[Federal Register Volume 81, Number 46 (Wednesday, March 9, 2016)]
[Notices]
[Pages 12541-12543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05181]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77286; File No. SR-Phlx-2016-31]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Access Services Fees Under Chapter VIII of the Pricing Schedule

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 PHLX LLC (``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\ The Exchange notes that it has legally changed its name to 
NASDAQ PHLX LLC with the state of Delaware, and is in the process of 
amending its Form 1 and changing its rules to reflect the 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 Chapter VIII of the Exchange's Pricing Schedule 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://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
Access Services fees under Chapter VIII of the Exchange's Pricing 
Schedule 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 Chapter VIII of the Exchange's Pricing Schedule, 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 Chapter VIII of the Exchange's Pricing 
Schedule unavailable. To date, the Exchange has transitioned 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 Chapter VIII of the Exchange's Pricing Schedule, 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

[[Page 12542]]

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 Chapter VIII of the Exchange's Pricing Schedule, member 
firms are assessed a monthly fee of $400 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. 78f(b).
    \7\ 15 U.S.C. 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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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 926 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 926 
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

[[Page 12543]]

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. 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-Phlx-2016-31 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-Phlx-2016-31. 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-Phlx-2016-31 and should be 
submitted on or before March 30, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-05181 Filed 3-8-16; 8:45 am]
 BILLING CODE 8011-01-P