[Federal Register Volume 89, Number 154 (Friday, August 9, 2024)]
[Notices]
[Pages 65432-65440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17699]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100652; File No. SR-C2-2024-010]


Self-Regulatory Organizations; C2 Exchange, Inc.; Suspension of 
and Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove Proposed Rule Change To Amend the Exchange's Fee Schedule 
Related to Physical Port Fees

August 5, 2024.

I. Introduction

    On June 7, 2024, C2 Exchange, Inc. (the ``Exchange'' or ``C2'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC''), pursuant to Section 19(b)(1) of the Securities Exchange Act 
of 1934 (``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ 
a proposed rule change (File Number SR-C2-2024-010) to increase fees 
for 10 gigabit (``Gb'') physical ports (``Proposal''). The proposed 
rule change was immediately effective upon filing with the Commission 
pursuant to Section 19(b)(3)(A) of the Act.\3\ The proposed rule change 
was published for comment in the Federal Register on June 25, 2024.\4\ 
Pursuant to Section 19(b)(3)(C) of the Act,\5\ the Commission is 
hereby: (1) temporarily suspending the proposed rule change; and (2) 
instituting proceedings to determine whether to approve or disapprove 
the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take 
effect upon filing with the Commission if it is designated by the 
exchange as ``establishing or changing a due, fee, or other charge 
imposed by the self-regulatory organization on any person, whether 
or not the person is a member of the self-regulatory organization.'' 
15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ See Securities Exchange Act Release No. 100364 (June 18, 
2024), 89 FR 53134 (``Notice'').
    \5\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

II. Background and Description of the Proposed Rule Change

    The Exchange proposes to amend its fee schedule relating to 
physical connectivity fees by increasing the monthly fee for 10 Gb 
physical ports from $7,500 to $8,500 per port.\6\ The

[[Page 65433]]

Exchanges states that, by way of background, a physical port is 
utilized by a Trading Permit Holder (``TPH'') or non-TPH to connect to 
the Exchange at the data centers where the Exchange's servers are 
located.\7\ Prior to this proposed rule change, the Exchange assessed 
the following physical connectivity fees for TPHs and non-TPHs on a 
monthly basis: $2,500 per physical port for a 1 Gb circuit and $7,500 
per physical port for a 10 Gb circuit.\8\ The Exchange states the 
proposed fee change better enables it to continue to maintain and 
improve its market technology and services and also notes that the 
proposed fee amount, even as amended, continues to be in line with, or 
even lower than, amounts assessed by other exchanges for similar 
connections.\9\ The Exchange also states that a single 10 Gb physical 
port can be used to access the Systems of the following affiliate 
exchanges: the Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc. 
(options and equities platforms), Cboe EDGX Exchange, Inc. (options and 
equities platforms), and Cboe EDGA Exchange, Inc., (``Affiliate 
Exchanges'').\10\ The Exchange states that only one monthly fee applies 
per 10 Gb physical port regardless of how many affiliated exchanges are 
accessed through that one port.\11\
---------------------------------------------------------------------------

    \6\ See Notice, 89 FR at 53134. The Exchange initially filed the 
proposed fee changes on July 3, 2023 (SR-C2-2023-014). On September 
1, 2023, the Exchange withdrew that filing and submitted SR-C2-2023-
020. On September 29, 2023, the Exchange states that the Securities 
and Exchange Commission issued a Suspension of and Order Instituting 
Proceedings to Determine whether to Approve or Disapprove a Proposed 
Rule Change to Amend its Fees Schedule Related to Physical Port 
Fees. See Notice, 89 FR at 53134 n.3. On September 29, 2023, the 
Exchange filed the proposed fee change (SR-C2-2023-021). On October 
13, 2023, the Exchange withdrew that filing and submitted SR-C2-
2023-022. On December 12, 2023, the Exchange withdrew that filing 
and submitted SR-C2-2023-025. On February 9, 2024, the Exchange 
withdrew that filing and submitted SR-C2-2024-004. On April 9, 2024, 
the Exchange withdrew that filing and submitted SR-C2-2024-005. On 
June 7, 2024 the Exchange withdrew that filing and submitted this 
filing.
    \7\ See Notice, 89 FR at 53134.
    \8\ See Notice, 89 FR at 53134.
    \9\ See Notice, 89 FR at 53134 (citing The Nasdaq Stock Market 
LLC (``Nasdaq''), General 8, Connectivity to the Exchange. Nasdaq 
and its affiliated exchanges charge a monthly fee of $15,000 for 
each 10Gb Ultra fiber connection to the respective exchange, which 
is analogous to the Exchange's 10Gb physical port. See also id. 
(citing New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, 
Inc., NYSE Chicago Inc., NYSE National, Inc. Connectivity Fee 
Schedule, which provides that 10 Gb LX LCN Circuits (which are 
analogous to the Exchange's 10 Gb physical port) are assessed 
$22,000 per month, per port.)).
    \10\ See Notice, 89 FR at 53134. The Affiliate Exchanges are 
also submitted contemporaneous substantively similar rule filings.
    \11\ See Notice, 89 FR at 53134. The Exchange states that 
conversely, other exchange groups charge separate port fees for 
access to separate, but affiliated, exchanges. See Notice, 89 FR at 
53134 n.6 (citing Securities and Exchange Release No. 99822 (March 
21, 2024), 89 FR 21337 (March 27, 2024) (SR-MIAX-2024-016)).
---------------------------------------------------------------------------

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\12\ at any time within 
60 days of the date of filing of an immediately effective proposed rule 
change pursuant to Section 19(b)(1) of the Act,\13\ 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. A temporary suspension of the proposed rule changes is 
necessary and appropriate to allow for additional analysis of the 
proposed rule change's consistency with the Act and the rules 
thereunder.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(C).
    \13\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

A. Exchange Statements In Support of the Proposal

    In support of the Proposal, the Exchange states that it believes 
the proposed rule change is consistent with the Act and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\14\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \15\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, 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 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.\16\ 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) requirement that the rules of an 
exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.\17\ The Exchange also believes 
the proposed rule change is consistent with Section 6(b)(4) of the Act, 
which requires that Exchange rules provide for the equitable allocation 
of reasonable dues, fees, and other charges among its TPHs and other 
persons using its facilities.\18\
---------------------------------------------------------------------------

