[Federal Register Volume 84, Number 175 (Tuesday, September 10, 2019)]
[Notices]
[Pages 47600-47608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19460]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86869; File No. SR-NYSENAT-2019-19]


Self-Regulatory Organizations; NYSE National, Inc.; Notice of 
Filing of Proposed Rule Change To Amend the Exchange's Price List 
Related to Co-Location Services

September 4, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August 22, 2019, NYSE National, Inc. (``NYSE National'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Price List related to 
co-location services to provide access to NMS feeds. The proposed rule 
change is available on the Exchange's website at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Price List related to co-
location \4\ services offered by the Exchange to provide Users \5\ with 
an alternate, dedicated network connection to access the NMS feeds for 
which the Securities Industry Automation Corporation (``SIAC'') is 
engaged as the securities information processor (``SIP'').\6\
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    \4\ The Exchange initially filed rule changes relating to its 
co-location services with the Commission in May 2018. See Securities 
Exchange Act Release No. 83351 (May 31, 2018), 83 FR 26314 (June 6, 
2018) (SR-NYSENAT-2018-07). The Exchange operates a data center in 
Mahwah, New Jersey (the ``data center'') from which it provides co-
location services to Users.
    \5\ For purposes of the Exchange's co-location services, a 
``User'' means any market participant that requests to receive co-
location services directly from the Exchange. See id. at note 9. As 
specified in the Price List, a User that incurs co-location fees for 
a particular co-location service pursuant thereto would not be 
subject to co-location fees for the same co-location service charged 
by the Exchange's affiliates the New York Stock Exchange (``NYSE''), 
NYSE American LLC (``NYSE American''), and NYSE Arca, Inc. (``NYSE 
Arca'' and together, the ``Affiliate SROs''). See id. at note 11.
    \6\ See id. at 26316.
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    As described below, today Users can connect to Regulation NMS 
equities and

[[Page 47601]]

