[Federal Register Volume 84, Number 240 (Friday, December 13, 2019)]
[Notices]
[Pages 68258-68263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26836]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87686; File No. SR-NYSECHX-2019-23]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Amending the
Fee Schedule of NYSE Chicago, Inc. Related to Co-Location Services
December 9, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on November 25, 2019, the NYSE Chicago, Inc. (``NYSE
Chicago'' or the ``Exchange'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Fee Schedule of NYSE Chicago,
Inc. (the ``Fee Schedule'') related to co-location services to
eliminate (a) a connectivity option whose manufacturer will no longer
support a key component of the network hardware, and (b) services that
are no longer utilized by Users. The proposed rule change is available
on the Exchange's website at www.nyse.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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule related to co-
location \4\ services offered by the Exchange to eliminate (a) a
connectivity option whose manufacturer will no longer support a key
component of the network hardware, and (b) services that are no longer
utilized by Users.\5\
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\4\ The Exchange initially filed rule changes relating to its
co-location services with the Securities and Exchange Commission
(``Commission'') in October 2019. See Securities Exchange Act
Release No. 87408 (October 28, 2019), 84 FR 58778 (November 1, 2019)
(SR-NYSECHX-2019-27) (``Co-location Notice''). The Exchange operates
a data center in Mahwah, New Jersey (the ``data center'') from which
it provides co-location services to Users.
\5\ 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. See id. at note 6. As specified in the Fee
Schedule, 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 the New York Stock Exchange LLC (``NYSE''),
NYSE American LLC (``NYSE American''), NYSE Arca, Inc. (``NYSE
Arca''), and NYSE National, Inc. (``NYSE National'' and together,
the ``Affiliate SROs''). See id. at 58779.
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Proposed Change
LCN 10 Gb Circuit
Among other connectivity options, Users are able to connect to the
Exchange over the Liquidity Center Network (``LCN''), a local area
network available in the data center.\6\ LCN access is available at 1,
10 and 40 Gb bandwidth capacities. Currently, Users have two 10 Gb
options for LCN access:
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\6\ The other local area network is the internet protocol
(``IP'') network. See Co-location Notice, supra note 4, at 58780.
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LCN 10 Gb, which has been in place since 2010,\7\ and
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\7\ See Securities Exchange Act Release Nos. 62960 (September
21, 2010), 75 FR 59310 (September 27, 2010) (SR-NYSE-2010-56); 62961
(September 21, 2010), 75 FR 59299 (September 27, 2010) (SR-NYSEAmex-
2010-80); and 63275 (November 8, 2010), 75 FR 70048 (November 16,
2010) (SR-NYSEArca-2010-100). In July 2018, the Exchange and its
direct parent company were acquired by NYSE Group, Inc. As a result,
the Exchange and the Affiliate SROs are direct or indirect
subsidiaries of NYSE Group, Inc. and, indirectly, Intercontinental
Exchange, Inc. See Exchange Act Release No. 83635 (July 13, 2018),
83 FR 34182 (July 19, 2018) (SR-CHX-2018-004); see also Exchange Act
Release No. 83303 (May 22, 2018), 83 FR 24517 (May 29, 2018) (SR-
CHX-2018-004).
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LCN 10 Gb LX, which was introduced in 2013.\8\
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\8\ See Securities Exchange Act Release Nos. 70888 (November 15,
2013), 78 FR 69907 (November 21, 2013) (SR-NYSE-2013-73); 70979
(December 4, 2013), 78 FR 74200 (December 10, 2013) (SR-NYSE-2013-
77); 70886 (November 15, 2013), 78 FR 69904 (November 21, 2013) (SR-
NYSEMKT-2013-92); 70982 (December 4, 2013), 78 FR 74197 (December
10, 2013) (SR-NYSEMKT-2013-97); 70887 (November 15, 2013), 78 FR
69897 (November 21, 2013) (SR-NYSEArca-2013-123); and 70981
(December 4, 2013), 78 FR 74203 (December 10, 2013) (SR-NYSEARCA-
2013-131).
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[[Page 68259]]
The LCN 10 Gb LX has a lower latency than the LCN 10 Gb connection,
and has latency levels substantially similar to those of the LCN 40 Gb
connection.\9\ Between the two 10 Gb LCN alternatives, the vast
majority (80%) of User connections are the newer LCN 10Gb LX
connections.
