Document ID: SEC-2017-0517-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2017-03-30T04:00Z

[Federal Register Volume 82, Number 60 (Thursday, March 30, 2017)]
[Notices]
[Pages 15741-15749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06258]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80311; File No. SR-NYSE-2016-45]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Partial Amendment No. 4 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment Nos. 1 Through 4, To Amend the Co-Location Services Offered 
by the Exchange To Add Certain Access and Connectivity Fees

March 24, 2017.

I. Introduction

    On July 29, 2016, the New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend the co-location services offered by the 
Exchange to add certain access and connectivity fees, applicable to 
Users \3\ in the Exchange's data center in

[[Page 15742]]

Mahwah, NJ (``Data Center''). The Exchange proposed to: (1) Provide 
additional information regarding access to the trading and execution 
systems of the Exchange and its affiliated SROs, and establish fees for 
connectivity to certain NYSE, NYSE Arca, and NYSE MKT market data 
feeds; and (2) provide and establish fees for connectivity to data 
feeds from third party markets and other content service providers 
(``Third Party Data Feeds''); access to the trading and execution 
services of Third Party markets and other content service providers 
(``Third Party Systems''); connectivity to Depository Trust & Clearing 
Corporation (``DTCC'') services; connectivity to third party testing 
and certification feeds; and the use of virtual control circuits 
(``VCCs'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 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. 76008 (September 29, 2015), 80 FR 60190 
(October 5, 2015) (SR-NYSE-2015-40). As specified in the Price List, 
a User that incurs co-location fees for a particular co-location 
service pursuant thereto would not be subject to co-location fees 
for the same co-location service charged by the Exchange's 
affiliates NYSE MKT LLC (``NYSE MKT'') and NYSE Arca, Inc. (``NYSE 
Arca''). See Securities Exchange Act Release No. 70206 (August 15, 
2013), 78 FR 51765 (August 21, 2013) (SR-NYSE-2013-59).
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    The Commission published the proposed rule change for comment in 
the Federal Register on August 17, 2016.\4\ On August 16, 2016, the 
Exchange filed Amendment No. 1 to the proposed rule change, which was 
published for comment in the Federal Register on September 26, 2016.\5\ 
The Commission received one comment letter in response to the proposed 
rule change, as modified by Amendment No. 1, to which the Exchange 
responded on September 23, 2016.\6\ On October 4, 2016, the Commission 
extended the time period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to approve or disapprove the proposed rule change 
to November 15, 2016.\7\
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    \4\ See Securities Exchange Act Release No. 34-78556 (August 11, 
2016), 81 FR 54877.
    \5\ See Securities Exchange Act Release No. 34-78887 (September 
20, 2016), 81 FR 66095. (``First Amended Notice'').
    Amendment No. 1 superseded and replaced the proposed rule change 
in its entirety, but notably: (i) Amended the third party data feed 
MSCI from 20 Gigabits (``Gb'') to 25 Gb and amended the price from 
$2000 to $1200; (ii) clarified the costs associated with providing a 
greater amount of bandwidth for Premium NYSE Data Products for a 
particular market as compared to the bandwidth requirements for the 
Included Data Products for that same market; (iii) provided further 
details on Premium NYSE Data Products, including their composition, 
product release dates, and further detail on the reasonableness of 
their applicable fees; (iv) added an explanation for the varying fee 
differences for the same Gb usage for third party data feeds, DTCC, 
and VCCs.
    \6\ See letter to Brent J. Fields, Secretary, Commission, from 
John Ramsay, Chief Market Policy Officer, Investors Exchange LLC 
(``IEX I Letter''), dated September 9, 2016.
     Responding to the IEX I Letter, see letter to Brent J. Fields, 
Commission, from Martha Redding, Associate General Counsel and 
Assistant Secretary, NYSE, dated September 23, 2016 (``Response 
Letter I''), available at https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645-3.pdf.
    \7\ See Securities Exchange Act Release No. 34-78966 (September 
28, 2016), 81 FR 68475.
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    On November 2, 2016, the Exchange filed partial Amendment No. 2 to 
the proposed rule change.\8\ On November 21, 2016, the Commission 
instituted proceedings (``Order Instituting Proceedings'' or ``OIP'') 
to determine whether to approve or disapprove the proposed rule change, 
as modified by Amendment Nos. 1 and 2.\9\ The proposed rule change, as 
modified by Amendment Nos. 1 and 2, is referred to as the ``Prior 
Proposal.''
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    \8\ In partial Amendment No. 2 the Exchange addressed (1) the 
benefits offered by the Premium NYSE Data Products that are not 
present in the Included Data Products (2) how Premium NYSE Data 
Products are related to the purpose of co-location, (3) the 
similarity of charging for connectivity to Third Party Systems and 
DTCC and charging for connectivity to Premium NYSE Data Products and 
(4) the costs incurred by the Exchange in providing connectivity to 
Premium NYSE Data Products to Users in the Data Center. Amendment 
No. 2 is available on the Commission's Web site at https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645-4.pdf.
    \9\ See Securities Exchange Act Release 34-79316 (November 15, 
2016), 81 FR 83303.
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    On December 9, 2016, the Exchange filed Amendment No. 3 to the 
proposed rule change.\10\ Amendment No. 3, which superseded and 
replaced the Prior Proposal in its entirety, was published for comment 
in the Federal Register on December 29, 2016.\11\
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    \10\ Amendment No. 3, as filed by the Exchange, is available on 
the Commission's Web site at https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645-5.pdf.
    \11\ See Securities Exchange Act Release No. 34-79674 (December 
22, 2016), 81 FR 96053 (``Notice of Amendment No. 3'').
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    The Commission received seven additional comment letters following 
publication of the Order Instituting Proceedings.\12\ Some of these 
comment letters addressed only the Prior Proposal, and some addressed 
the Prior Proposal, as modified by Amendment No. 3. The Exchange 
responded to the comment letters submitted after the OIP in letters 
dated January 17, 2017 and February 13, 2017.\13\
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    \12\ See letter to Brent J. Fields, Commission, from Adam C. 
Cooper, Senior Managing Director and Chief Legal Officer, Citadel 
Securities, dated December 12, 2016 (``Citadel Letter''); letter to 
Brent J. Fields, Commission, from Melissa MacGregor, Managing 
Director and Associate General Counsel, SIFMA, dated December 12, 
2016 (``SIFMA I Letter''); letter to Brent J. Fields, Commission, 
from Joe Wald, Chief Executive Officer, Clearpool Group, dated 
December 16, 2016 (``Clearpool Letter''); letter to Brent J. Fields, 
Secretary, Commission, from John Ramsay, Chief Market Policy 
Officer, Investors Exchange LLC, dated December 21, 2016 (``IEX II 
Letter''); letter to Brent J. Fields, Commission, from David L. 
Cavicke, Chief Legal Officer, Wolverine LLC (``Wolverine Letter''); 
letter to Bent J. Fields, Secretary, Commission, from Stefano 
Durdic, Managing Director, R2G Services, LLC, dated January 21, 2017 
(``R2G Letter''); letter to Brent J. Fields, Commission, from 
Melissa MacGregor, Managing Director and Associate General Counsel, 
SIFMA, dated February 6, 2017 (``SIFMA II Letter''). All comments 
received by the Commission on the proposed rule change are available 
on the Commission's Web site at: https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645.shtml.
    \13\ See letter to Brent J. Fields, Commission, from Martha 
Redding, Associate General Counsel and Assistant Secretary, NYSE, 
dated January 17, 2017; letter to Brent J. Fields, Commission, from 
Martha Redding, Associate General Counsel and Assistant Secretary, 
NYSE, dated February 13, 2017 (``Response Letter II'' and ``Response 
Letter III,'' respectively), available at https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645.shtml.
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    On February 7, 2017, the Exchange filed partial Amendment No. 4 to 
the proposed rule change.\14\ On February 15, 2017, pursuant to Section 
19(b)(2) of the Act,\15\ the Commission designated a longer period for 
Commission action on proceedings to determine whether to disapprove the 
proposed rule change, as modified by Amendment Nos. 1 through 4.\16\ 
The Commission is publishing this notice to solicit comment on partial 
Amendment No. 4 and, and is approving the proposed rule change, as 
modified by Amendment Nos. 1 through 4, on an accelerated basis.
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    \14\ In partial Amendment No. 4 the Exchange proposes to (1) 
remove reference to the National Stock Exchange from its list of 
Third Party Systems, and (2) provide and establish fees for 
connectivity to three additional Third Party Data Feeds--ICE Data 
Services Consolidated Feed, ICE Data Services PRD, and ICE Data 
Services PRD CEP, which are feeds owned by the Exchange's ultimate 
parent, but not by the Exchange or its affiliated self-regulatory 
organizations, NYSE MKT or NYSE Arca. Partial Amendment No. 4 is 
available at https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645-5.pdf.
    \15\ 15 U.S.C. 78s(b)(2).
    \16\ See Securities Exchange Act Release No. 34-80002 (February 
9, 2017), 82 FR 10827. The Commission designated April 14, 2017 as 
the date by which it should determine whether to disapprove the 
proposed rule change.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
Nos. 1 Through 4

