Document ID: SEC-2013-1995-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2013-11-21T05:00Z

[Federal Register Volume 78, Number 225 (Thursday, November 21, 2013)]
[Notices]
[Pages 69904-69907]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27901]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70886; File No. SR-NYSEMKT-2013-92]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Expanding Co-location 
Services to Provide for a Lower-Latency 10 Gigabit Liquidity Center 
Network Connection in the Exchange's Data Center

November 15, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on November 7, 2013, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to expand its co-location services to provide 
for a lower-latency 10 gigabit (``Gb'') Liquidity Center Network 
(``LCN'') connection in the Exchange's data center. The text of the 
proposed rule change is available on the Exchange's Web site at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to expand its co-location services to provide 
for a new lower-latency 10 Gb LCN connection, referred to as the ``LCN 
10 Gb LX,'' in the Exchange's data center.\4\ The Exchange will propose 
applicable fees for the proposed LCN 10 Gb LX connection via a separate 
proposed rule change.
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    \4\ The Securities and Exchange Commission (``Commission'') 
initially approved the Exchange's co-location services in Securities 
Exchange Act Release No. 62961 (September 21, 2010), 75 FR 59299 
(September 27, 2010) (SR-NYSEAmex-2010-80) (the ``Original Co-
location Approval''). The Exchange operates a data center in Mahwah, 
New Jersey (the ``data center'') from which it provides co-location 
services to Users. The Exchange's co-location services allow Users 
to rent space in the data center so they may locate their electronic 
servers in close physical proximity to the Exchange's trading and 
execution system. See id. at 59299.
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    The LCN is a local area network that is available in the data 
center and that provides Users with access to the Exchange's trading 
and execution systems and to the Exchange's proprietary market data 
products.\5\ LCN

[[Page 69905]]

