[Federal Register Volume 81, Number 224 (Monday, November 21, 2016)]
[Notices]
[Pages 83303-83308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27896]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79316; File No. SR-NYSE-2016-45]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Change, as Modified by Amendment Nos. 1 and 2, Amending the 
Co-Location Services Offered by the Exchange To Add Certain Access and 
Connectivity Fees

November 15, 2016.

I. Introduction

    On July 29, 2016, the New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change (1) to provide additional information regarding 
access to various trading and execution services; connectivity to 
market data feeds and testing and certification feeds; connectivity to 
Third Party Systems; and connectivity to DTCC provided to Users using 
data center local area networks; and (2) to establish fees relating to 
a User's access to various trading and execution services; connectivity 
to market data feeds and testing and certification feeds; connectivity 
to DTCC; and other services. The proposed rule change was published for 
comment in the Federal Register on August 17, 2016.\3\ The Exchange 
filed Amendment No. 1 to the proposed rule change on August 16, 
2016.\4\ Amendment No. 1 was published for comment in the Federal 
Register on September 26, 2016.\5\ The Commission received one comment 
in response to the proposed rule change, as modified

[[Page 83304]]

by Amendment No. 1 and the Exchange responded.\6\ On October 4, 2016, 
the Commission extended the time period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change to November 15, 2016.\7\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 34-78556 (August 11, 
2016), 81 FR 54877 (``Original Notice'').
    \4\ Amendment No. 1 (i) Amended the third party data feed MSCI 
from 20 Gigabite (``Gb'') to 25 Gb and amended the price from $2,000 
to $1,200; (ii) clarified the costs associated with providing a 
greater amount of bandwidth for Premium NYSE Data Products for a 
particular market as compared to the bandwidth requirements for the 
Included Data Products for that same market; (iii) provided further 
details on Premium NYSE Data Products, including their composition, 
product release dates, and further detail on the reasonableness of 
their applicable fees; (iv) added an explanation for the varying fee 
differences for the same Gb usage for third party data feeds, DTCC, 
and Virtual Control Circuit.
    \5\ See Securities Exchange Act Release No. 34-78887 (September 
20, 2016), 81 FR 66095. (``Notice'')
    \6\ See letter to Brent J. Fields, Secretary, Commission, from 
John Ramsay, Chief Market Policy Officer, Investors Exchange LLC 
(IEX), dated September 9, 2016 (``IEX Letter'').
     On September 23, 2016, the NYSE submitted a response 
(``Response Letter'').
    \7\ See Securities Exchange Act Release No. 34-78966 (September 
28, 2016), 81 FR 68475.
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    On November 2, 2016, the Exchange filed Amendment No. 2 to the 
proposed rule change.\8\ The Commission is publishing this order to 
solicit comments on Amendment No. 2 from interested persons and to 
institute proceedings pursuant to Exchange Act Section 19(b)(2)(B) to 
determine whether to approve or disapprove the proposed rule change, as 
modified by Amendment Nos. 1 and 2.\9\ Institution of proceedings does 
not indicate that the Commission has reached any conclusions with 
respect to the proposed rule change, nor does it mean that the 
Commission will ultimately disapprove the proposed rule change. Rather, 
as discussed below, the Commission seeks additional input on the 
proposed rule change, as modified by Amendment Nos. 1 and 2, and on the 
issues presented by the proposal.
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    \8\ Amendment No. 2 is discussed further infra. Amendment No. 2 
is available on the Commission's Web site at https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645-4.pdf.
    \9\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2