A. Background: Prior Proposal and the Order Instituting Proceedings

    In the proposed rule change, as modified by Amendment Nos. 1 
through 4 (also referred to as the ``Current Proposal''), the Exchange 
proposes to amend the co-location services offered by the Exchange to 
add certain access and connectivity services and establish fees 
applicable to Users in the Data Center. Specifically, the Exchange 
proposes to provide and establish fees for connectivity to: (i) Third 
Party Data Feeds, (ii) Third Party Systems, (iii) DTCC services, (iv) 
third party testing and certification feeds; and for the use of 
VCCs.\17\
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    \17\ See Notice of Amendment No. 3, supra note 11, 81 FR at 
96054, and partial Amendment No. 4 supra note 14. A VCC is a unicast 
connection between two Users over dedicated bandwidth using the IP 
network. See Notice of Amendment No. 3, supra note 11, 81 FR at 
96057.

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[[Page 15743]]

    In the Prior Proposal (i.e., prior to filing Amendment No. 3), the 
Exchange also had proposed to provide additional information about 
access to NYSE, NYSE Arca, and NYSE MKT trading and execution services, 
and to establish fees for connectivity to certain proprietary market 
data feeds.\18\ Specifically, the Exchange had proposed that 
connectivity to most of the Exchange's and its affiliated SROs' 
proprietary market data products would be included in the purchase 
price of an LCN/IP network connection in the Data Center, but that an 
additional connectivity fee (``Premium NYSE Product Connectivity Fee'') 
would apply to the NYSE Integrated Feed, NYSE Arca Integrated Feed, 
NYSE MKT Integrated Feed, and the NYSE Best Quote and Trades (BQT) feed 
(``Premium NYSE Data Products'').\19\ As a result, the purchase of 
access to NYSE, NYSE Arca, and NYSE MKT trading and execution services, 
would not include connectivity to every purchased proprietary data 
product; and whereas the Exchange would charge no additional fees for 
connectivity to most of the Exchange's and its affiliated SROs' data 
products, it would charge additional fees for connectivity to Premium 
NYSE Data Products.
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    \18\ For a detailed description of the Prior Proposal, see the 
First Amended Notice, supra note 5, and the OIP, discussing 
Amendment No. 2, supra note 9.
    \19\ See the First Amended Notice, supra note 5, and the OIP, 
discussing Amendment No. 2, supra note 9.
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    The Commission specifically requested comment on this aspect of the 
Prior Proposal in the OIP. In particular, in the OIP, the Commission 
expressed concern that the Exchange had not identified a distinction 
between the provision of connectivity to Premium NYSE Data Products and 
the Exchange's and its affiliated SROs' other data products, and noted 
that the Premium NYSE Data Products are similar to such other data 
products.\20\ In addition, the Commission requested comment on whether 
charging fees for connectivity to Premium NYSE Data Products in a 
different manner from other Exchange and affiliated SRO proprietary 
market data products was consistent with Section 6(b)(4) of the 
Act.\21\ The Commission also sought comment on whether Users would have 
viable alternatives to paying the Exchange a connectivity fee for the 
Premium NYSE Data Products.\22\ As discussed below, several commenters 
stated that it was inequitable for the Exchange to charge a separate 
and additional connectivity fee for some Exchange and affiliated SRO 
proprietary market data products and not others, and that receiving the 
Premium NYSE Data Products from an alternative source was not a viable 
option.\23\
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    \20\ See OIP, supra note 9, 81 FR at 83308.
    \21\ See id.
    \22\ See id. at 83307.
    \23\ See infra notes 70-72 and accompanying text.
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    In Amendment No. 3, the Exchange eliminated the Premium NYSE 
Product Connectivity Fee from the Current Proposal, and that fee is 
therefore no longer presented to the Commission for consideration.

