[Federal Register Volume 84, Number 240 (Friday, December 13, 2019)]
[Notices]
[Pages 68258-68263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26836]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87686; File No. SR-NYSECHX-2019-23]


Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Amending the 
Fee Schedule of NYSE Chicago, Inc. Related to Co-Location Services

December 9, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on November 25, 2019, the NYSE Chicago, Inc. (``NYSE 
Chicago'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Fee Schedule of NYSE Chicago, 
Inc. (the ``Fee Schedule'') related to co-location services to 
eliminate (a) a connectivity option whose manufacturer will no longer 
support a key component of the network hardware, and (b) services that 
are no longer utilized by Users. The proposed rule change is available 
on the Exchange's website at www.nyse.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule related to co-
location \4\ services offered by the Exchange to eliminate (a) a 
connectivity option whose manufacturer will no longer support a key 
component of the network hardware, and (b) services that are no longer 
utilized by Users.\5\
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    \4\ The Exchange initially filed rule changes relating to its 
co-location services with the Securities and Exchange Commission 
(``Commission'') in October 2019. See Securities Exchange Act 
Release No. 87408 (October 28, 2019), 84 FR 58778 (November 1, 2019) 
(SR-NYSECHX-2019-27) (``Co-location Notice''). The Exchange operates 
a data center in Mahwah, New Jersey (the ``data center'') from which 
it provides co-location services to Users.
    \5\ For purposes of the Exchange's co-location services, a 
``User'' means any market participant that requests to receive co-
location services directly from the Exchange. See Securities 
Exchange Act Release No. See id. at note 6. As specified in the Fee 
Schedule, a User that incurs co-location fees for a particular co-
location service pursuant thereto would not be subject to co-
location fees for the same co-location service charged by the 
Exchange's affiliates the New York Stock Exchange LLC (``NYSE''), 
NYSE American LLC (``NYSE American''), NYSE Arca, Inc. (``NYSE 
Arca''), and NYSE National, Inc. (``NYSE National'' and together, 
the ``Affiliate SROs''). See id. at 58779.
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Proposed Change
LCN 10 Gb Circuit
    Among other connectivity options, Users are able to connect to the 
Exchange over the Liquidity Center Network (``LCN''), a local area 
network available in the data center.\6\ LCN access is available at 1, 
10 and 40 Gb bandwidth capacities. Currently, Users have two 10 Gb 
options for LCN access:
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    \6\ The other local area network is the internet protocol 
(``IP'') network. See Co-location Notice, supra note 4, at 58780.
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     LCN 10 Gb, which has been in place since 2010,\7\ and
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    \7\ See Securities Exchange Act Release Nos. 62960 (September 
21, 2010), 75 FR 59310 (September 27, 2010) (SR-NYSE-2010-56); 62961 
(September 21, 2010), 75 FR 59299 (September 27, 2010) (SR-NYSEAmex-
2010-80); and 63275 (November 8, 2010), 75 FR 70048 (November 16, 
2010) (SR-NYSEArca-2010-100). In July 2018, the Exchange and its 
direct parent company were acquired by NYSE Group, Inc. As a result, 
the Exchange and the Affiliate SROs are direct or indirect 
subsidiaries of NYSE Group, Inc. and, indirectly, Intercontinental 
Exchange, Inc. See Exchange Act Release No. 83635 (July 13, 2018), 
83 FR 34182 (July 19, 2018) (SR-CHX-2018-004); see also Exchange Act 
Release No. 83303 (May 22, 2018), 83 FR 24517 (May 29, 2018) (SR-
CHX-2018-004).
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     LCN 10 Gb LX, which was introduced in 2013.\8\
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    \8\ See Securities Exchange Act Release Nos. 70888 (November 15, 
2013), 78 FR 69907 (November 21, 2013) (SR-NYSE-2013-73); 70979 
(December 4, 2013), 78 FR 74200 (December 10, 2013) (SR-NYSE-2013-
77); 70886 (November 15, 2013), 78 FR 69904 (November 21, 2013) (SR-
NYSEMKT-2013-92); 70982 (December 4, 2013), 78 FR 74197 (December 
10, 2013) (SR-NYSEMKT-2013-97); 70887 (November 15, 2013), 78 FR 
69897 (November 21, 2013) (SR-NYSEArca-2013-123); and 70981 
(December 4, 2013), 78 FR 74203 (December 10, 2013) (SR-NYSEARCA-
2013-131).