access is currently available in one, 10 and 40 Gb bandwidth 
capacities.\6\ The Exchange proposes to make a second 10 Gb LCN 
connection available in the Exchange's data center, the LCN 10 Gb LX, 
which would have a lower latency than the existing 10 Gb LCN 
connection. The LCN 10 Gb LX is expected to have latency levels similar 
to those of the existing 40 Gb LCN connection.
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    \5\ For purposes of the Exchange's co-location services, the 
term ``User'' includes (i) member organizations, as that term is 
defined in the definitions section of the General and Floor Rules of 
the NYSE MKT Equities Rules, and ATP Holders, as that term is 
defined in NYSE Amex Options Rule 900.2NY(5); (ii) Sponsored 
Participants, as that term is defined in Rule 123B.30(a)(ii)(B)--
Equities and NYSE Amex Options Rule 900.2NY(77); and (iii) non-
member organization and non-ATP Holder broker-dealers and vendors 
that request to receive co-location services directly from the 
Exchange. See, e.g., Securities Exchange Act Release Nos. 65974 
(December 15, 2011), 76 FR 79249 (December 21, 2011) (SR-NYSEAmex-
2011-81) and 65975 (December 15, 2011), 76 FR 79233 (December 21, 
2011) (SR-NYSEAmex-2011-82). As specified in the NYSE MKT Equities 
Price List and the NYSE Amex Options Fee Schedule, a User that 
incurs co-location fees for a particular co-location service 
pursuant thereto would not be subject to co-location fees for the 
same co-location service charged by the Exchange's affiliates New 
York Stock Exchange LLC and NYSE Arca, Inc. See Securities Exchange 
Act Release No. 70176 (August 13, 2013), 78 FR 50471 (August 19, 
2013) (SR-NYSEMKT-2013-67).
    \6\ See id.
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    The Exchange is proposing this change in order to make an 
additional service available to its co-location Users and thereby 
satisfy demand for more efficient, lower latency connections. By 
utilizing ultra low-latency switches, the LCN 10 Gb LX connection would 
provide faster processing of messages sent to it in comparison to the 
existing, standard 10 Gb LCN connection. A switch is a type of network 
hardware that acts as the ``gatekeeper'' for a User's messaging (e.g., 
orders and quotes) sent to the Exchange's trading and execution system 
from the data center. As a consequence, Users needing only 10 Gb of 
bandwidth, but seeking faster processing of those messages, would have 
the option of utilizing the faster and more efficient LCN 10 Gb LX 
connection.\7\ Both the proposed LCN 10 Gb LX connection and the 40 Gb 
LCN connection would represent the lowest latency currently available 
to Users.
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    \7\ The existing one Gb and 10 Gb LCN connections use the same 
type of switch and the existing 40 Gb LCN connection uses a second 
type of switch, but the switches are of uniform type within each 
offering. The proposed new LCN 10 Gb LX would use the same type of 
switch as the existing 40 Gb LCN. As a consequence, all co-located 
Users of a particular connectivity option receive the same latency 
in terms of the capabilities of their switches. At this time, the 
Exchange is not proposing to make low-latency switches available for 
10 Gb CSP connections because, at least initially, User demand is 
not anticipated to exist. For a 10 Gb LX ``Bundle,'' SFTI and optic 
connections would be at standard 10 Gb latencies and only the LCN 
connections would be lower latency. The Exchange will include 
language in the NYSE MKT Equities Price List and the NYSE Amex 
Options Fee Schedule in the related fee change to reflect this fact.
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    As is the case with all Exchange co-location arrangements, (i) 
neither a User nor any of the User's customers would be permitted to 
submit orders directly to the Exchange unless such User or customer is 
a member organization, an ATP Holder, a Sponsored Participant or an 
agent thereof (e.g., a service bureau providing order entry services); 
(ii) use of the co-location services proposed herein would be 
completely voluntary and available to all Users on a non-discriminatory 
basis; \8\ and (iii) a User would only incur one charge for the 
particular co-location service described herein, regardless of whether 
the User connects only to the Exchange or to the Exchange and one or 
both of its affiliates.\9\
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    \8\ As is currently the case, Users that receive co-location 
services from the Exchange will not receive any means of access to 
the Exchange's trading and execution systems that is separate from, 
or superior to, that of other Users. In this regard, all orders sent 
to the Exchange enter the Exchange's trading and execution systems 
through the same order gateway, regardless of whether the sender is 
co-located in the data center or not. In addition, co-located Users 
do not receive any market data or data service product that is not 
available to all Users, although Users that receive co-location 
services normally would expect reduced latencies in sending orders 
to, and receiving market data from, the Exchange.
    \9\ See SR-NYSEMKT-2013-67, supra note 5 at 50471. The 
Exchange's affiliates have also submitted the same proposed rule 
change to provide for LCN 10 Gb LX connections. See SR-NYSE-2013-73 
and SR-NYSEArca-2013-123.
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    The proposed change is not otherwise intended to address any other 
issues relating to co-location services and/or related fees, and the 
Exchange is not aware of any problems that Users would have in 
complying with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Sections 6(b)(5) of the Act,\11\ in particular, because 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system and, in general, to protect investors and the public interest 
and because it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The proposed LCN 10 Gb LX connection would assist Users in making 
their network connectivity more efficient by reducing the time that 
messaging (e.g., orders and quotes) takes to reach the Exchange's 
trading and execution system once sent from their co-located servers 
and also the time that market data takes to reach their co-located 
servers. Speed and efficiency are important drivers of the U.S. 
securities markets. The Exchange is proposing to offer a co-location 
connectivity solution that would promote these drivers by providing 
state of the art technology that would be available to all Users. The 
Exchange believes that the LCN 10 Gb LX connection would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system by providing for improved speed and efficiency 
of message processing (e.g., orders and quotes) from Users' co-located 
servers.
    The Exchange also believes that the reduction in latencies 
attributed to the LCN 10 Gb LX connection would serve to protect 
investors and the public interest by providing Users with the most 
efficient means of processing their messages sent to the Exchange's 
trading and execution system from the data center.
    The Exchange also believes that the proposed LCN 10 Gb LX 
connection is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers because it would make a service 
available to Users that require the low-latency connection, but Users 
that do not require the lower latency could continue to request an 
existing 10 Gb LCN connection. The Exchange anticipates that the 
latency for the proposed LCN 10 Gb LX connection would be comparable to 
that of the existing 40 Gb LCN connection. Both the proposed LCN 10 Gb 
LX connection and the 40 Gb LCN connection would represent the lowest 
latency currently available to Users. The 40 Gb LCN provides the 
greatest bandwidth available on the Exchange, which is important for 
Users that have high order flow and ingest large amounts of market data 
and demand the greatest bandwidth possible to handle such message flow. 
Some Users, however, have systems that are not compatible with a 40 Gb 
LCN connection, or do not have bandwidth demands that would require a 
40 Gb LCN connection, but still put a premium on reducing latency. The 
LCN 10 Gb LX is designed to meet this demand. Ultimately, a User will 
be able to choose between the proposed