B. Description of the Current Proposal

    As stated above and more fully described in the Notice of Amendment 
No. 3, as partially modified by Amendment No. 4, the Exchange proposes 
to provide and establish fees for connectivity to: (i) Third Party Data 
Feeds, (ii) Third Party Systems, (iii) DTCC services, (iv) third party 
testing and certification feeds; and for the use of VCCs.\24\
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    \24\ See Notice of Amendment No. 3, supra note 11, 81 FR at 
96054 and partial Amendment No. 4 supra note 14.
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    Regarding Third Party Data Feeds, the Exchange proposes to offer 
Users the option to connect to Third Party Data Feeds in the Data 
Center for a monthly connectivity fee per feed.\25\ The Exchange states 
that it receives Third Party Data Feeds in the Data Center from 
multiple national securities exchanges and other content service 
providers which it then provides to requesting Users for a fee.\26\ The 
Exchange states that its proposal to charge Users a monthly fee for 
connectivity to Third Party Data Feeds is consistent with the monthly 
connectivity fee Nasdaq charges its co-location customers for 
connectivity to third party data.\27\ According to the Exchange, the 
proposed fees ``allow the Exchange to defray or cover the costs 
associated with offering Users connectivity to Third Party Data Feeds 
while providing Users the convenience of receiving such Third Party 
Data Feeds within co-location.'' \28\ Additionally, the Exchange noted 
that some of the proposed fees vary depending on the bandwidth 
considerations and, in cases where the bandwidth requirements are the 
same as other proposed services such as Third Party Systems or VCCs, 
the prices reflect ``the competitive considerations and the costs the 
Exchange incurs in providing such connections.'' \29\
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    \25\ See Notice of Amendment No. 3, supra note 11, 81 FR at 
96055.
    \26\ See id.
    \27\ See id. The Exchange notes that Nasdaq charges monthly fees 
of $1,500 and $4,000 for connectivity to BATS Y and BATS data feeds, 
respectively, and of $2,500 for connectivity to EDGA or EDGX. See 
id.
    \28\ See Notice of Amendment No. 3, supra note 11, 81 FR at 
96059; partial Amendment No. 4, supra note 14.
    \29\ See Notice of Amendment No. 3, supra note 11, 81 FR at 
96059; partial Amendment No. 4, supra note 14.
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    To connect to a Third Party Data Feed, a User must enter into a 
contract with the relevant third party market or content service 
provider, under which the third party market or content service 
provider charges the User for the data feed.\30\ The Exchange receives 
these Third Party Data Feeds over its fiber optic network and, after 
the data provider and User enter into a contract and the Exchange 
receives authorization from the data provider, the Exchange re-
transmits the data to the User's port.\31\ Users only receive, and are 
only charged for, the feed(s) for which they have entered into 
contracts.\32\ Additionally, the Exchange notes that Third Party Data 
Feeds do not provide access or order entry to its execution system or 
access to the execution system of the third party generating the 
feed.\33\ The Exchange proposes to charge a set monthly recurring 
connectivity fee per Third Party Data Feed, as set forth in the 
proposed Price List.\34\ A User is free to receive all or some of the 
feeds included in the Price List.\35\ The Exchange notes that Third 
Party Data Feed providers may charge redistribution fees, such as 
Nasdaq's Extranet Access Fees and OTC Markets Group's Access Fees, 
which the Exchange will pass through to the User in addition to 
charging the applicable connectivity fee.\36\
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    \30\ See Notice of Amendment No. 3, supra note 11, 81 FR at 
96055.
    \31\ See id.
    \32\ See id.
    \33\ See id. at 96056. The Exchange notes that there is one 
exception to this for the ICE feeds which include both market data 
and trading and clearing services. In order to receive the ICE 
feeds, a User must receive authorization from ICE to receive both 
market data and trading and clearing services. See id.
    \34\ See Notice of Amendment No. 3, supra note 11, 81 FR at 
96056, as modified by partial Amendment No. 4, supra note 14 (adding 
additional Third Party Data Feeds).
    \35\ See Notice of Amendment No. 3, supra note 11, 81 FR at 
96056.
    \36\ See id.
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    The Exchange represents that ``as alternatives to using the 
[proposed connectivity to Third Party Data Feeds] provided by the 
Exchange, a User may access or connect to such . . . products through 
another User or through a connection to an Exchange access center 
outside the data center, third party access center, or third party 
vendor. The User may make such connection

[[Page 15744]]

through a third party telecommunication provider, third party wireless 
network, the SFTI network, or a combination thereof.'' \37\
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    \37\ See id. at 96058.
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    As more fully described in the Notice of Amendment No. 3, as 
modified by partial Amendment No. 4, the Exchange also proposes to 
provide and establish fees for connectivity (also referred to as 
``Access'') to Third Party Systems,\38\ to DTCC services,\39\ and to 
third party certification and testing feeds, and charge a monthly 
recurring fee.\40\ The Exchange proposes to amend the Price List to 
provide and establish fees for connectivity to these service providers 
and certification/testing feeds.\41\ The Exchange states that 
connectivity is dependent on a User meeting the necessary technical 
requirements, paying the applicable fees, and the Exchange receiving 
authorization from the relevant third party service provider to make 
the connection.\42\
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    \38\ The Exchange states that it selects what connectivity to 
Third Party Systems to offer in the Data Center based on User 
demand. See id. at 96055. In partial Amendment No. 4, the Exchange 
removed the National Stock Exchange from the list of Third Party 
Systems, noting that it is now owned by the Exchange's parent. See 
partial Amendment No. 4, supra note 14. Establishing a User's access 
to a Third Party System does not give the Exchange any right to use 
the Third Party Systems; connectivity to a Third Party System does 
not provide access or order entry to the Exchange's execution 
system, and a User's connection to a Third Party System is not 
through the Exchange's execution system. See Notice of Amendment No. 
3, supra note 11, 81 FR at 96055.
    \39\ The Exchange states that connectivity to DTCC ``is distinct 
from the access to shared data services for clearing and settlement 
services that a User receives when it purchases access to the LCN or 
IP network. The shared data services allow Users and other entities 
with access to the Trading Systems to post files for settlement and 
clearing services to access.'' See Notice of Amendment No. 3, supra 
note 11, 81 FR at 96056 n. 25.
    \40\ Certification feeds certify that a User conforms to any of 
the relevant content service providers' requirements for accessing 
Third Party Systems or receiving Third Party Data, whereas testing 
feeds provide Users an environment in which to conduct system tests 
with non-live data. See Notice of Amendment No. 3, supra note 11, 81 
FR at 96056.
    \41\ See Notice of Amendment No. 3, supra note 11, 81 FR at 
96055-96057.
    \42\ See id.
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    For each service, a User must execute a contract with the 
respective third party service provider pursuant to which a User pays 
each the associated fee(s) for their services.\43\ Once the Exchange 
receives authorization from the third party service provider, the 
Exchange will enable a User to connect to the service provider and/or 
third party certification and testing feed(s) over the IP Network.\44\ 
The proposed recurring monthly fees for connectivity to Third Party 
Systems and DTCC are based upon the bandwidth requirements per 
system.\45\
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    \43\ See id.
    \44\ See id. For Third Party Systems, once the Exchange receives 
the authorization from the respective third party it establishes a 
unicast connection between the User and the relevant third party 
over the IP network. See id. at 96055. For the DTCC, ``[t]he 
Exchange receives the DTCC feed over its fiber optic network and, 
after DTCC and the User enter into the services contract and the 
Exchange receives authorization from DTCC, the Exchange provides 
connectivity to DTCC to the User over the User's IP network port.'' 
See id. at 96056-96057.
    \45\ See id. at 96055-96057.
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    The Exchange represents that as alternatives to using the proposed 
connectivity to Third Party Systems, to DTCC services, and to third 
party certification and testing feeds offered by the Exchange, ``a User 
may access or connect to such services and products through another 
User or through a connection to an Exchange access center outside the 
data center, third party access center, or third party vendor. The User 
may make such connection through a third party telecommunication 
provider, third party wireless network, the SFTI network, or a 
combination thereof.'' \46\
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    \46\ See id. at 96058.
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    Finally, as more fully described in the Notice of Amendment No. 3, 
as partially modified by partial Amendment No. 4, the Exchange also 
proposes to provide and establish fees for VCCs.\47\ A VCC (previously 
called a ``peer to peer'' connection) is a unicast connection through 
which two participants can establish a connection between two points 
over dedicated bandwidth using the IP network to be used for any 
purpose.\48\ The proposed recurring monthly fees for VCCs are based 
upon the bandwidth requirements per VCC connection between two 
Users.\49\ Connectivity to VCCs will similarly require permission from 
the other User before the Exchange will establish the connection.\50\ 
As an alternative to using a VCC, Users can connect to other Users 
through a cross-connect.\51\
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    \47\ See id. at 96057.
    \48\ See id.
    \49\ See id.
    \50\ See id.
    \51\ See id. at 96058.
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    The Exchange states in reference to all of the proposed services 
that in adding the fees it seeks to defray or cover its costs in 
providing these voluntary services to Users, and that in order to 
provide these services it must, among other things, provide, maintain 
and operate the data center facility hardware and technology 
infrastructure; and handle the installation, administration, 
monitoring, support and maintenance of such services, including by 
responding to any production issues.\52\ The Exchange also states that 
the fees charged for co-location services are constrained by the active 
competition for the order flow and other business from such market 
participants,\53\ and that charging excessive fees would make it stand 
to lose not only co-location revenues but also the liquidity of the 
formerly co-located trading firms.\54\ Additionally, the Exchange 
states that Users have alternatives if they believe the fees are 
excessive.\55\ Specifically, the Exchange notes that a User could 
terminate its co-location arrangement with the Exchange ``and adopt a 
possible range of alternative strategies, including placing their 
servers in a physically proximate location outside the exchange's 
[D]ata [C]enter (which could be a competing exchange), or pursuing 
strategies less dependent upon the lower exchange-to-participant 
latency associated with colocation.'' \56\
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    \52\ See id.
    \53\ See id.
    \54\ See id.
    \55\ See id.
    \56\ See id.
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III. Summary of Comments Received and Exchange Responses