    \14\ See Notice, 89 FR at 53134; 15 U.S.C. 78f(b).
    \15\ See Notice, 89 FR at 53134; 15 U.S.C. 78f(b)(5).
    \16\ See Notice, 89 FR at 53134.
    \17\ See Notice, 89 FR at 53134; 15 U.S.C. 78f(b)(5).
    \18\ See Notice, 89 FR at 53134; 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange states that it operates in a highly competitive 
environment.\19\ The Exchange states that on May 21, 2019, the SEC 
Division of Trading and Markets issued non-rulemaking fee filing 
guidance titled ``Staff Guidance on SRO Rule Filings Relating to Fees'' 
(``Fee Guidance''), which provided, among other things, that in 
determining whether a proposed fee is constrained by significant 
competitive forces, the Commission will consider whether there are 
reasonable substitutes for the product or service that is the subject 
of a proposed fee.\20\ As described in further detail below, the 
Exchange believes substitutable products are in fact available to 
market participants, including by third-party resellers of the 
Exchange's physical connectivity, and the availability to trade all of 
the products offered at the Exchange at one of the 16 other options 
exchanges that trade options or other off-exchange trading 
platforms.\21\
---------------------------------------------------------------------------

    \19\ See Notice, 89 FR at 53134.
    \20\ See Notice, 89 FR at 53134-35. (citing Chairman Jay 
Clayton, Statement on Division of Trading and Markets Staff Fee 
Guidance, June 12, 2019). The Exchange states that the Fee Guidance 
also recognized that ``products need to be substantially similar but 
not identical to be substitutable.'' Id.
    \21\ See Notice, 89 FR at 53135. The Exchanges states that a 
substitute, or substitutable good, in economics and consumer theory 
refers to a product or service that consumers see as essentially the 
same or similar-enough to another product. See id. at n.12 (citing 
https://www.investopedia.com/terms/s/substitute.asp).
---------------------------------------------------------------------------

    The Exchange states that the 2019 Fee Guidance also acknowledged 
that platform competition may demonstrate a competitive environment and 
therefore constrain aggregate returns, regardless of the pricing of 
individual products, and that platforms often have joint products.\22\ 
The Exchange states that exchanges themselves are platforms.\23\ 
Particularly, the Exchange states that exchanges are multi-sided 
platforms that facilitate interactions between multiple sides of the 
market--buyers and sellers, companies and investors, and traders and 
market watchers--and their value is dependent on attracting users to 
the multiple sides of the platform.\24\ As described in further detail 
below, the Exchange believes that competition among exchanges as 
trading platforms (and between exchanges and alternative trading 
venues) constrain exchanges from charging excessive fees for any 
exchange products, including trading, listings, connectivity and market 
data.

[[Page 65434]]

As such, fees need not be analyzed from only one side, but rather can, 
and should, be considered within the larger context of the platform to 
test for anti-competitive behavior.\25\ The Exchange states that 
nothing in the Exchange Act requires the individual examination of 
specific product fees in isolation.\26\ Rather, the Exchange states 
that the Act generally requires the rules of an exchange to provide for 
the ``equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using its facilities.'' 
\27\
---------------------------------------------------------------------------

    \22\ See Notice, 89 FR at 53135 (citing Fee Guidance).
    \23\ See Notice, 89 FR at 53135. The Exchanges states that the 
Supreme Court in Ohio v. American Express Co. recognized that, as 
platforms facilitate transactions between two or more sides of a 
market, their value is dependent on attracting users to both sides 
of the platform (i.e., network effects). See id. at n.14 (citing 
Ohio v. American Express Co. 138 S. Ct. 2274, 585 U.S. 529 (2018)).
    \24\ See Notice, 89 FR at 53135.
    \25\ See Notice, 89 FR at 53135.
    \26\ See Notice, 89 FR at 53135.
    \27\ See Notice, 89 FR at 53135 (citing 15 U.S.C. 78f(b)(4)).
---------------------------------------------------------------------------

    The Exchange believes the proposed fee change is reasonable as it 
reflects a moderate increase in physical connectivity fees for 10 Gb 
physical ports.\28\ Further, the Exchange states that the current 10 Gb 
physical port fee has remained unchanged since June 2018.\29\ The 
Exchange explains that since its last increase over 6 years ago 
however, there has been notable inflation.\30\ Particularly, the 
Exchange states that the dollar has had an average inflation rate of 
3.76% per year between 2018 and today, producing a cumulative price 
increase of approximately 24.8% inflation since the fee for the 10 Gb 
physical port was last modified.\31\ Moreover, the Exchange states that 
it historically does not increase fees every year, notwithstanding 
inflation.\32\ Accordingly, the Exchange believes the proposed fee of 
$8,500 is reasonable as it only represents an approximate 13% increase 
from the rate adopted six years ago, notwithstanding the cumulative 
inflation rate of inflation of 24.8%.\33\ The Exchange states that were 
the Exchange to adjust fully for inflation, it would be proposing a 
monthly rate of $9,360, which is 10% more than the Exchange is actually 
proposing.\34\ To further demonstrate, the Exchange notes that $8,500 
in 2024 is equivalent to approximately $6,800 in 2018, when adjusted 
for inflation.\35\ Accordingly, the Exchange believes the proposed rate 
is also reasonable as it is nearly 20% lower than the rate adopted in 
2018 (i.e., $7,500) when adjusted for inflation.\36\ The Exchange 
states it is also unaware of any standard that suggests any fee 
proposal that exceeds a certain yearly or cumulative inflation rate is 
unreasonable, and in any event, in this instance the increase is well 
below the cumulative rate.\37\ The Exchange also believes its offerings 
are more affordable as compared to similar offerings at competitor 
exchanges.\38\
---------------------------------------------------------------------------

    \28\ See Notice, 89 FR at 53135.
    \29\ See Notice, 89 FR at 53135 (citing Securities and Exchange 
Release No. 83455 (June 15, 2018), 83 FR 28892 (June 21, 2018) (SR-
C2-2018-014)).
    \30\ See Notice, 89 FR at 53135.
    \31\ See Notice, 89 FR at 53135 (citing https://www.officialdata.org/us/inflation/2010?amount=1).
    \32\ See Notice, 89 FR at 53135.
    \33\ See Notice, 89 FR at 53135.
    \34\ See Notice, 89 FR at 53135.
    \35\ See Notice, 89 FR at 53135.
    \36\ See Notice, 89 FR at 53135.
    \37\ See Notice, 89 FR at 53135.
    \38\ See Notice, 89 FR at 53135. The Exchange states that Nasdaq 
and its affiliated exchanges charge a monthly fee of $15,000 for 
each 10Gbps Ultra fiber connection to the respective exchange, which 
is analogous to the Exchange's 10Gbps physical port. Id. (citing The 
Nasdaq Stock Market LLC (``Nasdaq''), General 8, Connectivity to the 
Exchange). See also id. (citing New York Stock Exchange LLC, NYSE 
American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, 
Inc. Connectivity Fee Schedule, which provides that 10 Gbps LX LCN 
Circuits (which are analogous to the Exchange's 10 Gbps physical 
port) are assessed $22,000 per month, per port).
---------------------------------------------------------------------------

