue or the mark-up materially
exceeds our current projections. In the
event that the Exchange determines to
propose a fee change, the results of a
timely review, including an updated
cost estimate, will be included in the
rule filing proposing the fee change.
More generally, we believe that it is
appropriate for an exchange to refresh
and update information about its
relevant costs and revenues in seeking
any future changes to fees, and the
Exchange commits to do so.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,32 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 another
exchange charges 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
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
place 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.33 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.
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 34 and paragraph (f)(2) of Rule 19b–
4 thereunder.35 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
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
33 See
supra note 31 [sic].
U.S.C. 78s(b)(3)(A)(ii).
35 17 CFR 240.19b–4(f)(2).
34 15
32 15
PO 00000
U.S.C. 78f(b)(8).
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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–2025–07 on the subject line.
Paper Comments
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• 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–2025–07. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (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–2025–07 and should be
submitted on or before June 17, 2025.
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025–09389 Filed 5–23–25; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–103092; File No. SR–
PEARL–2025–22]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the MIAX Pearl
Options Exchange Fee Schedule To
Adopt New Fee Categories for the
Exchange’s Proprietary Market Data
Feeds
May 20, 2025.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that
on May 7, 2025, MIAX PEARL,
LLC(‘‘MIAX Pearl’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Pearl Options
Exchange Fee Schedule (‘‘Fee
Schedule’’) to amend the fee schedule
(the ‘‘Fee Schedule’’) applicable to the
Exchange’s options trading platform
(‘‘MIAX Pearl Options’’) to, among other
things, adopt new fee categories for the
Exchange’s proprietary market data
feeds: (1) the Top of Market (‘‘ToM’’)
feed, and (2) the Liquidity Feed (‘‘PLF’’)
feed (collectively, the ‘‘market data
feeds’’).3
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-options/pearl-options/rule-filings at
MIAX Pearl’s principal office, and at the
Commission’s Public Reference Room.
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 All references to the ‘‘Exchange’’ in this filing
refer to MIAX Pearl Options. Any references to the
equities trading facility of MIAX PEARL, LLC will
specifically be referred to as ‘‘MIAX Pearl Equities.’’
36
1 15
PO 00000
Frm 00130
Fmt 4703
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22353
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange offers two standard
proprietary market data products, the
ToM data feed and the PLF data feed.
The ToM data feed is a data feed that
contains the Exchange’s best bid and
offer, with aggregate size, and last sale
information, based on order and quoting
interest on the Exchange.4 The ToM
data feed includes data that is identical
to the data sent to the processor for the
Options Price Reporting Authority
(‘‘OPRA’’). The data for ToM and OPRA
leave the System 5 at the same time, as
required under Section 5.2(c)(iii)(B) of
the Limited Liability Company
Agreement of the Options Price
Reporting Authority LLC (the ‘‘OPRA
Plan’’), which prohibits the
dissemination of proprietary
information on any more timely basis
than the same information is furnished
to the OPRA system for inclusion in
OPRA’s consolidated dissemination of
options information. The PLF data feed
includes full order book data for orders
on the MIAX Pearl Book 6 and includes
the following data: origin, limit price,
side, size, and time-in-force (e.g., day,
GTC).7
4 See Securities Exchange Act Release No. 79913
(February 1, 2017), 82 FR 9617 (February 7, 2017)
(SR–PEARL–2017–01) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Establish MIAX PEARL Top of Market (‘‘ToM’’)
and MIAX PEARL Liquidity Feed (‘‘PLF’’) Data
Products).
5 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
6 The term ‘‘Book’’ means the electronic book of
buy and sell orders and quotes maintained by the
System. See Exchange Rule 100.
7 See supra note 4. A Good ‘til Cancelled or
‘‘GTC’’ Order is an order to buy or sell which
remains in effect until it is either executed,
cancelled or the underlying option expires. See
Exchange Rule 516(i).