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[[Page 68259]]

    The LCN 10 Gb LX has a lower latency than the LCN 10 Gb connection, 
and has latency levels substantially similar to those of the LCN 40 Gb 
connection.\9\ Between the two 10 Gb LCN alternatives, the vast 
majority (80%) of User connections are the newer LCN 10Gb LX 
connections.
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    \9\ See 78 FR 69907, supra note 8, at 69907.
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    The Exchange proposes to cease offering the LCN 10 Gb connection. 
The Exchange does not propose the current change lightly: It recognizes 
that removing the LCN 10 Gb connection from its Fee Schedule would 
eliminate a connectivity option previously available to Users. For the 
reasons discussed below, however, the Exchange has concluded that the 
proposed change is necessary because it believes that if it does not 
eliminate the LCN 10 Gb connections, the Exchange's ability to provide 
support or supplies to Users with LCN 10 Gb connections would be 
compromised.
    For each LCN connection, the network hardware relies on a switch, 
which acts as the ``gatekeeper'' for a User's inbound messaging (e.g., 
orders and quotes) sent to the Exchange's trading and execution system 
and the Exchange's outbound messaging (e.g., market data and drop 
copies) within the data center.\10\ Switches are manufactured and sold 
to the Exchange by third parties. Currently, the LCN 1 Gb and LCN 10 Gb 
connections use one type of switch (the ``First Switch'') and the LCN 
10 Gb LX and LCN 40 Gb connections use a second type of switch (the 
``Second Switch'').\11\
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    \10\ See id. at 69908.
    \11\ See id. at note 7.
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    The manufacturer of the First Switch made an ``end of life'' 
(``EOL'') announcement notifying customers that the First Switch is 
being discontinued. The manufacturer stated that it is phasing out the 
provision of replacement parts and support for the First Switch. Per 
its EOL notice, it has ceased offering the First Switch, and, as of 
January 1, 2020: \12\
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    \12\ ``JTAC Technical Bulletin,'' at https://kb.juniper.net/resources/sites/CUSTOMERSERVICE/content/live/TECHNICAL_BULLETINS/16000/TSB16960/en_US/TSB16960.pdf. See also ``Juniper Networks 
Product End-of-Life,'' at https://support.juniper.net/support/pdf/eol/990833.pdf.
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     It has no commitment to furnish software engineering level 
support for the operating system software licensed for the First 
Switch. No further service or maintenance releases or patches will be 
created to support the First Switch.
     It has no commitment to perform hardware engineering level 
support, including hardware modifications and failure analysis, for 
hardware defects.
    As a consequence, the Exchange will not be able to provide Users 
with new LCN 10 Gb connections or give the present level of support to 
existing ones, and so it proposes to discontinue the service and remove 
it from the Fee Schedule.\13\
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    \13\ The Fee Schedule provides that a User that purchased five 
10 Gb LCN connections would be charged the initial fee for a sixth 
10 Gb LCN connection but would not be charged the monthly fee that 
would otherwise be applicable. Currently, no Users qualify for the 
discount. As part of the proposed change, the provision would be 
deleted.
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    The Exchange plans to implement the change during the first half of 
2020.\14\ It will announce the implementation date through a customer 
notice. After the implementation date, the Exchange will not accept new 
orders for LCN 10 Gb connections.\15\
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    \14\ Also during the first half of 2020, the Exchange expects to 
update the network hardware of the LCN 10 Gb LX and LCN 40 Gb 
connections by replacing the Second Switch with a new switch (the 
``New Switch''). The Exchange plans to update the LCN 1 Gb network 
hardware with the New Switch as well, which would allow the Exchange 
to continue to offer the LCN 1 Gb circuit despite the EOL of the 
First Switch. Because the New Switch, like the Second Switch, will 
provide a lower-latency connection, the Exchange expects that the 
latency of the LCN 1 Gb will decrease.
