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 Securities and Exchange Commission [Release No. 34-101851; File No. SR-LTSE-2024-09]
 Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1]
                    
                     and Rule 19b-4 thereunder,[2]
                    
                     notice is hereby given that on November 27, 2024, Long-Term Stock Exchange, Inc. (“LTSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III 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. 
 
 I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing with the Securities and Exchange Commission (“Commission”) a proposed rule change to amend the LTSE Fee Schedule (the “Fee Schedule”) to adopt certain connectivity fees effective October 1, 2024. The text of the proposed rule change is available at the Exchange's website at 
                    *https://longtermstockexchange.com/​,*
                     at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement on the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is proposing to establish a new section (C. Connectivity Fees) in the Long-Term Stock Exchange Fee Schedule. Prior to the launch of the new trading system on September 23, 2024, the Exchange offered connectivity (both physical and logical) at no cost to all market participants. With the launch of the new trading system and the significant costs detailed below, the Exchange determined it was reasonable and appropriate to begin to charge market participants for their connectivity to the Exchange. The Exchange notes that the transition between trading systems required all market participants to set up new connectivity to the new trading system, and after the successful launch the Exchange decommissioned all the historical connections within the old trading system. The Exchange also notes that market participants were not charged simultaneously for both their old connections and new connections during the transition as the Exchange never charged for connectivity to the old trading system. Cross-Connect Fees The Exchange proposes to offer to both Members [3]
                    
                     and non-Members the option to utilize a 10 Gigabit (“Gb”) ultra-low latency (“ULL”) fiber cross-connection to the Exchange's Primary and Disaster Recovery facilities, as well as a 10Gb ULL fiber cross-connection to the Test Environment. The Exchange proposes to establish a Cross-Connect fee of $5,500 per 10Gb physical interface per month that will be assessed to Members and non-Members for connecting to the Primary facility. The Exchange proposes to establish a Cross-Connect fee of $2,750 per 10Gb physical interface per month that will be assessed to Members and non-Members for connecting to either the Disaster Recovery facility or the Test Environment. Monthly network connectivity fees for Members and non-Members for connectivity will be assessed in any month the Member or non-Member is credentialed to use any of the LTSE Application Programming Interfaces (“APIs”) in the Primary facility, Disaster Recovery facility or Test Environment.[4] Port Fees The Exchange proposes to establish a $450 fee for all Logical Connectivity sessions. These application sessions, commonly known as ports, are utilized to perform a particular function on the Exchange, such as order entry or order cancellation, receipt of drop copies, proprietary market data dissemination, or requesting data to be backfilled (
                    *i.e.,*
                     “gap ports”). All market participants (Members and non-Members) will be charged per session per month. The Exchange will waive the fees for three sessions per month per market participant. In proposing to charge fees for connectivity to LTSE, the Exchange has sought to be especially diligent in assessing those fees in a transparent way against its own aggregate costs of providing the related services, and also carefully and transparently assessing the impact on market participants—both generally and in relation to other market participants, 
                    *i.e.,*
                     to assure the fee will not create a financial burden on any participant and will not have an undue impact in particular on smaller market participants and competition among market participants in general. The Exchange believes that this level of diligence and transparency is called for by the requirements of Section 19(b)(1) under the Act,[5]
                    
                     and Rule 19b-4 thereunder,[6]
                    
                     with respect to the types of information self-regulatory organizations (“SROs”) should provide when filing fee changes, and Section 6(b) of the Act,[7]
                    
                     which requires, among other things, that exchange fees be reasonable and equitably allocated,[8]
                    
                     not designed to permit unfair discrimination,[9]
                    
                     and that they not impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Act.[10]
                    
                     This rule change proposal addresses those requirements, and the analysis and data in each of the sections that follow are designed to clearly and comprehensively show how they are met.[11] Cost Analysis The Exchange notes it operates a unique model where the LTSE trading system and services are provided on an outsourced basis by MEMX Technologies.[12]
                    
                     As such, a large portion of the Exchange's technology costs, including those related to connectivity, are incorporated into the overall fees that the Exchange pays MEMX Technologies as part of its multi-year arrangement to provide a trading system and associated services.[13]
                    