    The Exchange also notes TPHs and non-TPHs will continue to choose 
the method of connectivity based on their specific needs and no broker-
dealer is required to become a TPH of, let alone connect directly to, 
the Exchange.\39\ The Exchange states that there is also no regulatory 
requirement that any market participant connect to any one particular 
exchange.\40\ The Exchange explains that market participants may 
voluntarily choose to become a member of one or more of a number of 
different exchanges, of which, the Exchange is but one choice.\41\ 
Additionally, the Exchange states that any Exchange member that is 
dissatisfied with the proposal is free to choose not to be a member of 
the Exchange and send order flow to another exchange.\42\ The Exchange 
states that, moreover, direct connectivity is not a requirement to 
participate on the Exchange.\43\ The Exchange also believes 
substitutable products and services are available to market 
participants, including, among other things, other options exchanges 
that a market participant may connect to in lieu of the Exchange, 
indirect connectivity to the Exchange via a third-party reseller of 
connectivity, and/or trading of any options product, such as within the 
Over-the-Counter (OTC) markets which do not require connectivity to the 
Exchange.\44\ The Exchange states that there are currently 17 
registered options exchanges that trade options (13 of which are not 
affiliated with Cboe), some of which have similar or lower connectivity 
fees.\45\ The Exchange states that, based on publicly available 
information, no single options exchange has more than approximately 18% 
of the market share.\46\ The Exchange states that further, low barriers 
to entry mean that new exchanges may rapidly enter the market and offer 
additional substitute platforms to further compete with the Exchange 
and the products it offers.\47\ The Exchange explains that, for 
example, there are 3 exchanges that have been added in the U.S. options 
markets in the last 5 years (i.e., Nasdaq MRX, LLC, MIAX Pearl, LLC, 
MIAX Emerald LLC, and most recently, MEMX LLC).\48\
---------------------------------------------------------------------------

    \39\ See Notice, 89 FR at 53135.
    \40\ See Notice, 89 FR at 53135.
    \41\ See Notice, 89 FR at 53135.
    \42\ See Notice, 89 FR at 53135.
    \43\ See Notice, 89 FR at 53135.
    \44\ See Notice, 89 FR at 53135.
    \45\ See Notice, 89 FR at 53135.
    \46\ See Notice, 89 FR at 53135 (citing Cboe Global Markets U.S. 
Options Market Volume Summary (June 6, 2024), available at https://markets.cboe.com/us/options/market_statistics/).
    \47\ See Notice, 89 FR at 53135.
    \48\ See Notice, 89 FR at 53135.
---------------------------------------------------------------------------

    The Exchange states that there is no regulatory requirement that 
any market participant connect to any one options exchange, nor that 
any market participant connect at a particular connection speed or act 
in a particular capacity on the Exchange, or trade any particular 
product offered on an exchange.\49\ The Exchange states that moreover, 
membership is not a requirement to participate on the Exchange.\50\ The 
Exchange states that it is unaware of any one options exchange whose 
membership includes every registered broker-dealer.\51\ The Exchange 
explains, by way of example, that while the Exchange has 52 TPHs (i.e., 
members), Cboe EDGX has 51 members that trade options, and Cboe BZX has 
61 members that trade options.\52\ The Exchange states that there is 
also no firm that is a member of C2 Options only.\53\ The Exchange 
states that further, based on publicly available information regarding 
a sample of the Exchange's competitors, NYSE American Options has 71 
members, and NYSE Arca Options has 69 members, MIAX Options has 46 
members, and MIAX Pearl Options has 40 members.\54\
---------------------------------------------------------------------------

    \49\ See Notice, 89 FR at 53135.
    \50\ See Notice, 89 FR at 53135.
    \51\ See Notice, 89 FR at 53135.
    \52\ See Notice, 89 FR at 53135-36.
    \53\ See Notice, 89 FR at 53136.
    \54\ See Notice, 89 FR at 53136 (citing https://www.nyse.com/markets/american-options/membership#directory; https://www.nyse.com/markets/arca-options/membership#directory; https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_April_2023_04282023.pdf; https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Pearl_Exchange_Members_01172023_0.pdf).
---------------------------------------------------------------------------

    The Exchange states that a market participant may also submit 
orders to

[[Page 65435]]

the Exchange via a TPH broker or a third-party reseller of 
connectivity.\55\ The Exchange notes that third-party non-TPHs also 
resell exchange connectivity.\56\ The Exchange explains that this 
indirect connectivity is another viable alternative for market 
participants to trade on the Exchange without connecting directly to 
the Exchange (and thus not pay the Exchange connectivity fees), which 
alternative is already being used by non-TPHs and further constrains 
the price that the Exchange is able to charge for connectivity to its 
Exchange.\57\ The Exchange notes that it could, but chooses not to, 
preclude market participants from reselling its connectivity.\58\ 
Unlike other exchanges, the Exchange states that it also chooses not to 
adopt fees that would be assessed to third-party resellers on a per 
customer basis (i.e., fee based on number of TPHs that connect to the 
Exchange indirectly via the third-party).\59\ The Exchange states that 
these third-party resellers may purchase the Exchange's physical ports 
and resell access to such ports either alone or as part of a package of 
services.\60\ The Exchange notes that multiple TPHss are able to share 
a single physical port (and corresponding bandwidth) with other non-
affiliated TPHs if purchased through a third-party re-seller.\61\ The 
Exchange explains that this allows resellers to mutualize the costs of 
the ports for market participants and provide such ports at a price 
that may be lower than the Exchange charges due to this mutualized 
connectivity.\62\ The Exchange states that these third-party sellers 
may also provide an additional value to market participants in addition 
to the physical port itself as they may also manage and monitor these 
connections, and clients of these third-parties may also be able to 
connect from the same colocation facility either from their own racks 
or using the third-party's managed racks and infrastructure which may 
provide further cost-savings.\63\ The Exchange believes such third-
party resellers may also use the Exchange's connectivity as an 
incentive for market participants to purchase further services such as 
hosting services.\64\ That is, the Exchange states, that even firms 
that wish to utilize a single, dedicated 10 Gb port (i.e., use one 
single 10 Gb port themselves instead of sharing a port with other 
firms), may still realize cost savings via a third-party reseller as it 
relates to a physical port because such reseller may be providing a 
discount on the physical port to incentivize the purchase of additional 
services and infrastructure support alongside the physical port 
offering (e.g., providing space, hosting, power, and other long-haul 
connectivity options).\65\ The Exchange explains that this is similar 
to cell phone carriers offering a new iPhone at a discount (or even at 
no cost) if purchased in connection with a new monthly phone plan.\66\ 
The Exchange states that these services may reevaluate reselling or 
offering Cboe's direct connectivity if they deem the fees to be 
excessive.\67\ Further, as noted above, the Exchange does not receive 
any connectivity revenue when connectivity is resold by a third-party, 
which often is resold to multiple customers, some of whom are agency 
broker-dealers that have numerous customers of their own.\68\ The 
Exchange states, for example, there are approximately 12 third parties 
who resell Exchange connectivity across the 7 Affiliated Exchanges, 
which are all accessible on the same network.\69\ The Exchange explains 
that these third-party resellers collectively maintain approximately 48 
physical ports from the Exchange, but have collectively almost 200 
unique customers downstream, connected through these multi-Exchange 
ports.\70\ The Exchange states that therefore, given the availability 
of third-party providers that also offer connectivity solutions, the 
Exchange believes participation on the Exchange remains affordable 
(notwithstanding the proposed fee change) for all market participants, 
including trading firms that may be able to take advantage of lower 
costs that result from mutualized connectivity and/or from other 
services provided alongside the physical port offerings.\71\ The 
Exchange states that because third-party resellers also act as a viable 
alternative to direct connectivity to the Exchange, the price that the 
Exchange is able to charge for direct connectivity to its Exchange is 
constrained.\72\ The Exchange states that moreover, if the Exchange 
were to assess supracompetitve rates, members and non-members (such as 
third-party resellers) alike, may decide not to purchase, or to reduce 
its use of, the Exchange's direct connectivity.\73\ The Exchange 
explains that disincentivizing market participants from purchasing 
Exchange connectivity would only serve to discourage participation on 
the Exchange which ultimately does not benefit the Exchange.\74\ 
Further, the Exchange believes its offerings are more affordable as 
compared to similar offerings at competitor exchanges.\75\
---------------------------------------------------------------------------

