Notice2025-13481
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule To Adopt Certain Connectivity Fees for Cross-Connects at the Primary, Disaster Recovery, and Test Environment Facilities
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 18, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 90 Issue 136 (Friday, July 18, 2025)</title>
</head>
<body><pre>
[Federal Register Volume 90, Number 136 (Friday, July 18, 2025)]
[Notices]
[Pages 34044-34052]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-13481]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103465; File No. SR-LTSE-2025-14]
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the Fee Schedule To Adopt Certain Connectivity Fees for Cross-
Connects at the Primary, Disaster Recovery, and Test Environment
Facilities
July 15, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 3, 2025, Long-Term Stock Exchange, Inc. (``LTSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Securities and Exchange Commission
(``Commission'') a proposed rule change to amend proposes to amend the
LTSE Fee Schedule (the ``Fee Schedule'') to establish Section C and
adopt Connectivity Fees for Cross-Connects at the Primary, Disaster
Recovery and Test Environment facilities. The Exchange also proposes to
adopt Connectivity Fees for Logical Connectivity (all environments),
effective July 3, 2025.\3\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 34-103074 (May 20,
2025) 90 FR 22345 (May 27, 2025) (SR-LTSE-2025-07), which was filed
on May 12, 2025, and replaced SR-LTSE-2025-04. See Securities
Exchange Act Release No. 34-102732 (March 26, 2025) 90 FR 14400
(April 1, 2025) (SR-LTSE-2025-04), which was filed on March 14,
2025, and replaced SR-LTSE-2025-01. See Securities Exchange Act
Release No. 34-102322 (February 3, 2025), 90 FR 9175 (February 7,
2025) (SR-LTSE-2025-01). SR-LTSE-2025-01 replaced SR-LTSE-2024-09
which was filed on November 27, 2024, and replaced SR-LTSE-2024-07.
See Securities Exchange Act Release Nos. 34-101851 (December 9,
2024), 89 FR 101057 (December 13, 2024) (SR-LTSE-2024-09) and 34-
101320 (October 11, 2024), 89 FR 83731 (October 17, 2024) (SR-LTSE-
2024-07). The fees were initially adopted in SR-LTSE-2024-06, see
Securities Exchange Act Release No. 34-101226 (October 1, 2024), 89
FR 81587 (October 8, 2024) (SR-LTSE-2024-06). The Exchange is now
withdrawing and replacing this filing with SR-LTSE-2025-14.
---------------------------------------------------------------------------
[[Page 34045]]
The text of the proposed rule change is available at the Exchange's
website at <a href="https://longtermstockexchange.com/">https://longtermstockexchange.com/</a>, 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 Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The self-regulatory organization has prepared summaries,
set forth in Sections A, B, and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to establish a new section (C.
Connectivity Fees) in the Long-Term Stock Exchange Fee Schedule. Prior
to the launch of the new trading system on September 23, 2024, the
Exchange offered connectivity (both physical and logical) at no cost to
all market participants. With the launch of the new trading system and
the significant costs detailed below, the Exchange determined it was
reasonable and appropriate to begin to charge market participants for
their connectivity to the Exchange. The Exchange notes that the
transition between trading systems required all market participants to
set up new connectivity to the new trading system, and after the
successful launch the Exchange decommissioned all the historical
connections within the old trading system. The Exchange also notes that
market participants were not charged simultaneously for both their old
connections and new connections during the transition as the Exchange
never charged for connectivity to the old trading system.
Cross-Connect Fees
The Exchange proposes to offer to both Members \4\ and non-Members
the option to utilize a 10 Gigabit (``Gb'') ultra-low latency (``ULL'')
fiber cross-connection to the Exchange's Primary and Disaster Recovery
facilities, as well as a 10Gb ULL fiber cross-connection to the Test
Environment. The Exchange proposes to establish a Cross-Connect fee of
$5,500 per 10Gb physical interface per month that will be assessed to
Members and non-Members for connecting to the Primary facility. The
Exchange proposes to establish a Cross-Connect fee of $2,750 per 10Gb
physical interface per month that will be assessed to Members and non-
Members for connecting to either the Disaster Recovery facility or the
Test Environment.