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\9\ See 78 FR 69907, supra note 8, at 69907.
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The Exchange proposes to cease offering the LCN 10 Gb connection.
The Exchange does not propose the current change lightly: It recognizes
that removing the LCN 10 Gb connection from its Fee Schedule would
eliminate a connectivity option previously available to Users. For the
reasons discussed below, however, the Exchange has concluded that the
proposed change is necessary because it believes that if it does not
eliminate the LCN 10 Gb connections, the Exchange's ability to provide
support or supplies to Users with LCN 10 Gb connections would be
compromised.
For each LCN connection, the network hardware relies on a switch,
which acts as the ``gatekeeper'' for a User's inbound messaging (e.g.,
orders and quotes) sent to the Exchange's trading and execution system
and the Exchange's outbound messaging (e.g., market data and drop
copies) within the data center.\10\ Switches are manufactured and sold
to the Exchange by third parties. Currently, the LCN 1 Gb and LCN 10 Gb
connections use one type of switch (the ``First Switch'') and the LCN
10 Gb LX and LCN 40 Gb connections use a second type of switch (the
``Second Switch'').\11\
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\10\ See id. at 69908.
\11\ See id. at note 7.
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The manufacturer of the First Switch made an ``end of life''
(``EOL'') announcement notifying customers that the First Switch is
being discontinued. The manufacturer stated that it is phasing out the
provision of replacement parts and support for the First Switch. Per
its EOL notice, it has ceased offering the First Switch, and, as of
January 1, 2020: \12\
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\12\ ``JTAC Technical Bulletin,'' at https://kb.juniper.net/resources/sites/CUSTOMERSERVICE/content/live/TECHNICAL_BULLETINS/16000/TSB16960/en_US/TSB16960.pdf. See also ``Juniper Networks
Product End-of-Life,'' at https://support.juniper.net/support/pdf/eol/990833.pdf.
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It has no commitment to furnish software engineering level
support for the operating system software licensed for the First
Switch. No further service or maintenance releases or patches will be
created to support the First Switch.
It has no commitment to perform hardware engineering level
support, including hardware modifications and failure analysis, for
hardware defects.
As a consequence, the Exchange will not be able to provide Users
with new LCN 10 Gb connections or give the present level of support to
existing ones, and so it proposes to discontinue the service and remove
it from the Fee Schedule.\13\
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\13\ The Fee Schedule provides that a User that purchased five
10 Gb LCN connections would be charged the initial fee for a sixth
10 Gb LCN connection but would not be charged the monthly fee that
would otherwise be applicable. Currently, no Users qualify for the
discount. As part of the proposed change, the provision would be
deleted.
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The Exchange plans to implement the change during the first half of
2020.\14\ It will announce the implementation date through a customer
notice. After the implementation date, the Exchange will not accept new
orders for LCN 10 Gb connections.\15\
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\14\ Also during the first half of 2020, the Exchange expects to
update the network hardware of the LCN 10 Gb LX and LCN 40 Gb
connections by replacing the Second Switch with a new switch (the
``New Switch''). The Exchange plans to update the LCN 1 Gb network
hardware with the New Switch as well, which would allow the Exchange
to continue to offer the LCN 1 Gb circuit despite the EOL of the
First Switch. Because the New Switch, like the Second Switch, will
provide a lower-latency connection, the Exchange expects that the
latency of the LCN 1 Gb will decrease.
The Exchange does not propose to make a similar change to the
LCN 10 Gb network hardware because, if it did, there would be no
difference between the LCN 10 Gb and the LCN 10 Gb LX connection:
They would have the same bandwidth and latency levels. However, the
two services cannot have the same latency. Rather, the LCN 10 Gb LX
has a lower latency than the LCN 10 Gb connection. See, e.g., 78 FR
69907, supra note 8, at 69907. Its latency levels are similar to
those of the LCN 40 Gb connection, and the same fees are assessed
for both services. See 78 FR 74200, supra note 8, at 74201-74202. In
addition, the Exchange does not believe that it would be reasonable
or equitable to charge different fees for equivalent services. See
id.
\15\ The Exchange believes that it has enough First Switches to
fulfil any orders it may receive prior to the implementation date.