options feeds \7\ disseminated by the SIP using either of the co-
location local area networks. Users do not pay an additional charge to 
connect to the NMS feeds: It comes with their connection to the local 
area network.
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    \7\ The NMS feeds include the Consolidated Tape System and 
Consolidated Quote System data streams, as well as Options Price 
Reporting Authority (``OPRA'') feeds.
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    The Exchange has recently been authorized to build a new network in 
the Mahwah data center (the ``NMS network'') that will only connect to 
the NMS feeds. The new network will connect to the NMS feeds faster 
than either of the existing local area networks. The Exchange believes 
that under most circumstances, none of the Users that currently connect 
to the NMS feeds will have to pay any additional fees to connect to the 
NMS network. As described in detail below, there are limited 
circumstances when a User may incur a unique fee to connect to the NMS 
network. However, the Exchange does not expect to earn net revenue from 
any such fees for connecting to the NMS network.
    As explained in more detail below, the Exchange proposes to amend 
the General Notes to provide that:
    a. Users will have the option to use the NMS network or either of 
the existing local area networks to connect to the NMS feeds.
    b. For each connection a User and its Affiliates have to the local 
area networks, the User and its Affiliates, together, will get a free 
connection to the NMS network, subject to a maximum limit of eight, so 
long as the User meets the requirements set forth below.
    c. If a User wants to separately purchase an NMS network 
connection, it would pay the same fee as the same-sized 10 Gigabit 
(``Gb'') or 40 Gb internet protocol (``IP'') network circuit.
    Subject to approval of this proposed rule change, the Exchange 
proposes to implement the rule change on the first day of the month 
after the NMS network is available. The Exchange will announce the 
implementation date through a customer notice.
Background
    The Exchange's affiliate, SIAC, is engaged as the SIP for three 
separate Regulation NMS plans (collectively, the ``NMS Plans'').\8\ 
SIAC operates as the SIP for the NMS Plans in the same data center 
where the Exchange and its Affiliate SROs operate. In that data center, 
Users can access SIAC as the SIP over the same network connections 
through which they access other services. Specifically, a User can 
access the SIAC SIP environment via either the IP network or the 
Liquidity Center Network (``LCN''), which are the local area networks 
in the data center.\9\
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    \8\ SIAC has been engaged as the SIP to, among other things, 
receive, process, validate and disseminate: (1) Last-sale price 
information in Tape A and Tape B-listed securities pursuant to the 
CTA Plan (``CTA Plan''), which is available here: https://www.nyse.com/publicdocs/ctaplan/notifications/trader-update/CTA%20Plan%20-%20Composite%20as%20of%20August%2027,%202018.pdf; (2) 
quotation information in Tape A and B-listed securities pursuant to 
the CQ Plan (``CQ Plan''), which is available here: https://www.nyse.com/publicdocs/ctaplan/notifications/trader-update/CQ_Plan_Composite_as_of_July_9_2018.pdf; and (3) quotation and last-
sale price information in all exchange options trading pursuant to 
the OPRA Plan (``OPRA Plan''), which is available here: https://uploads-ssl.webflow.com/5ba40927ac854d8c97bc92d7/5bf419a6b7c4f5085340f9af_opra_plan.pdf.
    \9\ See 83 FR 26314, note 4, supra, at 26315-26316.
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    The Exchange offers Users connectivity to the SIAC SIP environment 
at no additional charge when a User purchases access to the LCN or IP 
network.\10\ On the Price List, the SIAC feeds are referred to as the 
``NMS feeds.'' As described in General Note 4 of the Price List, when a 
User purchases access to the LCN or IP network, it receives 
connectivity to certain market data products (the ``Included Data 
Products'') that it selects, subject to technical provisioning 
requirements and authorization from the provider of the data feed. The 
NMS feeds are included in the list of the Included Data Products that 
come with connections to the LCN or IP network. The remaining Included 
Data Products are proprietary feeds of the Exchange, its Affiliate 
SROs, and the Exchange's affiliate NYSE Chicago, Inc. (``NYSE Chicago'' 
and together with the Exchange and Affiliate SROs, the ``NYSE 
Exchanges'').
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    \10\ As set forth on the Price List, the Exchange offers a range 
of LCN and IP network connectivity options at different rates 
depending on the bandwidth and latency profile of the applicable 
network.
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    A User that purchases access to the LCN or IP network also receives 
the ability to access the trading and execution systems of the NYSE 
Exchanges (the ``Exchange Systems'') and the trading and execution 
systems of OTC Global, an alternative trading system (``ATS''), 
subject, in each case, to authorization by the relevant entity.\11\
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    \11\ See 83 FR 26314, note 4, supra, at 26315-26316, and 
Securities Exchange Release No. 85959 (May 29, 2019), 84 FR 25887 
(June 4, 2019) (SR-NYSENat-2019-13). Information regarding the 
Included Data Products is currently set forth in the second 
paragraph of General Note 4. The Exchange proposes to split General 
Note 4 so that the discussion regarding Included Data Products will 
form General Note 5.
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    Accordingly, without paying an additional connectivity fee, a User 
that purchases access to either the LCN or IP network can use such 
network to:
    1. Access the trading and execution services of five registered 
exchanges (five equities markets, two options markets, and a fixed 
income market) and an ATS;
    2. Connect to the market data of five registered exchanges (five 
equities exchanges, two options markets, and a fixed income market); 
and
    3. Connect to the NMS feeds.
    A User may connect to the NMS feeds through the IP network or LCN. 
Until recently the operating committee for the CTA and CQ Plans (``CTA/
CQ Plans'') mandated use of the IP network to access the NMS feeds.\12\ 
As a result, all LCN connections to the NMS feeds go through the IP 
network before reaching the NMS feeds,\13\ and so using the LCN to 
connect to an NMS feed is slower than using the IP network.\14\
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    \12\ The Operating Committee of the CTA/CQ Plans mandated the 
use of the IP network to access the NMS feeds because the IP network 
was built as a secure network designed for resiliency and 
redundancy.
    \13\ By contrast, the LCN does not connect to the IP network for 
access to the Exchange Systems or connectivity to the other Included 
Data Products.
    \14\ A User that uses the LCN to connect to an NMS feed does not 
need to separately purchase an IP network connection.
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Alternate, Dedicated Network Connection for NMS Feeds
    As the SIP for the NMS Plans, SIAC continually assesses the 
services it provides and has been working with the operating committees 
of the NMS Plans and the industry-based advisory committee to the CTA/
CQ Plans to identify potential performance enhancements. Among other 
initiatives, this group identified that, because the IP network was not 
designed as a low-latency network, the requirement to use the IP 
network to access the NMS feeds introduces a layer of latency.
    To reduce network latency, the Exchange sought and received 
approval from the operating committees for the CTA/CQ Plans to build an 
alternate to the LCN and IP network to connect to the NMS feeds.\15\ As 
approved by the CTA/CQ Plans, the Exchange is building a low-latency 
network in the data center that will provide Users with dedicated 
access to the NMS feeds (the ``NMS network'').\16\
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    \15\ The alternate network to access the NMS feeds will not be 
available outside of the data center.
    \16\ Because SIAC, as the SIP for the NMS Plans, is also 
responsible for collecting data from the participants of the CTA/CQ 
Plans and members of the OPRA Plan, Users that are participants of 
the applicable NMS Plans could use this alternate network connection 
for purposes of both transmitting and receiving data. Users that are 
not participants of the NMS Plans could use this alternate network 
connection for purposes of receiving data. This alternate network 
would not be available to connect to the other Included Data 
Products or to access the Exchange Systems or Global OTC.

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[[Page 47602]]

