[Federal Register Volume 84, Number 36 (Friday, February 22, 2019)]
[Notices]
[Pages 5737-5739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03041]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85152; File Nos. SR-BX-2018-066 and SR-Phlx-2018-83]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Nasdaq PHLX LLC; 
Suspension of and Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove Proposed Rule Changes To Amend the Exchanges' 
Port Fee Schedules

February 15, 2019.

I. Introduction

    On December 20, 2018, Nasdaq BX, Inc. (``BX'') and Nasdaq PHLX LLC 
(``Phlx'') (each an ``Exchange,'' and collectively the ``Exchanges'') 
each 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 to amend its port fee schedule. Each proposed rule 
change was immediately effective upon filing with the Commission 
pursuant to Section 19(b)(3)(A) of the Act.\3\ Each proposed rule 
change was published for comment in the Federal Register on January 31, 
2019.\4\ The Commission has received no comment letters on the proposed 
rule changes. Under Section 19(b)(3)(C) of the Act,\5\ the Commission 
is hereby: (i) Temporarily suspending the proposed rule changes; and 
(ii) instituting proceedings to determine whether to approve or 
disapprove the proposed rule changes.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ See Securities Exchange Act Release Nos. 84965 (December 26, 
2018), 84 FR 842 (``BX Notice''); 84967 (December 26, 2018), 84 FR 
861 (``Phlx Notice'').
    \5\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Changes

    Equity 7, Section 115 of BX's rules and Equity 7, Section 3 of 
Phlx's rules set forth the Exchanges' port fee schedules. These port 
fee schedules provided that the fees for specified ports are assessed 
on a per port per month basis.
    In their proposals, each Exchange states that it currently assesses 
ports fees in two ways. First, for certain port types (i.e., Multicast 
TotalView-ITCH, TCP ITCH data feed, DROP, and their corresponding 
disaster recovery ports), the Exchange assigns a port only to the MPID 
of the customer that requested it.\6\ Even if, as a practical matter, 
others also utilize the port, the Exchange only bills the MPID of the 
customer that requested the port.\7\ According to the Exchanges, the 
requesting customer may then, at its discretion, subsequently bill any 
other users for their shared usage of the port.\8\ Second, for other 
port types (i.e., OUCH, FIX trading ports (FIX and FIX Lite), RASH, and 
their corresponding disaster recovery ports), the Exchange assigns the 
port to the MPID of the customer that requested it, as well as to any 
other MPIDs that the requester had specified.\9\ In these instances, 
the Exchange does not only bill the port-requesting MPID. Instead, the 
Exchange assesses a separate monthly fee to each of the MPIDs it 
assigned to the port.\10\
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    \6\ See BX Notice, supra note 4, at 842; Phlx Notice, supra note 
4, at 861.
    \7\ See BX Notice, supra note 4, at 842; Phlx Notice, supra note 
4, at 861.
    \8\ See BX Notice, supra note 4, at 842; Phlx Notice, supra note 
4, at 861.
    \9\ See BX Notice, supra note 4, at 842; Phlx Notice, supra note 
4, at 861.
    \10\ See BX Notice, supra note 4, at 842; Phlx Notice, supra 
note 4, at 861.
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    Each Exchange proposes to reorganize its port fee schedule into two 
sections. The first section would provide that, for OUCH, FIX trading 
ports (FIX and FIX Lite), RASH, and their corresponding disaster 
recovery ports, where a customer has requested that the Exchange assign 
more than one MPID to a particular port, the Exchange will assess a 
separate monthly fee to each MPID assigned to the port. Each Exchange 
also proposes to revise its price formula for these port types from 
``$X/port/month'' to ``$X/each MPID assigned to port/month.'' The 
second section would provide that, for Multicast TotalView-ITCH 
(software-based), TCP ITCH data feed, DROP, DROP disaster recovery, and 
trading ports used in test mode, the Exchange will assess the monthly 
fee to the single MPID that requested that particular port. For these 
ports, each Exchange would maintain its existing price formula of ``$X/
port/month.'' \11\
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    \11\ The second section of each Exchange's amended port fee 
schedule would also include the ports for which the Exchange charges 
no fee: Data retransmission ports (production and disaster 
recovery), disaster recovery ports for Multicast TotalView-ITCH 
(software-based), and disaster recovery ports for TCP ITCH data 
feed. Moreover, each Exchange proposes to add a parenthetical with 
the word ``Glimpse'' next to data retransmission ports to provide 
that such ports include access to the ``Glimpse'' product, which 
allows a subscriber to replay market data from the current trading 
day.
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    Each Exchange represents that its proposal would merely codify the 
existing practices of the Exchange with respect to port fees and would 
not make any substantive changes to the port fees that the Exchange's 
customers have been paying to date.\12\
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    \12\ See BX Notice, supra note 4, at 842-43; Phlx Notice, supra 
note 4, at 862. BX also proposes to correct a typographical error in 
the port fee schedule. Phlx also proposes to remove an expired fee 
waiver from the port fee schedule.
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III. Suspension of the Proposed Rule Changes