    The Exchange does not propose to make a similar change to the 
LCN 10 Gb network hardware because, if it did, there would be no 
difference between the LCN 10 Gb and the LCN 10 Gb LX connection: 
They would have the same bandwidth and latency levels. However, the 
two services cannot have the same latency. Rather, the LCN 10 Gb LX 
has a lower latency than the LCN 10 Gb connection. See, e.g., 78 FR 
69907, supra note 8, at 69907. Its latency levels are similar to 
those of the LCN 40 Gb connection, and the same fees are assessed 
for both services. See 78 FR 74200, supra note 8, at 74201-74202. In 
addition, the Exchange does not believe that it would be reasonable 
or equitable to charge different fees for equivalent services. See 
id.
    \15\ The Exchange believes that it has enough First Switches to 
fulfil any orders it may receive prior to the implementation date.
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    To provide time for Users that have LCN 10 Gb connections 
(``Current Users'') to implement any changes, the Exchange proposes to 
give them a six month grace period, starting on the implementation 
date. After the grace period ends, any remaining LCN 10 Gb connections 
will be terminated. The Exchange also proposes to waive any change fees 
\16\ and non-recurring charges \17\ that a Current User would otherwise 
incur as a result of the proposed change.
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    \16\ The Exchange charges a User a ``Change Fee'' if the User 
requests a change to one or more existing co-location services that 
the Exchange has already established or completed for the User. See 
Co-location Notice, supra note 4, at 58785.
    \17\ Co-location connectivity services have a non-recurring 
initial charge. For example, the LCN 10 Gb LX has a $15,000 initial 
charge per connection. See id. at 58783.
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Bundled Network Access
    The Exchange currently offers a pair of ``bundled'' connectivity 
options (``Bundled Network Access'') at 1 and 10 Gb bandwidths,\18\ but 
no User is utilizing one. Accordingly, the Exchange proposes to 
discontinue the Bundled Network Access options and remove references to 
the related pricing from the Fee Schedule.
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    \18\ See id.
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    The change would be consistent with previous practice: In 2014 and 
2016 previously existing bundled network access connectivity options 
were discontinued, as they were no longer utilized by Users.\19\
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    \19\ See Securities Exchange Act Release Nos. 77975 (June 2, 
2016), 81 FR 36973 (June 8, 2016) (SR-NYSE-2016-39); 72721 (July 30, 
2014), 79 FR 45562 (August 5, 2014) (SR-NYSE-2014-37); 77973 (June 
2, 2016), 81 FR 36975 (June 8, 2016) (SR-NYSEMKT-2016-57); 72719 
(July 30, 2014), 79 FR 45502 (August 5, 2014) (SR-NYSEMKT-2014-61; 
77977 (June 2, 2016), 81 FR 36981 (June 8, 2016) (SR-NYSEArca-2016-
77; and 72720 (July 30, 2014), 79 FR 45577 (August 5, 2014) (SR-
NYSEArca-2014-81).
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Application and Impact of the Proposed Change
    The proposed change would not apply differently to distinct types 
or sizes of market participants. Rather, it would apply to all Users 
equally. As is currently the case, the purchase of any colocation 
service is completely voluntary and the Fee Schedule is applied 
uniformly to all Users.
LCN 10 Gb
    As a consequence of the manufacturer's declaration of EOL for the 
First Switch, the Exchange will not be able to provide Users with new 
LCN 10 Gb connections or give the present level of support to the nine 
Current Users' existing LCN 10 Gb connections. Accordingly, after the 
implementation date, the Exchange will not accept new orders for LCN 10 
Gb connections and, after the grace period, it will terminate any 
remaining LCN 10 Gb connections. The Exchange also proposes to waive 
any change fees and non-recurring charges that a Current User would 
otherwise incur as a result of the proposed change.