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To provide time for Users that have LCN 10 Gb connections
(``Current Users'') to implement any changes, the Exchange proposes to
give them a six month grace period, starting on the implementation
date. After the grace period ends, any remaining LCN 10 Gb connections
will be terminated. The Exchange also proposes to waive any change fees
\16\ and non-recurring charges \17\ that a Current User would otherwise
incur as a result of the proposed change.
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\16\ The Exchange charges a User a ``Change Fee'' if the User
requests a change to one or more existing co-location services that
the Exchange has already established or completed for the User. See
Co-location Notice, supra note 4, at 58785.
\17\ Co-location connectivity services have a non-recurring
initial charge. For example, the LCN 10 Gb LX has a $15,000 initial
charge per connection. See id. at 58783.
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Bundled Network Access
The Exchange currently offers a pair of ``bundled'' connectivity
options (``Bundled Network Access'') at 1 and 10 Gb bandwidths,\18\ but
no User is utilizing one. Accordingly, the Exchange proposes to
discontinue the Bundled Network Access options and remove references to
the related pricing from the Fee Schedule.
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\18\ See id.
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The change would be consistent with previous practice: In 2014 and
2016 previously existing bundled network access connectivity options
were discontinued, as they were no longer utilized by Users.\19\
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\19\ See Securities Exchange Act Release Nos. 77975 (June 2,
2016), 81 FR 36973 (June 8, 2016) (SR-NYSE-2016-39); 72721 (July 30,
2014), 79 FR 45562 (August 5, 2014) (SR-NYSE-2014-37); 77973 (June
2, 2016), 81 FR 36975 (June 8, 2016) (SR-NYSEMKT-2016-57); 72719
(July 30, 2014), 79 FR 45502 (August 5, 2014) (SR-NYSEMKT-2014-61;
77977 (June 2, 2016), 81 FR 36981 (June 8, 2016) (SR-NYSEArca-2016-
77; and 72720 (July 30, 2014), 79 FR 45577 (August 5, 2014) (SR-
NYSEArca-2014-81).
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Application and Impact of the Proposed Change
The proposed change would not apply differently to distinct types
or sizes of market participants. Rather, it would apply to all Users
equally. As is currently the case, the purchase of any colocation
service is completely voluntary and the Fee Schedule is applied
uniformly to all Users.
LCN 10 Gb
As a consequence of the manufacturer's declaration of EOL for the
First Switch, the Exchange will not be able to provide Users with new
LCN 10 Gb connections or give the present level of support to the nine
Current Users' existing LCN 10 Gb connections. Accordingly, after the
implementation date, the Exchange will not accept new orders for LCN 10
Gb connections and, after the grace period, it will terminate any
remaining LCN 10 Gb connections. The Exchange also proposes to waive
any change fees and non-recurring charges that a Current User would
otherwise incur as a result of the proposed change.
The Current Users have several options available to them upon
termination of the LCN 10 GB connections:
A Current User may move to the faster LCN 10 Gb LX
connection. The change would increase the User's
[[Page 68260]]
monthly recurring charge from $14,000 to $22,000, but the User would
benefit from a faster connection while maintaining the same amount of
bandwidth and system redundancy.
A Current User may move to the slower IP Network, which
offers a 10 Gb circuit alternative. The change would lower the User's
monthly recurring charge from $14,000 to $11,000. The connection would
have greater latency, but the User would maintain the same bandwidth
and resiliency.
A Current User may opt to re-tailor its system to reduce
the number of LCN connections it has. For example, a Current User with
two LCN 10 Gb connections could consolidate them into one LCN 40 Gb
connection. The change would decrease the User's monthly recurring
charge from $28,000 to $22,000 while allowing it to benefit from a
faster connection and increased bandwidth, although it would reduce the
redundancy of its connection.
A Current User may opt to become a ``Hosted Customer'' by
being hosted by another User (a ``Hosting User''), or to cross connect
to another User within co-location, either of which would likely
decrease its monthly connectivity costs and available bandwidth.\20\
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\20\ See Co-location Notice, supra note 4, at 58782-58783. The
Exchange does not have visibility into what other Users, including
Hosting Users, charge or the bandwidth they offer, but to the best
of its knowledge no Hosting User offers its hosted customers a 10 Gb
connection.
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The Exchange expects to work with the Current Users to implement
the change.
Bundled Network Access
As no Users utilize a Bundled Network Access option, no Users will
be impacted by the proposed change.