    The proposed rule change seeks to amend the co-location services 
offered by the Exchange to (1) provide additional information regarding 
access to trading and execution services and connectivity to data 
provided to Users with local area networks available in the data 
center; and (2) establish fees relating to a User's \10\ access to 
trading and execution services; connectivity to data feeds and to 
testing and certification feeds; connectivity to clearing; and other 
services.\11\
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    \10\ For purposes of the Exchange's co-location services, a 
``User'' means any market participant that requests to receive co-
location services directly from the Exchange. See Securities 
Exchange Act Release No. 76008 (September 29, 2015), 80 FR 60190 
(October 5, 2015) (SR-NYSE-2015-40). As specified in the Price List, 
a User that incurs co-location fees for a particular co-location 
service pursuant thereto would not be subject to co-location fees 
for the same co-location service charged by the Exchange's 
affiliates NYSE MKT LLC (``NYSE MKT'') and NYSE Arca, Inc. (``NYSE 
Arca'' and, together with NYSE MKT, the ``Affiliate SROs''). See 
Securities Exchange Act Release No. 70206 (August 15, 2013), 78 FR 
51765 (August 21, 2013) (SR-NYSE-2013-59).
    \11\ See Notice, supra note 5, 81 FR at 66096.
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Background and Access to Exchange Systems

    As discussed more fully in the Notice, a User can purchase access 
to the Liquidity Center Network (``LCN'') and/or internet protocol 
(``IP'') network in the data center through the purchase of a 1, 10, or 
40 Gb LCN circuit, a 10 Gb LX Circuit, bundled network access, Partial 
Cabinet Solution bundle, or 1, 10 or 40 Gb IP network access.\12\ The 
purchase of any of the LCN or IP network circuit options gives a User 
access \13\ to the Exchange's trading and execution systems, 
connectivity to the Exchange's certification and testing feeds,\14\ and 
the ability to connect to any NYSE Data Product.\15\ More specifically, 
access to the Exchange's trading and execution system provides a User 
with access to the Exchange's ``customer gateways that provide for 
order entry, order receipt (i.e. confirmation that an order has been 
received), receipt of drop copies and trade reporting (i.e. whether a 
trade is executed or cancelled), as well as for sending information to 
shared data services for clearing and settlement.'' \16\ The Exchange 
seeks to add clarifying language in its proposed rule to reflect the 
services included with purchase of Exchange system access.\17\
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    \12\ See id. at 66097.
    \13\ The purchase of access is subject to receiving 
authorization from the NYSE, NYSE MKT or NYSE Arca for the Included 
Data Products, as applicable. See id. at 66097 n.12.
    \14\ Certification feeds are used to certify that a User 
conforms to any relevant technical requirements for receipt of data 
or access to Exchange systems. Testing feeds, which do not carry 
live production data, provide Users with an environment to conduct 
tests with the non-live data, including testing for upcoming 
Exchange releases and product enhancements or the User's own 
software development. See id. at 66097. These feeds are only 
available over the IP network, however a User without an IP network 
connection may obtain an IP network circuit for purposes of testing 
and certification for free for three months. See id. at 66097 n.14.
    \15\ See id. at 66097.
    \16\ See Notice, supra note 5, 81 FR at 66097. The Exchange 
represents that connectivity to the Exchange systems can be obtained 
without the purchase of access to the LCN or IP network. See id.
    \17\ See id.
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Connectivity to Included Data Products

    As discussed more fully below, the Exchange offers connectivity to 
three types of data products: Included Data Products, Premium NYSE Data 
Products, and Third Party Data Feeds.\18\ As discussed more fully in 
the Notice, the Included Data Products include Consolidated Tape 
Association (``CTA'') disseminated data feeds and NMS data feeds.\19\ 
The CTA disseminates consolidated real-time trade and quote information 
in NYSE listed securities (Network A) and NYSE MKT, NYSE Arca and other 
regional exchanges' listed securities (Network B) pursuant to a 
national market system plan.\20\ The NMS data feeds include 
Consolidated Tape System and Consolidated Quote System data streams, as 
well as Options Price Reporting Authority feeds.\21\ To obtain 
connectivity to the Included Data Products, a User must enter into a 
contract with the data provider and pay any applicable fees.\22\ Once 
the Exchange receives an authorization from the data feed provider, the 
Exchange will provide connectivity to the Included Data Product(s) 
through a User's LCN or IP network port.\23\ The Exchange does not 
charge any additional fees for this connectivity ``because such access 
and connectivity is directly related to the purpose of co-location.'' 
\24\ The Exchange proposes to add language to the Price List to specify 
that there are no additional fees for connectivity to Included Data 
Products.\25\
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    \18\ See id. Neither the NYSE Data Products or Third Party Data 
Feeds provide access or order entry to the Exchange's execution 
system. See id. Connectivity to the NYSE Data Products is available 
in three forms: A resilient feed, ``Feed A'', or ``Feed B.'' A 
resilient feed includes two copies of the same feed for redundancy 
purposes and Feed A and Feed B are identical feeds. A User that 
wants redundancy would connect to both Feed A and Feed B or two 
resilient feeds, using two different ports. See id.; see also id. at 
66097 n. 15.
    \19\ See id. at 66097.
    \20\ See id.
    \21\ See id.
    \22\ See id.
    \23\ See id.
    \24\ See id.; see also Amendment No. 2, supra note 8.
    \25\ See id. at 66098.
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Connectivity to Premium NYSE Data Products