    Pursuant to Section 19(b)(3)(C) of the Act,\13\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\14\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization (``SRO'') if it appears to the Commission that such action 
is necessary or appropriate in the public interest, for the protection 
of investors, or otherwise in furtherance of the purposes of the Act. 
As discussed below, the Commission believes a temporary suspension of 
the proposed rule changes is necessary and appropriate to allow for 
additional analysis of the proposed rule changes' consistency with the 
Act and the rules thereunder.
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    \13\ 15 U.S.C. 78s(b)(3)(C).
    \14\ 15 U.S.C. 78s(b)(1).
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    The Commission notes that, in connection with the proposals, each 
Exchange states its belief that the existing per port per month 
language is accurate, but the language should be more descriptive so as 
to avoid confusion as to the circumstances in which a customer will 
incur port fees.\15\ Moreover, in describing why its proposal is 
consistent with Sections 6(b)(4) and 6(b)(5) of the Act,\16\ each 
Exchange relies on the argument that its proposal would clarify and 
more fully describe the port fees, codify the Exchange's existing 
practices for assessing port fees, avoid potential

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confusion among customers, and would not change the fees that port 
users currently pay.\17\ Similarly, in discussing why its proposal 
would not impose any burden on competition not necessary or appropriate 
in furtherance of the purposes of the Act, each Exchange relies on the 
argument that its proposal would merely codify existing practice and 
would not change the fees that the Exchange currently charges.\18\
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    \15\ See BX Notice, supra note 4, at 842; Phlx Notice, supra 
note 4, at 861.
    \16\ See 15 U.S.C. 78f(b)(4), (5).
    \17\ See BX Notice, supra note 4, at 842-43; Phlx Notice, supra 
note 4, at 862.
    \18\ See BX Notice, supra note 4, at 843; Phlx Notice, supra 
note 4, at 862.
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    The Commission notes that the Exchanges do not provide other 
explanations for why the proposals are consistent with the Act, such as 
why it is consistent with the Act to charge a fee for each MPID 
assigned to certain port types offered by the Exchange (i.e., OUCH, FIX 
trading port, RASH, and corresponding disaster recovery ports), rather 
than simply charging one fee per port for all port types. As noted 
above, the proposals would amend the Exchanges' price formulas for 
these port types from ``$X/port/month'' to ``$X/each MPID assigned to 
port/month,'' which reflects that if there are multiple MPIDs assigned 
to one of these ports, rather than charging one ``$X/port/month'' fee 
for the port, the Exchanges charge a multiple of the ``$X/port/month'' 
fee for the port (i.e., a separate fee for each MPID assigned).\19\ The 
Commission also notes that, while the Exchanges state that the 
proposals would reflect their existing practices for assessing port 
fees, the Exchanges do not reference previous Exchange rule filings 
that explained why their existing practices (i.e., for a subset of the 
port types offered, charging a fee for each MPID assigned to the port) 
are consistent with the Act.
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    \19\ See supra Section II.
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    When exchanges file proposed rule changes with the Commission, they 
are required to provide a statement supporting the proposal's basis 
under the Act and the rules and regulations thereunder applicable to 
the exchange.\20\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \21\
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    \20\ See Form 19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \21\ Id.
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    Among other things, exchange proposed rule changes are subject to 
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which 
require the rules of an exchange to: (1) Provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \22\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \23\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\24\
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    \22\ 15 U.S.C. 78f(b)(4).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 15 U.S.C. 78f(b)(8).
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    In temporarily suspending the changes to the Exchanges' fee 
schedules, the Commission intends to further consider whether the 
proposed changes to the Exchanges' port fee schedules are consistent 
with the statutory requirements applicable to a national securities 
exchange under the Act. In particular, the Commission will consider 
whether the proposed rule changes satisfy the standards under the Act 
and the rules thereunder requiring, among other things, that an 
exchange's rules provide for the equitable allocation of reasonable 
fees among members, issuers, and other persons using its facilities; 
not permit unfair discrimination between customers, issuers, brokers or 
dealers; and do not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\25\
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    \25\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule changes.\26\
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    \26\ For purposes of temporarily suspending the proposed rule 
changes, the Commission has considered the proposed rules' impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Changes