Competitive Environment
The Exchange operates in a highly competitive market in which
exchanges and other vendors (e.g., Hosting Users) offer co-location
services as a means to facilitate the trading and other market
activities of those market participants who believe that co-location
enhances the efficiency of their operations. The Commission has
repeatedly expressed its preference for competition over regulatory
intervention in determining prices, products, and services in the
securities markets. Specifically, in Regulation NMS, 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.'' \21\
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\21\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
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General
As is the case with all Exchange co-location arrangements, (i)
neither a User nor any of the User's customers would be permitted to
submit orders directly to the Exchange unless such User or customer is
a member organization, a Sponsored Participant or an agent thereof
(e.g., a service bureau providing order entry services); (ii) use of
the co-location services proposed herein would be completely voluntary
and available to all Users on a non-discriminatory basis; \22\ and
(iii) a User would only incur one charge for the particular co-location
service described herein, regardless of whether the User connects only
to the Exchange or to the Exchange and one or more of the Affiliate
SROs.\23\
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\22\ As is currently the case, Users that receive co-location
services from the Exchange will not receive any means of access to
the Exchange's trading and execution systems that is separate from,
or superior to, that of other Users. In this regard, all orders sent
to the Exchange enter the Exchange's trading and execution systems
through the same order gateway, regardless of whether the sender is
co-located in the data center or not. In addition, co-located Users
do not receive any market data or data service product that is not
available to all Users, although Users that receive co-location
services normally would expect reduced latencies, as compared to
Users that are not co-located, in sending orders to, and receiving
market data from, the Exchange.
\23\ See Co-location Notice, supra note 4, at 58790. Each
Affiliate SRO has submitted substantially the same proposed rule
change to propose the changes described herein. See SR-NYSE-2019-66,
SR-NYSEAmer-2019-52, SR-NYSEArca-2019-85, and SR-NYSENAT-2019-29.
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The proposed change is not otherwise intended to address any other
issues relating to co-location services and/or related fees, and the
Exchange is not aware of any problems that Users would have in
complying with the proposed change.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\24\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\25\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers. In addition, it is designed to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to, and
perfect the mechanisms of, a free and open market and a national market
system and, in general, to protect investors and the public interest
and because it is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
The Exchange believes that the proposed rule change is reasonable
for the following reasons.
As a consequence of the manufacturer's declaration of the First
Switch's EOL, the Exchange believes that, if it did not eliminate the
LCN 10 Gb connections, it would be unable to provide the current level
of support to Users that have such connections. More specifically,
pursuant to its EOL, the manufacturer is ceasing to offer the First
Switch and terminating its software and hardware engineering level
support. As a result, when the inevitable hardware or software issues
involving the First Switch arose, the Exchange would not have the
manufacturer resources available to solve connectivity issues or
replace switches, and Users' connections to the Exchange could be
compromised or wholly cut off. At the same time, if a User requested a
new or replacement LCN 10 Gb connection, the Exchange would not be able
to obtain one. Accordingly, the Exchange believes that it is reasonable
to eliminate the LCN 10 Gb connectivity option.
The Exchange believes that the proposed change will facilitate its
compliance with the requirements of Regulation Systems Compliance and
Integrity (``SCI'').\26\ The LCN is an SCI system \27\ of the Exchange,
which is itself an SCI entity. Accordingly, the Exchange is obligated
to have reasonable policies and procedures in place to ensure the LCN
has a level of capacity, integrity, resiliency, availability and
security, adequate to maintain the Exchange's operational capability
and promote the maintenance of fair and orderly markets.\28\ Because
the manufacturer is ceasing to offer the First Switch, if the Exchange
is unable to eliminate the LCN 10 Gb connectivity
[[Page 68261]]
option its reasonable policies and procedures would need to contemplate
being unable to resolve connectivity issues related to First Switches
or even replace them. Regulation SCI also obligates SCI entities such
as the Exchange to take corrective action upon the occurrence of an SCI
event to mitigate potential harm to investors and market integrity. The
Exchange's ability to take such action promptly and effectively, if
needed, with respect to the LCN 10 Gb connection would be severely
limited by its inability to seek support from the manufacturer should
issues arise with the First Switch. Accordingly, the Exchange believes
that, in light of the EOL of the First Switch, the proposed change to
eliminate the LCN 10 Gb connectivity option is a reasonable solution.
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\26\ 17 CFR 242.1000 through 242.1007; see also Securities
Exchange Act Release No. 73639, 79 FR 72251 (December 5, 2015)
(adopting Regulation Systems Compliance and Integrity).