    The Commission received eight comment letters from six commenters 
on the proposed rule change, as modified by Amendment Nos. 1 through 
4.\57\ The Exchange submitted three letters in response to the 
comments.\58\
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    \57\ See supra notes 6 and 12. In addition, one commenter noted 
that it filed a denial of access petition on the proposal. See SIFMA 
I Letter at 1 and SIFMA II Letter at 3.
    \58\ See Response Letters I, II, and III, supra notes 6 and 13.
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A. Comment Submitted Prior to the OIP

    The Commission received one comment letter prior to publication of 
the OIP.\59\ The initial commenter requested that the Exchange provide 
additional information on the history of all of the proposed fees 
(which the commenter believed were already in effect), and the 
relationship between the fees and the Exchange's costs to maintain the 
Data Center and provide co-location services.\60\ The commenter urged 
``additive transparency'' to enable members to evaluate the fixed costs 
of exchange membership and whether fees were applied equitably.\61\ 
This commenter also stated that broker-dealers ``may be practically 
required to buy and consume proprietary market data feeds directly from 
exchanges in order to provide competitive products for those clients, 
and that the trading environment ``imposes a form of trading tax on all 
members by offering different

[[Page 15745]]

methods of access to different members.'' \62\ The commenter questioned 
whether ``there are any true alternatives that are practically 
available to various types of participants who are seeking to compete 
with those who are paying exchanges for co-location and data 
services,'' and urged that the Exchange provide information and 
analysis on how its ability to set co-location fees is constrained by 
market forces for a ``comparable product.'' \63\
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    \59\ See IEX I Letter, supra note 6.
    \60\ See id. at 1-2.
    \61\ See id.
    \62\ See id. at 2.
    \63\ See id.
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    In response, the Exchange replied that historical information about 
the development of its product offerings is ``not required by the Act 
and is not relevant to [ ] the substance of the Proposal--which is, by 
definition, forward looking . . . .'' \64\ The Exchange added that 
costs are not its only consideration in setting prices, but rather that 
prices ``include the competitive landscape; whether Users would be 
required to utilize a given service; the alternatives available to 
Users; and, significantly, the benefits Users obtain from the 
services.'' \65\ In response to the commenter's argument regarding 
different methods of access to trading, the Exchange stated that ``it 
is a vendor of fair and non-discriminatory access, and like any vendor 
with multiple product offerings, different purchasers may make 
different choices regarding which products they wish to purchase.'' 
\66\ The Exchange further stated that co-location fees are not fixed 
costs to members, but costs to any User who voluntarily chooses to 
purchase such services based upon ``[t]he form and latency of access 
and connectivity that bests suits a User's needs.'' \67\ The Exchange 
added that Users do not require the Exchange's access or connectivity 
offerings in co-location to trade on the Exchange and can instead use 
alternative access and connectivity options for trading if they 
choose.\68\
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    \64\ See Response Letter I, supra note 6, at 3.
    \65\ See id.
    \66\ See id. at 5.
    \67\ See id. at 4.
    \68\ See id.
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B. Comments Following Publication of the OIP

(i) Comments on the Premium NYSE Product Connectivity Fee and 
Cumulative Fees Generally
    As noted above, the Commission specifically requested comment on 
the Premium NYSE Product Connectivity Fee in the OIP.\69\ In response, 
some commenters objected to the establishment of a separate 
connectivity fee for Premium NYSE Data Products as duplicative of fees 
already charged for bandwidth and access to the market data product 
itself, and therefore that this fee would result in an inequitable 
allocation of fees, inconsistent with Section 6(b)(4) of the Act.\70\ 
Another commenter similarly objected to an additional connectivity/
bandwidth charge for each Premium NYSE Data Product as an example of 
``double dipping,'' and a fee having ``no merit'' on its own.\71\ 
Additionally, some commenters objected to the reasonableness of the 
proposed Premium NYSE Product Connectivity Fee on the basis that there 
was no viable alternative to paying the fee to obtain connectivity to 
the Premium NYSE Data Products.\72\
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    \69\ See OIP, supra note 9 and Section II.A. supra.
    \70\ See Citadel Letter at 2; Clearpool Letter at 4.
    \71\ See Wolverine Letter at 3. See also Citadel Letter at 2; 
R2G Letter at 3 (each expressing concern about cumulative fees).
    \72\ See Citadel Letter at 3 (``there is no readily available 
substitute or equivalent means of access to the Premium NYSE Data 
Products''); Wolverine Letter at 3 (objecting to the statement ``the 
Exchange is not the exclusive method to connect to Premium NYSE Data 
Products'' noting that it is ``misleading at best.''). See also R2G 
Letter at 1-2 (stating, its view that the Prior Proposal ``raises 
serious concerns'' under the Exchange Act, but that ``Amendment No. 
3 adequately addresses the original concerns,'' and adding that it 
would, however, object if the Exchange similarly sought to apply the 
logic of Amendment No. 3 regarding Third Party Systems to any ``NYSE 
Proprietary Product'').
---------------------------------------------------------------------------

    In response to comments on the Premium NYSE Product Connectivity 
Fee, the Exchange noted that it was no longer proposing that fee and 
that the questions posed in the OIP about that fee were moot.\73\
---------------------------------------------------------------------------

    \73\ See Response Letter II at 4, 7-8. The Exchange also stated, 
as discussed further below, that it did not agree with commenters 
suggesting that a connectivity fee is indistinguishable from a 
market data fee.
---------------------------------------------------------------------------