    \55\ See Notice, 89 FR at 53136.
    \56\ See Notice, 89 FR at 53136.
    \57\ See Notice, 89 FR at 53136. The Exchange states that third-
party resellers of connectivity play an important role in the 
capital markets infrastructure ecosystem. For example, according to 
the Exchange, third-party resellers can help unify access for 
customers who want exposure to multiple financial markets that are 
geographically dispersed by establishing connectivity to all of the 
different exchanges, so the customers themselves do not have to. The 
Exchange further states that many of the third-party connectivity 
resellers also act as distribution agents for all of the market data 
generated by the exchanges as they can use their established 
connectivity to subscribe to, and redistribute, data over their 
networks. The Exchange explains that this may remove barriers that 
infrastructure requirements may otherwise pose for customers looking 
to access multiple markets and real-time data feeds. The Exchange 
further explains that this facilitation of overall access to the 
marketplace is ultimately beneficial for the entire capital markets 
ecosystem, including the Exchange, on which such firms transact 
business. See id. at n.25.
    \58\ See Notice, 89 FR at 53136.
    \59\ See Notice, 89 FR at 53136 (citing Nasdaq Price List--U.S. 
Direct Connection and Extranet Fees, available at, US Direct-
Extranet Connection (nasdaqtrader.com); and Securities Exchange Act 
Release Nos. 74077 (January 16, 2022), 80 FR 3683 (January 23, 2022) 
(SR-NASDAQ-2015-002); and 82037 (November 8, 2022), 82 FR 52953 
(November 15, 2022) (SR-NASDAQ-2017-114)).
    \60\ See Notice, 89 FR at 53136.
    \61\ See Notice, 89 FR at 53136. The Exchange states that for 
example, a third-party reseller may purchase one 10 Gb physical port 
from the Exchange and resell that connectivity to three different 
market participants who may only need 3 Gb each and leverage the 
same single port. Id. at n.27.
    \62\ See Notice, 89 FR at 53136.
    \63\ See Notice, 89 FR at 53136.
    \64\ See Notice, 89 FR at 53136.
    \65\ See Notice, 89 FR at 53136.
    \66\ See Notice, 89 FR at 53136.
    \67\ See Notice, 89 FR at 53136.
    \68\ See Notice, 89 FR at 53136.
    \69\ See Notice, 89 FR at 53136.
    \70\ See Notice, 89 FR at 53136.
    \71\ See Notice, 89 FR at 53136.
    \72\ See Notice, 89 FR at 53136.
    \73\ See Notice, 89 FR at 53136.
    \74\ See Notice, 89 FR at 53136.
    \75\ See Notice, 89 FR at 53136 (citing The Nasdaq Stock Market 
LLC (``Nasdaq''), General 8, Connectivity to the Exchange. Nasdaq 
and its affiliated exchanges charge a monthly fee of $15,000 for 
each 10Gbps Ultra fiber connection to the respective exchange, which 
is analogous to the Exchange's 10Gbps physical port. See also id. 
(citing New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, 
Inc., NYSE Chicago Inc., NYSE National, Inc. Connectivity Fee 
Schedule, which provides that 10 Gbps LX LCN Circuits (which are 
analogous to the Exchange's 10 Gbps physical port) are assessed 
$22,000 per month, per port.)).
---------------------------------------------------------------------------

    Accordingly, the Exchange states that vigorous competition among 
national securities exchanges provides many alternatives for firms to 
voluntarily decide whether direct connectivity to the Exchange is 
appropriate and worthwhile, and as noted above, no broker-dealer is 
required to become a TPH of the Exchange, let alone connect directly to 
it.\76\ The Exchange explains

[[Page 65436]]

that in the event that a market participant views the Exchange's 
proposed fee change as more or less attractive than the competition, 
that market participant can choose to connect to the Exchange 
indirectly or may choose not to connect to that exchange and connect 
instead to one or more of the other 13 non-Cboe affiliated options 
markets.\77\ The Exchange states that market participants are free to 
choose which exchange to use to satisfy their business needs.\78\ The 
Exchange states that, moreover, if the Exchange were to assess 
supracompetitve rates, members and non-members alike, may decide not to 
purchase, or to reduce their use of, the Exchange's direct 
connectivity.\79\ The Exchange states that disincentivizing market 
participants from purchasing Exchange connectivity would only serve to 
discourage participation on the Exchange which ultimately does not 
benefit the Exchange.\80\ The Exchange states that, for example, if the 
Exchange charges excessive fees, it may stand to lose not only 
connectivity revenues but also revenues associated with the execution 
of orders routed to it, and, to the extent applicable, market data 
revenues.\81\ The Exchange believes that this competitive dynamic 
imposes powerful restraints on the ability of any exchange to charge 
unreasonable fees for connectivity.\82\ Notwithstanding the foregoing, 
the Exchange still believes that the proposed fee increase is 
reasonable, equitably allocated and not unfairly discriminatory, even 
for market participants that determine to connect directly to the 
Exchange for business purposes, as those business reasons should 
presumably result in revenue capable of covering the proposed fee.\83\
---------------------------------------------------------------------------

    \76\ See Notice, 89 FR at 53136.
    \77\ See Notice, 89 FR at 53136.
    \78\ See Notice, 89 FR at 53136.
    \79\ See Notice, 89 FR at 53136-37.
    \80\ See Notice, 89 FR at 53137.
    \81\ See Notice, 89 FR at 53137.
    \82\ See Notice, 89 FR at 53137.
    \83\ See Notice, 89 FR at 53137.
---------------------------------------------------------------------------

