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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
establishing a connection to a gateway that uses communication protocols that map to the order types and modifiers described in Exchange rules. These gateway connections, also known as logical port connections, are referred to as ports on the Exchanges Price List.
Legacy ports connect with the Exchange via a Common Customer Gateway known as CCG that accesses its equity trading systems Phase I ports.
Beginning July 1, 2019, the Exchange began making available ports using Pillar gateways to its member organizations Phase II ports.
Currently, member organizations that have not transitioned to Phase II ports and are still utilizing Phase I ports during the billing months of March 2021
through June 2021 i.e., the Decommission Period, would, in addition to the current port fees, be charged a Decommission Extension Fee of $1,000 per port per month, increasing by $1,000 per port for each month for any ports that communicate using Pillar phase I protocols. As per the Price List, ports using Pillar phase I protocols would no longer be available beginning July 1, 2021.
The Exchange proposes that the Decommission Period would end two months later, in August 2021. As proposed, the Price List would also be amended to provide that ports using Pillar phase I protocols would no longer be available beginning September 1, 2021.
As noted above, the Exchange believes that, to the extent that member organizations do not complete the transition during the Transition Period, the proposed rule change will offer member organizations the ability to choose to continue using Phase I ports until August 2021.
The proposed changes are not otherwise intended to address any other issues, and the Exchange is not aware of any problems that member organizations would have in complying with the proposed change.

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2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6b of the Act,15 in general, and furthers the objectives of Sections 6b4 and 6b5 of the Act,16 in particular, because it provides for the equitable allocation of reasonable dues, fees, and other charges among its members, issuers and other persons using its facilities and does not unfairly 15 15
16 15

U.S.C. 78fb.
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discriminate between customers, issuers, brokers or dealers.
The Proposed Change Is Reasonable The Exchange operates in a highly competitive market. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies. 17
While Regulation NMS has enhanced competition, it has also fostered a fragmented market structure where trading in a single stock can occur across multiple trading centers. When multiple trading centers compete for order flow in the same stock, the Commission has recognized that such competition can lead to the fragmentation of order flow in that stock. 18 Indeed, equity trading is currently dispersed across 16
exchanges,19 31 alternative trading systems,20 and numerous broker-dealer internalizers and wholesalers, all competing for order flow. Based on publicly available information, no single exchange has more than 16% market share.21 The Exchange believes that the ever-shifting market share among the exchanges from month to month demonstrates that market participants can shift order flow, or discontinue or reduce use of certain categories of products, including ports, in response to fee changes. Accordingly, the Exchanges fees, including port fees, are reasonably constrained by competitive alternatives and market participants can readily trade on competing venues if 17 See Securities Exchange Act Release No. 51808
June 9, 2005, 70 FR 37495, 37499 June 29, 2005
S71004 Final Rule Regulation NMS.
18 See Securities Exchange Act Release No. 61358, 75 FR 3594, 3597 January 21, 2010 File No. S7
0210 Concept Release on Equity Market Structure.
19 See Cboe Global Markets, U.S. Equities Market Volume Summary, available at http
markets.cboe.com/us/equities/market_share/. See generally https www.sec.gov/fast-answers/
divisionsmarketregmrexchangesshtml.html.
20 See FINRA ATS Transparency Data, available at https otctransparency.finra.org/
otctransparency/AtsIssueData. A list of alternative trading systems registered with the Commission is available at https www.sec.gov/foia/docs/
atslist.htm.
21 See Cboe Global Markets U.S. Equities Market Volume Summary, available at http
markets.cboe.com/us/equities/market_share/.

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they deem pricing levels at those other venues to be more favorable.
The Exchange believes that the evershifting market share among the exchanges from month to month demonstrates that market participants can shift order flow, or discontinue or reduce use of certain categories of products, including ports, in response to fee changes. Accordingly, the Exchanges fees, including port fees, are reasonably constrained by competitive alternatives and market participants can readily trade on competing venues if they deem pricing levels at those other venues to be more favorable.
If a particular exchange charges excessive fees for connectivity, impacted members and non-members may opt to terminate their connectivity arrangements with that exchange, and adopt a possible range of alternative strategies, including routing to the applicable exchange through another participant or market center or taking that exchanges data indirectly.
Accordingly, if the Exchange charges excessive fees, it would stand to lose not only connectivity revenues but also revenues associated with the execution of orders routed to it, and, to the extent applicable, market data revenues. The Exchange believes that this competitive dynamic imposes powerful restraints on the ability of any exchange to charge unreasonable fees for connectivity.
Given this competitive environment, the proposal represents a fair and reasonable attempt to provide member organizations with additional time to finalize an orderly transition to upgraded technology. As of April 2021, 16.2% of legacy ports have not been cancelled. The pricing is designed so that these few remaining member organizations utilizing legacy ports would pay for the Exchange to continue to support their Phase I ports through August 2021.
The Proposal Is an Equitable Allocation of Fees The Exchange believes its proposal equitably allocates its fees among its market participants. The Exchange is not proposing to adjust the amount of the port fees or the fees charged fees to offset the Exchanges continuing costs of supporting legacy ports, which will remain at the current level for all market participants. Rather, the proposal would provide additional time for member organizations to transition from older to newer and more efficient Pillar technology and would charge the same fee for those few member organizations that choose not to transition to Phase II
ports during the extended Transition Period.

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