    As part of its data product offerings, the Exchange now proposes to 
provide connectivity to Premium NYSE Data Products from the Exchange 
and its Affiliate SROs to Users over either the LCN and/or IP network 
``because such access and connectivity is directly related to the 
purpose of co-location.'' \26\ The proposed rule change seeks to amend 
the Price List to specify the connectivity fees for Premium NYSE Data 
Products.\27\
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    \26\ See id.; see also Amendment No. 2, supra note 8.
    \27\ See Notice, supra note 5, 81 FR at 66098.
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    As discussed more fully in the Notice, the Premium NYSE Data 
Products are ``equity market data products that are

[[Page 83305]]

variants of the equity Included Data Products. Each Premium NYSE Data 
Product integrates, or includes data elements from, several Included 
Data Products.'' \28\ These Integrated Feeds include ``depth of book 
order data (with add, modify and delete orders), trades (with 
corrections and cancel/errors), opening and closing imbalance data, 
security status updates (e.g., trade corrections and trading halts) and 
stock summary messages. The stock summary messages display a market's 
opening price, high price, low price, closing price, and cumulative 
volume for a security. Only the Integrated Feeds offer all these 
components in sequence in one feed.'' \29\ Additionally, the NYSE BQT 
data feed includes, among other things, certain data elements from six 
of the equity Included Data Products of the Exchange and Affiliated 
SROs in one data feed: NYSE Trades, NYSE BBO, NYSE Arca Trades, NYSE 
Arca BBO, NYSE MKT Trades, and NYSE MKT BBO.\30\
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    \28\ See id. Examples include: (1) The NYSE Integrated Feed that 
includes, among other items, data from three of the equity Included 
Data Products: NYSE OpenBook, NYSE Trades, and NYSE Order 
Imbalances; and (2) the NYSE BQT data feed that includes, among 
other items, specific data elements from six of the equity Included 
Data Products: NYSE Trades, NYSE BBO, NYSE Arca Trades, NYSE Arca 
BBO, NYSE MKT Trades, and NYSE MKT BBO. See id. Additionally, with 
respect to the NYSE Amex and NYSE Arca options data, neither NYSE 
Amex nor NYSE Arca offer Premium NYSE Data Products because there 
are ``no options data products that integrate, or include data 
elements from, other option data products in the same manner that 
the NYSE, NYSE MKT and NYSE Arca Integrated Feeds integrate, or 
include data elements from, equity Included Data Products.'' See id.
    \29\ See Amendment No. 2, supra note 8.
    \30\ See id. None of the Included Data Products provide Users 
with data from the Exchange and Affiliate SROs in one feed. See id. 
Also, according to the Exchange, the Premium Data Products contain 
more data overall in comparison to the Included Data Products and 
potentially can be subject to greater technical specifications in 
order to receive the feed(s). See Notice, supra note 5, 81 FR at 
66098. ``For example, a User connecting to the NYSE Arca Integrated 
Feed, NYSE Integrated Feed or NYSE MKT Integrated Feed would need at 
least a 1 Gb IP network connection in order to connect to either 
Feed A or Feed B. To connect to a resilient feed, the User would 
require an LCN or IP network connection of at least 10 Gb.'' See id. 
at 66097 n. 15.
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    As is the case with Included Data Products, a User of Premium NYSE 
Data Products must enter into a contract with the data provider for 
each feed and the provider would then authorize the Exchange to provide 
connectivity of the particular feed to that User's LCN or IP Network 
port.\31\ The Exchange proposes to charge a User a monthly recurring 
fee per each Premium NYSE Data Product feed for the connectivity 
provided by the Exchange.\32\
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    \31\ See Notice, supra note 5, 81 FR at 66098.
    \32\ See id.
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Connectivity to Third Party Data Feeds