    The Exchange states that additionally, in connection with a 
proposed amendment to the National Market System Plan Governing the 
Consolidated Audit Trail (``CAT NMS Plan'') the Commission again 
discussed the existence of competition in the marketplace generally, 
and particularly for exchanges with unique business models.\84\ The 
Exchange states that the Commission recognized that while some 
exchanges may have a unique business model that is not currently 
offered by competitors, a competitor could create similar business 
models if demand were adequate, and if a competitor did not do so, the 
Commission believes it would be likely that new entrants would do so if 
the exchange with that unique business model was otherwise 
profitable.\85\
---------------------------------------------------------------------------

    \84\ See Notice, 89 FR at 53137 (citing Securities Exchange Act 
Release No. 86901 (September 9, 2019), 84 FR 48458 (September 13, 
2019) (File No. S7-13-19)).
    \85\ See Notice, 89 FR at 53137 (citing Securities Exchange Act 
Release No. 86901 (September 9, 2019), 84 FR 48458 (September 13, 
2019) (File No. S7-13-19)).
---------------------------------------------------------------------------

    The Exchange states that, as noted above, exchanges also compete as 
platforms.\86\ The Exchange explains that in the context of the 
competition among platforms, different exchanges operate a variety of 
different business models.\87\ The Exchange further explains that, in 
fact, there are a number of ways an exchange can differentiate itself, 
such as by pricing structure, technology and functionality offerings, 
and products.\88\ The Exchange states that market participants can 
access the exchange without purchasing anything from an exchange, 
instead using third-party routers and data.\89\ The Exchange explains 
that for those whose business models necessitate the purchase of some 
mix of trading, connectivity, and data services, there are a variety of 
options at different price points, allowing market participants to 
exercise choice, and forcing exchanges to compete on their offerings 
and prices.\90\ The Exchange states that further, all elements of the 
platform--trade executions, market data, connectivity, membership, and 
listings--operate in concert.\91\ The Exchange explains that, for 
example, trade executions increase the value of market data; market 
data functions as an advertisement for on-exchange trading; listings 
increase the value of trade executions and market data; and greater 
liquidity on the exchange enhances the value of ports and connectivity 
services.\92\ As such, the Exchange states that demand for one set of 
platform services depends on the demand for other services and 
therefore to make its platform attractive to multiple constituencies, 
an exchange must consider inter-side externalities.\93\ The Exchange 
explains that in assessing competition for exchange services, exchanges 
must also consider not only explicit costs, such as fees for trading, 
market data, and connectivity, but the implicit costs, such as realized 
spreads, of trading on an exchange.\94\ The Exchange states that, when 
accounting for explicit and implicit costs, research has found that 
competition has largely equalized all-in trading costs to users across 
exchanges.\95\ The Exchange states that, for example, data has shown 
that venues with the highest explicit costs (typically inverted and 
fee-fee venues) have the lowest implicit costs from markouts \96\ and 
vice versa.\97\ The Exchange states that implicit costs explain how 
venues with higher explicit costs manage to compete with seemingly much 
cheaper venues (and conversely, how exchanges with higher implicit 
costs use lower fees to compete).\98\ The Exchange further states that 
additional research also confirms that market participants route trades 
in a way that not only accounts for explicit and implicit costs--but 
also very efficiently values opportunity costs, like lower odds of 
getting a fill on inverted venues.\99\ As such, the Exchange believes 
the proposed fee change is reasonable as exchanges are constrained from 
charging excessive fees for any exchange product, including physical 
connectivity.\100\
---------------------------------------------------------------------------

    \86\ See Notice, 89 FR at 53137.
    \87\ See Notice, 89 FR at 53137.
    \88\ See Notice, 89 FR at 53137.
    \89\ See Notice, 89 FR at 53137.
    \90\ See Notice, 89 FR at 53137.
    \91\ See Notice, 89 FR at 53137.
    \92\ See Notice, 89 FR at 53137.
    \93\ See Notice, 89 FR at 53137.
    \94\ See Notice, 89 FR at 53137.
    \95\ See Notice, 89 FR at 53137 (citing Mackintosh, Phil & 
Normyle, Michael. ``How Exchanges Compete: An Economic Analysis of 
Platform Competition.'' Nasdaq, March 2024, https://www.nasdaq.com/How-Exchanges-Compete-An-Economic-Analysis-of-Platform-Competition 
(``Mackintosh and Normyle'')).
    \96\ The Exchange explains that per-trade markout is a measure 
of theoretical profitability from the perspective of a liquidity 
provider. See Notice, 89 FR at 53137 n.32.
    \97\ See Notice, 89 FR at 53137 (citing Mackintosh and Normyle).
    \98\ See Notice, 89 FR at 53137. The Exchange states that, for 
example, research by Nasdaq found that it is over 60% more expensive 
to trade on the costliest exchange than on the cheapest. According 
to the Exchange, such a sizeable disparity suggests that there is 
another factor that keeps these exchanges in competition. 
Specifically, the Exchange states that when implicit costs are 
considered, the difference in cost to trade is minimized. See id.
    \99\ See Notice, 89 FR at 53137 (citing Bershova, Nataliya & 
Jaquet, Paul. (2019). Execution Quality and Fee Structure: Passive 
Lit Executions. Bernstein Electronic Trading, Execution Research).
    \100\ See Notice, 89 FR at 53137.
---------------------------------------------------------------------------

    The Exchange also believes the proposed fee increase is reasonable 
in light of recent and anticipated connectivity-related upgrades and 
changes.\101\ The Exchange states that it and its affiliated exchanges 
recently launched a multi-year initiative to improve Cboe Exchange 
Platform performance and capacity requirements to increase 
competitiveness, support growth and advance a consistent world class 
platform.\102\ The Exchange

[[Page 65437]]

explains that the goal of the project, among other things, is to 
provide faster and more consistent order handling and matching 
performance for options, while ensuring quicker processing time and 
supporting increasing volumes and capacity needs.\103\ The Exchange 
states that, for example, the Exchange recently performed switch 
hardware upgrades.\104\ The Exchange explains that, particularly, the 
Exchange replaced existing customer access switches with newer models, 
which the Exchange believes resulted in increased determinism, and the 
recent switch upgrades also increased the Exchange's capacity to 
accommodate more physical ports by nearly 50%.\105\ The Exchange states 
that network bandwidth was also increased nearly two-fold as a result 
of the upgrades, which among other things, can lead to reduce message 
queuing.\106\ The Exchange also believes these newer models result in 
less natural variance in the processing of messages.\107\ The Exchange 
notes that it incurred costs associated with purchasing and upgrading 
to these newer models, of which the Exchange has not otherwise passed 
through or offset.\108\
---------------------------------------------------------------------------