    The Exchange currently anticipates that the low-latency network 
will have a one-way reduction in latency to access the NMS feeds from 
the IP network and LCN of over 140 microseconds.
    Connections to the NMS network will be available in 10 Gb and 40 Gb 
circuits. Because the NMS network will be an alternate network to 
access the NMS feeds, once it is available, Users would have the choice 
between continuing to use the LCN or IP network to connect to NMS feeds 
or switching to the NMS network.
Proposed Amendments to the Price List
    The proposed fee structure for the NMS network has been designed so 
that, in most cases, a User would not have any new or different charges 
if it opts to connect to the NMS network compared to what it would be 
charged if it chooses to continue to use its LCN or IP network circuit 
to connect to the NMS feeds. At the same time, the proposed fees are 
designed to promote the efficient use of the NMS network so that Users 
do not subscribe to more NMS network connections than are necessary.
Options to Connect to the NMS Feeds
    As noted above, Users that purchase access to the LCN or IP Network 
currently can use such networks to connect to the NMS feeds. The 
Exchange proposes to add text to the General Notes stating that a User 
authorized to receive connectivity to one or more NMS feeds may request 
to connect to the NMS feeds via the NMS network.
No Fee NMS Network Connections
    The Exchange proposes to amend the Price List to state that if a 
User purchases access to the LCN or IP network and requests a 
connection to the NMS network, that User and its Affiliates, taken 
together, would not be charged for up to eight corresponding NMS 
network connections (each, a ``No Fee NMS Network Connection'') if such 
User, together with its Affiliates, purchases access to an LCN or IP 
network and:
    1. Designates no more than four No Fee NMS Network Connections as 
corresponding to the LCN connections of the User, together with its 
Affiliates, on a one-to-one basis;
    2. designates no more than four No Fee NMS Network Connections as 
corresponding to the IP network connections of the User, together with 
its Affiliates, on a one-to-one basis;
    3. does not use the LCN or IP network connections that correspond 
to No Fee NMS Network Connections to access the NMS feeds; and
    4. each of the No Fee NMS Network Connections is of equal size or 
smaller than the associated LCN or IP network connection purchased by 
it or its Affiliates.\17\
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    \17\ An ``Affiliate'' of a User would be any other User or 
Hosted Customer that has 50% or greater common ownership or control 
of the first User. A ``Hosted Customer'' means a customer of a 
Hosting User that is hosted in a Hosting User's co-location space, 
and a ``Hosting User'' means a User of co-location services that 
hosts a Hosted Customer in the User's co-location space. Such 
definitions are set forth in the Price List under ``Definitions.'' 
See 83 FR 26314, note 4, supra, at 26315.
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    For example, if a User that has no Affiliates currently purchases 
three 40 Gb LCN circuits and two 10 Gb IP network circuits, and is 
authorized to access the NMS feeds through all five of these circuits, 
under the proposal, such User would not be charged any additional fees 
for up to three 40 Gb NMS network circuits and two 10 Gb NMS network 
circuits. If such User chooses to use all five corresponding NMS 
network connections, it would no longer be provided access to the NMS 
feeds over the three 40 Gb LCN circuits and the two 10 Gb IP network 
circuits.
    Because the Exchange proposes that the number of No Fee NMS Network 
Connections would be applicable to both a User and its Affiliates, the 
Exchange proposes to amend the Price List to specify how a User must 
certify whether any other Users or Hosted Customers are Affiliates of 
the certificating User. As proposed, the certificating User would be 
required to inform the Exchange immediately of any event that causes 
another User or Hosted Customer to become an Affiliate. The Exchange 
would review available information regarding the entities and may 
request additional information to verify the Affiliate status of a User 
or Hosted Customer. The Exchange would provide No Fee NMS Network 
Connections to the certificating User unless it determines that the 
certification is not accurate.
    In addition, a User that has one or more NMS network connections 
may become affiliated with one or more other Users or Hosted Customers 
such that the User and its Affiliates would together exceed the limit 
of No Fee NMS Network Connections. In such case, for each NMS network 
connection that exceeds the limit of No Fee NMS Network Connections, 
the Exchange would charge the User for each NMS network connection at 
the same rate as it charges for an IP network connection of the same 
size. Such change would be effective as of the date that the User 
became affiliated with the other Users or Hosted Customers, as 
applicable.
    This proposed rule text relating to how a User and its Affiliates 
would be charged in connection with the No Fee NMS Network Connections 
is based on text in General Note 2 relating to how a User must certify 
Affiliates in connection with the Partial Cabinet Solution bundle.\18\
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    \18\ See id.
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Purchasing NMS Network Connections
    In addition to the No Fee NMS Network Connections, the Exchange 
proposes that a User may purchase an NMS network connection. 
Accordingly, the Exchange proposes to add text to the Price List 
stating that a User may purchase an NMS network connection at the same 
fee as the same-sized 10 Gb or 40 Gb IP network circuits.\19\
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    \19\ As set forth on the Price List, IP network access is: (1) 
$10,000 per connection initial charge and a $11,000 monthly 
recurring charge (``MRC'') per connection for a 10 Gb Circuit; and 
(2) $10,000 per connection initial charge and a $18,000 MRC for a 40 
Gb Circuit.
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    Circumstances when a User would have to separately purchase an NMS 
network connection could include if such User:
    1. Has not purchased access to the LCN or IP network and would like 
to connect to the NMS network;
    2. has purchased access to the LCN or IP network and would like NMS 
network connections in excess of the number of No Fee NMS Network 
Connections that correspond to its LCN or IP network connections; \20\ 
or
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    \20\ For example, if a User had four connections to the LCN and 
three connections to the IP network, those connections would 
correspond to seven No Fee NMS Network Connections. If the User 
wanted ten NMS network connections, it would receive seven at no fee 
and would pay for three.
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    3. would like to use its LCN or IP network connections to continue 
to access the NMS feeds.
Expected Application of the Proposed Change
    Currently, 48 Users connect to NMS feeds through connections to the 
LCN and IP networks (the ``Current Users''). The Exchange expects the 
number of Users connecting to the NMS feeds in the future to remain 
relatively constant with the number of Current Users, although it could 
increase or decrease with time. The fee will apply in the same manner 
to all Users, irrespective of what type or size of market participant 
they are.