                     Because of this arrangement, the Exchange does not possess the same level of specificity for cost drivers related to connectivity as 
                    ( print page 101059)
                    other exchanges have detailed within their own similar filings. However, the Exchange recognizes that the fees it pays MEMX Technologies are for the services MEMX Technologies provides to the Exchange and their costs, these services and costs include maintaining a team of highly-skilled network engineers, fees charged to MEMX Technologies by the third-party data center operator for the servers and equipment LTSE utilizes, costs associated with projects and initiatives designed to improve overall network performance and stability, and costs associated with fully-supporting advances in infrastructure and expansion of network level services, including customer monitoring, alerting and reporting. There are also significant technology expenses related to establishing and maintaining Information Security services, enhanced network monitoring and customer reporting, as well as Regulation SCI mandated processes, associated with the MEMX Technologies network technology. While these cost drivers are known, because of the unique structure laid out above the Exchange is unable to separate out most of the specific expenses for connectivity services, as these are intricately combined in its DSLA with MEMX Technologies. Further, while the Exchange has been operating since September 2020, it only entered the DLSA with MEMX Technologies LLC in January of this year and launched the new trading system in September 2024. Therefore, the Exchange's most recent publicly available financial statement (2023 Audited Unconsolidated Financial Statement) does not reflect LTSE's actual current costs associated with the development and operation of connectivity on LTSE. Accordingly, the Exchange believes it is more appropriate to justify its fees utilizing a recent monthly billing cycle and extrapolated annualized costs on a going-forward basis. LTSE recently calculated its aggregate monthly costs for providing connectivity services to the Exchange at approximately $485,000 beginning October 1, 2024.[14]
                    
                     Because LTSE offered all connectivity free of charge from its launch in September 2020 until October of this year, LTSE has borne 100% of all connectivity costs. Now, in order to cover some of the aggregate costs of providing connectivity to market participants (both Members and non-Members) [15]
                    
                     the Exchange is proposing to modify its Fee Schedule and charge the fees for connectivity detailed herein. In order to determine the Exchange's costs for providing the services associated with connectivity, the Exchange conducted an extensive review in which the Exchange analyzed every expense item in the Exchange's general expense ledger to determine whether each such expense relates to the services associated with the connectivity, and, if such expense did so relate, what portion (or percentage) of such expense actually supports those services. The sum of all such portions of expenses represents the total cost of the Exchange to provide the services associated with connectivity. For the avoidance of doubt, no expense amount was allocated twice. The Exchange is also providing detailed information regarding the Exchange's cost allocation methodology—namely, information that explains the Exchange's rationale for determining that it was reasonable to allocate certain expenses described in this filing towards the total cost to the Exchange to provide connectivity. The Exchange believes that the Connectivity Fees are fair and reasonable because they will only cover a portion of the total annual expense that the Exchange projects to incur with providing the services associated with the proposed Connectivity Fees versus the total annual revenue of the Exchange projects to collect in connection with providing those services. Based on current connectivity services usage, the Exchange would generate monthly revenues for the rest of 2024 of approximately $192,000, which will result in a loss for the Exchange. Costs Related to Offering Connectivity The following chart details the individual line-item costs considered by LTSE to be related to offering connectivity as well as the percentage of the Exchange's overall costs per year such costs represent for such area (
                    *e.g.,*
                     as set forth below, the Exchange allocated approximately 10% of its overall Human Resources cost to offering connectivity for a total of $538,400 per year of costs related to providing connectivity). Cost drivers
Allocated monthly costs
Allocated yearly costs
% of allThird-Party Expenses
$427,279
$4,594,998
32Human Resources
44,866
538,400
10Data Center
13,170
158,040
30Total
485,315
5,291,438
 Below are additional details regarding each of the line-item costs considered by LTSE to be related to offering connectivity. Third-Party Expenses As discussed above, LTSE has undertaken a unique model where it has outsourced its trading system and related technology to a third-party technology provider MEMX Technologies. With this arrangement LTSE receives (1) access to technology used to complete connections to the Exchange and to connect to external markets, (2) physical connectivity in the data centers where MEMX Technologies maintains equipment for LTSE use—such as dedicated space, security services, cooling and power, (3) use of physical ports and logical ports, and (3) use of physical assets and software, which also includes assets used for testing and monitoring of infrastructure. Also included in this section are the costs from a second third-party vendor which assists LTSE with services related to member gateways. The Exchange took the annual costs for each of these third-party providers to determine what portion (or percentage) of these costs related to connectivity services and thus bears a relationship that is, “in nature and closeness,” directly related to connectivity services. There are four major core services 
                    ( print page 101060)
                    associated with the Exchange (member gateways, the matching engine, the SIP and then downstream services). The services provided by these third party vendors touches each of these major core services, therefore the Exchange believed a conservative allocation of 32% of costs for connectivity services was appropriate. Human Resources For personnel costs not related to its outsourced third-party providers, LTSE then calculated an allocation of LTSE employee time for employees whose functions include providing and maintaining connectivity and performance thereof (technical operations personnel, market operations personnel, and software engineering personnel). The Exchange notes that network support services to Members and Non-Members provided by the Exchange and its staff, including network monitoring, reporting and support services, are all handled directly by LTSE and not MEMX Technologies. The Exchange also allocated Human Resources costs to provide connectivity to a limited subset of personnel with ancillary functions related to establishing and maintaining such connectivity (such as information security and finance personnel), for which the Exchange allocated cost on an employee-by-employee basis (
                    *i.e.,*
                     only including those personnel who do support functions related to providing connectivity) and then applied a smaller allocation to such employees. The Exchange notes that it has fewer than fifty (50) employees and each department leader has direct knowledge of the time spent by each employee with respect to the various tasks necessary to operate the Exchange. The estimates of Human Resources cost were therefore determined by consulting with such department leaders, determining which employees are involved in tasks related to providing connectivity, and confirming that the proposed allocations were reasonable based on an understanding of the percentage of their time such employees devote to tasks related to providing connectivity. The Exchange notes that senior level executives were only allocated Human Resources costs to the extent the Exchange believed they are involved in overseeing tasks related to providing connectivity. The Human Resources cost was calculated using a blended rate of compensation reflecting salary, equity and bonus compensation, benefits, payroll taxes, and 401(k) matching contributions. Data Center In addition to the data center costs incurred by MEMX Technologies which are allocated in the Third-Party Expenses above, the Exchange also maintains its own footprint in a third-party data center.[16]
                    