    The Exchange's proposal further seeks to offer Third Party Data 
Feeds to Users and to charge a connectivity fee per feed as reflected 
on its Price List.\33\ In the data center, the Exchange receives Third 
Party Data Feeds from multiple national securities exchanges and other 
content service providers which it then provides to requesting Users 
for a fee.\34\ With the exceptions of Global OTC and NYSE Global Index, 
Users connect to Third Party Data Feeds over the IP network.\35\ In 
charging for this service, the Exchange notes that its practice is 
consistent with the monthly fee Nasdaq charges its co-location 
customers for connectivity to third party data.\36\
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    \33\ See id. at 66099.
    \34\ See id.
    \35\ See id.
    \36\ See id. The Exchange notes that Nasdaq charges monthly fees 
of $1,500 and $4,000 for connectivity to BATS Y and BATS, 
respectively, and of $2,500 for connectivity to EDGA or EDGX. See 
id.
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    In order to connect to a Third Party Data Feed, a User must enter 
into a contract with the relevant third party market or content service 
provider, under which the third party market or content service 
provider charges the User for the data feed.\37\ The Exchange receives 
these Third Party Data Feeds over its fiber optic network and, after 
the data provider and User enter into a contract and the Exchange 
receives authorization from the data provider, the Exchange re-
transmits the data to the User over a User's port.\38\ Users only 
receive, and are only charged for, the feed(s) which they have entered 
into contracts for.\39\ Additionally, the Exchange notes that Third 
Party Data Feeds do not provide access or order entry to its execution 
system or access to the execution system of the third party generating 
the feed.\40\ The Exchange proposes to charge a monthly recurring fee 
for connectivity to each Third Party Data Feed, however for SuperFeed 
and MSCI it proposes to charge different fees which vary based on the 
bandwidth requirements for the connection.\41\ A User is free to 
receive all or some of the feeds included in the Price List.\42\ 
Moreover, the Exchange notes that Third Party Data Feed providers may 
charge redistribution fees, such as Nasdaq's Extranet Access Fees and 
OTC Markets Group's Access Fees,\43\ which the Exchange will pass 
through to the User in addition to charging the applicable connectivity 
fee.\44\ Finally, the Exchange permits third party markets or content 
providers that are also Users to connect to their own Third Party Data 
Feeds without a charge.\45\ The Exchange represents that it does not 
charge Users that are third party markets or content providers for 
connectivity to their own feeds because such parties generally receive 
their own feeds for purposes of diagnostics and testing.\46\
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    \37\ See id.
    \38\ See id.
    \39\ See id.
    \40\ See id. There is one exception to this for the ICE feeds 
which include both market data and trading and clearing services. In 
order to receive the ICE feeds, a User must receive authorization 
from ICE to receive both market data and trading and clearing 
services. See id.
    \41\ See id.
    \42\ See id.
    \43\ See id. at 66100.
    \44\ See id.
    \45\ See id.
    \46\ See id.
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Connectivity to Other Services

    As part of its data center offerings, the Exchange also seeks to 
provide access and connectivity to Third Party Systems/content service 
providers, the DTCC \47\ (collectively ``Service Providers''), third 
party certification and testing feeds,\48\ and Virtual Control Circuits 
\49\ (``VCCs'').\50\ The proposed rule change seeks to amend the Price 
List to add new fees for connectivity to these Service Providers and 
third party certification and testing feeds and to specify that 
connectivity is dependent on a User meeting the necessary technical 
requirements, paying the applicable fees, and the Exchange receiving 
authorization to establish a connection for a User.\51\ Similarly, the 
proposed rule change seeks to amend the Price List to add a new fee for 
connectivity for VCCs which will similarly require permission from the 
other User before the Exchange will establish the connection.\52\ 
Accordingly,