    The Current Users have several options available to them upon 
termination of the LCN 10 GB connections:
     A Current User may move to the faster LCN 10 Gb LX 
connection. The change would increase the User's

[[Page 68260]]

monthly recurring charge from $14,000 to $22,000, but the User would 
benefit from a faster connection while maintaining the same amount of 
bandwidth and system redundancy.
     A Current User may move to the slower IP Network, which 
offers a 10 Gb circuit alternative. The change would lower the User's 
monthly recurring charge from $14,000 to $11,000. The connection would 
have greater latency, but the User would maintain the same bandwidth 
and resiliency.
     A Current User may opt to re-tailor its system to reduce 
the number of LCN connections it has. For example, a Current User with 
two LCN 10 Gb connections could consolidate them into one LCN 40 Gb 
connection. The change would decrease the User's monthly recurring 
charge from $28,000 to $22,000 while allowing it to benefit from a 
faster connection and increased bandwidth, although it would reduce the 
redundancy of its connection.
     A Current User may opt to become a ``Hosted Customer'' by 
being hosted by another User (a ``Hosting User''), or to cross connect 
to another User within co-location, either of which would likely 
decrease its monthly connectivity costs and available bandwidth.\20\
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    \20\ See Co-location Notice, supra note 4, at 58782-58783. The 
Exchange does not have visibility into what other Users, including 
Hosting Users, charge or the bandwidth they offer, but to the best 
of its knowledge no Hosting User offers its hosted customers a 10 Gb 
connection.
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    The Exchange expects to work with the Current Users to implement 
the change.
Bundled Network Access
    As no Users utilize a Bundled Network Access option, no Users will 
be impacted by the proposed change.
Competitive Environment
    The Exchange operates in a highly competitive market in which 
exchanges and other vendors (e.g., Hosting Users) offer co-location 
services as a means to facilitate the trading and other market 
activities of those market participants who believe that co-location 
enhances the efficiency of their operations. The Commission has 
repeatedly expressed its preference for competition over regulatory 
intervention in determining prices, products, and services in the 
securities markets. Specifically, in Regulation NMS, the Commission 
highlighted the importance of market forces in determining prices and 
SRO revenues and, also, recognized that current regulation of the 
market system ``has been remarkably successful in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.'' \21\
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    \21\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
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General
    As is the case with all Exchange co-location arrangements, (i) 
neither a User nor any of the User's customers would be permitted to 
submit orders directly to the Exchange unless such User or customer is 
a member organization, a Sponsored Participant or an agent thereof 
(e.g., a service bureau providing order entry services); (ii) use of 
the co-location services proposed herein would be completely voluntary 
and available to all Users on a non-discriminatory basis; \22\ and 
(iii) a User would only incur one charge for the particular co-location 
service described herein, regardless of whether the User connects only 
to the Exchange or to the Exchange and one or more of the Affiliate 
SROs.\23\
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    \22\ As is currently the case, Users that receive co-location 
services from the Exchange will not receive any means of access to 
the Exchange's trading and execution systems that is separate from, 
or superior to, that of other Users. In this regard, all orders sent 
to the Exchange enter the Exchange's trading and execution systems 
through the same order gateway, regardless of whether the sender is 
co-located in the data center or not. In addition, co-located Users 
do not receive any market data or data service product that is not 
available to all Users, although Users that receive co-location 
services normally would expect reduced latencies, as compared to 
Users that are not co-located, in sending orders to, and receiving 
market data from, the Exchange.
    \23\ See Co-location Notice, supra note 4, at 58790. Each 
Affiliate SRO has submitted substantially the same proposed rule 
change to propose the changes described herein. See SR-NYSE-2019-66, 
SR-NYSEAmer-2019-52, SR-NYSEArca-2019-85, and SR-NYSENAT-2019-29.