    \101\ See Notice, 89 FR at 53137.
    \102\ See Notice, 89 FR at 53137.
    \103\ See Notice, 89 FR at 53137.
    \104\ See Notice, 89 FR at 53137.
    \105\ See Notice, 89 FR at 53137.
    \106\ See Notice, 89 FR at 53137.
    \107\ See Notice, 89 FR at 53137.
    \108\ See Notice, 89 FR at 53137.
---------------------------------------------------------------------------

    The Exchange states that as of April 1, 2024, market participants 
also having the option of connecting to a new data center (i.e., 
Secaucus NY6 Data Center (``NY6'')), in addition to the current data 
centers at NY4 and NY5.\109\ The Exchange states that it made NY6 
available in response to customer requests in connection with their 
need for additional space and capacity.\110\ The Exchange explains that 
in order to make this space available, the Exchange expended 
significant resources to prepare this space, and will also incur 
ongoing costs with respect to maintaining this offering, including 
costs related to power, space, fiber, cabinets, panels, labor and 
maintenance of racks.\111\ The Exchange states it also incurred a large 
cost with respect to ensuring NY6 would be latency equalized, as it is 
for NY4 and NY5.\112\
---------------------------------------------------------------------------

    \109\ See Notice, 89 FR at 53137.
    \110\ See Notice, 89 FR at 53137.
    \111\ See Notice, 89 FR at 53137.
    \112\ See Notice, 89 FR at 53137-38.
---------------------------------------------------------------------------

    The Exchange states that it also has made various other 
improvements since the current physical port rates were adopted in 
2018.\113\ The Exchanges states that, for example, the Exchange has 
updated its customer portal to provide more transparency with respect 
to firms' respective connectivity subscriptions, enabling them to 
better monitor, evaluate and adjust their connections based on their 
evolving business needs.\114\ The Exchange explains that it also 
performs proactive audits on a weekly basis to ensure that all customer 
cross connects continue to fall within allowable tolerances for Latency 
Equalized connections.\115\ Accordingly, the Exchange states that it 
has expended, and will continue to expend, resources to innovate and 
modernize technology so that it may benefit its TPHs and continue to 
compete among other options markets.\116\ The Exchange explains that 
its ability to continue to innovate with technology and offer new 
products to market participants allows the Exchange to remain 
competitive in the options space which currently has 17 options markets 
and potential new entrants.\117\ The Exchange states that if the 
Exchange were not able to assess incrementally higher fees for its 
connectivity, it would effectively impact how the Exchange manages its 
technology and hamper the Exchange's ability to continue to invest in 
and fund access services in a manner that allows it to meet existing 
and anticipated access demands of market participants.\118\ The 
Exchange explains that disapproval of fee changes such as the proposal 
herein, could also have the adverse effect of discouraging an exchange 
from improving its operations and implementing innovative technology to 
the benefit of market participants if it believes the Commission would 
later prevent that exchange from recouping costs and monetizing its 
operational enhancements, thus adversely impacting competition.\119\
---------------------------------------------------------------------------

    \113\ See Notice, 89 FR at 53138.
    \114\ See Notice, 89 FR at 53138.
    \115\ See Notice, 89 FR at 53138.
    \116\ See Notice, 89 FR at 53138.
    \117\ See Notice, 89 FR at 53138.
    \118\ See Notice, 89 FR at 53138.
    \119\ See Notice, 89 FR at 53138.
---------------------------------------------------------------------------

    The Exchange also believes the proposed fee is reasonable as it is 
still in line with, or even lower than, amounts assessed by other 
exchanges for similar connections.\120\ Indeed, the Exchange believes 
assessing fees at a lower rate than fees assessed by other exchanges 
for analogous connectivity (which were similarly adopted via the rule 
filing process and filed with the Commission) is reasonable.\121\ The 
Exchange states that the proposed fee is also the same as is 
concurrently being proposed for its Affiliate Exchanges.\122\ Further, 
the Exchange states that TPHs are able to utilize a single port to 
connect to all of its Affiliate Exchanges and will only be charged one 
single fee (i.e., a market participant will only be assessed the 
proposed $8,500 even if it uses that physical port to connect to the 
Exchange and another (or even all 6) of its Affiliate Exchanges).\123\ 
Particularly, the Exchange believes the proposed monthly per port fee 
is reasonable, equitable and not unfairly discriminatory since as the 
Exchange has determined to not charge multiple fees for the same 
port.\124\ Indeed, the Exchange notes that several ports are in fact 
purchased and utilized across one or more of the Exchange's affiliated 
Exchanges (and charged only once).\125\
---------------------------------------------------------------------------

    \120\ See Notice, 89 FR at 53138 (citing The Nasdaq Stock Market 
LLC (``Nasdaq''), General 8, Connectivity to the Exchange. Nasdaq 
and its affiliated exchanges charge a monthly fee of $15,000 for 
each 10Gb Ultra fiber connection to the respective exchange, which 
is analogous to the Exchange's 10Gb physical port. See also id. 
(citing New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, 
Inc., NYSE Chicago Inc., NYSE National, Inc. Connectivity Fee 
Schedule, which provides that 10 Gb LX LCN Circuits (which are 
analogous to the Exchange's 10 Gb physical port) are assessed 
$22,000 per month, per port.)).
    \121\ See Notice, 89 FR at 53138.
    \122\ See Notice, 89 FR at 53138.
    \123\ See Notice, 89 FR at 53138.
    \124\ See Notice, 89 FR at 53138.
    \125\ See Notice, 89 FR at 53138.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed fee change is not 
unfairly discriminatory because it would be assessed uniformly across 
all market participants that purchase the physical ports.\126\ The 
Exchange believes increasing the fee for 10 Gb physical ports and 
charging a higher fee as compared to the 1 Gb physical port is 
equitable as the 1 Gb physical port is 1/10th the size of the 10 Gb 
physical port and therefore does not offer access to many of the 
products and services offered by the Exchange (e.g., ability to receive 
certain market data products).\127\ The Exchange explains that, thus, 
the value of the 1 Gb alternative is lower than the value of the 10 Gb 
alternative, when measured based on the type of Exchange access it 
offers.\128\ The Exchange states that, moreover, market participants 
that purchase 10 Gb physical ports utilize the most bandwidth and 
therefore consume the most resources from the network.\129\ The 
Exchange also anticipates that firms that utilize 10 Gb ports will 
benefit the most from the Exchange's investment in offering NY6 as the 
Exchange anticipates there will be much higher quantities of 10 Gb 
physical ports

[[Page 65438]]

connecting from NY6 as compared to 1 Gb ports.\130\ Indeed, the 
Exchange notes that 10 Gb physical ports account for approximately 90% 
of physical ports across the NY4, NY5, and NY6 data centers, and to 
date, 80% of new port connections in NY6 are 10 Gb ports.\131\ As such, 
the Exchange believes the proposed fee change for 10 Gb physical ports 
is reasonably and appropriately allocated.\132\
---------------------------------------------------------------------------