    Some commenters opposed to the Premium NYSE Product Connectivity 
Fee also expressed broader concern about ``layered'' and cumulative 
fees charged by the Exchange to access market data.\74\ Some of these 
commenters believe that the rising costs related to the receipt of 
market data in co-location over time effectively impose a barrier to 
entry for smaller broker-dealers and new entrants, and are a burden on 
competition.\75\ For example, Wolverine stated that it has an aggregate 
cost of ``$123,750 per month of fixed costs in co-location, port, and 
access fees today, solely for access to NYSE controlled markets,'' 
which is ``an amount which presents a steep barrier to entry for new 
participants.'' \76\ Wolverine also estimated that its NYSE market data 
costs have increased ``over 700% over 8 years.'' \77\ Citadel similarly 
stated that ``additive and layered fees are a persistent problem with 
exchange fees more generally,'' and urged scrutiny of the aggregate 
impact of fees, ``in particular with respect to market data products 
where exchanges have a monopoly as the initial distributors.'' \78\
---------------------------------------------------------------------------

    \74\ See Wolverine Letter at 1-3; Clearpool Letter at 3; Citadel 
Letter at 3; R2G Letter 1, 3-6.
    \75\ See Wolverine Letter at 1-3; Clearpool Letter at 3; Citadel 
Letter at 3.
    \76\ See Wolverine Letter at 3.
    \77\ See id. at 1 (also objecting to port and other charges 
(outside the scope of the Current Proposal) as unreasonable); see 
also R2G Letter at 3 (expressing agreement with Wolverine).
    \78\ See Citadel Letter at 2.
---------------------------------------------------------------------------

    Clearpool stated, among other things, that market participants are 
beholden to the exchanges for market data; that it is not feasible for 
broker-dealers with best execution obligations to rely on SIP data as 
an alternative to exchange proprietary data feeds; and that the role 
and cost of using SIP and proprietary feeds should be considered in 
connection with Commission proposals to improve Regulation NMS Rules 
605 and 606 reporting.\79\ Clearpool advocated for the Commission to 
``thoroughly review the issues around market data'' and to ensure that 
it is priced more competitively and equitably for all market 
participants.\80\ Clearpool also stated that high costs prevent new 
innovative technology services, including order routing, risk 
management, and transaction cost analysis services, from entering the 
market, and further, that increasing fees significantly reduce the 
margin that smaller broker-dealers can earn on a transaction, putting 
them at a disadvantage to larger firms that can absorb these costs.\81\
---------------------------------------------------------------------------

    \79\ See Clearpool Letter at 2-4.
    \80\ See id. at 1, 4.
    \81\ See id. at 3.
---------------------------------------------------------------------------

    In response to these comments, the Exchange challenged Wolverine's 
assessment that Exchange fees have increased by 700% over the past 
eight years, explaining that it was a mischaracterization and did not 
represent a true comparison of the fees paid for particular data feeds 
in 2008 as compared to fees paid for those specific feeds today.\82\ 
The Exchange also rejected Wolverine's argument that all of its costs-
including the optional cage surrounding its cabinets, power, cross 
connects, network ports and connectivity--should be treated as costs 
related to market access.\83\ The Exchange stated, that ``however self-
servingly [Wolverine] tries to characterize them, these listed costs,

[[Page 15746]]

like rent and employee compensation and benefits, are simply costs 
associated with Wolverine's business activities. These business 
activities and Wolverine's business judgment--not the Exchange--
determine the most effective way for Wolverine to select the products 
and services it uses.'' \84\
---------------------------------------------------------------------------

    \82\ See Response Letter II at 10 and n. 27.
    \83\ See id. at 10.
    \84\ See id.
---------------------------------------------------------------------------

    Regarding comments about market data and co-location fees more 
generally, the Exchange responded that a User that chooses to receive 
market data within co-location will incur several costs in addition to 
the cost a market data provider will charge for its data, including the 
costs associated with the LCN or IP network port, power, cross 
connects, and connectivity, but the need for equipment and connections 
to enable receipt of a market data feed within co-location does not 
convert the costs of such equipment and connections into market data 
fees.\85\ The Exchange also stated that some commenters were using the 
Prior Proposal as a ``departure point to discuss broader issues related 
to market data.'' \86\ The Exchange catalogued comments about exchange 
fees for proprietary market data products, the effect of Commission 
proposals to improve disclosure of order execution and order routing 
information under Rules 605 and 606 of Regulation NMS, and the payment 
of rebates for posted liquidity as comments beyond the scope of the 
Current Proposal, as well as the fees any one exchange might 
propose.\87\
---------------------------------------------------------------------------

    \85\ See id. at 5.
    \86\ See id.
    \87\ See id. at 5-6. See also infra notes 117-127 discussing 
SIFMA's comments characterizing a variety of fees as market data 
fees and the Exchange's response.
---------------------------------------------------------------------------

    The Exchange also stated that market participants are not required 
to co-locate with or subscribe to proprietary market data products from 
an exchange, emphasizing that firms using exchange market data products 
in co-location ``have chosen to build business models based on speed.'' 
\88\
---------------------------------------------------------------------------

    \88\ See Response Letter II at 11-12.
---------------------------------------------------------------------------

(ii) Comments Regarding Competition and Alternatives to the Proposed 
Co-Location Services
    Some commenters addressing both the Prior Proposal and Amendment 
No. 3 suggested that co-location services in general are not 
optional.\89\ In the context of whether the Current Proposal's 
connectivity fees are reasonable, some of these commenters argued that 
there is a lack of competition for the Exchange's co-location and data 
services generally, and suggested a lack of viable alternatives to the 
Current Proposal's proposed connectivity services and fees in 
particular.\90\ For instance, SIFMA argued that the Exchange's ability 
to set co-location fees is not constrained by market forces because 
there is ``no comparable connectivity or product,'' and low-latency 
alternatives to these services do not exist.\91\ SIFMA stated that 
``[a]ny alternative with severely increased latencies would not be a 
viable alternative.'' \92\ Similarly, IEX argued that if co-location 
services are optional, and therefore need not be purchased if the fees 
are excessive, then the Exchange should demonstrate how firms are not 
placed at a competitive disadvantage if they elect to not receive such 
services from the Exchange.\93\ In particular, IEX suggested that the 
Exchange provide data on the expected latency (or range of latencies) 
in receiving data or transmitting orders directly from the Exchange, 
compared to the equivalent latency (or range) for firms that rely on a 
third party access center.\94\ IEX requested that the NYSE ``explain 
whether it believes that this difference would not affect the ability 
of electronic market makers and other trading firms and active agency 
brokers to compete with firms in the same businesses that have faster 
access, and if so how it reached this conclusion.'' \95\ IEX also 
disputed that competition for order flow constrains pricing of co-
location services, arguing that NYSE often displays protected quotes 
for certain stocks, a status it achieves by paying a high number of 
rebates for liquidity, and firms are forced to interact with it to 
avoid trade-throughs.\96\ Both IEX and SIFMA argued that in the absence 
of competition for the proposed services and fees (which, in SIFMA's 
view are indistinguishable from market data fees), the Exchange should 
be required to discuss the relationship between the proposed fees and 
increasing Data Center costs, or detail how the fee increases relate to 
the costs of providing the service, in order to justify the proposed 
fees as reasonable.\97\
---------------------------------------------------------------------------