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    The proposed change is not otherwise intended to address any other 
issues relating to co-location services and/or related fees, and the 
Exchange is not aware of any problems that Users would have in 
complying with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\24\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\25\ in particular, 
because it provides for the equitable allocation of reasonable dues, 
fees, and other charges among its members, issuers and other persons 
using its facilities and does not unfairly discriminate between 
customers, issuers, brokers or dealers. In addition, it is designed to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system and, in general, to protect investors and the public interest 
and because it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
    The Exchange believes that the proposed rule change is reasonable 
for the following reasons.
    As a consequence of the manufacturer's declaration of the First 
Switch's EOL, the Exchange believes that, if it did not eliminate the 
LCN 10 Gb connections, it would be unable to provide the current level 
of support to Users that have such connections. More specifically, 
pursuant to its EOL, the manufacturer is ceasing to offer the First 
Switch and terminating its software and hardware engineering level 
support. As a result, when the inevitable hardware or software issues 
involving the First Switch arose, the Exchange would not have the 
manufacturer resources available to solve connectivity issues or 
replace switches, and Users' connections to the Exchange could be 
compromised or wholly cut off. At the same time, if a User requested a 
new or replacement LCN 10 Gb connection, the Exchange would not be able 
to obtain one. Accordingly, the Exchange believes that it is reasonable 
to eliminate the LCN 10 Gb connectivity option.
    The Exchange believes that the proposed change will facilitate its 
compliance with the requirements of Regulation Systems Compliance and 
Integrity (``SCI'').\26\ The LCN is an SCI system \27\ of the Exchange, 
which is itself an SCI entity. Accordingly, the Exchange is obligated 
to have reasonable policies and procedures in place to ensure the LCN 
has a level of capacity, integrity, resiliency, availability and 
security, adequate to maintain the Exchange's operational capability 
and promote the maintenance of fair and orderly markets.\28\ Because 
the manufacturer is ceasing to offer the First Switch, if the Exchange 
is unable to eliminate the LCN 10 Gb connectivity

[[Page 68261]]

option its reasonable policies and procedures would need to contemplate 
being unable to resolve connectivity issues related to First Switches 
or even replace them. Regulation SCI also obligates SCI entities such 
as the Exchange to take corrective action upon the occurrence of an SCI 
event to mitigate potential harm to investors and market integrity. The 
Exchange's ability to take such action promptly and effectively, if 
needed, with respect to the LCN 10 Gb connection would be severely 
limited by its inability to seek support from the manufacturer should 
issues arise with the First Switch. Accordingly, the Exchange believes 
that, in light of the EOL of the First Switch, the proposed change to 
eliminate the LCN 10 Gb connectivity option is a reasonable solution.
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    \26\ 17 CFR 242.1000 through 242.1007; see also Securities 
Exchange Act Release No. 73639, 79 FR 72251 (December 5, 2015) 
(adopting Regulation Systems Compliance and Integrity).
    \27\ ``SCI systems'' means ``all computer, network, electronic, 
technical, automated, or similar systems of, or operated by or on 
behalf of, an SCI entity that, with respect to securities, directly 
support trading, clearance and settlement, order routing, market 
data, market regulation, or market surveillance.'' 17 CFR 242.1000.
    \28\ 79 FR 72251, supra note 26, at 72256-72257.
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    The Exchange believes the situation is analogous to when an SCI 
entity determines to utilize a third party to operate an SCI system on 
its behalf. As the Commission has noted, in such case, the SCI entity 
``is responsible for having in place processes and requirements to 
ensure that it is able to satisfy the requirements of Regulation SCI 
for systems operated on behalf of the SCI entity by a third party.'' 
\29\ Likewise, ``if an SCI entity is uncertain of its ability to manage 
a third-party relationship (whether through due diligence, contract 
terms, monitoring, or other methods) to satisfy the requirements of 
Regulation SCI, then it would need to reassess its decision to 
outsource the applicable system to such third party.'' \30\ In the 
present case, the third party that provides the First Switch, an 
important part of the network hardware for the LCN 10 Gb connection, 
has declared its intention to discontinue both production of and 
technical support for the First Switch. Given that, the Exchange has 
assessed its ability to manage the LCN 10 Gb connection going forward, 
and has concluded that it cannot continue to offer a product that 
relies on the First Switch.