\27\ ``SCI systems'' means ``all computer, network, electronic,
technical, automated, or similar systems of, or operated by or on
behalf of, an SCI entity that, with respect to securities, directly
support trading, clearance and settlement, order routing, market
data, market regulation, or market surveillance.'' 17 CFR 242.1000.
\28\ 79 FR 72251, supra note 26, at 72256-72257.
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The Exchange believes the situation is analogous to when an SCI
entity determines to utilize a third party to operate an SCI system on
its behalf. As the Commission has noted, in such case, the SCI entity
``is responsible for having in place processes and requirements to
ensure that it is able to satisfy the requirements of Regulation SCI
for systems operated on behalf of the SCI entity by a third party.''
\29\ Likewise, ``if an SCI entity is uncertain of its ability to manage
a third-party relationship (whether through due diligence, contract
terms, monitoring, or other methods) to satisfy the requirements of
Regulation SCI, then it would need to reassess its decision to
outsource the applicable system to such third party.'' \30\ In the
present case, the third party that provides the First Switch, an
important part of the network hardware for the LCN 10 Gb connection,
has declared its intention to discontinue both production of and
technical support for the First Switch. Given that, the Exchange has
assessed its ability to manage the LCN 10 Gb connection going forward,
and has concluded that it cannot continue to offer a product that
relies on the First Switch.
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\29\ Id. at 72276.
\30\ Id.
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The Exchange believes that providing Current Users with a six month
grace period and waiving any applicable change fees and non-recurring
charges would be reasonable because Current Users would be terminating
their LCN 10 Gb connections at the Exchange's request. The grace period
would provide a Current User with time to terminate its LCN 10 Gb
connection, move to an LCN 10 Gb LX connection, move to a 10 Gb IP
network connection, re-tailor its system to reduce the number of
connections, become a Hosted Customer, cross-connect to another User,
or otherwise adjust for the change. The fee waivers would help to
alleviate the burden of the change on the Current Users.
With respect to the Bundled Network Access, the Exchange believes
that the proposed change is reasonable because it would permit the
Exchange to streamline the offerings available to Users in the data
center by eliminating services that Users no longer utilize and, by
removing references to related pricing from the Fee Schedule, make the
Fee Schedule easier to read, understand and administer. In addition,
removing services that Users do not utilize from the co-location
offerings would contribute to a more efficient process for managing the
various services offered to Users, which would improve the utilization
of the data center resources, both with respect to personnel and
infrastructure, including hardware and software.
The Proposed Rule Change Is Equitable
The Exchange believes the proposed rule change is an equitable
allocation of its fees and credits for the following reasons.
The Exchange believes that providing Current Users with a six month
grace period and waiving any applicable change fees and non-recurring
charges would be equitable because Current Users would be terminating
their LCN 10 Gb connections at the Exchange's request. The grace period
would provide a Current User with time to terminate its LCN 10 Gb
connection, move to an LCN 10 Gb LX connection, move to a 10 Gb IP
network connection, re-tailor its system to reduce the number of
connections, become a Hosted Customer, cross-connect to another User,
or otherwise adjust for the change.
The fee waivers would help to alleviate the burden of the change on
the Current Users. With respect to the Bundled Network Access, the
Exchange believes that the proposed change is reasonable because it
would permit the Exchange to streamline the offerings available to
Users in the data center by eliminating services that Users no longer
utilize and, by removing references to related pricing from the Fee
Schedule, make the Fee Schedule easier to read, understand and
administer.
The Proposed Rule Change Would Protect Investors and the Public
Interest
The Exchange believes that the proposed rule change would perfect
the mechanisms of a free and open market and a national market system
and, in general, protect investors and the public interest for the
following reasons.
It would be against the protection of investors and the public
interest if the Exchange were to continue to offer an older
connectivity option that it could not support at current levels, or if,
as a consequence of the EOL, Users' connectivity was compromised or
they were wholly unable to use it to connect to the Exchange. As noted
above, as a consequence of the manufacturer's declaration of the First
Switch's EOL, if the Exchange did not eliminate the LCN 10 Gb
connections, the Exchange believes it would be unable to provide the
current level of support to Users that have such connections. When the
inevitable hardware or software issues involving the First Switch
arose, the Exchange would not have the manufacturer resources available
to solve connectivity issues or replace switches, and Users'
connections to the Exchange could be compromised or wholly cut off. At
the same time, if a User requested a new or replacement LCN 10 Gb
connection, the Exchange would not be able to obtain one.