    \126\ See Notice, 89 FR at 53138.
    \127\ See Notice, 89 FR at 53138.
    \128\ See Notice, 89 FR at 53138.
    \129\ See Notice, 89 FR at 53138.
    \130\ See Notice, 89 FR at 53138.
    \131\ See Notice, 89 FR at 53138.
    \132\ See Notice, 89 FR at 53138.
---------------------------------------------------------------------------

    The Exchange states that it is not required by the Exchange Act, 
nor any other rule or regulation, to undertake a cost-of-service or 
rate-making approach with respect to fee proposals.\133\ The Exchange 
states that, moreover, Congress's intent in enacting the 1975 
Amendments to the Act was to enable competition--rather than government 
order--to determine prices.\134\ The Exchange explains that the 
principal purpose of the amendments was to facilitate the creation of a 
national market system for the trading of securities.\135\ The Exchange 
states that Congress intended that this ``national market system evolve 
through the interplay of competitive forces as unnecessary regulatory 
restrictions are removed,'' and that other provisions of the Act 
confirm that intent.\136\ The Exchange states that, for example, the 
Act provides that an exchange must design its rules ``to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.'' \137\ The Exchange further states that, likewise, 
the Act grants the Commission authority to amend or repeal ``[t]he 
rules of [an] exchange [that] impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of this 
chapter.'' \138\ The Exchange explains that, in short, the promotion of 
free and open competition was a core congressional objective in 
creating the national market system.\139\ The Exchange states that, 
indeed, the Commission has historically interpreted that mandate to 
promote competitive forces to determine prices whenever compatible with 
a national market system.\140\ Accordingly, the Exchange believes it 
has met its burden to demonstrate that its proposed fee change is 
reasonable and consistent with the immediate filing process chosen by 
Congress, which created a system whereby market forces determine access 
fees in the vast majority of cases, subject to oversight only in 
particular cases of abuse or market failure.\141\ The Exchange believes 
that, finally, and importantly, that, even if it were possible as a 
matter of economic theory, cost-based pricing for the proposed fee 
would be so complicated that it could not be done practically.\142\ 
Indeed, the Exchange believes that classification of costs could likely 
not be done without on-going debate over formulas for allocation,\143\ 
continual auditing, and considerable expense.\144\ The Exchange also 
believes cost-based analysis could create disincentives to reduce costs 
through efficient operation or innovation.\145\ Moreover, the Exchange 
believes that the industry could experience frequent rate increases 
based on escalating expense levels.\146\ The Exchange lastly cautions 
that as disputes arise regarding the appropriate measure and 
calculation of relevant costs and allocation of common costs, the 
Commission could find itself engaging in the kind of rigid ratemaking 
not contemplated by Section 11A of the Exchange Act and which, 
according to the Exchange, the Commission has historically sought to 
avoid.\147\
---------------------------------------------------------------------------

    \133\ See Notice, 89 FR at 53138.
    \134\ See Notice, 89 FR at 53138.
    \135\ See Notice, 89 FR at 53138.
    \136\ See Notice, 89 FR at 53138 (citing H.R. Rep. No. 94-229, 
at 92 (1975) (Conf. Rep.) (emphasis added)).
    \137\ See Notice, 89 FR at 53138 (citing 15 U.S.C. 78f(b)(5)).
    \138\ See Notice, 89 FR at 53138 (citing 15 U.S.C. 78f(8)).
    \139\ See Notice, 89 FR at 53138 (citing 15 U.S.C. 78k-
l(a)(1)(C)(ii) (purposes of Exchange Act include to promote ``fair 
competition among brokers and dealers, among exchange markets, and 
between exchange markets and markets other than exchange markets''); 
Order, 73 FR at 74781 (``The Exchange Act and its legislative 
history strongly support the Commission's reliance on competition, 
whenever possible, in meeting its regulatory responsibilities for 
overseeing the SROs and the national market system.'')).
    \140\ See Notice, 89 FR at 53138.
    \141\ See Notice, 89 FR at 53138.
    \142\ See Notice, 89 FR at 53138.
    \143\ See Notice, 89 FR at 53138-39, n.41 (citing letter from 
Brian Sopinsky, General Counsel, Susquehanna International Group, 
LLP (``SIG''), to Vanessa Countryman, Secretary, Commission, dated 
February 7, 2023, letters from Gerald D. O'Connell, SIG, to Vanessa 
Countryman, Secretary, Commission, dated March 21, 2023, May 24, 
2023, July 24, 2023 and September 18, 2023, and letters from John C. 
Pickford, SIG, to Vanessa Countryman, Secretary, Commission, dated 
January 4, 2024, and March 1, 2024 and letters from Thomas M. 
Merritt, Deputy General Counsel, Virtu Financial, Inc., to Vanessa 
Countryman, Secretary, Commission, dated November 8, 2023 and 
January 2, 2024. See also Securities Exchange Act Release No. 93883 
(December 30, 2021), 87 FR 523 (January 5, 2022) (SR-IEX-2021-14) 
(Suspension of and Order Instituting Proceedings To Determine 
Whether To Approve or Disapprove a Proposed Rule Change To Amend Its 
Fee Schedule for Market Data Fees) and Securities Exchange Act 
Release No. 94888 (May 11, 2022), 87 FR 29892 (May 17, 2022) (SR-
PEARL-2022-18) (Notice of Filing of a Proposed Rule Change To Amend 
the MIAX PEARL Options Fee Schedule To Increase Certain Connectivity 
Fees and To Increase the Monthly Fees for MIAX Express Network Full 
Service Port; Suspension of and Order Instituting Proceedings To 
Determine Whether To Approve or Disapprove the Proposed Rule 
Change)).
    \144\ See Notice, 89 FR at 53138-39.
    \145\ See Notice, 89 FR at 53139.
    \146\ See Notice, 89 FR at 53139.
    \147\ See Notice, 89 FR at 53139.
---------------------------------------------------------------------------

    The Exchange also does not believe that the proposed rule change 
will impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.\148\ The 
Exchange states that the proposed fee change will not impact 
intramarket competition because it will apply to all similarly situated 
TPHs equally (i.e., all market participants that choose to purchase the 
10 Gb physical port).\149\ Additionally, the Exchange does not believe 
its proposed pricing will impose a barrier to entry to smaller 
participants and notes that its proposed connectivity pricing is 
associated with relative usage of the various market participants.\150\ 
For example, the Exchange states that market participants with modest 
capacity needs can continue to buy the less expensive 1 Gb physical 
port (which cost is not changing) or may choose to obtain access via a 
third-party re-seller.\151\ The Exchange states that while pricing may 
be increased for the larger capacity physical ports, such options 
provide far more capacity and are purchased by those that consume more 
resources from the network.\152\ Accordingly, the Exchange states that 
the proposed connectivity fees do not favor certain categories of 
market participants in a manner that would impose a burden on 
competition; rather, the allocation reflects the network resources 
consumed by the various size of market participants--lowest bandwidth 
consuming members pay the least, and highest bandwidth consuming 
members pays the most.\153\
---------------------------------------------------------------------------