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    \29\ Id. at 72276.
    \30\ Id.
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    The Exchange believes that providing Current Users with a six month 
grace period and waiving any applicable change fees and non-recurring 
charges would be reasonable because Current Users would be terminating 
their LCN 10 Gb connections at the Exchange's request. The grace period 
would provide a Current User with time to terminate its LCN 10 Gb 
connection, move to an LCN 10 Gb LX connection, move to a 10 Gb IP 
network connection, re-tailor its system to reduce the number of 
connections, become a Hosted Customer, cross-connect to another User, 
or otherwise adjust for the change. The fee waivers would help to 
alleviate the burden of the change on the Current Users.
    With respect to the Bundled Network Access, the Exchange believes 
that the proposed change is reasonable because it would permit the 
Exchange to streamline the offerings available to Users in the data 
center by eliminating services that Users no longer utilize and, by 
removing references to related pricing from the Fee Schedule, make the 
Fee Schedule easier to read, understand and administer. In addition, 
removing services that Users do not utilize from the co-location 
offerings would contribute to a more efficient process for managing the 
various services offered to Users, which would improve the utilization 
of the data center resources, both with respect to personnel and 
infrastructure, including hardware and software.
The Proposed Rule Change Is Equitable
    The Exchange believes the proposed rule change is an equitable 
allocation of its fees and credits for the following reasons.
    The Exchange believes that providing Current Users with a six month 
grace period and waiving any applicable change fees and non-recurring 
charges would be equitable because Current Users would be terminating 
their LCN 10 Gb connections at the Exchange's request. The grace period 
would provide a Current User with time to terminate its LCN 10 Gb 
connection, move to an LCN 10 Gb LX connection, move to a 10 Gb IP 
network connection, re-tailor its system to reduce the number of 
connections, become a Hosted Customer, cross-connect to another User, 
or otherwise adjust for the change.
    The fee waivers would help to alleviate the burden of the change on 
the Current Users. With respect to the Bundled Network Access, the 
Exchange believes that the proposed change is reasonable because it 
would permit the Exchange to streamline the offerings available to 
Users in the data center by eliminating services that Users no longer 
utilize and, by removing references to related pricing from the Fee 
Schedule, make the Fee Schedule easier to read, understand and 
administer.
The Proposed Rule Change Would Protect Investors and the Public 
Interest
    The Exchange believes that the proposed rule change would perfect 
the mechanisms of a free and open market and a national market system 
and, in general, protect investors and the public interest for the 
following reasons.
    It would be against the protection of investors and the public 
interest if the Exchange were to continue to offer an older 
connectivity option that it could not support at current levels, or if, 
as a consequence of the EOL, Users' connectivity was compromised or 
they were wholly unable to use it to connect to the Exchange. As noted 
above, as a consequence of the manufacturer's declaration of the First 
Switch's EOL, if the Exchange did not eliminate the LCN 10 Gb 
connections, the Exchange believes it would be unable to provide the 
current level of support to Users that have such connections. When the 
inevitable hardware or software issues involving the First Switch 
arose, the Exchange would not have the manufacturer resources available 
to solve connectivity issues or replace switches, and Users' 
connections to the Exchange could be compromised or wholly cut off. At 
the same time, if a User requested a new or replacement LCN 10 Gb 
connection, the Exchange would not be able to obtain one.
    The Exchange believes that the proposed change will protect 
investors and the public interest because it will facilitate the 
Exchange's compliance with the requirements of Regulation SCI. The 
Exchange is obligated to have reasonable policies and procedures in 
place to ensure the LCN, as an SCI system, has a level of capacity, 
integrity, resiliency, availability and security, adequate to maintain 
the Exchange's operational capability and promote the maintenance of 
fair and orderly markets.\31\ Because the manufacturer is ceasing to 
offer the First Switch, if the Exchange is unable to eliminate the LCN 
10 Gb connectivity option its reasonable policies and procedures would 
need to contemplate being unable to resolve connectivity issues related 
to First Switches or even replace them. Regulation SCI also obligates 
SCI entities such as the Exchange to take corrective action upon the 
occurrence of an SCI event to mitigate potential harm to investors and 
market integrity. The Exchange's ability to take such action promptly 
and effectively, if needed, with respect to the LCN 10 Gb connection 
would be severely limited by its inability to seek support from the 
manufacturer should issues arise with the First Switch. Not being able 
to resolve connectivity issues related to First Switches or even 
replace them would make the Exchange's compliance with Regulation SCI 
suboptimal.