[[Page 83306]]

the Exchange proposes to amend its Price List to add recurring monthly 
connectivity fees for Service Providers and VCCs based upon the 
bandwidth requirements per system and/or VCC connection between two 
Users.\53\ For third party certification and testing feeds, the 
Exchange proposes to revise its Price List to include a monthly 
recurring $100 fee per feed.\54\
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    \47\ ``Such connectivity to DTCC is distinct from the access to 
shared data services for clearing and settlement services that a 
User receives when it purchases access to the LCN or IP network. The 
shared data services allow Users and other entities with access to 
the Trading Systems to post files for settlement and clearing 
services to access.'' See id. at 66100 n. 36.
    \48\ Certification feeds certify that a User conforms to any of 
the relevant content service providers' requirements for accessing 
Third Party Systems or receiving Third Party Data, whereas testing 
feeds provide Users an environment in which to conduct system tests 
with non-live data. See id. at 66100.
    \49\ A VCC (previously called a ``peer to peer'' connection) is 
a two-way connection through which two participants can establish a 
connection between two points over dedicated bandwidth using the IP 
network to be used for any purpose. See id. at 66101.
    \50\ See id. at 66099-66101.
    \51\ See id. at 66099-66100.
    \52\ See id. at 66100-66101.
    \53\ See id. at 66099-66101.
    \54\ See id. at 66100.
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    For each service, a User must execute a contract with the 
respective Service Provider and/or third party certification and 
testing feed provider(s) pursuant to which a User pays each the 
associated fee(s) for their services.\55\ Once the Exchange receives 
authorization from the Service Provider and/or third party 
certification and testing feed provider(s), the Exchange will enable a 
User to connect to the Service Provider and/or third party 
certification and testing feed(s) over the IP Network.\56\ Similarly, 
with respect to VCCs, the Exchange will not establish a VCC connection 
over its IP Network until the other User confirms the VCC request.\57\ 
Finally, the Exchange notes, that its execution system does not provide 
access to Service Provider systems, nor do the Service Provider systems 
provide access to the Exchange's execution system.\58\
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    \55\ See id. at 66099-66100.
    \56\ See id. For Third Party Systems, once the Exchange receives 
the authorization from the respective third party it establishes a 
unicast connection between the User and the relevant third party 
over the IP network. See id. at 66099. For the DTCC, ``[t]he 
Exchange receives the DTCC feed over its fiber optic network and, 
after DTCC and the User enter into the services contract and the 
Exchange receives authorization from DTCC, the Exchange provides 
connectivity to DTCC to the User over the User's IP network port.'' 
See id. at 66100.
    \57\ See Notice, supra note 5, 81 FR at 66101.
    \58\ See id. at 66099-66100.
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    As noted above, the Commission received one comment letter.\59\ 
This commenter (1) requested clarification about the history of the 
fees and ``the increasing costs of maintaining the data center and 
providing co-location compared to any related fee revenue'' and (2) 
expressed a concern about whether ``there are any true alternatives 
that are practically available to various types of participants who are 
seeking to compete with those who are paying exchanges for co-location 
and data services.'' \60\ Specifically, the commenter noted that the 
NYSE states that the connectivity fees are used to defray the costs 
associated with providing co-location to Users, but, the commenter 
questions whether the fees to cover the increasing costs of providing 
co-location are applied in an equitable manner.\61\ Moreover, with 
respect to alternatives, the commenter noted that broker-dealers face 
best execution obligations that are ``critically impacted by sub-
millisecond differences in access to exchange systems and market 
data.'' \62\ As a result, market participants face the quandary of 
whether to trade from outside the data center if other members are 
trading from inside.\63\ Additionally, some broker-dealers trading for 
clients ``may be practically required to buy and consume proprietary 
market data feeds directly from exchanges in order to provide 
competitive products for those clients.'' \64\ The commenter believes 
that this environment ``imposes a form of trading tax on all members by 
offering different methods of access to different members.'' \65\ The 
commenter questions whether true alternatives are available for 
participants seeking to compete with firms paying for exchange co-
location and data services and whether the Exchange's ability to set 
fees is truly constrained by market forces for a ``comparable 
product''.\66\
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    \59\ See IEX Letter, supra note 6.
    \60\ See id. at 1-2.
    \61\ See id. at 1-2.
    \62\ See id. at 2.
    \63\ See id.
    \64\ See id.
    \65\ See id.
    \66\ See id.
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    As discussed above, the Exchange submitted a response to the 
commenter.\67\ The Exchange in its Response Letter stated that 
historical information about the development of these product offerings 
is ``not required by the Act and is not relevant to [ ] the substance 
of the Proposal-which is, by definition, forward looking. . . .'' \68\ 
Additionally, the Response Letter noted that costs are not the only 
consideration in setting its prices, but rather the prices ``include 
the competitive landscape; whether Users would be required to utilize a 
given service; the alternatives available to Users; and, significantly, 
the benefits Users obtain from the services.'' \69\ With respect to the 
commenter's concern about members needing additional information to 
assess the fixed costs of exchange membership, the Exchange responded 
that these are not fixed costs of ``Exchange members'' but instead 
costs to any User who voluntarily chooses to purchase such services 
based upon ``[t]he form and latency of access and connectivity that 
bests suits a User's needs . . .'' \70\ Users do not require the 
Exchange's access or connectivity to trade on the Exchange and can 
instead use alternative access and connectivity options for trading if 
they choose.\71\
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    \67\ See Response Letter, supra note 6.
    \68\ See id. at 2.
    \69\ See id.
    \70\ See id. at 4.
    \71\ See id.
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    In response to the commenter's argument regarding different methods 
of access to trading, the Exchange stated that ``it is a vendor of fair 
and non-discriminatory access, and like any vendor with multiple 
product offerings, different purchasers may make different choices 
regarding which products they wish to purchase.'' \72\ The Exchange 
further stated in response to the commenter's concern of a lack of true 
alternatives for a ``comparable product'', that the filing lists 
several alternative options for Users and a User can evaluate the 
``relative benefits of those alternatives and choose whichever it deems 
most beneficial to it. . . .'' \73\
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    \72\ See id. at 5. The Exchange makes a further argument about 
the Exchange being a regulated co-location space whereas other 
unregulated co-location options are available. See id.
    \73\ See id. at 6. The Exchange noted that it is not addressing 
the commenter's statements about broker-dealers needing to purchase 
market data from the Exchange as that is outside the scope of this 
proposal. See id. at 5 n.13.
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Amendment No. 2