    \89\ See IEX I Letter at 2 (best execution requires broker-
dealer to have ``effective access'' to exchanges); SIFMA II Letter 
at 4 (``brokers are legally obligated to seek best execution for 
their customers. They are required to consider the likelihood that a 
trade will be executed and whether there is an opportunity to obtain 
a price better than what is currently quoted.'') See also Citadel 
Letter at 3 (stating that ``competitive pressures oblige broker-
dealers to seek the most efficient access to markets and market data 
to execute orders . . .,'' creating a risk for those firms that 
elect to trade with ``slower and less efficient access.''); R2G 
Letter at 3 (referring to an ``ever increasing need for speed''); 
Wolverine Letter at 1 (stating that it is ``required to subscribe to 
the lowest latency NYSE market data products and services'').
    \90\ See IEX I Letter at 2, IEX II Letter at 1-3, SIFMA I Letter 
at 2 and SIFMA II Letter at 2. Compare with comments alleging a lack 
of viable alternatives to connectivity to Premium NYSE Data 
Products, supra note 73.
    \91\ See SIFMA I Letter at 2. According to SIFMA, ``the mere 
presence of the IEX Letter in the comment file'' evidences of a lack 
of competitive market forces to constrain pricing, because IEX is a 
competitor to the Exchange. See id. at 3.
    \92\ See SIFMA I Letter at 3 (also stating ``different fees are 
charged for the different types of connectivity, with no rational 
basis, [is] unfairly discriminatory between customers.'')
    \93\ See IEX II Letter at 2.
    \94\ See id.
    \95\ See id.
    \96\ See id. at 3. See also SIFMA II Letter at 2 (expressing 
general agreement); see also SIFMA I Letter at 3 (stating that the 
presence of a comment letter from IEX cuts against the argument that 
competition for order flow constrains fees). See also Citadel Letter 
at 2 (urging greater transparency regarding the Exchange's Data 
Center costs).
    \97\ See IEX II Letter at 3; SIFMA II Letter at 2.
---------------------------------------------------------------------------

    In contrast, two commenters acknowledged the existence of 
alternatives to some Exchange co-location services.\98\ One of these 
commenters noted that alternatives are present for Third Party System 
connectivity as evidenced by the fact that it ``finds NYSE's third 
part[y] system costs out of line and does not subscribe to this NYSE 
offering, instead implementing this connectivity internally using a 
proprietary network.'' \99\ Another commenter stated that it ``directly 
competes with NYSE for these [Third Party Systems] services and does so 
at prices significantly lower than the fees NYSE has proposed.'' \100\
---------------------------------------------------------------------------

    \98\ See Wolverine Letter at 3; R2G Letter at 1-2.
    \99\ See Wolverine Letter at 3.
    \100\ See R2G Letter at 1-2.
---------------------------------------------------------------------------

    In response to comments that competitive forces do not constrain 
co-location fees and that alternatives to co-location services are 
lacking, the Exchange defended its representations that the proposed 
services are offered as a convenience to Users, are voluntary, and that 
Users have viable alternatives to the proposed services.\101\ The 
Exchange stated that additional latency in an alternative means of 
connectivity does not negate the viability of that alternative,\102\ 
and that commenters arguing that only an ``equivalent'' latency 
alternative is a viable alternative are misguided.\103\ The Exchange 
stated that, ``the Act does not require that there be at least one 
third party option available that has exactly the same characteristics 
as a proposed service before a national securities exchange can impose 
or change a fee for a service,'' adding that such a requirement would 
be ``untenable, as every exchange

[[Page 15747]]

would have to have an exact duplicate before it could charge a fee.'' 
\104\ Rather, the relevant question is whether a proposed fee would be 
``an equitable allocation of reasonable dues, fees, and other charges 
among Users in the data center; does not unfairly discriminate between 
customers, issuers, brokers, or dealers; and does not impose a burden 
on competition which is not necessary or appropriate in furtherance of 
the purposes of the Act.'' \105\ The Exchange noted that it did not 
represent that the connectivity alternatives available to co-located 
Users (including alternatives for connectivity to Premium NYSE Data 
Products) are exactly the same as those proposed, but rather that the 
cited alternatives show that Users have the option ``to receive the 
same market data, or make the same trades, in other manners.'' \106\ 
The Exchange added that its cited alternatives ``offer distinct 
services and pricing structures that some Users may find more 
attractive than those proposed by the Exchange,'' and that these 
alternatives are ``real,'' even if not all Users will find them equally 
attractive for their individual business model.\107\ The Exchange 
stated that the viability of alternatives is ``underscored by the 
Wolverine Letter, which explicitly states that it does not object to 
the proposed fees for access to Third Party Systems in the Current 
Proposal on the basis that firms may contract with other parties or 
contract directly with network providers.'' \108\ The Exchange added 
that, ``[I]t is the Exchange's understanding that a User could access 
Third Party Systems and connect to Third Party Data Feeds, third party 
testing and certification feeds, and DTCC using one or more of the 
listed alternatives without increasing its latency levels--and, in many 
cases, the alternatives would offer lower latency.'' \109\
---------------------------------------------------------------------------

    \101\ See Response Letter II at 6.
    \102\ See id. at 7-8.
    \103\ See id. at 7.
    \104\ See id. at 8.
    \105\ See id.
    \106\ See id. The Exchange also noted that Clearpool is not a 
co-location customer of the Exchange, which the Exchange believes 
illustrates that market participants can and do avail themselves of 
alternatives for connecting to NYSE market data products. See id.
    \107\ See id. In addition, in response to IEX's suggestion that 
the Exchange provide data on the expected latency (or range of 
latencies) in receiving data or transmitting orders directly from 
the Data Center, compared to the expected latency (or range) for 
firms that rely on a third party access center, the Exchange stated 
it could not do so without having access to the latency data of 
third parties, or each User's specific system configuration and 
latency needs and therefore could not satisfy IEX's ``deliberately 
impossible requirement.'' See id. at 7.
    \108\ See id. at 9. The Exchange did not similarly address the 
R2G Letter.
    \109\ See id. at 9-10.
---------------------------------------------------------------------------

    Further, the Exchange emphasized that while some commenters focus 
exclusively on latency as the only relevant consideration, ``Users with 
different investment strategies or business models may focus on other 
characteristics, including redundancy, resiliency, cost, and the 
services that third parties offer but the Exchange does not, such as 
managed services.'' \110\ The Exchange stated that alternatives exist 
as evidenced by the fact that ``there are at least six Users within the 
co-location hall that offer other Users or hosted customers access to 
trading or connectivity to market data, including the two other 
exchanges that are co-located with the Exchange, as well as the fact 
that Users may contract with any of the 15 telecommunication 
providers--including five third party wireless networks--available to 
Users to connect to third party vendors.'' \111\ The Exchange also 
noted that the alternatives are possible in part because the Exchange 
voluntarily allows Users to provide services to other Users and third 
parties out of the Exchange's co-location facility--that is, to compete 
with the Exchange using the Exchange's own facilities.\112\ For 
example, according to the Exchange, ``a User that wished to receive 
Nasdaq market data could connect directly to the Nasdaq server within 
co-location.'' \113\ Therefore, the Exchange believes that contrary to 
commenters' beliefs, the Exchange's cited alternatives offer comparable 
services that can be used in lieu of receiving Exchange offered 
services, and that there are competitive forces constraining 
pricing.\114\
---------------------------------------------------------------------------

    \110\ See id. at 8 n.16.
    \111\ See id. at 9.
    \112\ See id.
    \113\ See id. at 10 n.24.
    \114\ See id. at 9.
---------------------------------------------------------------------------