                     Data Center costs include an allocation of the costs the Exchange incurs to monitor its trading platform (both the Primary facility and Disaster Recovery facility) as well as the costs to maintain its equipment in the data center. The Exchange does not own the data center facilities, but instead, leases space in a data center operated by a third party). The Exchange took the annual data center costs to determine what portion (or percentage) of these costs related to connectivity services and thus bears a relationship that is, “in nature and closeness,” directly related to connectivity services. As stated above, there are four major core services associated with the Exchange (member gateways, the matching engine, the SIP and then downstream services). The services related to these costs include network packet capture for performance monitoring, security information and event management, network connectivity and security monitoring. The Exchange therefore believes a conservative allocation of 30% of costs for connectivity services was appropriate. Physical Connectivity Fees With the launch of the new trading platform, LTSE required Members and Non-Members to establish all new connections (both physical and logical) to the Exchange in order to transmit orders to and receive information through the new trading platform. Members and Non-Members can also choose to connect to LTSE indirectly through physical connectivity maintained by a third-party extranet. Extranet physical connections may provide access to one or multiple Members and Non-Members on a single connection. Users of LTSE physical connectivity services (both Members and non-Members) seeking to establish one or more connections with the Exchange submit a request directly to Exchange personnel. Upon receipt of the completed instructions, LTSE establishes the physical connections requested by the market participant. The number of physical connections assigned to each firm as of September 30, 2024, ranges from one to three, depending on the scope and scale of the firm's trading activity on the Exchange as determined by the firm, including the firm's determination of the need for redundant connectivity. The Exchange notes that 58% of its Members do not maintain a physical connection directly with the Exchange in the Primary Data Center (though many such Members have connectivity through a third-party provider) and another 42% have either one or two physical connections to the Exchange in the Primary Data Center. As described above, to cover a portion the aggregate costs of providing physical connectivity to Members and Non-Members, as described below, the Exchange is proposing to charge a fee of $5,500 per month for each physical connection in the Primary facility and a fee of $2,750 per month for each physical connection in the Disaster Recovery and Test Environment facilities. There is no requirement that any Member or Non-Member maintain a specific number of physical connections and a Member or Non-Member may choose to maintain as many or as few of such connections as each Member or Non-Member deems appropriate. The Exchange notes, however, that pursuant to Rule 2.250 (Mandatory Participation in Testing of Backup Systems), the Exchange does require a small number of Members to connect and participate in functional and performance testing as announced by the Exchange, which occurs at least once every 12 months. Specifically, Members that have been determined by the Exchange to contribute a meaningful percentage of the Exchange's overall volume must participate in mandatory testing of the Exchange's backup systems (
                    *i.e.,*
                     such Members must connect to the Disaster Recovery facility). The Exchange notes that Members that have been designated are still able to use third-party providers of connectivity to access the Exchange at its Disaster Recovery facility, in that these Members do not need one full 10Gb connection, and that four of the designated Members use a third-party provider instead of connecting directly to the Disaster Recovery facility through connectivity provided by the Exchange. Nonetheless, because some Members are required to connect to the Disaster Recovery facility pursuant to Rule 2.250 and to encourage Members and Non-Members to connect to the Disaster Recovery facility generally, the Exchange has proposed to charge one-half of the fee for a physical connection in the Primary facility. The Exchange believes that charging a higher fee for physical connections at the Disaster Recovery facility would be inconsistent with its objective of encouraging Members to connect at such a facility. 
                    ( print page 101061)
                    Further, other exchanges also provide discounted connectivity fees for connections to their respective disaster recovery facilities.[17] The Exchange notes that while Members are required to connect to the Test Environment in some way for initial protocol certification, they do not have to connect directly and can use an extranet provider to connect or access the LTSE Test Environment directly. The proposed fee will not apply differently based upon the size or type of the market participant, but rather based upon the number of physical connections a Member of Non-Member requests, based upon factors deemed relevant by each firm (either a Member, service bureau or extranet). The Exchange believes these factors include the costs to maintain connectivity, business model and choices Members and Non-Members make in how to participate on the Exchange, as further described below. The proposed connectivity fees are designed to permit the Exchange to cover a portion of costs allocated to providing connectivity services. The Exchange also reiterates that the Exchange did not charge any fees for connectivity services prior to October 2024, and its allocation of costs to physical connections was part of a holistic allocation that also allocated costs to other core services without double-counting any expenses. As noted above, the Exchange proposes a discounted rate of $2,750 per month for physical connections at its Disaster Recovery facility and Test Environment. The Exchange has proposed this discounted rate for Disaster Recovery and Test Environment connectivity in order to encourage Members and Non-Members to establish and maintain such connections. Also, as noted above, a small number of Members are required pursuant to Rule 2.4 to connect and participate in testing of the Exchange's backup systems, and the Exchange