[[Page 47603]]

The Range of Potential Fees
    Depending on how a User chooses to connect, a User would pay for a 
connection to the NMS network between $0 and $18,000 per connection per 
month. More specifically, a User that utilizes a No Fee NMS Network 
Connection to connect to the NMS network would pay no initial fee or 
MRC. A User that does not utilize a No Fee NMS Network Connection would 
pay the same fee as the same-sized 10 Gb or 40 Gb IP network circuit. 
For the 10 Gb option, that would be a $10,000 initial charge and a 
$11,000 MRC per connection. For the 40 Gb option, that would be a 
$10,000 initial charge and a $18,000 MRC per connection.
    As noted above, the Exchange believes that none of the Current 
Users will have to pay to connect to the NMS network, and so the 
$11,000 and $18,000 MRCs are largely theoretical. Based on a review of 
the Current Users' LCN and IP network connections, with two exceptions, 
the number of No Fee NMS Network Connections will be more than 
sufficient for such Users to maintain their current connections to the 
NMS network at no additional cost. Accordingly, the majority of Current 
Users would be able to opt to connect to the NMS network without any 
additional charges.
    The exceptions are two Current Users that use more than four 
connections to the IP network and/or four connections to the LCN to 
connect to the NMS feeds. If these Users obtain an equal number of 
connections to the NMS network, the number of their connections to the 
NMS network would exceed their number of No Fee NMS Network 
Connections. As a result, they would have to pay for the excess NMS 
network connections. However, based on conversations with these two 
Users, the Exchange understands that they intend to optimize their 
connections by only using their No Fee NMS Network Connections to 
connect to the NMS feeds and would not need to purchase any additional 
NMS network connections. Accordingly, since they do not anticipate 
requiring NMS network connections in excess of the No Fee NMS Network 
Connections, the Exchange believes that they will not incur any 
additional cost. For this reason, the Exchange believes that providing 
up to eight free connections to the NMS network, each corresponding to 
a purchased connection of equal or larger size to the LCN or IP 
network, would meet the needs of the Current Users.
    Based on the Exchange's review of Users' current numbers of 
connections to the LCN and IP network, the Exchange believes that the 
majority of Users that want access to the NMS feeds in the future would 
be able to meet their bandwidth needs for the NMS network with the 
proposed No Fee NMS Network Connections, and so are unlikely to incur 
any cost above their costs for accessing the LCN or IP network.
    The Exchange's proposal to require a User to purchase access to the 
NMS network if it does not also purchase access to the LCN or IP 
network, or if it has connections to the LCN and IP network but wants a 
number of NMS network connections in excess of its No Fee NMS Network 
Connections, would not impose any new or different charges for such 
User. For example:
     Currently, if a User needs to connect to only the NMS 
feeds (and does not need that network connection to access the Exchange 
Systems or to connect to the other Included Market Data), such User 
must purchase access to either the LCN or IP network at the published 
rates on the Price List.
     As proposed, once the NMS network becomes available, such 
User would still need to purchase a network connection to connect to 
the NMS feeds, but will have a greater choice because it could opt to 
connect via the low-latency, dedicated NMS network instead of using the 
IP network. Access to the NMS network would be charged at the same rate 
as published rates for access to the IP network.
    As another example:
     Currently, if a User needs (a) two connections to the LCN 
to meet its bandwidth needs to access the Exchange Systems and connect 
to Included Market Data, including the NMS feeds, and (b) an additional 
connection to the LCN or IP network to meet additional bandwidth needs 
to connect to NMS feeds, it would purchase a total of three network 
connections: Two LCN connections (to provide access to the Exchange 
Systems and connect to the Included Market Data) and one IP network 
connection (to provide connectivity only to the NMS feeds).
     As proposed, once the NMS network is available, such User 
could still purchase two connections to the LCN for its non-NMS feed 
needs, and could opt to use two No Fee NMS Network Connections of the 
same or smaller bandwidth that correlate to such LCN connections. To 
meet its additional bandwidth needs to connect to the NMS feeds, such 
User could now opt to purchase a connection to either the NMS network 
or the IP network at the same price. In either case, the User would be 
purchasing a total of three network connections (but receiving five 
connections) and would be charged at the same rates as are currently 
charged under the Price List.
    In both of the above examples, a User that opts to purchase access 
to the NMS network instead of to the IP network to connect to the NMS 
feeds would receive a lower-latency connection than the IP network 
connection, for the same charge. The Exchange therefore believes that 
in the above-described circumstances, the proposed fees would be cost-
neutral as compared to the current Price List, with the additional 
benefit that the User would have the option to select a lower-latency, 
dedicated network connection.
The Limitation on the Number of No Fee NMS Network Connections
    As described above, the Exchange believes that the majority of 
Users would be able to meet their bandwidth needs for the NMS network 
with the proposed No Fee NMS Network Connections. The Exchange further 
believes that without the proposed limit on number of No Fee NMS 
Network Connections, Users may opt to connect to NMS network 
connections on a one-for-one basis for each LCN or IP network 
connection that they have purchased, even if such LCN or IP network 
connections are not currently used to access the NMS feeds. In such 
case, the Exchange does not believe that more than eight NMS network 
connections would be necessary or in furtherance of the User's needs to 
connect to the NMS feeds. To discourage Users from requesting more NMS 
network connections than they need, the Exchange proposes to charge for 
any NMS network connections in excess of the proposed limit of No Fee 
NMS Network Connections.
    Similarly, the Exchange believes that if a User chooses to connect 
to the NMS feeds via both an LCN or IP network connection and an 
associated NMS network connection, that User would be receiving two 
separate network connections to access the NMS feeds. This would double 
its bandwidth available to access the NMS feeds and the Exchange 
believes that such User should be charged accordingly. The Exchange 
further believes it would promote efficient use of resources to charge 
for the NMS network connection in these circumstances because there 
would be operational costs for the Exchange to support access to both 
the NMS network and the LCN or IP networks at the same time. Stated 
otherwise, the Exchange is concerned that if the NMS network 
connections are free without any limits, Users may seek