---------------------------------------------------------------------------
\4\ The term ``Member'' shall mean any registered broker or
dealer that has been admitted to membership in the Exchange. See
LTSE Rule 1.160.
---------------------------------------------------------------------------
Monthly network connectivity fees for Members and non-Members for
connectivity will be assessed in any month the Member or non-Member is
credentialed to use any of the LTSE Application Programming Interfaces
(``APIs'') in the Primary facility, Disaster Recovery facility or Test
Environment.\5\
---------------------------------------------------------------------------
\5\ As proposed, fees for connectivity services would be
assessed based on each active connectivity service product at the
close of business on the first day of each month. If a product is
canceled prior to such fee being assessed, then the Member will not
be obligated to pay the applicable product fee.
---------------------------------------------------------------------------
Port Fees
The Exchange proposes to establish a $450 fee for all Logical
Connectivity sessions. These application sessions, commonly known as
ports, are utilized to perform a particular function on the Exchange,
such as order entry or order cancellation, receipt of drop copies,
proprietary market data dissemination, or requesting data to be
backfilled (i.e., ``gap ports''). All market participants (Members and
non-Members) will be charged per session per month. The Exchange will
waive the fees for three sessions per month per market participant
which the Exchange believes will encourage Members to connect to the
Exchange's backup trading systems and to conduct appropriate testing of
their use of the Exchange.
In proposing to charge fees for connectivity to LTSE, the Exchange
has sought to be especially diligent in assessing those fees in a
transparent way against its own aggregate costs of providing the
related services, and also carefully and transparently assessing the
impact on market participants--both generally and in relation to other
market participants, i.e., to assure the fee will not create a
financial burden on any participant and will not have an undue impact
in particular on smaller market participants and competition among
market participants in general. The Exchange believes that this level
of diligence and transparency is called for by the requirements of
Section 19(b)(1) under the Act,\6\ and Rule 19b-4 thereunder,\7\ with
respect to the types of information self-regulatory organizations
(``SROs'') should provide when filing fee changes, and Section 6(b) of
the Act,\8\ which requires, among other things, that exchange fees be
reasonable and equitably allocated,\9\ not designed to permit unfair
discrimination,\10\ and that they not impose a burden on competition
not necessary or appropriate in furtherance of the purposes of the
Act.\11\ This rule change proposal addresses those requirements, and
the analysis and data in each of the sections that follow are designed
to clearly and comprehensively show how they are met.\12\
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b)(1).
\7\ 17 CFR 240.19b-4.
\8\ 15 U.S.C.78f(b).
\9\ 15 U.S.C. 78f(b)(4).
\10\ 15 U.S.C. 78f(b)(5).
\11\ 15 U.S.C. 78f(b)(8).
\12\ In 2019, Commission staff published guidance suggesting the
types of information that SROs may use to demonstrate that their fee
filings comply with the standards of the Act (``Fee Guidance'').
While LTSE understands that the Fee Guidance does not create new
legal obligations on SROs, the Fee Guidance is consistent with
LTSE's view about the type and level of transparency that exchanges
should meet to demonstrate compliance with their existing
obligations when they seek to charge new fees. See Staff Guidance on
SRO Rule Filings Relating to Fees (May 21, 2019), available at
<a href="https://www.sec.gov/about/staff-guidance-sro-rule-filings-fees">https://www.sec.gov/about/staff-guidance-sro-rule-filings-fees</a>.
