[Federal Register Volume 82, Number 219 (Wednesday, November 15, 2017)]
[Notices]
[Pages 52950-52953]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24655]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82032; File No. SR-Phlx-2017-84]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Relating to the
Access and Redistribution Fee
November 8, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), \1\ and Rule 19b-4 thereunder, \2\ notice is hereby given
that on October 26, 2017, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III, below, which Items have been prepared by the Exchange. 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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend and conform Sections VIII and XIII
of the Exchange's Pricing Schedule, to define key terms; to clarify the
rule language; to clarify its application to Extranet Providers,
Members, and Non-members in various contexts; and to make conforming
changes to the Pricing Schedule's Table of Contents.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqphlx.cchwallstreet.com/ 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 Exchange 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 these 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The proposed rule change concerns Section VIII of the Exchange's
Pricing Schedule (the ``Equities Rule'') and Section XIII of the
Exchange's Pricing Schedule (collectively, the ``Rules''), currently
entitled ``Extranet Access Fee.'' The Exchange first imposed an
Extranet Access Fee in January of 2015.\3\ Today, technology and the
ecosystem have changed such that the Rules need updating and
clarification. Therefore, the Exchange is proposing several parallel
changes to the Rules.
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\3\ See Securities Exchange Act Release No. 74022 (Jan. 9,
2015); 80 FR 2157 (Jan. 15, 2015) (SR-Phlx-2015-04).
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First, the Exchange is proposing to rename both Rules and to
clarify their meaning through the use of defined terms. The Exchange is
adding definitions of the terms Equipment Configuration, and Extranet
Provider to new subsection (a) of the Rules. The Exchange is also
cross-referencing the definition of Distributors currently set forth in
Section IX of the Exchange's Pricing Schedule.
[[Page 52951]]
The term ``Equipment Configuration'' will be defined to mean ``any
line, circuit, router package, or other technical configuration used to
provide a connection to the Exchange market data feeds.'' The term
Equipment Configuration replaces the term ``Customer Premises Equipment
Configuration'' set forth in the current rules. The Exchange believes
that the term ``Customer Premises Equipment Configuration'' is
ambiguous and creates confusion about the ownership and location of
equipment through which direct access to market data feeds is provided.
By referring instead to ``Equipment Configuration,'' the Exchange
intends to specify that the ownership and location of the equipment is
inconsequential to the application of access and redistribution fees.
Rather, it is the number of configurations that matters, determining
the number of monthly access and redistribution fees to be assessed.
For example, if an Extranet Provider supplies market data to five
recipients via five configurations, two of which are located in a
single Exchange facility (such as Carteret, New Jersey) and three of
which are located at different customer facilities, the Extranet
Provider will be assessed access and redistribution fees of $5,000 per
month. If an Extranet Provider supplies market data to one customer at
two separate locations via two configurations--one within a Exchange
facility and one located elsewhere--the Extranet Provider will be
assessed access and redistribution fees of $2,000 per month. If an
Extranet Provider supplies market data to four customers via four
configurations all located within an Exchange co-location facility, the
Extranet Provider will be assessed $4,000 per month in access and
redistribution fees. The Exchange is proposing to define the term
``Extranet Provider'' as ``any entity that has signed the Exchange
Extranet Connection Agreement and that establishes a telecommunications
connection in the Exchange's co-location facility.'' The Exchange
requires entities to sign the Exchange Extranet Connection Agreement
\4\ for the purpose of setting the terms and conditions for those
entities to place equipment in the Exchange's co-location facility in
order to establish a telecommunications connection directly to the
Exchange and to provide its own customers with access to the Exchange
market data feeds.
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\4\ Available at http://www.nasdaqtrader.com/Content/AdministrationSupport/AgreementsData/NASDAQOMXExtranetAgreement.pdf.
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Finally, in order to further enhance the clarity of the Exchange's
rules, the Exchange is proposing to cross-reference the definition of
``Distributor'' for purposes of this rule. Section IX of the Exchange's
Pricing Schedule currently defines Distributor as:
[A]ny entity that receives a feed or data file of NASDAQ PHLX
data directly from NASDAQ PHLX or indirectly through another entity
and then distributes it either internally (within that entity) or
externally (outside that entity). All distributors shall execute a
NASDAQ PHLX distributor agreement.
The Exchange is proposing to renumber and rearrange the existing
rule text of the Rules. The first two sentences of existing rule text
will become new subsection (b). The Exchange also proposes to improve
the clarity of subsection (b) by using the new definitions outlined
above and by specifying that the monthly fees referred to are the
monthly access and redistribution fees. As described earlier, the third
sentence of existing rule text is being modified and moved to paragraph
(1) of new subsection (a) as the improved definition of ``Equipment
Configuration.'' The fourth and fifth sentences of existing rule text
will move to new subsection (d) with modest textual improvements but no
change in application of fees. The sixth sentence of existing rule text
will move to the final sentences of subsections (b) and (c) with minor
textual enhancements to apply it with equal effect to Extranet
Providers and Distributors.
The Exchange also proposes to add new subsection (c) to specify and
codify that similarly situated Distributors and Extranet Providers will
pay similar fees. Under subsection (b), Extranet Providers are assessed
a monthly fee of $1,000 for each Equipment Configuration that offers
Exchange market data feeds. Similarly, under proposed subsection (c),
the same $1,000 monthly fee applies to Distributors to whom the same
Exchange market data feeds are published via a Direct Circuit
Connection to the Exchange. The Exchange believes that, as defined,
Extranet Providers and Distributors are similarly situated because both
entities connect directly to the Exchange, and both provide Exchange
market data feeds to their customers via those connections.\5\
Likewise, the customers of Extranet Providers and Distributors are
similarly situated in that they receive the same Exchange market data
feeds through similar means.