[[Page 47604]]

so many connections that it would increase both capital and operational 
expenses for the Exchange.
Defraying the Cost of Building the NMS Network
    In addition to promoting the efficient use of NMS network 
connections, charging for NMS network connections under the limited 
circumstances described above may also defray the costs associated with 
implementing the NMS network. As described above, SIAC is the SIP for 
the NMS plans and is reimbursed for specified direct costs by the 
participants to the NMS Plans.\21\ Even though the NMS network would 
connect only to the NMS feeds, the Exchange has agreed not to seek 
reimbursement of the costs to build the NMS network from the 
participants of the respective NMS Plans.
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    \21\ SIAC is reimbursed either directly (under the CTA/CQ Plans, 
participants reimburse SIAC directly) or indirectly (under the OPRA 
Plan, OPRA LLC reimburses SIAC).
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    The one-time capital expenditure for the implementation of the NMS 
network will be approximately $3.8 million, which includes procurement 
of new low-latency network switches, network devices, and analytics 
tools and the one-time operational expenditures to build this new 
network. The estimate is based on the hardware that would be necessary 
to support the Current Users' present configurations if they replaced 
their LCN or IP network connections to the NMS feeds with NMS network 
connections, with some room for additional growth. If Users were to 
request NMS network connections in excess of the estimated number of 
connections, the Exchange would have to procure additional hardware, 
which would be an additional cost. In addition to these one-time 
implementation costs, the Exchange estimates that the ongoing cost to 
maintain and operate the dedicated NMS network will be approximately 
$215,000 annually.
    The Exchange cannot predict with certainty what User behavior will 
be once the NMS network is available. As discussed above, based on 
current usage of the LCN and IP network, the Exchange anticipates that 
all Current Users will be able to connect to the NMS feeds without any 
new or different charges. The Exchange expects that some Users may even 
reduce the total number of circuits that they purchase because they 
will be able to obtain up to eight connections to the NMS network at no 
charge. Those No Fee NMS Network Connections will free up bandwidth 
over their LCN or IP network connections, allowing them to reduce the 
total number of LCN or IP network connections that they purchase.
    Although the Exchange believes that none of the Current Users will 
have to pay additional fees to connect to the NMS network, the Exchange 
cannot fully anticipate User behavior once the NMS network is 
available. Some Current Users, or new Users, may elect to purchase NMS 
network connections in excess of the proposed limit on the number of No 
Fee NMS Network Connections, for which they would pay a charge. Given 
that, the Exchange has done an analysis of what would occur if Users 
request five unique new NMS network connections that are not No Fee NMS 
Network Connections. Assuming that such Users purchase 40 Gb NMS 
network circuits, these five new connections would result in $1,130,000 
in revenue: $50,000 in initial charges and $1,080,000 in MRC. This 
revenue would likely be offset either in part or in whole by Users, 
including Current Users, reducing the total number of LCN or IP network 
circuits that they purchase. The Exchange could even experience a net 
decline in revenue as a result of the proposed commercial terms for the 
NMS network.
General
    As is the case with all Exchange co-location arrangements, (i) 
neither a User nor any of the User's customers would be permitted to 
submit orders directly to the Exchange unless such User or customer is 
a member organization, a Sponsored Participant or an agent thereof 
(e.g., a service bureau providing order entry services); (ii) use of 
the co-location services proposed herein would be completely voluntary 
and available to all Users on a non-discriminatory basis; \22\ and 
(iii) a User would only incur one charge for the particular co-location 
service described herein, regardless of whether the User connects only 
to the Exchange or to the Exchange and one or more of the Affiliate 
SROs.\23\
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    \22\ As is currently the case, Users that receive co-location 
services from the Exchange will not receive any means of access to 
the Exchange's trading and execution systems that is separate from, 
or superior to, that of other Users. In this regard, all orders sent 
to the Exchange enter the Exchange's trading and execution systems 
through the same order gateway, regardless of whether the sender is 
co-located in the data center or not. In addition, co-located Users 
do not receive any market data or data service product that is not 
available to all Users, although Users that receive co-location 
services normally would expect reduced latencies in sending orders 
to, and receiving market data from, the Exchange.
    \23\ See 83 FR 26314, supra note 4, at 26314. The NYSE, NYSE 
American, and NYSE Arca have submitted substantially the same 
proposed rule change to propose the changes described herein. See 
SR-NYSE-2019-46, SR-NYSEAmer-2019-34, and SR-NYSEArca-2019-61.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\24\ in general, and furthers the 
objectives of Sections 6(b)(5) of the Act,\25\ 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. The Exchange also believes 
that the proposed fee change is consistent with Section 6(b)(4) of the 
Act,\26\ in particular, because it provides for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members, issuers and other persons using its facilities and does not 
unfairly discriminate between customers, issuers, brokers or dealers.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

The Proposed Rule Change Would Remove Impediments to and Perfect the 
Mechanism of a Free and Open Market and a National Market System
    The Exchange believes that the proposed change to establish access 
to the NMS network as a service available in co-location 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, by offering access to the dedicated, low-
latency NMS network, the Exchange will be providing Users with an 
additional option to connect to the NMS feeds. Until recently, SIAC was 
required to provide connectivity to the NMS feeds via only the IP 
network. As recently approved by the operating committees for the CTA/
CQ Plans, SIAC is now authorized to offer connectivity to the NMS feeds 
in the data center via an alternate, dedicated, low-latency NMS 
network. The proposed NMS network has been designed consistent with 
this directive and will provide greater choice to Users that are 
seeking a low-latency network to connect to the NMS feeds.