believes it is appropriate to provide a discounted rate for physical connections at the Disaster Recovery facility given this requirement. The Exchange notes that this rate is well below the cost of providing such services and the Exchange will offer connectivity to the Disaster Recovery facility and Test Environment without recouping the full amount of such cost through connectivity services. Logical Connectivity Fees Similar to other exchanges, LTSE offers its Members application sessions, also known as logical ports, for order entry and receipt of trade execution reports and order messages. Members can also choose to connect to LTSE indirectly through a session maintained by a third-party service bureau. Service bureau sessions may provide access to one or multiple Members on a single session. Users of LTSE connectivity services (both Members and non-Members) seeking to establish one or more application sessions with the Exchange shall submit a request to the Exchange. Upon receipt of the completed instructions, LTSE assigns the Member or Non-Member the number of sessions requested. The number of sessions assigned to each Member as of September 30, 2024, ranges from one (1) to more than 58 depending on the scope and scale of the Member's trading activity on the Exchange (either through a direct connection or through a service bureau) as determined by the Member. For example, by using multiple sessions, Members can segregate order flow from different internal desks, business lines, or customers. The Exchange does not impose any minimum or maximum requirements for how many application sessions a Member or service bureau can maintain, and it is not proposing to impose any minimum or maximum session requirements for its Members or their service bureaus. As described above, to cover the aggregate costs of providing application sessions to Members and Non-Members, as described below, the Exchange is proposing to charge a fee of $450 per session per month. The Exchange notes that it is proposing to waive the fees for Members and Non-Members their first three sessions, so that market participants can have no cost to initiate order entry in all three environments (Production, Disaster Recovery and Test Environments). Further, the Exchange believes that providing three free sessions will encourage Members to connect to the Exchange's backup trading systems and to conduct appropriate testing of their use of the Exchange. The proposed fee of $450 per month for each Logical Connectivity session is designed to permit the Exchange to cover some of the costs allocated to providing application sessions. The proposed fee is also designed to encourage Members and Non-Members to be efficient with their application session usage, thereby resulting in a corresponding increase in the efficiency that the Exchange would be able to realize in managing its aggregate costs for providing connectivity services. There is no requirement that any Member maintain a specific number of application sessions and a Member may choose to maintain as many or as few of such ports as each Member deems appropriate. The platform has been designed such that each logical connectivity session can handle a significant amount of message traffic (
                    *i.e.,*
                     over 50,000 orders per second), and has no application flow control or order throttling. The proposed fee will not apply differently based upon the size or type of the market participant, but rather based upon the number of application sessions a Member of Non-Member requests, based upon factors deemed relevant by each firm (either a Member or service bureau on behalf of a Member). The Exchange believes these factors include the costs to maintain connectivity and choices Members make in how to segment or allocate their order flow.[18] Proposed Fees—Additional Discussion As discussed above, the proposed fees for connectivity services do not by design apply differently to different types or sizes of Members or Non-Members. As discussed in more detail in the Statutory Basis section, the Exchange believes that the likelihood of higher fees for certain Members or Non-Members subscribing to connectivity services usage than others is not unfairly discriminatory because it is based on objective differences in usage of connectivity services among different Members and Non-Members. The Exchange's costs for connectivity services are directly proportional to the impact Members and Non-Members with higher message traffic and/or Members and Non-Members with more complicated connections established with the Exchange, as such Members and Non-Members: (1) consume the most bandwidth and resources of the network; (2) transact the vast majority of the volume on the Exchange; and (3) require the high-touch network support services provided by the Exchange and 
                    ( print page 101062)
                    its technology service provider, including network monitoring, reporting and support services, resulting in a much higher cost to the Exchange to provide such connectivity services. For these reasons, LTSE believes it is not unfairly discriminatory for the Members and Non-Members with higher message traffic and/or Members and Non-Members with more complicated connections to pay a higher share of the total connectivity services fees. While Members and Non-Members with a business model that results in higher relative inbound message activity or more complicated connections are projected to pay higher fees, the level of such fees is based solely on the number of physical connections and/or application sessions deemed necessary by the Member and Non-Members and not on the business model or type of firm. The Exchange notes that the correlation between message traffic and usage of connectivity services is not completely aligned because Members and Non-Members individually determine how many physical connections and application sessions to request, and Members and Non-Members may make different decisions on the appropriate ways based on facts unique to their individual businesses. The Exchange believes that a Member even with high message traffic would be able to conduct business on the Exchange with a relatively small connectivity services footprint. Finally, the fees for connectivity services will help to encourage connectivity services usage in a way that aligns with the Exchange's regulatory obligations. As a national securities exchange, the Exchange is subject to Regulation Systems Compliance and Integrity (“Reg SCI”).[19]
                    