    In Amendment No. 2, the Exchange offers additional justification 
for the proposed rule change.\74\ In Amendment No. 2, the Exchange 
addressed (1) the benefits offered by the Premium NYSE Data Products 
that are not present in the Included Data Products (2) how Premium NYSE 
Data Products are related to the purpose of co-location, (3) the 
similarity of charging for connectivity to Third Party Systems and DTCC 
and charging for connectivity to Premium NYSE Data Products and (4) the 
costs incurred by the Exchange in providing connectivity to Premium 
NYSE Data Products to Users in the data center.\75\ In the Amendment, 
the Exchange provided further detail on the benefits provided to Users 
through the Premium NYSE Data Products including ``depth of book order 
data (with add, modify and delete orders), trades (with corrections and 
cancel/errors), opening and closing imbalance data, security status 
updates (e.g., trade corrections and trading halts) and stock summary 
messages.'' \76\ The Exchange also clarified which costs are associated 
with providing Users with access and connectivity to the various 
services discussed in the filing, including the Premium NYSE Data 
Products.
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    \74\ See Amendment No. 2, supra note 8.
    \75\ See id.
    \76\ See id.; see also supra note 29 and accompanying text.

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[[Page 83307]]

III. Proceedings To Determine Whether To Disapprove SR-NYSE-2016-45 and 
Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \77\ to determine whether the proposed rule 
change, as modified by Amendment Nos. 1 and 2, should be approved or 
disapproved. Institution of such proceedings is appropriate at this 
time in view of the legal and policy issues raised by the proposed rule 
change, as modified by Amendment Nos. 1 and 2. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described below, the Commission seeks and encourages interested persons 
to provide comments on the proposed rule change, as modified by 
Amendment Nos. 1 and 2.
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    \77\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the following grounds for disapproval that are 
under consideration:
     Section 6(b)(4) of the Act, which requires that the rules 
of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities,'' \78\
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    \78\ 15 U.S.C. 78f(b)(4).
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     Section 6(b)(5) of the Act, which requires, among other 
things, that the rules of a national securities exchange be ``designed 
to perfect the operation of a free and open market and a national 
market system'' and ``protect investors and the public interest,'' and 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers,'' \79\ and
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    \79\ 15 U.S.C. 78f(b)(5).
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     Section 6(b)(8) of the Act, which requires that the rules 
of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Act].'' \80\
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    \80\ 15 U.S.C. 78f(b)(8).
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    As discussed above, the Exchange's proposal would, among other 
things, establish fees relating to a User's access to trading and 
execution services, connectivity to data feeds and to testing and 
certification feeds, connectivity to clearing, and other services. The 
Exchange believes that the proposed fees are consistent with Sections 
6(b)(4), (5), and (8) of the Act because the fees charged for co-
location services are constrained by the active competition for the 
order flow and other business from such market participants.\81\ The 
Exchange stated that charging excessive fees would make it stand to 
lose not only co-location revenues but also the liquidity of the 
formerly co-located trading firms.\82\ Additionally, the Exchange 
believes that because there are alternatives for a User both in and 
outside of the data center if it believes the fees are too excessive, 
the fees are consistent with the Act.\83\ Specifically, the Exchange 
noted that a User could terminate its co-location arrangement with the 
exchange ``and adopt a possible range of alternative strategies, 
including placing their servers in a physically proximate location 