The Exchange believes that the proposed change will protect
investors and the public interest because it will facilitate the
Exchange's compliance with the requirements of Regulation SCI. The
Exchange is obligated to have reasonable policies and procedures in
place to ensure the LCN, as an SCI system, has a level of capacity,
integrity, resiliency, availability and security, adequate to maintain
the Exchange's operational capability and promote the maintenance of
fair and orderly markets.\31\ Because the manufacturer is ceasing to
offer the First Switch, if the Exchange is unable to eliminate the LCN
10 Gb connectivity option its reasonable policies and procedures would
need to contemplate being unable to resolve connectivity issues related
to First Switches or even replace them. Regulation SCI also obligates
SCI entities such as the Exchange to take corrective action upon the
occurrence of an SCI event to mitigate potential harm to investors and
market integrity. The Exchange's ability to take such action promptly
and effectively, if needed, with respect to the LCN 10 Gb connection
would be severely limited by its inability to seek support from the
manufacturer should issues arise with the First Switch. Not being able
to resolve connectivity issues related to First Switches or even
replace them would make the Exchange's compliance with Regulation SCI
suboptimal.
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\31\ Id.
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[[Page 68262]]
With respect to the Bundled Network Access, the Exchange believes
that the proposed change would protect investors and the public
interest because it would permit the Exchange to streamline the
offerings available to Users in the data center by eliminating services
that Users no longer utilize and, by removing references to related
pricing from the Fee Schedule, make the Fee Schedule easier to read,
understand and administer.
The Proposed Change Is Not Unfairly Discriminatory
The Exchange believes that the proposed change is not unfairly
discriminatory for the following reasons.
The proposed change would not apply differently to distinct types
or sizes of market participants. Rather, it would apply to all Users
equally. As a consequence of the manufacturer's declaration of EOL for
the First Switch, the Exchange will not be able to provide any Users
with new LCN 10 Gb connections or give the present level of support to
Current Users' existing ones. In addition, no Users would be able to
purchase the Bundled Network Access. The Exchange believes that,
because no Users utilize such services, it would be equitable and not
unfairly discriminatory to discontinue the services.
At the same time, Users would continue to have the choice of
purchasing an LCN 1 Gb, LCN 10 Gb LX, LCN 40 Gb or IP network
connection or any of the other connectivity options available. Use of
any co-location service is completely voluntary, and each market
participant is able to determine whether to use co-location services
based on the requirements of its business operations.
For the reasons above, the proposed changes do not unfairly
discriminate between or among market participants that are otherwise
capable of satisfying any applicable co-location fees, requirements,
terms and conditions established from time to time by the Exchange.
For these reasons, the Exchange believes that the proposal is
consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\32\ the Exchange
believes that the proposed rule change will not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
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\32\ 15 U.S.C. 78f(b)(8).
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Intramarket Competition
The Exchange does not believe that the proposed change would place
any burden on intramarket competition that is not necessary or
appropriate. The proposed change would not apply differently to
distinct types or sizes of market participants. Rather, it would apply
to all Users equally: No Users would be able to purchase a LCN 10 Gb
connection or Bundled Network Access.
The Exchange does not propose the current change lightly: It
recognizes that removing the LCN 10 Gb connection from its Fee Schedule
would eliminate a connectivity option previously available to Users. As
a consequence of the change, nine Current Users would be required to
terminate their LCN 10 Gb connections and either move to LCN 10 Gb LX
connections, move to 10 Gb IP network connections, re-tailor their
systems to reduce the number of connections, become Hosted Customers,
cross-connect to other Users, or otherwise adjust for the change.
Nonetheless, the Exchange believes that the change is necessary and
appropriate because, as a consequence of the manufacturer's declaration
of the First Switch's EOL, if the Exchange did not eliminate the LCN 10
Gb connections, the Exchange's ability to provide support or supplies
to Users that have such connections would be compromised. Not being
able to resolve connectivity issues related to First Switches or even
replace them would make the Exchange's compliance with Regulation SCI
suboptimal. When the inevitable hardware or software issues involving
the First Switch arose, the Exchange would not have the manufacturer
resources available to solve connectivity issues or replace switches.