[[Page 69906]]

new LCN 10 Gb LX connection or the existing one, 10 and 40 Gb LCN 
connections to suit its needs. The Exchange believes that this would 
remove impediments to, and perfect the mechanisms of, a free and open 
market and a national market system and, in general, protect investors 
and the public interest because it would provide Users with additional 
choices with respect to the optimal bandwidth and latency for their 
connections.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\12\ the Exchange 
believes that the proposed rule change will not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because any market participants that are otherwise 
capable of satisfying any applicable co-location fees, requirements, 
terms and conditions established from time to time by the Exchange 
could have access to the co-location services provided in the data 
center. This is also true because, in addition to the services being 
completely voluntary, they are available to all Users on an equal basis 
(i.e., the same range of products and services are available to all 
Users).
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    \12\ 15 U.S.C. 78f(b)(8).
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    The Exchange also believes that the proposed LCN 10 Gb LX 
connection will not impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because it will satisfy User demand for more efficient, lower-latency 
connections, but Users that do not require the lower latency could 
continue to request an existing LCN connection. Similarly, it will 
provide an option for a User whose system is not compatible with a 40 
Gb LCN connection, or does not have bandwidth demands that would 
require a 40 Gb LCN connection, but that puts a premium on reducing 
latency. Additionally, the Exchange believes that the proposed change 
will enhance competition between competing marketplaces by enabling the 
Exchange to provide a low-latency connectivity option to Users that is 
similar to a service available on other markets. For example, The 
NASDAQ Stock Market LLC (``NASDAQ'') also makes a low-latency 10 Gb 
fiber connection option available to users of its co-location 
facilities.\13\
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    \13\ See NASDAQ Rule 7034. NASDAQ refers to this connectivity 
option as the ``10 Gb Ultra'' connection. See also Securities 
Exchange Act Release No. 70129 (August 7, 2013), 78 FR 49308 (August 
13, 2013) (SR-NASDAQ-2013-099).
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    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if, for example, they deem fee levels at a particular 
venue to be excessive or if they determine that another venue's 
products and services are more competitive than on the Exchange. In 
such an environment, the Exchange must continually review, and consider 
adjusting, the services it offers as well as any corresponding fees and 
credits to remain competitive with other exchanges. For the reasons 
described above, the Exchange believes that the proposed rule change 
reflects this competitive environment.

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

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

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\ 
Because the foregoing proposed rule change does not: (1) Significantly 
affect the protection of investors or the public interest; (2) impose 
any significant burden on competition; and (3) by its terms does not 
become operative for 30 days after the date of this filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\16\ and Rule 19b-4(f)(6) thereunder.\17\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has met this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\19\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange requested 
waiver of the 30-day operative delay in order to immediately implement 
the proposed rule change so that Users may experience the benefits of 
such proposed change as soon as possible. The Exchange represented that 
a waiver of the operative delay would be in the public interest and 
would contribute to the protection of investors because it would permit 
additional Users to have access to lower-latency LCN connections, 
including those Users whose systems are not compatible with the 
existing 40 Gb LCN connection or who do not have bandwidth demands that 
would require a 40 Gb LCN connection. The Exchange further stated that 
the benefit of such lower latency would indirectly benefit customers of 
such Users and would serve to protect investors and the public 
interest, in that the LCN 10 Gb LX connection would provide Users with 
the most efficient means of processing customer orders that are sent to 
the Exchange's trading and execution system from the data center. The 
Exchange stated its belief that the proposed LCN 10 Gb LX connection 
does not raise any novel or unique issues or concerns. The Exchange 
further stated that it does not anticipate any negative consequence, 
whether for Users, the investing public or otherwise, as a result of 
granting a waiver of the operative delay. For the above reasons, the 
Commission believes waiver of the operative delay is appropriate and 
hereby grants the Exchange's request and designates the proposal 
operative upon filing.\20\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \21\ of the Act to

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determine whether the proposed rule change should be approved or 
disapproved.
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    \21\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2013-92 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEMKT-2013-92. 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, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; 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-NYSEMKT-2013-92 and should 
be submitted on or before December 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27901 Filed 11-20-13; 8:45 am]
BILLING CODE 8011-01-P