                     Reg SCI Rule 1001(a) requires that the Exchange establish, maintain, and enforce written policies and procedures reasonably designed to ensure (among other things) that its Reg SCI systems have levels of capacity adequate to maintain the Exchange's operational capability and promote the maintenance of fair and orderly markets.[20]
                    
                     By encouraging Users to be efficient with their usage of connectivity services, the proposed fee will support the Exchange's Reg SCI obligations in this regard by ensuring that unused application sessions are available to be allocated based on individual Member or Non-Member needs and as the Exchange's overall order and trade volumes increase. Additionally, because the Exchange will charge a lower rate for a physical connection to the Disaster Recovery and Test Environment facilities and will waive the first three logical connectivity sessions each month, the proposed fee structure will further support the Exchange's Reg SCI compliance by reducing the potential impact of a disruption should the Exchange be required to switch to its Disaster Recovery Facility and encouraging Members to engage in any necessary system testing with low or no cost imposed by the Exchange.[21] 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6(b) [22]
                    
                     of the Act in general and furthers the objectives of Section 6(b)(4) [23]
                    
                     of the Act, in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees and other charges among its Members and other persons using its facilities. Additionally, the Exchange believes that the proposed fees are consistent with the objectives of Section 6(b)(5) [24]
                    
                     of the Act in that they are designed 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 a free and open market and national market system, and, in general, to protect investors and the public interest, and, particularly, are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange believes that the proposed fees for connectivity services to LTSE are reasonable, equitable and not unfairly discriminatory because, as described above, the proposed pricing for connectivity services is directly related to the relative costs to the Exchange to provide those respective services and does not impose a barrier to entry to smaller participants. The Exchange does not believe the proposed pricing for connectivity services imposes a barrier to entry to smaller market participants. As detailed above, the Exchange recognizes that there are various business models and varying sizes of market participants conducting business on the Exchange. The Exchange's costs for its connectivity services are directly proportional to the impact that Members and Non-Members with higher message traffic and/or Members and Non-Members with more complicated connections established with the Exchange, as such Members and Non-Members: (1) consume the most bandwidth and resources of the network; (2) transact the vast majority of the volume on the Exchange; and (3) require the high-touch network support services provided by the Exchange and its staff, including network monitoring, reporting and support services, resulting in a much higher cost to the Exchange to provide such connectivity services. Accordingly, the Exchange believes the allocation of the proposed fees that increase based on the number of physical connections or application sessions is reasonable based on the resources consumed by the respective type of market participant (
                    *i.e.,*
                     lowest resource consuming Members and Non-Members will pay the least, and highest resource consuming Members and Non-Members will pay the most), particularly since higher resource consumption translates directly to higher costs to the Exchange. With regard to reasonableness, the Exchange understands that when appropriate given the context of a proposal the Commission has taken a market-based approach to examine whether the SRO making the proposal was subject to significant competitive forces in setting the terms of the proposal. In looking at this question, the Commission considers whether the SRO has demonstrated in its filing that: (i) there are reasonable substitutes for the product or service; (ii) “platform” competition constrains the ability to set the fee; and/or (iii) revenue and cost analysis shows the fee would not result in the SRO taking supra-competitive profits. If the SRO demonstrates that the fee is subject to significant competitive forces, the Commission will next consider whether there is any substantial countervailing basis to suggest the fee's terms fail to meet one or more standards under the Exchange Act. If the filing fails to demonstrate that the fee is constrained by competitive forces, the SRO must provide a substantial basis, other than competition, to show that it is consistent with the Exchange Act, which may include production of 
                    ( print page 101063)