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    \31\ Id.

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[[Page 68262]]

    With respect to the Bundled Network Access, the Exchange believes 
that the proposed change would protect investors and the public 
interest because it would permit the Exchange to streamline the 
offerings available to Users in the data center by eliminating services 
that Users no longer utilize and, by removing references to related 
pricing from the Fee Schedule, make the Fee Schedule easier to read, 
understand and administer.
The Proposed Change Is Not Unfairly Discriminatory
    The Exchange believes that the proposed change is not unfairly 
discriminatory for the following reasons.
    The proposed change would not apply differently to distinct types 
or sizes of market participants. Rather, it would apply to all Users 
equally. As a consequence of the manufacturer's declaration of EOL for 
the First Switch, the Exchange will not be able to provide any Users 
with new LCN 10 Gb connections or give the present level of support to 
Current Users' existing ones. In addition, no Users would be able to 
purchase the Bundled Network Access. The Exchange believes that, 
because no Users utilize such services, it would be equitable and not 
unfairly discriminatory to discontinue the services.
    At the same time, Users would continue to have the choice of 
purchasing an LCN 1 Gb, LCN 10 Gb LX, LCN 40 Gb or IP network 
connection or any of the other connectivity options available. Use of 
any co-location service is completely voluntary, and each market 
participant is able to determine whether to use co-location services 
based on the requirements of its business operations.
    For the reasons above, the proposed changes do not unfairly 
discriminate between or among market participants that are otherwise 
capable of satisfying any applicable co-location fees, requirements, 
terms and conditions established from time to time by the Exchange.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\32\ the Exchange 
believes that the proposed rule change will not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \32\ 15 U.S.C. 78f(b)(8).
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Intramarket Competition
    The Exchange does not believe that the proposed change would place 
any burden on intramarket competition that is not necessary or 
appropriate. The proposed change would not apply differently to 
distinct types or sizes of market participants. Rather, it would apply 
to all Users equally: No Users would be able to purchase a LCN 10 Gb 
connection or Bundled Network Access.
    The Exchange does not propose the current change lightly: It 
recognizes that removing the LCN 10 Gb connection from its Fee Schedule 
would eliminate a connectivity option previously available to Users. As 
a consequence of the change, nine Current Users would be required to 
terminate their LCN 10 Gb connections and either move to LCN 10 Gb LX 
connections, move to 10 Gb IP network connections, re-tailor their 
systems to reduce the number of connections, become Hosted Customers, 
cross-connect to other Users, or otherwise adjust for the change.
    Nonetheless, the Exchange believes that the change is necessary and 
appropriate because, as a consequence of the manufacturer's declaration 
of the First Switch's EOL, if the Exchange did not eliminate the LCN 10 
Gb connections, the Exchange's ability to provide support or supplies 
to Users that have such connections would be compromised. Not being 
able to resolve connectivity issues related to First Switches or even 
replace them would make the Exchange's compliance with Regulation SCI 
suboptimal. When the inevitable hardware or software issues involving 
the First Switch arose, the Exchange would not have the manufacturer 
resources available to solve connectivity issues or replace switches. 
Users' connections to the Exchange could be compromised or wholly cut 
off. At the same time, if a User requested a new or replacement LCN 10 
Gb connection, the Exchange would not be able to obtain one. It would 
be contrary to the protection of investors and the public interest if 
the Exchange were to continue to offer a connectivity option that it 
could not support, or if Users were compromised or wholly unable to use 
their connectivity to connect to the Exchange.