    The Commission is instituting proceedings pursuant to Sections 
19(b)(3)(C) \27\ and 19(b)(2)(B) of the Act \28\ to determine whether 
the proposed rule changes should be approved or disapproved. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, the Commission seeks and encourages interested persons to 
provide additional comment on the proposed rule changes to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule changes.
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    \27\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \28\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\29\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
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    \29\ 15 U.S.C. 78s(b)(2)(B).
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     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,'' \30\
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    \30\ 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 mechanism 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,'' \31\ and
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    \31\ 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].'' \32\
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    \32\ 15 U.S.C. 78f(b)(8).
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    As noted above, the proposals would, among other things, amend the 
Exchanges' port fee schedules to provide that certain port fees are 
charged on a ``$X/each MPID assigned to port/month'' basis rather than 
a ``$X/port/month'' basis.\33\ Also as discussed above, in connection 
with the proposals, each Exchange states that its proposal would 
clarify and more fully describe the port fees, codify the Exchange's 
existing practices for assessing port fees, avoid potential confusion 
among customers, and would not change the fees that port users 
currently pay.\34\ The Exchanges do not provide other explanations for 
why the proposals are consistent with the Act, and do not reference 
previous Exchange rule filings that provided such explanations.
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    \33\ See supra Section II.
    \34\ See supra Section III.
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . .

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is on the [SRO] that proposed the rule change.'' \35\ The description 
of a proposed rule change, its purpose and operation, its effect, and a 
legal analysis of its consistency with applicable requirements must all 
be sufficiently detailed and specific to support an affirmative 
Commission finding,\36\ and any failure of an SRO to provide this 
information may result in the Commission not having a sufficient basis 
to make an affirmative finding that a proposed rule change is 
consistent with the Act and the applicable rules and regulations 
thereunder.\37\
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    \35\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \36\ See id.
    \37\ See id.
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    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed rule changes are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated; be designed to perfect the mechanism of a free 
and open market and the national market system, protect investors and 
the public interest, and not be unfairly discriminatory; and not impose 
an unnecessary or inappropriate burden on competition.\38\
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    \38\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by March 15, 2019. Rebuttal 
comments should be submitted by March 29, 2019. Although there do not 
appear to be any issues 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, any request for 
an opportunity to make an oral presentation.\39\
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    \39\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants 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 an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchanges' statements in support of the proposals, in 
addition to any other comments they may wish to submit about the 
proposed rule changes. Interested persons are invited to submit written 
data, views, and arguments concerning the proposed rule changes, 
including whether the proposed rule changes are 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-2018-066, SR-Phlx-2018-83, or both 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 Number SR-BX-2018-066, SR-Phlx-
2018-83, or both. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submissions, all subsequent 
amendments, all written statements with respect to the proposed rule 
changes that are filed with the Commission, and all written 
communications relating to the proposed rule changes 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 10:00 a.m. and 3:00 p.m. Copies of 
the filings also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-BX-
2018-066, SR-Phlx-2018-83, or both and should be submitted on or before 
March 15, 2019. Rebuttal comments should be submitted by March 29, 
2019.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\40\ that File Numbers SR-BX-2018-066 and SR-Phlx-2018-83 be and 
hereby are, temporarily suspended. In addition, the Commission is 
instituting proceedings to determine whether the proposed rule changes 
should be approved or disapproved.
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    \40\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(57), (58).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03041 Filed 2-21-19; 8:45 am]
 BILLING CODE 8011-01-P