[[Page 47605]]

The Proposed Rule Change Is Reasonable
    As an initial matter, as required by Rule 603(b) of Regulation NMS, 
SIAC disseminates quotation and transaction information as the single 
plan processor for all Tape A and Tape B-listed securities and is also 
the single plan processor for all options exchanges. As the single plan 
processor, the pricing decisions relating to the dedicated NMS network 
are not constrained by competitive market forces.
    Instead, as described above, the Exchange is funding the capital 
and operational expenses to build and operate the NMS network. Those 
implementation costs are applicable only to the NMS network, which will 
be used for the sole purpose of providing access to the NMS feeds. 
Simply put, none of the implementation costs are applicable to any 
other Exchange services. The Exchange has based its procurement needs--
which correlate to the Exchange's estimated costs to build the NMS 
network--based on the Current Users' usage of the LCN or IP networks to 
connect to the NMS feeds, with some room for additional growth.
    The Exchange believes that the proposed charges would be reasonable 
because such charges would defray the estimated costs the Exchange will 
incur to build and operate the NMS network. As described above, the 
proposed NMS network will be a dedicated, low-latency network that will 
provide access only to the NMS feeds. Because LCN and IP network fees 
on the Price List relate to charges for services either other than or 
in addition to connectivity to the NMS feeds, the Exchange currently 
does not assess any fees that are specific to connectivity to the NMS 
feeds. The proposed charges for access to the NMS network are designed 
to defray the specific costs that the Exchange will incur to build and 
maintain the infrastructure for the NMS network. As described above, 
the Exchange's capital expenditure costs for the build are estimated to 
be $3.8 million, which includes procurement of new low-latency network 
switches, network devices, and analytics tools and the one-time 
operational expenditures to build this new network. The estimate is 
based on the hardware that would be necessary to support the Current 
Users' present configurations if they replaced their LCN or IP network 
connections to the NMS feeds with NMS network connections, with some 
room for additional growth. If Users were to request NMS network 
connections in excess of the estimated number of connections, the 
Exchange would have to procure additional hardware, which would be an 
additional cost. In addition to this initial estimated approximately 
$3.8 million outlay, the Exchange anticipates that the ongoing costs to 
maintain and operate the NMS network will be approximately $215,000 
annually.
    The Exchange further believes that these proposed fees would be 
reasonable because unnecessary connections would impose a burden on the 
infrastructure that would be shared by all Users.
    As stated above, the Exchange believes that the Current Users will 
use No Fee NMS Network Connections for the NMS network, and as a 
consequence, none of the Current Users will have to pay to connect to 
the NMS network. However, the Exchange cannot fully anticipate User 
behavior once the NMS network is available. Some Current Users, or new 
Users, may elect to purchase NMS network connections in excess of the 
proposed limit on number of No Fee NMS Network Connections, for which 
they would pay a charge. Given that, the Exchange has done an analysis 
of what would occur if Users request five unique NMS network 
connections that are not No Fee NMS Network Connections. Assuming that 
such connections were the larger size of 40 Gb, these five new 
connections would result in $1,130,000 in revenue: $50,000 in initial 
charges and $1,080,000 in MRC. But new revenue does not necessarily 
translate into net revenue gain.
    First, the Exchange anticipates that once the NMS network is 
available, Users may lower the number of LCN or IP network connections 
that they purchase, offsetting any unique new charges and possibly 
leading to a net decline in revenues. Second, even if the Exchange 
assumes new revenue of $1,130,000 per year, such revenue would not 
fully offset the cost of building and maintaining the NMS network. 
Rather, the proposed charges, to the extent they would correlate to new 
revenue, would merely defray the costs that the Exchange will incur to 
build and support additional capacity for the NMS network. Assuming 
revenue equal to the MRCs, i.e. $1,080,000 per year, it would take four 
years before such revenue would fully offset the initial fixed costs to 
build the NMS network. The Exchange generally refreshes network 
hardware after three or four years, as such hardware has a limited 
life. Accordingly, the Exchange expects that it will incur substantial 
new costs to refresh the NMS network after three or four years. As a 
result, even after the initial fixed costs are offset, the MRC revenue 
will not necessarily cover the variable, ongoing costs to maintain and 
refresh the NMS network. If the revenue were to be a net gain, the 
Exchange does not believe such revenues would cover all the fixed costs 
that the Exchange would incur to refresh the network hardware or add 
additional infrastructure to meet Users' needs. Any revenue would 
assist with defraying the sizable investment needed to create the NMS 
network, but in the end the Exchange does not expect additional net 
revenues.
The Proposed Rule Change Is an Equitable Allocation of Fees
    The Exchange believes that the proposed fee change is equitably 
allocated for multiple reasons.
The No Fee NMS Network Connection Is an Equitable Allocation of Fees
    As described above, the proposed fee structure for the NMS network 
has been designed so that the majority of Users would not have any new 
or different charges if they opt to connect to the NMS network. Rather, 
Users will have a choice whether to use an IP network, LCN or NMS 
network connection to connect to the NMS feeds. The cost to purchase a 
NMS network connection would be the same as an IP network connection of 
the same size. A User that voluntarily chooses to exercise the choice 
to connect with the NMS network would receive the benefit of a low-
latency connection without any additional charges.
    More specifically, the Exchange proposes that if a User purchases 
access to the LCN or IP network and requests a connection to the NMS 
network, it, together with its Affiliates, will not be charged for up 
to eight corresponding No Fee NMS Network Connections. Such User, 
together with its Affiliates, will be entitled to a No Fee NMS Network 
Connection for each of the first four LCN or IP network connections 
that it purchases, so long as they meet the requirements set forth 
above. A User that utilizes its No Fee NMS Network Connections to 
connect to the NMS network would have no or different charges.
    The Exchange believes that the proposed limit on the number of No 
Fee NMS Network Connections would be equitably allocated because it is 
based on the number of LCN or IP network connections that Users 
currently purchase to connect to the NMS feeds. As noted above, based 
on a review of the Current Users' LCN and IP network connections and 
conversations with two of the Current Users, the Exchange believes that 
none of the Current Users