E:\FR\FM\27MYN1.SGM
27MYN1
]]>Agencies
[Federal Register Volume 90, Number 100 (Tuesday, May 27, 2025)]
[Notices]
[Pages 22345-22353]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-09389]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103074; File No. SR-LTSE-2025-07]
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
May 20, 2025.
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 May 12, 2025, Long-Term Stock Exchange, Inc. (``LTSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Securities and Exchange Commission
(``Commission'') a proposed rule change to amend the LTSE Fee Schedule
(the ``Fee Schedule'') to establish Section C and adopt Connectivity
Fees for Cross-Connects at the Primary, Disaster Recovery and Test
Environment facilities. The Exchange also proposes to adopt
Connectivity Fees for Logical Connectivity (all environments),
effective May 12, 2025.
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.
[[Page 22346]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The 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
which the Exchange believes will encourage Members to connect to the
Exchange's backup trading systems and to conduct appropriate testing of
their use of the Exchange.
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. 78f(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/about/staff-guidance-sro-rule-filings-fees.
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Cost Analysis
The Exchange notes it operates a unique model where the LTSE
trading system and certain associated services are provided on an
outsourced basis by MEMX Technologies LLC (``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 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 the associated
costs incurred by MEMX Technologies. These services and costs include
maintaining a team of highly skilled network engineers, fees charged to
MEMX
[[Page 22347]]
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 that are borne by the Exchange. Most of
the specific expenses for connectivity services and the Exchange's DSLA
with MEMX Technologies are combined, and therefore the Exchange
discusses these expenses, and the portion allocated to connectivity as
part of the ``Third-Party Expenses'' Cost Driver below.
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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. The 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 in January of
2024 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, as the costs associated with the MEMX system
began in 2024. 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 $596,840 for
2025.\14\ Because LTSE offered all connectivity free of charge from its
launch in September 2020 until October of 2024, 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 connectivity versus the total annual revenue the
Exchange projects to collect in connection with providing those
services. Based on connectivity services usage as of May 1st, 2025, as
well as projected use through the remainder of the year, the Exchange
would generate monthly revenues for 2025 of approximately $475,000,
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 that such costs
represent for such area (e.g., as set forth below, the Exchange
allocated approximately 15% of its overall Human Resources cost to
offering connectivity for a total of $490,213 per year of costs related
to providing connectivity).
----------------------------------------------------------------------------------------------------------------
Allocated monthly Allocated yearly
Cost drivers costs costs % of all
----------------------------------------------------------------------------------------------------------------
Third-Party Expenses................................... $539,276 $6,471,312 60
Human Resources........................................ 40,851 490,213 8
Data Center............................................ 15,713 188,552 31
--------------------------------------------------------
Total.............................................. 595,840 7,150,076 .................
----------------------------------------------------------------------------------------------------------------
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, among other things, (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 (4) use of physical assets and software, which also includes
assets used for testing and monitoring of infrastructure. MEMX
Technologies provides personnel to support the use and operation of the
LTSE trading platform including but not limited to, monitoring the
network, managing system development and testing, facilitating
connection changes and access changes, as well as performing normal
maintenance operations. The Exchange has an additional third-party
vendor which assists the Exchange with services related to member
gateways. Together these two third-parties account for all
[[Page 22348]]
the Third-Party expenses detailed above.