outside the exchange's data center (which could be a competing 
exchange), or pursuing strategies less dependent upon the lower 
exchange-to-participant latency associated with co-location.'' \84\ 
Additionally, ``[a]s alternatives to using the Access and Connectivity 
provided by the Exchange, a User may access or connect to such services 
and products through another User or through a connection to an 
Exchange access center outside the data center, third party access 
center, or third party vendor. The User may make such connection 
through a third party telecommunication provider, third party wireless 
network, the SFTI network, or a combination thereof.'' \85\ However, 
the Exchange also stated that the expectation of co-location was that 
normally Users would expect reduced latencies in sending orders to the 
Exchange and in receiving market data from the Exchange by being co-
located.\86\ Therefore, as the Exchange states in Amendment No. 2, both 
Included Data Products and Premium NYSE Data Products are ``directly 
related to the purpose of co-location.'' \87\ The commenter suggests 
\88\ that Users do not in fact have alternatives to paying the 
connectivity fee to obtain NYSE Premium Data Products. If these 
products are integral to co-located Users for trading on the Exchange, 
the Commission questions whether obtaining the information contained in 
these products from another source is, in fact, a viable alternative 
given the importance of receiving such information in a timely manner. 
The Commission is concerned that the Exchange has not supported its 
argument that there are viable alternatives for Users inside the data 
center in lieu of obtaining such information from the Exchange. The 
Commission seeks comment on whether Users do have viable alternatives 
to paying the Exchange a connectivity fee for the NYSE Premium Data 
Products.
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    \81\ See Notice, supra note 5, 81 FR at 66102.
    \82\ See id.
    \83\ See id.
    \84\ See id.
    \85\ See id.
    \86\ See id.
    \87\ See Amendment No. 2, supra note 8.
    \88\ See IEX Letter, supra note 6.
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    Additionally, the Exchange states that both Included Data Products 
and Premium NYSE Data Products are ``directly related to the purpose of 
co-location.'' The Commission is concerned that the Exchange has not 
made clear why including the cost of connectivity to the Included Data 
Products in the purchase of a LCN or IP network connection and charging 
an additional fee to obtain the Premium NYSE Data Products is an 
equitable allocation of reasonable dues, fees, and other charges among 
Users in the data center; does not unfairly discriminate between 
customers, issuers, brokers, or dealers; and does not impose a burden 
on competition which is not necessary or appropriate in furtherance of 
the purposes of the Act. The Commission is concerned that the Exchange 
has not identified a distinction between the provision of connectivity 
to Included Data Products and the provision of connectivity to Premium 
NYSE Data Products, as opposed to a distinction between the utility of 
the Included Data Products and Premium NYSE Data Products to Users, 
which the Exchange has demonstrated, even though these are all NYSE 
proprietary data products. Therefore, the Commission is concerned that 
the Exchange has not identified a reasonable basis for charging Users a 
separate connectivity fee for the Premium NYSE Data Products while 
including connectivity in the purchase price for a LCN/IP network 
connection. The Exchange stated in its filing that both are ``directly 
related to the purpose of co-location'' but it has not clearly 
justified why this permits including the connectivity fee for Included 
Data Products as part of the LCN or IP Network connection, even for 
those Users that do not use the Included Data Products, but not 
including the connectivity fee for the Premium NYSE Data Products as 
well.
    Similarly, the Exchange justifies the costs associated with 
providing these feeds by stating ``[i]n order to offer connectivity to 
the Premium NYSE Data Products, the Exchange must provide, maintain and 
operate the data center facility hardware and technology 
infrastructure. The Exchange must handle the installation, 
administration, monitoring, support and maintenance of the 
connectivity, including by ensuring that the network infrastructure has 
the