    SIFMA raised additional arguments. SIFMA urged that ``[t]he 
proposed connectivity fees should be reviewed in a manner consistent 
with the decisions of the United States Court of Appeals for the 
District of Columbia Circuit'' in NetCoalition v. SEC, because says 
SIFMA, they are market data fees.\115\ SIFMA took the position that 
under NetCoalition I (615 F.3d 525 (D.C. Cir. 2010)) an exchange's 
assertion that order flow competition constrains pricing of data is 
insufficient.\116\ More specifically, in SIFMA's view ``port, power, 
cross connect, connectivity and cage fees, which are necessary in order 
to obtain the market data from NYSE,'' ``however labeled, are market 
data fees.'' \117\ SIFMA also noted that it had submitted a ``properly 
filed 19(d) denial of access petition on the proposal,'' but had 
requested that it be ``held in abeyance pending the decision in the 
NetCoalition follow-on proceedings . . . .'' \118\ SIFMA urged however, 
that such petition, despite its abeyance, not be ignored.\119\
---------------------------------------------------------------------------

    \115\ See SIFMA II Letter at 2-3 (citing NetCoalition I, 615 
F.3d 525 (D.C. Cir. 2010); NetCoalition II, 715 F.3d 342 (D.C. Cir. 
2013)).
    \116\ SIFMA I Letter at 3 (noting that ``[t]he Court's 
NetCoalition decisions, the controlling law on this subject, 
rejected this order flow argument because, like here, there was no 
support for the assertion that order flow competition constrained 
the ability of the exchange to charge supracompetitive prices for 
data.'').
    \117\ See SIFMA II Letter at 3. See also SIFMA I Letter at 4 
(stating that market data fees, port fees, hardware fees and 
connectivity fees are all ``within the ambit of the NetCoalition 
decisions.'')
    \118\ See SIFMA I Letter at 1; SIFMA II Letter at 3.
    \119\ See SIFMA II Letter at 3.
---------------------------------------------------------------------------

    In response to SIFMA on these points, the Exchange stated that, 
``NetCoalition addressed the standards governing proprietary market 
data fees,'' and that it is ``incorrect'' to characterize the Current 
Proposal as establishing market data fees.\120\ The Exchange stated:
---------------------------------------------------------------------------

    \120\ See Response Letter III at 3-4.

the fact that a User needs to have a port, power, and connectivity 
in place in order to be able to receive a market data feed within 
co-location does not convert the costs of such equipment and 
connections into market data fees. Rather, they are costs associated 
with the User's business activities. If a User opts to put a cage 
around its servers in the colocation hall, the cage fee it pays is a 
cost it chooses to incur in connection with the way it has chosen to 
do business, not a market data fee.\121\
---------------------------------------------------------------------------

    \121\ See id. at 4 (emphasis in original).

    The Exchange distinguished the services and fees proposed in the 
Current Proposal from market data fees, emphasizing that they are 
connectivity fees or access fees applicable when a User chooses to 
utilize connectivity or access services within co-location.\122\ The 
Exchange noted that two of the proposed fees are for services that 
facilitate Users' trading activities, and have nothing to do with 
market data: a proposed fee for access within co-location to the 
execution systems of third party markets and other content service 
providers, and a proposed fee for connectivity within co-location to 
DTCC services, such as clearing, fund transfer, insurance, and 
settlement services.\123\ The Exchange similarly distinguished the 
proposed connectivity fee for third party testing and certification 
feeds as not equivalent to providing a customer

[[Page 15748]]

with market data.\124\ Addressing the proposed connectivity fee for 
Third Party Data Feeds within co-location, the Exchange noted that this 
proposed fee ``has more often been mistaken for a market data fee,'' 
but distinguished the service of providing a User with connectivity to 
Third Party Data Feeds from the service that the third party providing 
the market data provides by sending the data over the connection, 
noting that the third party content service provider charges the User 
the market data fee.\125\
---------------------------------------------------------------------------

    \122\ See id. at 5-6. The Exchange noted that SIFMA did not 
address VCC fees. See id. at 5, n. 17.
    \123\ See id. at 5-6 (also noting that fees for Third Party 
System and DTCC connectivity vary by bandwidth and are generally 
proportional to the bandwidth required).
    \124\ See id. at 5 (also noting that fees for connectivity to 
third party testing and certification feeds reflect that bandwidth 
requirements are generally not large, and the relatively low fee may 
encourage Users to conduct tests and certify conformance, which the 
Exchange believes generally benefits the markets).
    \125\ See id. at 5-6 (also noting that the fees for Third Party 
Data Feeds vary because Third Party Data Feeds vary in bandwidth; 
proximity to the Exchange, requiring different circuit lengths; fees 
charged by the third party provider, such as port feeds; and levels 
of User demand).
---------------------------------------------------------------------------

    The Exchange did not agree with SIFMA's contention that the Current 
Proposal would establish market data fees, nor agree that NetCoalition 
standard was applicable to the Current Proposal,\126\ but instead 
stated, ``[t]here is significant competition for the connectivity 
relevant to the Current Proposal;'' and ``even if the NetCoalition 
standard did apply, the Current Proposal satisfies it.'' \127\
---------------------------------------------------------------------------

    \126\ See id. at 3. See also Response Letter II at 13.
    \127\ See Response Letter III at 3. See also Response Letter II 
at 13.
---------------------------------------------------------------------------

    Regarding SIFMA's denial of access petition, the Exchange responded 
that a denial of access petition is not a comment letter, and should 
not be treated as such given that SIFMA itself has requested that its 
denial of access petition on fee filings be held in abeyance pending a 
decision in the NetCoalition follow-on proceedings.\128\
---------------------------------------------------------------------------

    \128\ See Response Letter III at 3. See also Response Letter II 
at 13; SIFMA Letter II at 3 (noting that ``SIFMA's 19(d)s will be 
held in abeyance pending the decision in the NetCoalition follow-on 
proceedings . . .'').
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After careful consideration of the proposed rule change, as 
modified by Amendment Nos. 1 through 4, the comments received, and the 
Exchange's responses to the comments, the Commission finds that the 
proposed rule change, as modified by Amendment Nos. 1 through 4, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange. In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\129\ which requires that an 
exchange have rules that provide for the equitable allocation of 
reasonable dues, fees and other charges among its members, issuers and 
other persons using its facilities; Section 6(b)(5) of the Act,\130\ 
which requires that the rules of an exchange be designed, among other 
things, to prevent fraudulent and manipulative acts and practices, 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, and not be designed to permit unfair discrimination between 
customers, issuers, brokers or dealers; and Section 6(b)(8) of the 
Act,\131\ which prohibits any exchange rule from imposing any burden on 
competition that is not necessary or appropriate in furtherance of the 
Act.\132\
---------------------------------------------------------------------------

    \129\ 15 U.S.C. 78f(b)(4).
    \130\ 15 U.S.C. 78f(b)(5).
    \131\ 15 U.S.C. 78f(b)(8).
    \132\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    As discussed more fully above, some commenters oppose the proposed 
co-location fees on the basis that viable alternatives to the 
Exchange's co-location services are lacking, and particularly that 
similar low-latency alternatives to the Exchange's co-location services 
do not exist.\133\ According to these commenters, the lack of viable 
alternatives means that competitive forces do not constrain Exchange 
pricing of co-location services, and the Exchange's proposed fees 
should be subject to a cost-based assessment.\134\
---------------------------------------------------------------------------