    \148\ See Notice, 89 FR at 53139.
    \149\ See Notice, 89 FR at 53139.
    \150\ See Notice, 89 FR at 53139.
    \151\ See Notice, 89 FR at 53139.
    \152\ See Notice, 89 FR at 53139.
    \153\ See Notice, 89 FR at 53139.
---------------------------------------------------------------------------

    The Exchange states that the proposed fee is also still lower than 
some fees for similar connectivity on other exchanges and therefore may 
stimulate intermarket competition by attracting additional firms to 
connect to the Exchange or at least should not deter interested 
participants from connecting directly to the Exchange.\154\ Further, if 
the changes proposed herein are unattractive to market participants, 
the Exchange states

[[Page 65439]]

that it can, and likely will, see a decline in connectivity via 10 Gb 
physical ports as a result.\155\ The Exchange states that it operates 
in a highly competitive market in which market participants can 
determine whether or not to connect directly to the Exchange based on 
the value received compared to the cost of doing so.\156\ The Exchange 
states that market participants have numerous alternative venues that 
they may participate on and direct their order flow, including 13 non-
Cboe affiliated options markets, as well as off-exchange venues, where 
competitive products are available for trading.\157\ Moreover, the 
Exchange states that the Commission has repeatedly expressed its 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets.\158\ 
Specifically, the Exchange states that 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.'' \159\ The Exchange states that the 
fact that this market is competitive has also long been recognized by 
the courts.\160\ Accordingly, the Exchange does not believe its 
proposed change imposes any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act.\161\
---------------------------------------------------------------------------

    \154\ See Notice, 89 FR at 53139.
    \155\ See Notice, 89 FR at 53139.
    \156\ See Notice, 89 FR at 53139.
    \157\ See Notice, 89 FR at 53139.
    \158\ See Notice, 89 FR at 53139.
    \159\ See Notice, 89 FR at 53139 (citing Securities Exchange Act 
Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 
2005)).
    \160\ See Notice, 89 FR at 53139. The Exchange states that in 
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit 
stated as follows: ``[n]o one disputes that competition for order 
flow is `fierce.' . . . As the SEC explained, `[i]n the U.S. 
national market system, buyers and sellers of securities, and the 
broker-dealers that act as their order-routing agents, have a wide 
range of choices of where to route orders for execution'; [and] `no 
exchange can afford to take its market share percentages for 
granted' because `no exchange possesses a monopoly, regulatory or 
otherwise, in the execution of order flow from broker dealers'. . . 
.'' (citing NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21))).
    \161\ See Notice, 89 FR at 53139.
---------------------------------------------------------------------------

B. Suspension

    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
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.\162\ 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.'' \163\
---------------------------------------------------------------------------

    \162\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change''). To date, the Commission has received 
one comment letter on proposed rule change, which does not appear to 
be relevant to the instant filing. See Ross Letter.
    \163\ See id.
---------------------------------------------------------------------------

    Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
requires 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; \164\ (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; \165\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\166\
---------------------------------------------------------------------------

    \164\ 15 U.S.C. 78f(b)(4).
    \165\ 15 U.S.C. 78f(b)(5).
    \166\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's proposed rule change, the 
Commission intends to further consider whether the Proposal to increase 
its 10 Gb physical port connectivity fee is consistent with the 
statutory requirements applicable to a national securities exchange 
under the Act. The Commission will consider, among other things, 
whether the Exchange has provided sufficient information to demonstrate 
that the Exchange is subject to significant competitive forces when 
setting the proposed port connectivity fees. In particular, the 
Commission will consider whether the proposed rule change satisfies 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.\167\
---------------------------------------------------------------------------

    \167\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    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 change.\168\
---------------------------------------------------------------------------

    \168\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Changes

    In addition to temporarily suspending the Proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\169\ and 19(b)(2)(B) of the Act \170\ to determine whether the 
Exchange's proposed rule change 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 change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
---------------------------------------------------------------------------

    \169\ 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.
    \170\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\171\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
---------------------------------------------------------------------------

    \171\ Id. Section 19(b)(2)(B) of the Act also provides that 
proceedings to determine whether to disapprove a proposed rule 
change must be concluded within 180 days of the date of publication 
of notice of the filing of the proposed rule change. See id. The 
time for conclusion of the proceedings may be extended for up to 60 
days if the Commission finds good cause for such extension and 
publishes its reasons for so finding, or if the exchange consents to 
the longer period. See id.
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how the proposed fee 
is consistent with 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''; \172\
---------------------------------------------------------------------------

    \172\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how the proposed fee 
is consistent with Section 6(b)(5) of the Act, which requires, among 
other things, that the rules of a national securities exchange not be 
``designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers''; \173\ and
---------------------------------------------------------------------------

    \173\ 15 U.S.C. 78f(b)(5).

---------------------------------------------------------------------------

[[Page 65440]]

     Whether the Exchange has demonstrated how the proposed fee 
is consistent with 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].'' \174\
---------------------------------------------------------------------------

    \174\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    As discussed in Section III above, the Exchange made various 
arguments in support of the Proposal. There are questions as to whether 
the Exchange has provided sufficient information to demonstrate that 
the proposed fee is consistent with the Act and the rules thereunder. 
The Commission will specifically consider, among other things, whether 
the Exchange has provided sufficient evidence to demonstrate that the 
proposed fee is reasonable and equitably allocated, is not unfairly 
discriminatory, and does not impose any burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the Act.
    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 . . . is on the [SRO] 
that proposed the rule change.'' \175\ 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,\176\ 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.\177\
---------------------------------------------------------------------------

    \175\ 17 CFR 201.700(b)(3).
    \176\ See id.
    \177\ See id.
---------------------------------------------------------------------------

    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fee is consistent with the Act, and specifically, 
with its requirements that exchange fees be reasonable and equitably 
allocated, not be unfairly discriminatory, and not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.\178\
---------------------------------------------------------------------------

    \178\ See 15 U.S.C. 78f(b)(4), (5), and (8).
---------------------------------------------------------------------------

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 August 30, 2024. 
Rebuttal comments should be submitted by September 13, 2024. Although 
there do not appear to be any issues relevant to approval or 
disapproval that 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.\179\
---------------------------------------------------------------------------

    \179\ 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).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the Proposal, 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 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-C2-2024-010 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-C2-2024-010. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-C2-2024-010 and should be 
submitted on or before August 30, 2024. Rebuttal comments should be 
submitted by September 13, 2024.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\180\ that File No. SR-C2-2024-010, be and hereby is, temporarily 
suspended. In addition, the Commission is instituting proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
---------------------------------------------------------------------------

    \180\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\181\
---------------------------------------------------------------------------

    \181\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-17699 Filed 8-8-24; 8:45 am]
BILLING CODE 8011-01-P