FR 2021-02475

The document from the Federal Register discusses a proposed rule by NYSE Arca, Inc., which intends to modify its fee structure for co-location services. Co-location services allow companies to place their servers in close proximity to the stock exchange's systems, ensuring faster data transmission and trade executions. Specifically, the proposal involves adding two new options, called Options E and F, to their fee schedules for Partial Cabinet Solution (PCS) bundles. These options promise faster network connections, which are crucial for traders who depend on rapid data access and transaction speed.

General Summary

NYSE Arca, Inc. is looking to enhance its co-location offerings by introducing new PCS bundles that accommodate upgraded connectivity speeds of 40 gigabits (Gb) per second, up from the previously available 10 Gb. This change is in response to customer demand for faster connections. An attractive feature of this proposal is the first-year incentive: customers who opt for the new bundles by the end of December 2021 will get a 50% reduction in monthly recurring charges. Public comments are being solicited as part of the decision-making process.

Significant Issues and Concerns

Some potential issues and concerns arise from the intricacies of the proposal:

• Complex Terminology: The document includes technical jargon and financial references that might not be easily understood by those unfamiliar with IT or financial regulatory language. This could limit public participation in the comment process unless they seek additional information or clarification.

• Incentive Structure: The 50% reduction in charges for early adopters could potentially favor larger market participants who have the resources to move quickly. This aspect might disadvantage smaller players who cannot make swift decisions or investments.

• Comparative Insight: The document references several other regulatory filings and rules without delving into their implications in depth. This lack of detailed summaries makes it challenging for the public to fully grasp the context of the proposals, perhaps requiring them to conduct further research.

• Limited Transparency in Comparison: As Hosted Users’ pricing structures are not regulated or made public, it may be difficult to weigh the fairness and competitiveness of NYSE Arca’s offerings against these third-party vendors.

Impact on the Public

Broadly, this proposal seeks to enhance the efficiency and competitiveness of financial trading by offering faster connectivity solutions. For the general public, these infrastructure improvements could lead to more seamless and efficient market operations, which impacts overall economic activity. Depending on how these changes influence trading dynamics, they could eventually trickle down to affect ordinary investors through their savings and investments.

Impact on Specific Stakeholders

• Large Financial Institutions: They are likely to benefit from the enhanced network capabilities, as these institutions typically require high-speed trades to execute numerous transactions efficiently.

• Smaller Market Participants: These entities might experience mixed impacts. While the new technology offers them opportunities to improve their operational speeds, the financial incentive structures might pose challenges in leveling the playing field, as the initial cost might still be prohibitive despite discounts.

• Competitors and Hosting Users: Hosting Users, who offer similar services, might feel pressured to adjust their offerings to compete with NYSE Arca’s new bundles. As these services aren't regulated, they might adopt various pricing strategies to attract or retain customers.

In conclusion, while this proposal aims to enhance high-speed trading capabilities and competitiveness, careful consideration must be given to the direct and indirect ramifications it may have on a diverse range of market participants. The Securities and Exchange Commission will need to weigh these factors, aided by public and stakeholder feedback, to ensure a fair and equitable market environment.

In the proposed rule changes filed by NYSE Arca, Inc. regarding amendments to their fee schedules, specific financial references indicate additional costs for users who wish to utilize co-location services through new Partial Cabinet Solution (PCS) bundles, designated as Options E and F. These changes involve both initial charges and monthly recurring fees, which can significantly impact potential users financially.

• Initial and Recurring Charges: Users opting for either the Option E or Option F bundles will incur the same initial charge of $10,000 as is currently charged for existing Options C and D. This charge is stipulated to cover the initial setup, which involves a comparable workload for the Exchange. Beyond the initial cost, users selecting Option E will face monthly recurring charges (MRC) of $18,000, while those choosing Option F will incur $19,000 monthly. These proposed MRC represent a $4,000 increase over the MRC for Options C and D, a reflection of the enhanced 40 Gb connections provided, as opposed to the previous 10 Gb connections.

• Incentives for Early Adoption: To incentivize users to adopt the new bundles, there is a provisional 50% reduction in the MRC for the first 12 months for users who purchase the Option E or F bundles by December 31, 2021. While this discount aims to encourage quick uptake, there is an inference that more established or resourceful market participants might have a greater capacity to exploit this offer effectively, potentially exacerbating disparities in access based on financial resources.

The financial implications of these changes underscore several issues noted within the proposal. The provision for reduced MRC as an incentive could further cement the position of larger market entities, who possess the wherewithal to commit early and benefit from such reductions, potentially impacting competitive equity. Furthermore, the need to finance these significant up-front and ongoing costs may exclude smaller market participants, aligning with critiques about how such financial structures can inadvertently favor the well-resourced entities within the financial ecosystem.

Overall, while the financial references within this notice are clear in their intent to establish new pricing for enhanced services, they also highlight concerns about accessibility and the equitable distribution of financial burdens among different market participants.