[[Page 47606]]

will have to pay more to connect to the NMS network, and Users that 
want access to the NMS feeds in the future are unlikely to have to pay 
for their NMS network connections.
The Application of the Proposed Rule Change to Affiliates Is an 
Equitable Allocation of Fees
    The Exchange likewise believes it would be equitable to apply the 
proposed limit on the number of No Fee NMS Network Connections to Users 
taken together with their Affiliates because all Users seeking to 
connect to NMS feeds using NMS network connections would be subject to 
the same parameters. The proposal avoids disparate treatment of Users 
that have divided their various business activities between separate 
corporate entities, as compared to Users that operate those business 
activities within a single corporate entity. It would discourage any 
User from taking deliberate advantage of the proposed connections to 
the NMS network by setting up separate corporate entities to act as 
Users, thereby obtaining more connections than allowed by the proposed 
limit on No Fee NMS Network Connections. The Exchange believes that 
using the existing definitions of Affiliate, Hosted Customer, and 
Hosting User is an equitable allocation of fees because it would 
promote consistency and clarity for Users.
The Proposed Charge for NMS Networks Is an Equitable Allocation of Fees
    The Exchange believes that charging the same rate for accessing the 
NMS network as is currently charged for accessing a same-sized IP 
network connection for Users who do not also purchase an LCN or IP 
network connection or who have connections to the LCN and IP network 
but want a number of NMS network connections in excess of its No Fee 
NMS Network Connections, would be equitably allocated because a User 
that currently seeks to connect to the NMS feeds must pay, at a 
minimum, the charges for access to the IP network. With the addition of 
the NMS network, Users will have a choice to either continue using an 
IP network connection or instead connect via the NMS network to connect 
to the NMS feeds. Users that choose to connect via the NMS network will 
receive the benefit of a low-latency network as compared to access to 
the IP network at the same price as the access to the IP network.
    To the extent a User may be subject to charges in addition to what 
they would be paying under the current Price List, e.g., if a User 
needed more access to the NMS network than their allocated number of No 
Fee NMS Network Connections or if they wanted to continue to use the 
LCN or IP network to connect to the NMS feeds, the Exchange believes 
that the proposed charges would be equitably allocated because such 
charges would encourage efficient use of the NMS network and discourage 
Users to subscribe to more NMS network connections.
    Current Users do not necessarily use all of their connections to 
the IP network and LCN to connect to the NMS feeds. If the Exchange 
were to provide them with an equal number of No Fee NMS Network 
Connections without any limitations on the number, the Current Users 
would have no incentive to make efficient decisions regarding the 
number of NMS network connections they had, and the Exchange would need 
to incur additional costs to support the infrastructure necessary to 
support those additional NMS network connections. In addition, Users 
would bear the burden of any unnecessary connections because of the 
strain on the infrastructure shared by all Users that access the NMS 
network. The Exchange believes that by charging for any connections to 
the NMS network in excess of the allocated number of No Fee NMS Network 
Connections, it will motivate Users to make rational decisions based on 
how many NMS network connections they need, rather than because they 
are simply available. These fees are therefore reasonable and not 
unfairly discriminatory because they will reduce the burden on all 
Users accessing the NMS network.
    Finally, the Exchange believes that access to the proposed NMS 
network and related commercial terms would be equitably allocated 
because, in addition to access to the NMS network being completely 
voluntary, it would be available to all Users on an equal basis (i.e., 
the same access would be available to all Users). All Users that 
voluntarily selected to receive access to the NMS network would be 
charged the same amount for the same service.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes that the proposed fee change is not unfairly 
discriminatory for multiple reasons.
The No Fee NMS Network Connection Is Not Unfairly Discriminatory
    As described above, the proposed fee structure for the NMS network 
has been designed so that the majority of Users would not have any new 
or different charges if they opt to connect to the NMS network. Rather, 
all Users will have a choice whether to use an IP network, LCN or NMS 
network connection to connect to the NMS feeds. The proposed fee 
therefore does not propose to impose any meaningful differences to 
different types of Users. Rather, the cost to purchase a NMS network 
connection would be the same as an IP network connection of the same 
size, which would be available to all Users on the same terms. Any User 
that voluntarily chooses to exercise the choice to connect with the NMS 
network would receive the benefit of a low-latency connection without 
any additional charges.
    More specifically, the Exchange proposes that if a User purchases 
access to the LCN or IP network and requests a connection to the NMS 
network, it, together with its Affiliates, will not be charged for up 
to eight corresponding No Fee NMS Network Connections. Such User, 
together with its Affiliates, will be entitled to a No Fee Connection 
for each of the first four LCN or IP network connections that it 
purchases, so long as they meet the requirements sets forth above. A 
User that utilizes its No Fee NMS Network Connections to connect to the 
NMS network would have no new or different charges.
    The Exchange believes that the proposed limit on the number of No 
Fee NMS Network Connections would not be unfairly discriminatory 
because it is based on the number of LCN or IP network connections that 
Users currently purchase to connect to the NMS feeds. As noted above, 
based on a review of the Current Users' LCN and IP network connections 
and conversations with two of the Current Users, the Exchange believes 
that none of the Current Users will have to pay more to connect to the 
NMS network, and Users that want access to the NMS feeds in the future 
are unlikely to have to pay for their NMS network connections.
The Application of the Proposed Rule Change to Affiliates Is Not 
Unfairly Discriminatory
    The Exchange likewise believes it would not be unfairly 
discriminatory to apply the proposed limit on the number of No Fee NMS 
Network Connections to Users taken together with their Affiliates 
because all Users seeking to connect to NMS feeds using NMS network 
connections would be subject to the same parameters. The proposal 
avoids disparate treatment of Users that have divided their various 
business activities between separate corporate entities, as compared to 
Users that operate those business activities within a single corporate 
entity. It would discourage any User from taking deliberate