    \133\ See supra notes 63, 89-95, and accompanying text.
    \134\ See supra notes 60, 97, 115-117 and accompanying text.
---------------------------------------------------------------------------

    In response to these comments, the Exchange counters that co-
location Users have several alternatives to the Exchange's proposed 
services, both inside and outside the Data Center. The Exchange 
explains that as alternatives to using the access to Third Party 
Systems, and connectivity to Third Party Data Feeds, third party 
testing and certification feeds, and DTCC, provided by the Exchange, a 
User may access or connect to such services and products through an 
Exchange access center, third party access center, or a third party 
vendor outside the Data Center, and may do so using a third party 
telecommunication provider, a third party wireless network, the Secure 
Financial Transaction Infrastructure (SFTI) network, or a combination 
thereof.\135\ Furthermore, the Exchange points out that alternatives to 
the Exchange's access and connectivity services also exist inside the 
Data Center, as evidenced by the fact that ``there are at least six 
Users within the co-location hall that offer other Users or hosted 
customers access to trading or connectivity to market data, including 
the two other exchanges that are co-located with the Exchange, as well 
as the fact that Users may contract with any of the 15 
telecommunication providers--including five third party wireless 
networks--available to Users to connect to third party vendors.'' \136\ 
The Exchange notes that these alternatives are possible because the 
Exchange allows Users to provide services to other Users and third 
parties out of the Exchange's co-location facility--that is, to compete 
with the Exchange using the Exchange's own facilities.\137\
---------------------------------------------------------------------------

    \135\ See Response Letter II at 6.
    \136\ See id. at 9.
    \137\ See id.
---------------------------------------------------------------------------

    The Commission has carefully considered the comments and the 
Exchange's response concerning the availability of alternatives to the 
Exchange's proposed access and connectivity services. In addition, the 
Commission notes that two commenters expressed the view that viable 
alternative means of accessing Third Party Systems are available.\138\ 
The Commission believes that viable alternatives to the Exchange's 
proposed co-location services are available which bring competitive 
forces to bear on the fees set forth in the Current Proposal.\139\
---------------------------------------------------------------------------

    \138\ See supra notes 98-100. One of these commenters also 
stated its view that Amendment No. 3 addressed the concerns raised 
in the OIP. See supra note 72. Furthermore, the Exchange's proposal 
with respect to connectivity to Third Party Data Feeds is not novel, 
given that Nasdaq similarly charges connectivity fees for third 
party data feeds, as reflected on its co-location fee schedule. See 
Nasdaq Rule 7034.
    \139\ See also Securities Exchange Act Release No. 34-62397 
(June 28, 2010); Securities Exchange Act Release No. 34-66013 
(December 20, 2011), 76 FR 80992 (December 27, 2011) (noting ``that 
members may choose not to obtain low latency network connectivity 
through the Exchange and instead negotiate connectivity options 
separately through other vendors on site''); Securities Exchange Act 
Release No. 34-76748 (finding the establishment of an exclusive 
wireless connection consistent with the Act because, among other 
reasons, the alternatives suggested provided the same or similar 
speeds as compared to the NYSE's wireless connectivity); Securities 
Exchange Act Release No. 34-68735 (finding the establishment of an 
exclusive wireless connection consistent with the Act because, among 
other reasons, the alternatives suggested provided the same or 
similar speeds as compared to Nasdaq's wireless connectivity).
---------------------------------------------------------------------------

    Also, as discussed above, some commenters expressed concern that 
the proposed fees would impose a barrier to

[[Page 15749]]

entry on smaller broker-dealers and new entrants, and a burden on 
competition.\140\ The Commission does not believe that the Current 
Proposal would impose a burden on competition inconsistent with the Act 
because, as discussed above, viable alternatives to the Exchange's 
proposed services exist, both inside and outside the Data Center.
---------------------------------------------------------------------------

    \140\ See supra notes 75-81 and accompanying text.
---------------------------------------------------------------------------

    Finally, the Commission notes that several commenters believed the 
originally proposed NYSE Premium Connectivity Fee to be duplicative and 
an inequitable allocation of fees.\141\ Because the Exchange eliminated 
that fee in Amendment No. 3, the Commission believes that these 
concerns have been addressed.\142\
---------------------------------------------------------------------------

    \141\ See supra notes 70-72 and accompanying text.
    \142\ The Commission believes that comments expressing concerns 
about proprietary market data fees more generally are outside the 
scope of the Current Proposal.
---------------------------------------------------------------------------

    Accordingly, the Commission finds that the Current Proposal is 
consistent with the Act.

V. Solicitation of Comments on Partial Amendment No. 4

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether partial Amendment 
No. 4 is consistent with the Exchange 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-NYSE-2016-45 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-NYSE-2016-45. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549-1090, on official business days between the hours 
of 10:00 a.m. and 3:00 p.m. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NYSE-2016-45 and should be submitted on or before April 20, 2017.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment Nos. 1-4

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment Nos. 1-4, prior to the thirtieth day 
after the date of publication of notice of the amended proposal in the 
Federal Register. The revisions made to the proposal in partial 
Amendment No. 4 \143\ (1) removed reference to the National Stock 
Exchange (NSX) from its list of Third Party Systems, (2) added three 
additional Third Party Data Feeds--ICE Data Services Consolidated Feed, 
ICE Data Services PRD, and ICE Data Services PRD CEP, (3) added 
connectivity fees for each of the newly added Third Party Data feeds. 
With respect to NSX, the Exchange represents that NSX was acquired by 
the NYSE Group on January 31, 2017, making it no longer a Third Party 
System. The Commission believes this characterization is consistent 
with the NYSE Group's similarly situated affiliated exchanges, NYSEArca 
and NYSEMKT, which, like NSX are solely within the NYSE Group's 
control. Regarding the ICE Data Services feeds, the Exchange notes that 
it has an indirect interest in these feeds because ICE Data Services is 
owned by the Exchange's ultimate parent, Intercontinental Exchange, 
Inc. As represented in partial Amendment No. 4, the Exchange considers 
the ICE Data Services Consolidated Feed (like the NYSE Global Index 
feed), a Third Party Data Feed because it includes third party market 
data rather than exclusively the proprietary market data of the 
Exchange and its affiliated SROs, NYSE MKT and NYSE Arca.\144\ The 
Commission believes that partial Amendment No. 4 does not raise issues 
not previously raised in the proposed rule change, as modified 
Amendment Nos. 1-3, and addressed in Exchange Response Letters I, II, 
and III. Accordingly, the Commission finds good cause, pursuant to 
Section 19(b)(2) of the Act,\145\ to approve the proposed rule change, 
as modified by Amendment Nos. 1-4, on an accelerated basis.
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    \143\ See partial Amendment No. 4, supra note 14.
    \144\ See id.
    \145\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\146\ that the proposed rule change (SR-NYSE-2016-45) be, and 
hereby is, approved on an accelerated basis.
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    \146\ See id.
    \147\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\147\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-06258 Filed 3-29-17; 8:45 am]
 BILLING CODE 8011-01-P