[Federal Register Volume 81, Number 45 (Tuesday, March 8, 2016)]
[Notices]
[Pages 12184-12187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05122]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77282; File No. SR-BX-2016-013]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Amend
Access Services Fees under Rule 7015
March 3, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 23, 2016, NASDAQ OMX BX, Inc. (``Exchange'') \3\ filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In the filing, the Exchange states that it has legally
changed its name to NASDAQ BX, Inc. with the state of Delaware, and
that the Exchange is in the process of both amending its Form 1 with
the Commission and changing its rules to reflect this new name.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's Access Services fees
under Rule 7015 to: (i) Assess a $25/port/month Disaster Recovery Port
fee for Disaster Recovery Ports used with FIX Trading Ports, OUCH,
RASH, and DROP ports; and (ii) assess a $100/port/month fee for Trading
Ports used in Test Mode.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxbx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of
[[Page 12185]]
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 purpose of the proposed rule change to Rule 7015 is to amend
the Exchange's Access Services fees under Rule 7015 to: (i) Assess a
$25/port/month Disaster Recovery Port fee for Disaster Recovery Ports
used with FIX Trading Ports, OUCH, RASH, and DROP ports; and (ii)
assess a $100/port/month fee for Trading Ports used in Test Mode.
First Change
The Exchange is in the process of transitioning its Disaster
Recovery (``DR'') functionality for the U.S. equities and options
markets from Ashburn, VA to its new Chicago, IL data center. The
Exchange has invested and installed new equipment in the Chicago data
center for client connectivity and for the infrastructure of Exchange
systems. The Exchange chose Chicago as the location of its new DR data
center as many other exchanges are using this same location for a
disaster recovery or a primary location and, as a result, many of our
market participants have a presence or connection at this location,
thus making it easier and less expensive for many market participants
to connect to the Exchange for DR.
Under Rule 7015, member firms may subscribe to DR ports, which
provide backup connectivity in the event of a failure or disaster
rendering their primary connectivity at Carteret, NJ subscribed to
under Rule 7015 unavailable. To date, the Exchange has transitioned its
FIX Trading Ports, OUCH, RASH, and DROP Ports to the Chicago center
from Ashburn. Currently, the Exchange does not assess a fee for any DR
ports.
The Exchange has incurred an initial cost associated with moving DR
ports to the Chicago center, including the purchase of upgraded
hardware and physical space to house the DR ports, which is more
expensive than the Ashburn location. The Exchange also incurs ongoing
costs in maintaining the DR ports, including costs incurred maintaining
servers and their physical location, monitoring order activity, and
other support, which is collectively more expensive in Chicago than
Ashburn. Accordingly, the Exchange is proposing to assess a fee of $25
per port, per month for DR Ports used with FIX Trading Ports, OUCH,
RASH, and DROP Ports.
Second Change
Under Rule 7015, Member firms may subscribe to Trading Ports used
in Test Mode, which are trading ports available in primary market
location in Carteret, NJ, that are exclusively used for testing
purposes, at no cost. These ports may not be used for trading in
securities in the System, but rather allow a member firm to test their
systems prior to connecting to the live trading environment. Test Ports
are identical to trading ports \4\ and share the same infrastructure,
but are restricted to only allow order entry into the System in test
symbols. A member firm may elect to designate a subscribed trading port
as either in ``production mode'' or in ``test mode.'' A Trading Port
that is in production mode allows a member firm to send orders for
execution on the Exchange system in the normal course. When a member
firm changes a trading port's status to test mode, the Exchange will
not allow normal order activity to occur through the port but rather it
limits all order activity to test symbols. Under Rule 7015, member
firms are assessed a monthly fee of $500 per port for each trading port
subscribed in production mode. Member firms are not currently assessed
a fee for Trading Ports used in Test Mode.
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\4\ E.g., FIX, RASH, and OUCH.
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The Exchange has audited the use of Trading Ports used in Test Mode
and found that a majority of Trading Ports used in Test Mode are not
used for testing, but rather remain idle. The Exchange incurs costs
associated with maintaining such ports, including costs incurred
maintaining servers and their physical location, monitoring order
activity, and other support. Accordingly, the Exchange is proposing to
assess a fee of $100 per port, per month.\5\
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\5\ The Exchange bills Access Services subscriptions by
prorating the first monthly fee by the number of days that
subscription was subscribed and thereafter assesses the full monthly
fee, including the full month in which the subscription is
cancelled. If a subscriber elects to change a test mode port to a
production port in a given month, the Exchange will assess the
Trading Ports used in Test Mode fee, which may be prorated if
subscribed to in the same month, and will also assess the production
port fee, which will be prorated from the date the change is made
through the end of the month. Likewise, if a subscriber elects to
change a production mode port to a test mode port in a given month,
the Exchange will assess the monthly production port fee, which may
be prorated if subscribed to in the same month, and will also assess
the Trading Ports used in Test Mode fee, which will be prorated from
the date the change is made through the end of the month.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \6\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act \7\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility or
system which the Exchange operates or controls, and is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\6\ 15 U.S.C. Sec. 78f(b).
