[Federal Register Volume 78, Number 225 (Thursday, November 21, 2013)]
[Notices]
[Pages 69904-69907]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27901]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70886; File No. SR-NYSEMKT-2013-92]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Expanding Co-location
Services to Provide for a Lower-Latency 10 Gigabit Liquidity Center
Network Connection in the Exchange's Data Center
November 15, 2013.
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 7, 2013, NYSE MKT LLC (the ``Exchange'' or
``NYSE MKT'') 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 expand its co-location services to provide
for a lower-latency 10 gigabit (``Gb'') Liquidity Center Network
(``LCN'') connection in the Exchange's data center. The text of the
proposed rule change is available on the Exchange's Web site 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 expand its co-location services to provide
for a new lower-latency 10 Gb LCN connection, referred to as the ``LCN
10 Gb LX,'' in the Exchange's data center.\4\ The Exchange will propose
applicable fees for the proposed LCN 10 Gb LX connection via a separate
proposed rule change.
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\4\ The Securities and Exchange Commission (``Commission'')
initially approved the Exchange's co-location services in Securities
Exchange Act Release No. 62961 (September 21, 2010), 75 FR 59299
(September 27, 2010) (SR-NYSEAmex-2010-80) (the ``Original Co-
location Approval''). The Exchange operates a data center in Mahwah,
New Jersey (the ``data center'') from which it provides co-location
services to Users. The Exchange's co-location services allow Users
to rent space in the data center so they may locate their electronic
servers in close physical proximity to the Exchange's trading and
execution system. See id. at 59299.
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The LCN is a local area network that is available in the data
center and that provides Users with access to the Exchange's trading
and execution systems and to the Exchange's proprietary market data
products.\5\ LCN
[[Page 69905]]
access is currently available in one, 10 and 40 Gb bandwidth
capacities.\6\ The Exchange proposes to make a second 10 Gb LCN
connection available in the Exchange's data center, the LCN 10 Gb LX,
which would have a lower latency than the existing 10 Gb LCN
connection. The LCN 10 Gb LX is expected to have latency levels similar
to those of the existing 40 Gb LCN connection.
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\5\ For purposes of the Exchange's co-location services, the
term ``User'' includes (i) member organizations, as that term is
defined in the definitions section of the General and Floor Rules of
the NYSE MKT Equities Rules, and ATP Holders, as that term is
defined in NYSE Amex Options Rule 900.2NY(5); (ii) Sponsored
Participants, as that term is defined in Rule 123B.30(a)(ii)(B)--
Equities and NYSE Amex Options Rule 900.2NY(77); and (iii) non-
member organization and non-ATP Holder broker-dealers and vendors
that request to receive co-location services directly from the
Exchange. See, e.g., Securities Exchange Act Release Nos. 65974
(December 15, 2011), 76 FR 79249 (December 21, 2011) (SR-NYSEAmex-
2011-81) and 65975 (December 15, 2011), 76 FR 79233 (December 21,
2011) (SR-NYSEAmex-2011-82). As specified in the NYSE MKT Equities
Price List and the NYSE Amex Options 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 New
York Stock Exchange LLC and NYSE Arca, Inc. See Securities Exchange
Act Release No. 70176 (August 13, 2013), 78 FR 50471 (August 19,
2013) (SR-NYSEMKT-2013-67).
\6\ See id.
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The Exchange is proposing this change in order to make an
additional service available to its co-location Users and thereby
satisfy demand for more efficient, lower latency connections. By
utilizing ultra low-latency switches, the LCN 10 Gb LX connection would
provide faster processing of messages sent to it in comparison to the
existing, standard 10 Gb LCN connection. A switch is a type of network
hardware that acts as the ``gatekeeper'' for a User's messaging (e.g.,
orders and quotes) sent to the Exchange's trading and execution system
from the data center. As a consequence, Users needing only 10 Gb of
bandwidth, but seeking faster processing of those messages, would have
the option of utilizing the faster and more efficient LCN 10 Gb LX
connection.\7\ Both the proposed LCN 10 Gb LX connection and the 40 Gb
LCN connection would represent the lowest latency currently available
to Users.
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\7\ The existing one Gb and 10 Gb LCN connections use the same
type of switch and the existing 40 Gb LCN connection uses a second
type of switch, but the switches are of uniform type within each
offering. The proposed new LCN 10 Gb LX would use the same type of
switch as the existing 40 Gb LCN. As a consequence, all co-located
Users of a particular connectivity option receive the same latency
in terms of the capabilities of their switches. At this time, the
Exchange is not proposing to make low-latency switches available for
10 Gb CSP connections because, at least initially, User demand is
not anticipated to exist. For a 10 Gb LX ``Bundle,'' SFTI and optic
connections would be at standard 10 Gb latencies and only the LCN
connections would be lower latency. The Exchange will include
language in the NYSE MKT Equities Price List and the NYSE Amex
Options Fee Schedule in the related fee change to reflect this fact.
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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, an ATP Holder, 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; \8\ 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
both of its affiliates.\9\
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\8\ 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 in sending orders
to, and receiving market data from, the Exchange.
\9\ See SR-NYSEMKT-2013-67, supra note 5 at 50471. The
Exchange's affiliates have also submitted the same proposed rule
change to provide for LCN 10 Gb LX connections. See SR-NYSE-2013-73
and SR-NYSEArca-2013-123.