The Exchange took the annual costs for each of these two third-
party providers to determine what portion (or percentage) of these
costs related to providing connectivity and thus bears a relationship
that is, ``in nature and closeness,'' directly related to offering
connectivity. There are four major core technology cost buckets
associated with operating the Exchange: (1) the Member Gateways which
include physical and logical connectivity, (2) connectivity to the
Securities Information Processor (``SIP''), (3) the Trading Engine, and
(4) any downstream services which include system reporting, etc. The
Exchange then reviewed each of these technology cost buckets in great
detail and determined the percentage each of these buckets should be
allocated to the total cost of the third-party expense, with Member
Gateways, the SIP and the Trading Engine each accounting for 30% of the
costs related to a third-party provider, and downstream services being
allocated the remaining 10%. Using this breakdown for both third-party
providers, the Exchange determined the portion of each of these costs
that was associated with providing market data, connectivity services
or neither. Here, the Exchange determined that most of the allocation
for the cost of the Gateways (25%) should be associated with the cost
of offering connectivity, as well as 5% (of the overall 10%) to
downstream services. Blended together, the Exchange allocated 29% of
its overall Third-Party costs to offering connectivity.\16\
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\16\ The Exchange notes that this percentage is based on set
costs in both Third-Party contracts. The variable costs that are
directly related to offering connectivity are 100% allocated to the
overall Third-Party costs. Without these variable costs the
percentage allocated to offering connecting for Third-Party costs
would be 29%.
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Human Resources
In addition to the cost of personnel of outsourced third-party
providers that are allocated in the Third-Party Expense section above,
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
while MEMX Technologies maintains its own network support services, due
to its independent regulatory oversight obligations, direct 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 LTSE 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.
Blended together, Human Resources costs to provide connectivity
accounted for 15% of all Human Resource costs. 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.\17\ Data
center costs include an allocation of the costs the Exchange incurs to
monitor its trading platform (including the Primary facility, Disaster
Recovery facility and Test Environment 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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\17\ LTSE has a presence in the Secaucus NY4 data center that is
operated by Equinix.
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The Exchange has two third-party vendors that account for the Data
Center expenses. Consistent with the exercise above, the Exchange took
the annual costs for each of these two Data Center vendors to determine
what portion (or percentage) of these costs related to offering
connectivity and thus bears a relationship that is, ``in nature and
closeness,'' directly related to connectivity. The Exchange then
reviewed each of the technology cost buckets detailed above and
determined the percentage each of these buckets should be allocated to
the total cost of the Data Center expenses, with Member Gateways, the
SIP and the Trading Engine each accounting for 30% of the costs related
to a third-party provider, and downstream services being allocated the
remaining 10%. Using this breakdown for all Data Center vendors the
Exchange determined the portion of each of these costs was associated
with providing market data, connectivity services or neither. Here, the
Exchange determined that the 31% of the Data Center costs were
appropriate to allocate to offering connectivity as they included
services such as network packet capture for performance monitoring,
security information and event management, network connectivity and
security monitoring. In comparison the Exchange allocated 39% of Data
Center costs to the offering of market data. The remaining 30% of Data
Center costs were not allocated to either Market Data or Connectivity.
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.\18\ 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 May 1st,
[[Page 22349]]
2025, 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 facilities (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 facilities.
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\18\ The Exchange notes that these third-party extranet
providers were also required to establish new connections to LTSE as
all of the old connections were deemed obsolete with the launch of
the new trading platform.
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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 each have to purchase a separate
connection to the Disaster Recovery facility. 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. Further, other exchanges
also provide lower connectivity fees for connections to their
respective disaster recovery facilities.\19\
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\19\ 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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While Members are required to connect to the Test Environment for
initial protocol certification and may be required to connect to the
Test Environment at other times throughout the year (i.e., if the
Exchange adopts a new order type that requires testing), 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 or non-Member requests, which number is
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 lower rate of $2,750 per month for physical connections at
its Disaster Recovery facility and Test Environment. The Exchange has
proposed this lower 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 lower 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 a portion of 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 for their first three sessions, so that
market participants can have no cost to initiate order entry in all
three environments (Primary, 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
[[Page 22350]]
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 or non-Member requests, which number is
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.\20\
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\20\ 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
market participant 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 market participant 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 number of connections utilized.
Members and non-Members with higher message traffic and/or Members and
non-Members with more complicated connections established with the
Exchange: (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 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'').\21\ 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.\22\
By encouraging market participants to be efficient with their usage of
connectivity services, the fees 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.
This will encourage market participants to purchase only what they
need. 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.\23\
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\21\ 17 CFR 242.1000-1007.
\22\ 17 CFR 242.1001(a).