[[Page 47607]]

advantage of the proposed connections to the NMS network by setting up 
separate corporate entities to act as Users, thereby obtaining more 
connections than allowed by the proposed limit on No Fee NMS Network 
Connections. The Exchange believes that using the existing definitions 
of Affiliate, Hosted Customer, and Hosting User would not be unfairly 
discriminatory because it would promote consistency and clarity for 
Users.
The Proposed Charge for NMS Networks Is Not Unfairly Discriminatory
    The Exchange believes that charging the same rate for accessing the 
NMS network as is currently charged for accessing a same-sized IP 
network connection for Users who do not also purchase an LCN or IP 
network connection or who have connections to the LCN and IP network 
but want a number of NMS network connections in excess of its No Fee 
NMS Network Connections, would not be unfairly discriminatory because a 
User that currently seeks to connect to the NMS feeds must pay, at a 
minimum, the charges for access to the IP network. With the addition of 
the NMS network, all Users will have a choice to either continue using 
an IP network connection or instead connect via the NMS network to 
connect to the NMS feeds. Users that choose to connect via the NMS 
network will receive the benefit of a low-latency network as compared 
to access to the IP network at the same price as the access to the IP 
network.
    To the extent a User may be subject to charges in addition to what 
they would be paying under the current Price List, e.g., if a User 
needed more access to the NMS network than their allocated number of No 
Fee NMS Network Connections or if they wanted to continue to use the 
LCN or IP network to connect to the NMS feeds, the Exchange believes 
that the proposed charges would not be unfairly discriminatory because 
such charges would encourage efficient use of the NMS network and 
discourage Users to subscribe to more NMS network connections.
    Current Users do not necessarily use all of their connections to 
the IP network and LCN to connect to the NMS feeds. If the Exchange 
were to provide them with an equal number of No Fee NMS Network 
Connections without any limitations on the number, the Current Users 
would have no incentive to make efficient decisions regarding the 
number of NMS network connections they had, and the Exchange would need 
to incur additional costs to support the infrastructure necessary to 
support those additional NMS network connections. In addition, Users 
would bear the burden of any unnecessary connections because of the 
strain on the infrastructure shared by all Users that access the NMS 
network. The Exchange believes that by charging for any connections to 
the NMS network in excess of the allocated number of No Fee NMS Network 
Connections, it will motivate Users to make rational decisions based on 
how many NMS network connections they need, rather than because they 
are simply available. These fees are therefore not unfairly 
discriminatory because they will reduce the burden on all Users 
accessing the NMS network.
    Finally, the Exchange believes that access to the proposed NMS 
network and related commercial terms would not be unfairly 
discriminatory because, in addition to access to the NMS network being 
completely voluntary, it would be available to all Users on an equal 
basis (i.e., the same access would be available to all Users). All 
Users that voluntarily selected to receive access to the NMS network 
would be charged the same amount for the same service.
    For the reasons above, the proposed changes would not unfairly 
discriminate between or among market participants that are otherwise 
capable of satisfying any applicable co-location fees, requirements, 
terms and conditions established from time to time by the Exchange.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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. The Exchange believes that 
the proposed rule change would not impose any burden on competition 
because it is not designed to address any competitive issues. As 
described above, SIAC is the single plan processor for Tape A and B 
equities securities and all options securities and does not currently 
compete with any other providers for these processor services. The 
proposed fee structure for the NMS network would be applied equally 
among all Users and it is their choice of whether and at what level to 
subscribe to such services, including whether to connect to the 
proposed NMS network. Accordingly, the Exchange does not believe that 
the proposed fee structure would place any Users at a relative 
disadvantage compared to other Users.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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 rule-comments@sec.gov. Please include 
File Number SR-NYSENAT-2019-19 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-NYSENAT-2019-19. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the

[[Page 47608]]

public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549 on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
such 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-
NYSENAT-2019-19, and should be submitted on or before October 1, 2019.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19460 Filed 9-9-19; 8:45 am]
 BILLING CODE 8011-01-P