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\5\ Proposed Subsection (c) of Chapters VIII and XIII apply only
to Distributors that connect to the Exchange via a Direct Circuit
Connection pursuant to Section XI of the Pricing Schedule. They do
not apply to Distributors that are co-located with the Exchange
pursuant to Section X of the Pricing Schedule and that connect to
the Exchange as specified under that Rule. Nor do they apply to
entities that connect to Nasdaq [sic] remotely via Point of Presence
Connectivity under Nasdaq Rule 7051(c) as set forth in SR-NASDAQ-
2017-97.
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For example, a Distributor with two Direct Circuit Connections to
the Exchange, both of which emanate from a single Exchange co-location
facility (such as Carteret, New Jersey) and both of which receive
Exchange market data feeds, will be assessed access and redistribution
fees of $2,000 per month. A Distributor with two Direct Circuit
Connections to the Exchange that emanate from two separate locations
and that receives Exchange market data feeds over each connection will
be assessed access and redistribution fees of $2,000 per month. A
Distributor with two Direct Circuit Connections to the Exchange that
emanate from two separate locations and that receives Exchange market
data feeds over only one of the connections will be assessed access and
redistribution fees of $1,000 per month.
The Exchange previously assessed and currently assesses this fee in
its capacity as operator of Nasdaq Technology Services, which had been
considered an Extranet Provider.\6\ The Exchange believes that defining
Extranet Providers and codifying the fee to Distributors (other than
Extranet Providers) is clearer to market participants. The Exchange
also understands that Distributors, like Extranet Providers, commonly
pass the fee on to their customers and therefore specifying that
Distributors employing a Direct Circuit Connection also pay the fee
will ensure consistent treatment between users enjoying the same
benefits via Extranet Providers on the one hand and Distributors on the
other, as described above.
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\6\ See SR-Phlx-2015-04 at footnote 16.
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Finally, the Exchange proposes to amend the Pricing Schedule's
Table of Contents to make conforming changes to Section XIII's title.
2. Statutory Basis
The Exchange believes that this proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\8\ in particular, in that it provides
for an equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using its facility, and to
specify
[[Page 52952]]
that the fees are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the application of identical Access and
Redistribution fees to Distributors and Extranet Providers as described
in the proposed rule change is fair and equitable and non-
discriminatory. As stated above, Distributors and Extranet Providers
both connect to the Exchange directly for the purpose of re-
distributing Exchange market data feeds to their own customers and both
enjoy similar benefits in doing so. Likewise, those customers, whether
receiving Exchange market data feeds via a Distributor or an Extranet
Provider receive that market data feeds in a similar fashion and with
similar benefits. Those benefits are considerable: secure, rapid,
reliable access to the highest quality market data feeds on the trading
of equities and options on the Exchange.
The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In regulation
NMS, while adopting a series of steps to improve the current market
model, 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.'' \9\
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\9\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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The Exchange believes it is fair and equitable and not
discriminatory to apply equal access and redistribution fees to
Distributors, as it does to Extranet Providers. As stated above,
Distributors and Extranet Providers are similarly situated in that they
receive Exchange market data feeds directly from the Exchange and they
redistribute that data to their own customers. Likewise, the Exchange
believes that the customers of Extranet Providers and of Distributors
are similarly situated in the manner in which they receive Exchange
market data feeds.
The Exchange believes that it is consistent with an equitable
allocation of reasonable dues and fees and not unfairly discriminatory
to charge the fees proposed under subsection (c) of Chapters VIII and
XIII of the PHLX Pricing Schedule to Extranet Providers and
Distributors that are not co-located, but not to charge those same fees
to Distributors that are co-located. First, Distributors that are co-
located already pay fees set forth in Section X of the Pricing Schedule
which include connectivity and access to data. Second, if a co-located
Distributor were to send data feeds out of the co-location facility,
the feeds would be processed and normalized by the Distributor, as
opposed to by the Exchange; in that case, the Distributor would not be
using the proximity for which Extranets and Direct Circuit Connection
Distributors are being assessed fees under subsection (c) of Chapters
VIII and XIII of the PHLX Pricing Schedule.
The Exchange is proposing to enhance the clarity of the language of
the Rules to ensure that customers understand the proper application of
the Rules as technology has changed and continues to change. The
Exchange believes that customers support the continued evolution of its
rules, and that regulators do and should support and facilitate this
evolution.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change will not impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act. To the contrary, the Exchange believes that
applying equal fees to similarly situated Extranet Providers and
Distributors, enhancing the clarity of the Rules, and eliminating
ambiguity imposes no burden on competition and is, in fact, pro-
competitive. Extranet Providers and Distributors benefit from having a
more accurate and complete understanding of the Exchange's services and
fees when determining which if any of those competing services to
purchase voluntarily.
The Exchange believes that the proposed rule change places no
burden on competition because it specifies that identical fees will
apply to all similarly situated Distributors and Extranet Providers
that provide Exchange market data feeds to their own customers. As
described above, such Distributors and Extranet Providers offer the
same Exchange market data feeds in the same manner to similarly
situated customers. The Exchange offers similar benefits to
Distributors and Extranet Providers by offering them such access to
Exchange market data feeds.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\10\
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\10\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
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-Phlx-2017-84 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-Phlx-2017-84. 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.,
[[Page 52953]]
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2017-84 and should be
submitted on or before December 6, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24655 Filed 11-14-17; 8:45 am]
BILLING CODE 8011-01-P