\23\ While some Members might directly connect to the Disaster
Recovery or Test Environment Facilities 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) \24\ of the Act in general and
furthers the objectives of Section 6(b)(4) \25\ 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) \26\ 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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\24\ 15 U.S.C. 78f.
\25\ 15 U.S.C. 78f(b)(4).
\26\ 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
[[Page 22351]]
Exchange to provide those respective services and does not impose a
barrier to entry to smaller 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 connectivity
services are directly proportional to the number of connections
utilized. Members and non-Members with higher message traffic and/or
Members and non-Members with more complicated connections established
with the Exchange: (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 technology service provider, 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 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
$475,000 \27\ 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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\27\ As stated above, the Exchange launched its new trading
platform on September 23, 2024. This expected revenue is based on
connectivity services usage as of May 1st, 2025, as well as
projected use through the remainder of the year.
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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 costs for connectivity
services are directly proportional to the number of connections
utilized. Members and non-Members with higher message traffic and/or
Members and non-Members with more complicated connections established
with the Exchange: (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 technology service provider, 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.\28\ 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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\28\ 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 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 approximately
$600,000. Based on connectivity services usage as of May 1st, 2025, as
well as projected use through the remainder of the year, the Exchange
would generate monthly revenues for 2025 of approximately $475,000,
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
[[Page 22352]]
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 another exchange offers similar
connectivity options to market participants and that the Exchange's
proposed connectivity fees are lower.\29\ The Exchange further notes
that this exchange charges for all logical connectivity sessions and
does not offer the three free sessions per month the Exchange is
proposing to offer.\30\
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\29\ See, e.g., the MEMX Connectivity fee schedule, available
at: https://info.memxtrading.com/connectivity-fees/.
\30\ 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
\31\ 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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\31\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange notes that the Cost Analysis was based on the
Exchange's first year of outsourcing the LTSE trading system and
certain associated services and projections. As such, the Exchange
believes that its costs will remain relatively similar in future years.
It is possible however that such costs will either decrease or
increase. To the extent the Exchange sees growth in use of connectivity
services it will receive additional revenue to offset future cost
increases. However, if use of connectivity services is static or
decreases, the Exchange might not realize the revenue that it
anticipates or needs in order to cover applicable costs. Accordingly,
the Exchange is committing to conduct a one-year review after
implementation of these fees. The Exchange expects that it may propose
to adjust fees at that time, to increase fees in the event that
revenues fail to cover costs and a reasonable mark-up of such costs.
Similarly, the Exchange would propose to decrease fees in the event
that revenue materially exceeds our current projections. In addition,
the Exchange will periodically conduct a review to inform its decision
making on whether a fee change is appropriate (e.g., to monitor for
costs increasing/decreasing or subscribers increasing/decreasing, etc.
in ways that suggest the then-current fees are becoming dislocated from
the prior cost-based analysis) and would propose to increase fees in
the event that revenues fail to cover its costs and a reasonable mark-
up, or decrease fees in the event that revenue or the mark-up
materially exceeds our current projections. In the event that the
Exchange determines to propose a fee change, the results of a timely
review, including an updated cost estimate, will be included in the
rule filing proposing the fee change. More generally, we believe that
it is appropriate for an exchange to refresh and update information
about its relevant costs and revenues in seeking any future changes to
fees, and the Exchange commits to do so.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\32\ 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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\32\ 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 another
exchange charges 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 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 place 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.\33\ 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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\33\ See supra note 31 [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 \34\ and
paragraph (f)(2) of Rule 19b-4 thereunder.\35\ Accordingly, the
proposed rule change would take effect upon filing with the Commission.
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\34\ 15 U.S.C. 78s(b)(3)(A)(ii).
\35\ 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
[[Page 22353]]
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-2025-07 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-LTSE-2025-07. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (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-2025-07 and should be
submitted on or before June 17, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-09389 Filed 5-23-25; 8:45 am]
BILLING CODE 8011-01-P