Users' connections to the Exchange could be compromised or wholly cut
off. At the same time, if a User requested a new or replacement LCN 10
Gb connection, the Exchange would not be able to obtain one. It would
be contrary to the protection of investors and the public interest if
the Exchange were to continue to offer a connectivity option that it
could not support, or if Users were compromised or wholly unable to use
their connectivity to connect to the Exchange.
The Exchange believes that providing Current Users with a six month
grace period and waiving any applicable change fees and non-recurring
charges would not place any burden on intramarket competition that is
not necessary or appropriate because Current Users would be terminating
their LCN 10 Gb connections at the Exchange's request. The grace period
would provide a Current User with time to terminate its LCN 10 Gb
connections and adjust for the change, while the fee waivers would help
to alleviate the burden of the change.
With respect to the Bundled Network Access, the Exchange believes
that the proposed change would not place any burden on intramarket
competition that is not necessary or appropriate, as currently no Users
utilize the service, and so no Users would be affected. The change
would permit the Exchange to streamline the offerings available to
Users in the data center and, by removing references to related pricing
from the Fee Schedule, make the Fee Schedule easier to read, understand
and administer. In addition, removing services that Users do not
utilize from the co-location offerings would contribute to a more
efficient process for managing the various services offered to Users,
which would improve the utilization of the data center resources, both
with respect to personnel and infrastructure, including hardware and
software.
Users would continue to have the choice of purchasing an LCN 1 Gb,
LCN 10 Gb LX, LCN 40 Gb or IP network connection or any of the other
connectivity options available. Use of any co-location service is
completely voluntary, and each market participant is able to determine
whether to use co-location services based on the requirements of its
business operations.
Intermarket Competition
The Exchange does not believe that the proposed fee would impose
any burden on intermarket competition that is not necessary or
appropriate.
The Exchange operates in a highly competitive market in which
exchanges and other vendors (i.e., Hosting Users) offer co-location
services as a means to facilitate the trading and other market
activities of those market participants who believe that co-location
enhances the efficiency of their operations. Accordingly, fees charged
for co-location services are constrained by the active competition for
the order flow of, and other business from, such market participants.
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. Specifically, in
Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market
[[Page 68263]]
system ``has been remarkably successful in promoting market competition
in its broader forms that are most important to investors and listed
companies.'' \33\
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\33\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
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As noted above, the Exchange recognizes that removing the LCN 10 Gb
connection from its Fee Schedule would eliminate a connectivity option
previously available to Users. Indeed, the proposed change may
negatively impact the Exchange's revenues, since Current Users may opt
to re-tailor their systems to reduce the number of connections, move to
10 Gb IP network connections, re-tailor become Hosted Customers, or
cross-connect to another User. Such choices, any of which would reduce
revenue, may be more attractive to Users as a consequence of the
change.
Nonetheless, the Exchange believes that the change is necessary and
appropriate because, as a consequence of the manufacturer's declaration
of the First Switch's EOL, if the Exchange did not eliminate the LCN 10
Gb connections, the Exchange's ability to provide support or supplies
to Users that have such connections would be compromised. Not being
able to resolve connectivity issues related to First Switches or even
replace them would make the Exchange's compliance with Regulation SCI
suboptimal. When the inevitable hardware or software issues involving
the First Switch arose, the Exchange would not have the manufacturer
resources available to solve connectivity issues or replace switches.
Users' connections to the Exchange could be compromised or wholly cut
off. At the same time, if a User requested a new or replacement LCN 10
Gb connection, the Exchange would not be able to obtain one. It would
be contrary to the protection of investors and the public interest if
the Exchange were to continue to offer a connectivity option that it
could not support, or if Users were compromised or wholly unable to use
their connectivity to connect to the Exchange.
For the reasons described above, the Exchange believes that the
proposed rule change reflects this competitive environment.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \34\ and Rule 19b-4(f)(6) thereunder.\35\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\36\
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\34\ 15 U.S.C. 78s(b)(3)(A)(iii).
\35\ 17 CFR 240.19b-4(f)(6).
\36\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of its
intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change 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. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \37\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\37\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSECHX-2019-23 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-NYSECHX-2019-23. 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 submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 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. 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-NYSECHX-2019-23 and should be submitted
on or before January 3, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26836 Filed 12-12-19; 8:45 am]
BILLING CODE 8011-01-P