    The Exchange believes that providing Current Users with a six month 
grace period and waiving any applicable change fees and non-recurring 
charges would not place any burden on intramarket competition that is 
not necessary or appropriate because Current Users would be terminating 
their LCN 10 Gb connections at the Exchange's request. The grace period 
would provide a Current User with time to terminate its LCN 10 Gb 
connections and adjust for the change, while the fee waivers would help 
to alleviate the burden of the change.
    With respect to the Bundled Network Access, the Exchange believes 
that the proposed change would not place any burden on intramarket 
competition that is not necessary or appropriate, as currently no Users 
utilize the service, and so no Users would be affected. The change 
would permit the Exchange to streamline the offerings available to 
Users in the data center and, by removing references to related pricing 
from the Fee Schedule, make the Fee Schedule easier to read, understand 
and administer. In addition, removing services that Users do not 
utilize from the co-location offerings would contribute to a more 
efficient process for managing the various services offered to Users, 
which would improve the utilization of the data center resources, both 
with respect to personnel and infrastructure, including hardware and 
software.
    Users would continue to have the choice of purchasing an LCN 1 Gb, 
LCN 10 Gb LX, LCN 40 Gb or IP network connection or any of the other 
connectivity options available. Use of any co-location service is 
completely voluntary, and each market participant is able to determine 
whether to use co-location services based on the requirements of its 
business operations.
Intermarket Competition
    The Exchange does not believe that the proposed fee would impose 
any burden on intermarket competition that is not necessary or 
appropriate.
    The Exchange operates in a highly competitive market in which 
exchanges and other vendors (i.e., Hosting Users) offer co-location 
services as a means to facilitate the trading and other market 
activities of those market participants who believe that co-location 
enhances the efficiency of their operations. Accordingly, fees charged 
for co-location services are constrained by the active competition for 
the order flow of, and other business from, such market participants.
    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Specifically, in 
Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market

[[Page 68263]]

system ``has been remarkably successful in promoting market competition 
in its broader forms that are most important to investors and listed 
companies.'' \33\
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    \33\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
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    As noted above, the Exchange recognizes that removing the LCN 10 Gb 
connection from its Fee Schedule would eliminate a connectivity option 
previously available to Users. Indeed, the proposed change may 
negatively impact the Exchange's revenues, since Current Users may opt 
to re-tailor their systems to reduce the number of connections, move to 
10 Gb IP network connections, re-tailor become Hosted Customers, or 
cross-connect to another User. Such choices, any of which would reduce 
revenue, may be more attractive to Users as a consequence of the 
change.
    Nonetheless, the Exchange believes that the change is necessary and 
appropriate because, as a consequence of the manufacturer's declaration 
of the First Switch's EOL, if the Exchange did not eliminate the LCN 10 
Gb connections, the Exchange's ability to provide support or supplies 
to Users that have such connections would be compromised. Not being 
able to resolve connectivity issues related to First Switches or even 
replace them would make the Exchange's compliance with Regulation SCI 
suboptimal. When the inevitable hardware or software issues involving 
the First Switch arose, the Exchange would not have the manufacturer 
resources available to solve connectivity issues or replace switches. 
Users' connections to the Exchange could be compromised or wholly cut 
off. At the same time, if a User requested a new or replacement LCN 10 
Gb connection, the Exchange would not be able to obtain one. It would 
be contrary to the protection of investors and the public interest if 
the Exchange were to continue to offer a connectivity option that it 
could not support, or if Users were compromised or wholly unable to use 
their connectivity to connect to the Exchange.
    For the reasons described above, the Exchange believes that the 
proposed rule change reflects this competitive environment.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \34\ and Rule 19b-4(f)(6) thereunder.\35\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\36\
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    \34\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \35\ 17 CFR 240.19b-4(f)(6).
    \36\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of its 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \37\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \37\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSECHX-2019-23 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSECHX-2019-23. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSECHX-2019-23 and should be submitted 
on or before January 3, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26836 Filed 12-12-19; 8:45 am]
BILLING CODE 8011-01-P