                    relevant revenue and cost data pertaining to the product or service. LTSE believes the proposed fees for connectivity services are fair and reasonable as a form of cost recovery for the Exchange's aggregate costs of offering connectivity services to Members and non-Members. The proposed fees are expected to generate monthly revenue of approximately $192,000 [25]
                    
                     providing partial cost recovery to the Exchange for the aggregate costs of offering connectivity services, based on a methodology that narrowly limits the cost drivers that are allocated to those closely and directly related to the particular service. In addition, this revenue will allow the Exchange to continue to offer, to enhance, and to continually refresh its infrastructure as necessary to offer a state-of- the-art trading platform. The Exchange also believes the proposed fee is a reasonable means of encouraging firms to be efficient in the connectivity services they reserve for use, with the benefits to overall system efficiency to the extent Members and non-Members consolidate their usage of connectivity services or discontinue subscriptions to unused physical connectivity. The Exchange further believes that the proposed fees, as they pertain to purchasers of each type of connectivity alternative, constitute an equitable allocation of reasonable fees charged to the Exchange's Members and non-Members and are allocated fairly amongst the types of market participants using the facilities of the Exchange. As described above, the Exchange believes the proposed fees are equitably allocated because the Exchange's incremental aggregate costs for all connectivity services are disproportionately related to Members with higher message traffic and/or Members with more complicated connections established with the Exchange, as such Members: (1) consume the most bandwidth and resources of the network; (2) transact the vast majority of the volume on the Exchange; and (3) require the high-touch network support services provided by the Exchange and its staff, including network monitoring, reporting and support services, resulting in a much higher cost to the Exchange to provide such connectivity services. Commission staff previously noted that the generation of supra-competitive profits is one of several potential factors in considering whether an exchange's proposed fees are consistent with the Act.[26]
                    
                     As described in the Fee Guidance, the term “supra- competitive profits” refers to profits that exceed the profits that can be obtained in a competitive market. The proposed fee structure would not result in excessive pricing or supra-competitive profits for the Exchange. As stated above, the proposed fee structure is merely designed to permit the Exchange to cover some of the costs allocated to providing connectivity services. Thus, the Exchange believes that its proposed pricing for Connectivity Fees is fair, reasonable, and equitable. Accordingly, the Exchange believes that its proposal is consistent with Section 6(b)(4) of the Act because the proposed fees will permit recovery of the Exchange's costs and will not result in excessive pricing or supra-competitive profit. The proposed fees for connectivity services will allow the Exchange to cover a portion of costs incurred by the Exchange for offering connectivity to Members and Non-Members. As detailed above, the Exchange has numerous internal and third-party expenses associated with providing connectivity. Including maintaining necessary hardware and other network infrastructure as well as network monitoring and support services; without such hardware, infrastructure, monitoring and support the Exchange would be unable to offer the connectivity services. Further, the Exchange routinely works with its MEMX Technologies to improve the performance of the network's hardware and software. The costs associated with maintaining and enhancing a state-of-the-art exchange network is a significant portion of the overall expense of the technology provider's services, and thus the Exchange believes that it is reasonable and appropriate to help offset those costs by adopting fees for connectivity services. The Exchange's Cost Analysis estimates the monthly costs to provide connectivity services at $485,000. Based on current connectivity services usage, the Exchange would generate monthly revenues for the rest of 2024 of approximately $192,000, which will result in a loss for the Exchange. Even if the Exchange earns that amount or incrementally more, the Exchange believes the proposed fees for connectivity services are fair and reasonable because they will not result in excessive pricing or supra-competitive profit, when comparing the total expense of LTSE associated with providing connectivity services versus the total projected revenue of the Exchange associated with network connectivity services. The Exchange notes that other exchanges offer similar connectivity options to market participants and that the Exchange's proposed connectivity fees are lower.[27]
                    