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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,\10\ in general, and furthers the
objectives of Sections 6(b)(5) of the Act,\11\ in particular, because
it is 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 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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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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The proposed LCN 10 Gb LX connection would assist Users in making
their network connectivity more efficient by reducing the time that
messaging (e.g., orders and quotes) takes to reach the Exchange's
trading and execution system once sent from their co-located servers
and also the time that market data takes to reach their co-located
servers. Speed and efficiency are important drivers of the U.S.
securities markets. The Exchange is proposing to offer a co-location
connectivity solution that would promote these drivers by providing
state of the art technology that would be available to all Users. The
Exchange believes that the LCN 10 Gb LX connection would remove
impediments to and perfect the mechanism of a free and open market and
a national market system by providing for improved speed and efficiency
of message processing (e.g., orders and quotes) from Users' co-located
servers.
The Exchange also believes that the reduction in latencies
attributed to the LCN 10 Gb LX connection would serve to protect
investors and the public interest by providing Users with the most
efficient means of processing their messages sent to the Exchange's
trading and execution system from the data center.
The Exchange also believes that the proposed LCN 10 Gb LX
connection is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers because it would make a service
available to Users that require the low-latency connection, but Users
that do not require the lower latency could continue to request an
existing 10 Gb LCN connection. The Exchange anticipates that the
latency for the proposed LCN 10 Gb LX connection would be comparable to
that of the existing 40 Gb LCN connection. Both the proposed LCN 10 Gb
LX connection and the 40 Gb LCN connection would represent the lowest
latency currently available to Users. The 40 Gb LCN provides the
greatest bandwidth available on the Exchange, which is important for
Users that have high order flow and ingest large amounts of market data
and demand the greatest bandwidth possible to handle such message flow.
Some Users, however, have systems that are not compatible with a 40 Gb
LCN connection, or do not have bandwidth demands that would require a
40 Gb LCN connection, but still put a premium on reducing latency. The
LCN 10 Gb LX is designed to meet this demand. Ultimately, a User will
be able to choose between the proposed
[[Page 69906]]
new LCN 10 Gb LX connection or the existing one, 10 and 40 Gb LCN
connections to suit its needs. The Exchange believes that this would
remove impediments to, and perfect the mechanisms of, a free and open
market and a national market system and, in general, protect investors
and the public interest because it would provide Users with additional
choices with respect to the optimal bandwidth and latency for their
connections.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
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,\12\ 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 because any 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
could have access to the co-location services provided in the data
center. This is also true because, in addition to the services being
completely voluntary, they are available to all Users on an equal basis
(i.e., the same range of products and services are available to all
Users).
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\12\ 15 U.S.C. 78f(b)(8).
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The Exchange also believes that the proposed LCN 10 Gb LX
connection will not impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act
because it will satisfy User demand for more efficient, lower-latency
connections, but Users that do not require the lower latency could
continue to request an existing LCN connection. Similarly, it will
provide an option for a User whose system is not compatible with a 40
Gb LCN connection, or does not have bandwidth demands that would
require a 40 Gb LCN connection, but that puts a premium on reducing
latency. Additionally, the Exchange believes that the proposed change
will enhance competition between competing marketplaces by enabling the
Exchange to provide a low-latency connectivity option to Users that is
similar to a service available on other markets. For example, The
NASDAQ Stock Market LLC (``NASDAQ'') also makes a low-latency 10 Gb
fiber connection option available to users of its co-location
facilities.\13\
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\13\ See NASDAQ Rule 7034. NASDAQ refers to this connectivity
option as the ``10 Gb Ultra'' connection. See also Securities
Exchange Act Release No. 70129 (August 7, 2013), 78 FR 49308 (August
13, 2013) (SR-NASDAQ-2013-099).
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Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if, for example, they deem fee levels at a particular
venue to be excessive or if they determine that another venue's
products and services are more competitive than on the Exchange. In
such an environment, the Exchange must continually review, and consider
adjusting, the services it offers as well as any corresponding fees and
credits to remain competitive with other exchanges. 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 \14\ and Rule 19b-4(f)(6) thereunder.\15\
Because the foregoing proposed rule change does not: (1) Significantly
affect the protection of investors or the public interest; (2) impose
any significant burden on competition; and (3) by its terms does not
become operative for 30 days after the date of this filing, 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
\16\ and Rule 19b-4(f)(6) thereunder.\17\
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\14\ 15 U.S.C. 78s(b)(3)(A)(iii).
\15\ 17 CFR 240.19b-4(f)(6).
\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with 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 met this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\19\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange requested
waiver of the 30-day operative delay in order to immediately implement
the proposed rule change so that Users may experience the benefits of
such proposed change as soon as possible. The Exchange represented that
a waiver of the operative delay would be in the public interest and
would contribute to the protection of investors because it would permit
additional Users to have access to lower-latency LCN connections,
including those Users whose systems are not compatible with the
existing 40 Gb LCN connection or who do not have bandwidth demands that
would require a 40 Gb LCN connection. The Exchange further stated that
the benefit of such lower latency would indirectly benefit customers of
such Users and would serve to protect investors and the public
interest, in that the LCN 10 Gb LX connection would provide Users with
the most efficient means of processing customer orders that are sent to
the Exchange's trading and execution system from the data center. The
Exchange stated its belief that the proposed LCN 10 Gb LX connection
does not raise any novel or unique issues or concerns. The Exchange
further stated that it does not anticipate any negative consequence,
whether for Users, the investing public or otherwise, as a result of
granting a waiver of the operative delay. For the above reasons, the
Commission believes waiver of the operative delay is appropriate and
hereby grants the Exchange's request and designates the proposal
operative upon filing.\20\
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\18\ 17 CFR 240.19b-4(f)(6).
\19\ 17 CFR 240.19b-4(f)(6)(iii).
\20\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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) \21\ of the Act to
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determine whether the proposed rule change should be approved or
disapproved.
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\21\ 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-NYSEMKT-2013-92 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2013-92. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEMKT-2013-92 and should
be submitted on or before December 12, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27901 Filed 11-20-13; 8:45 am]
BILLING CODE 8011-01-P