[[Page 83308]]

necessary bandwidth for the Premium NYSE Data Products and responding 
to any production issues.'' \89\ The Commission does not believe the 
Exchange has clearly explained why the same rationale would not apply 
to the Included Data Products. The Exchange has sought to justify this 
on the basis that the Premium NYSE Data Products are similar to any 
other service offered by the Exchange such as connectivity to Third 
Party Systems and DTCC.\90\ The Commission however is concerned that 
these Premium NYSE Data Products are similar to the Included Data 
Products and therefore should not include different fee structures as 
they are the same offering by the Exchange within the contemplated 
purpose of co-location. The Commission seeks comment on whether 
charging fees for Included Data Products and Premium NYSE Data Products 
in a different manner is consistent with Section 6(b)(4) of the Act.
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    \89\ See Amendment No. 2, supra note 8.
    \90\ See id.
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Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data and arguments with respect to the 
concerns identified above, as well as any other concerns they may have 
with the proposed rule change, as modified by Amendment Nos. 1 and 2. 
In particular, the Commission invites the written views of interested 
persons concerning whether the proposal, as modified by Amendment Nos. 
1 and 2, is consistent with Sections 6(b)(4), (5), or (8) \91\ or any 
other provision of the Act, or the rules and regulations thereunder. 
Although there does not appear to be any issue relevant to approval or 
disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4 under the Act,\92\ any request for an opportunity to make an 
oral presentation.\93\
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    \91\ 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8).
    \92\ 17 CFR 240.19b-4.
    \93\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Act Amendments of 1975, 
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 
94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal, as modified by Amendment Nos. 
1 and 2, should be approved or disapproved by December 12, 2016. Any 
person who wishes to file a rebuttal to any other person's submission 
must file that rebuttal by December 27, 2016. In light of the concerns 
raised by the proposed rule change, as discussed above, the Commission 
invites additional comment on the proposed rule change, as modified by 
Amendment Nos. 1 and 2, as the Commission continues its analysis of the 
proposed rule change's consistency with Sections 6(b)(4), (5) and 
(8),\94\ or any other provision of the Act, or the rules and 
regulations thereunder. The Commission asks that commenters address the 
sufficiency and merit of the Exchange's statements in support of the 
proposed rule change, as modified by Amendment Nos. 1 and 2, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
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    \94\ 15 U.S.C. 78f(b)(4), (b)(5), and (b)(8).
---------------------------------------------------------------------------

    Comments may be submitted by any of the following methods:

Electronic Comments:

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-NYSE-2016-45 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-NYSE-2016-45. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-NYSE-2016-45, and shoul`d be 
submitted by December 12, 2016. Rebuttal comments should be submitted 
by December 27, 2016.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\95\
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    \95\ 17 CFR 200.30-3(a)(57).

Brent J. Fields,
Secretary.
[FR Doc. 2016-27896 Filed 11-18-16; 8:45 am]
BILLING CODE 8011-01-P