                     The Exchange further notes that several of these exchanges charge for all logical connectivity sessions, and do not offer the three free sessions per month the Exchange is proposing to offer.[28] In conclusion, the Exchange submits that its proposed fee structure satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of the Act [29]
                    
                     for the reasons discussed above in that it provides for the equitable allocation of reasonable dues, fees and other charges among its Members and other persons using its facilities, does not permit unfair discrimination between customers, issuers, brokers, or dealers, and is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and in general to protect investors and the public interest, particularly as the proposal neither targets nor will it have a disparate impact on any particular category of market participant. B. Self-Regulatory Organization's Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,[30]
                    
                     the Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Intramarket Competition The Exchange does not believe that the proposed rule change to establish connectivity fees would place certain market participants at the Exchange at a relative disadvantage compared to other market participants because the proposed connectivity pricing is associated with relative usage of the Exchange by each market participant and does not impose a barrier to entry to smaller participants. The Exchange believes its proposed pricing is reasonable and lower than what other exchanges charge and, when coupled with the availability of third-party providers that also offer connectivity solutions, that participation on the Exchange is affordable for all market participants, including smaller trading 
                    ( print page 101064)
                    firms. As described above, the connectivity services purchased by market participants typically increase based on their additional message traffic and/or the complexity of their operations. The market participants that utilize more connectivity services typically utilize the most bandwidth, and those are the participants that consume the most resources from the network. Accordingly, the proposed fees for connectivity services do not favor certain categories of market participants in a manner that would impose a burden on competition; rather, the allocation of the proposed fees for connectivity reflects the network resources consumed by the various size of market participants and the costs to the Exchange of providing such connectivity services. Intermarket Competition The Exchange does not believe the proposed fees for connectivity to LTSE places an undue burden on competition on other SROs that is not necessary or appropriate. Additionally, another exchange has similar connectivity alternatives for their participants, but with higher rates to connect.[31]
                    
                     The Exchange is also unaware of any assertion that the proposed fees for connectivity services would somehow unduly impair its competition with other exchanges. In sum, LTSE's proposed fees for connectivity for Members and Non-Members are comparable to and generally lower than fees charged by another exchange for the same or similar services. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action This proposed rule change establishes dues, fees or other charges among its members and, as such, may take effect upon filing with the Commission pursuant to Section 19(b)(3)(A)(ii) of the Act [32]
                    
                     and paragraph (f)(2) of Rule 19b-4 thereunder.[33]
                    
                     Accordingly, the proposed rule change would take effect upon filing with the Commission. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's internet comment form (*https://www.sec.gov/​rules/​sro.shtml*); or
Send an email to*rule-comments@sec.gov.*
                     Please include file number SR-LTSE-2024-09 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-LTSE-2024-09. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (
                    *https://www.sec.gov/​rules/​sro.shtml*). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR-LTSE-2024-09 and should be submitted on or before January 3, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[34] Sherry R. Haywood, Assistant Secretary.


# Footnotes

1.
    
                         15 U.S.C. 78s(b)(1). Back to Citation
 2.
    
                         17 CFR 240.19b-4. Back to Citation
 3.
    
                         The term “Member” shall mean any registered broker or dealer that has been admitted to membership in the Exchange. 
                        *See*
                         LTSE Rule 1.160. Back to Citation
 4.
    
                         As proposed, fees for connectivity services would be assessed based on each active connectivity service product at the close of business on the first day of each month. If a product is canceled prior to such fee being assessed, then the Member will not be obligated to pay the applicable product fee. Back to Citation
 5.
    
                         15 U.S.C. 78s(b)(1). Back to Citation
 6.
    
                         17 CFR 240.19b-4. Back to Citation
 7.
    
                         15 U.S.C.78f(b). Back to Citation
 8.
    
                         15 U.S.C. 78f(b)(4). Back to Citation
 9.
    
                         15 U.S.C. 78(f)(b)(5). Back to Citation
 10.
    
                         15 U.S.C. 78f(b)(8). Back to Citation
 11.
    
                         In 2019, Commission staff published guidance suggesting the types of information that SROs may use to demonstrate that their fee filings comply with the standards of the Act (“Fee Guidance”). While LTSE understands that the Fee Guidance does not create new legal obligations on SROs, the Fee Guidance is consistent with LTSE's view about the type and level of transparency that exchanges should meet to demonstrate compliance with their existing obligations when they seek to charge new fees. 
                        *See*
                         Staff Guidance on SRO Rule Filings Relating to Fees (May 21, 2019). Available at 
                        *https://www.sec.gov/​tm/​staff-guidance-sro-rule-filings-fees.gov.* Back to Citation
 12.
    