\7\ 15 U.S.C. Sec. 78f(b)(4) and (5).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \8\ Likewise, in
NetCoalition v. Securities and Exchange Commission \9\
(``NetCoalition'') the DC Circuit upheld the Commission's use of a
market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-based
approach.\10\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \11\
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\8\ Securities Exchange Act Release No. 51808 at 37499 (June 9,
2005) (``Regulation NMS Adopting Release'').
\9\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\10\ See NetCoalition, at 534.
\11\ Id. at 537.
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Further, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .'' \12\
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\12\ Id. at 539 (quoting ArcaBook Order, 73 FR at 74782-74783).
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[[Page 12186]]
DR Port Fees
The fee assessed for DR Ports is reasonable because it is based on
the cost incurred by the Exchange in purchasing and maintaining DR
ports in the Chicago data center. Currently, the Exchange does not have
a means to recoup its investment and costs associated with providing
member firms with DR ports in the Chicago data center. Thus, the
Exchange believes that the proposed fee is reasonable because the fee
is intended to cover the Exchange's costs incurred in maintaining DR
ports. The proposed fee may also allow the Exchange to make a profit to
the extent the costs associated with purchasing and maintaining DR
ports are covered.
The Exchange believes that the proposed fee is equitably allocated
and not unfairly discriminatory because it will apply equally to all
subscribers to DR ports based on the number of ports subscribed. Last,
the Exchange notes that, for most member firms, subscription to DR
ports is voluntary, and member firms may subscribe to as many or as few
ports they believe is necessary. A select number of member firms chosen
by the Exchange to participate in business continuity and disaster
recovery plan testing pursuant to Rule 1170 will be obligated to
subscribe to a DR port to participate in the annual test. Although
subscription to DR ports is not voluntary for member firms selected for
this once a year test, the Exchange believes that assessing the
proposed fee is an equitable allocation and not unfairly discriminatory
because such member firms will derive the same benefit as those members
that voluntarily elect to subscribe to DR ports and such members may
cancel their DR port subscription once their Rule 1170 testing
obligation is satisfied.
Trading Ports used in Test Mode Fees
The proposed fee is also reasonable because it is based on the cost
incurred by the Exchange in developing and maintaining multiple port
connections, which are not used in the production environment and are
designated as in test mode. As noted, the Exchange invests time and
capital in initiating, monitoring and maintaining port connections to
its system. Currently, the Exchange does not have a means to recoup its
investment and costs associated with providing member firms with
Trading Ports used in Test Mode. Thus, the Exchange believes that the
proposed fee is reasonable because the fee is intended to cover the
Exchange's costs incurred in maintaining test mode ports and is less
than what is charged for a trading port in production mode. The
proposed fee may also allow the Exchange to make a profit to the extent
the costs associated with developing and maintaining Trading Ports used
in Test Mode are covered. The Exchange believes that the proposed fee
does not discriminate unfairly as it will promote efficiency in the
market by incentivizing member firms to either place idle ports into
production or cancel them if unneeded.
The proposed fee is also equitably allocated because all Exchange
member firms that voluntarily elect to subscribe to trading ports, yet
maintain them in test mode, will be charged the fee equally on a per-
port basis. Last, the Exchange notes that subscription to Trading Ports
used in Test Mode is voluntary, and member firms may subscribe to as
many or as few ports they believe is necessary for their testing
purposes.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
In this instance, the proposed fee merely allows the Exchange to
recapture the costs associated with maintaining member ports that are
in test mode and DR, and may provide the Exchange with a profit to the
extent its costs are covered. The Trading Port used in Test Mode fee is
applied uniformly to member firms that have such ports in the Carteret
data center, where the Exchange incurs expenses to support this port
configuration option.
The proposed fee will also promote efficient use of Trading Ports
for testing. Similarly, the Exchange incurs greater costs in offering
DR ports in the new Chicago data center, which the Exchange is seeking
to cover. Any burden arising from the fees is necessary to cover costs
associated with the location of the functionality in Chicago. If the
changes proposed herein are unattractive to market participants, it is
likely that the Exchange will lose market share as a result as member
firms chose one of many alternative venues on which they may trade.
Accordingly, the Exchange does not believe that the proposed changes
will impair the ability of members or competing order execution venues
to maintain their competitive standing in the financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\13\
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\13\ 15 U.S.C. Sec. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2016-013 on the subject line.
Paper comments
Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 12187]]
Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2016-013. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2016-013, and should be
submitted on or before March 29, 2016.
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\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-05122 Filed 3-7-16; 8:45 am]
BILLING CODE 8011-01-P