                         The Exchange and MEMX Technologies executed a Development, License and Services Agreement on January 23, 2024, with accompanying Schedules (collectively, the “DLSA”). MEMX Technologies, an affiliate of the MEMX Exchange, is in the business of developing technology systems for use in the financial industry. 
                        *See*
                         SR-LTSE-2024-03, supra note 3 [sic]. Back to Citation
 13.
    
                         The DSLA with MEMX Technologies entails both fixed and variable costs. To Exchange used both types of costs when determining aggregated monthly costs detailed below. Back to Citation
 14.
    
                         The aggregate monthly costs were determined by taking the individual cost drivers detailed below and their yearly costs and dividing by twelve months. Back to Citation
 15.
    
                         Types of market participants that obtain connectivity services from the Exchange but are not Members include service bureaus and extranets. Service bureaus offer technology-based services to other companies for a fee, including order entry services to Members, and thus, may access application sessions on behalf of one or more Members. Extranets offer physical connectivity services to Members and non-Members. Back to Citation
 16.
    
                         LTSE has a data center presence in Secaucus NY4. Back to Citation
 17.
    
                          
                        *See, e.g.,*
                         the CBOE BZX equities fee schedule, available at: 
                        *https://markets.cboe.com/​us/​equities/​membership/​fee_​schedule/​bzx/​.* Back to Citation
 18.
    
                         The Exchange understands that some Members (or service bureaus) may also request more sessions to enable the ability to send a greater number of simultaneous order messages to the Exchange by spreading orders over more Order Entry Ports, thereby increasing throughput (
                        *i.e.,*
                         the potential for more orders to be processed in the same amount of time). The degree to which this usage of sessions provides any throughput advantage is based on how a particular Member sends order messages to LTSE, however the Exchange notes that the architecture reduces the impact or necessity of such a strategy. All sessions on LTSE provide the same throughput, and as noted above, the throughput is likely adequate even for a Member sending a significant amount of volume at a fast pace, and is not artificially throttled or limited in any way by the Exchange. Back to Citation
 19.
    
                         17 CFR 242.1000-1007. Back to Citation
 20.
    
                         17 CFR 242.1001(a). Back to Citation
 21.
    
                         While some Members might directly connect to the Disaster Recovery Center and incur the proposed $2,750 per month fee, there are other ways to connect to the Exchange, such as through a service bureau or extranet, and because the Exchange is waiving fees for the first three logical connectivity sessions, a Member connecting through another method would not incur any fees charged directly by the Exchange. However, the Exchange notes that a third-party service provider providing connectivity to the Exchange likely would charge a fee for providing such connectivity; such fees are not set by or shared in by the Exchange. Back to Citation
 22.
    
                         15 U.S.C. 78f. Back to Citation
 23.
    
                         15 U.S.C. 78f(b)(4). Back to Citation
 24.
    
                         15 U.S.C. 78f(b)(5). Back to Citation
 25.
    
                         As stated above, the Exchange launched its new trading platform on September 23, 2024. This expected revenue is based on a model for Q4 2024. Back to Citation
 26.
    
                          
                        *See*
                         Fee Guidance, 
                        *supra*
                         note 13 [sic]. Back to Citation
 27.
    
                          
                        *See, e.g.,*
                         the MEMX Connectivity fee schedule, available at: 
                        *https://info.memxtrading.com/​connectivity-fees/​.* Back to Citation
 28.
    
                          
                        *See id.* Back to Citation
 29.
    
                         15 U.S.C. 78f(b)(4) and (5). Back to Citation
 30.
    
                         15 U.S.C. 78f(b)(8). Back to Citation
 31.
    
                          
                        *See supra*
                         notes 28-29 [sic]. Back to Citation
 32.
    
                         15 U.S.C. 78s(b)(3)(A)(ii). Back to Citation
 33.
    
                         17 CFR 240.19b-4(f)(2). Back to Citation
 34.
    
                             17 CFR 200.30-3(a)(12). Back to Citation


[FR Doc. 2024-29336 Filed 12-12-24; 8:45 am] BILLING CODE 8011-01-P