---------------------------------------------------------------------------
Cost Analysis
The Exchange notes it operates a unique model where the LTSE
trading system and certain associated services are provided on an
outsourced basis by MEMX Technologies LLC (``MEMX Technologies'').\13\
As such, a large portion of the Exchange's technology costs, including
those related to connectivity, are incorporated into the overall fees
that the Exchange pays MEMX Technologies as part of its multi-year
arrangement to provide a trading
[[Page 34046]]
system and associated services.\14\ Because of this arrangement, the
Exchange does not possess the same level of specificity for cost
drivers related to connectivity as other exchanges have detailed within
their own similar filings. However, the Exchange recognizes that the
fees it pays MEMX Technologies are for the services MEMX Technologies
provides to the Exchange and the associated costs incurred by MEMX
Technologies. These services and costs include maintaining a team of
highly skilled network engineers, fees charged to MEMX Technologies by
the third-party data center operator for the servers and equipment LTSE
utilizes, costs associated with projects and initiatives designed to
improve overall network performance and stability, and costs associated
with fully supporting advances in infrastructure and expansion of
network level services, including customer monitoring, alerting and
reporting. There are also significant technology expenses related to
establishing and maintaining information security services, enhanced
network monitoring and customer reporting, as well as Regulation SCI
mandated processes, associated with the MEMX Technologies network
technology that are borne by the Exchange. Most of the specific
expenses for connectivity services and the Exchange's DSLA with MEMX
Technologies are combined, and therefore the Exchange discusses these
expenses, and the portion allocated to connectivity as part of the
``Third-Party Expenses'' Cost Driver below.
---------------------------------------------------------------------------
\13\ The Exchange and MEMX Technologies executed a Development,
License and Services Agreement on January 23, 2024, with
accompanying Schedules (collectively, the ``DLSA''). MEMX
Technologies, an affiliate of the MEMX Exchange, is in the business
of developing technology systems for use in the financial industry.
See SR-LTSE-2024-03, supra note 3 [sic].
\14\ The DSLA with MEMX Technologies entails both fixed and
variable costs. The Exchange used both types of costs when
determining aggregated monthly costs detailed below.
---------------------------------------------------------------------------
Further, while the Exchange has been operating since September
2020, it only entered the DLSA with MEMX Technologies in January of
2024 and launched the new trading system in September 2024. Therefore,
the Exchange's most recent publicly available financial statement (2023
Audited Unconsolidated Financial Statement) does not reflect LTSE's
actual current costs associated with the development and operation of
connectivity on LTSE, as the costs associated with the MEMX system
began in 2024. Accordingly, the Exchange believes it is more
appropriate to justify its fees utilizing a recent monthly billing
cycle and extrapolated annualized costs on a going-forward basis.
LTSE recently calculated its aggregate monthly costs for providing
connectivity services to the Exchange at approximately $596,840 for
2025.\15\ Because LTSE offered all connectivity free of charge from its
launch in September 2020 until October of 2024, LTSE has borne 100% of
all connectivity costs. Now, in order to cover some of the aggregate
costs of providing connectivity to market participants (both Members
and non-Members),\16\ the Exchange is proposing to modify its Fee
Schedule and charge the fees for connectivity detailed herein.
---------------------------------------------------------------------------
\15\ The aggregate monthly costs were determined by taking the
individual cost drivers detailed below and their yearly costs and
dividing by twelve months.
\16\ Types of market participants that obtain connectivity
services from the Exchange but are not Members include service
bureaus and extranets. Service bureaus offer technology-based
services to other companies for a fee, including order entry
services to Members, and thus, may access application sessions on
behalf of one or more Members. Extranets offer physical connectivity
services to Members and non-Members.
---------------------------------------------------------------------------
In order to determine the Exchange's costs for providing the
services associated with connectivity, the Exchange conducted an
extensive review in which the Exchange analyzed every expense item in
the Exchange's general expense ledger to determine whether each such
expense relates to the services associated with the connectivity and,
if such expense did so relate, what portion (or percentage) of such
expense actually supports those services. The sum of all such portions
of expenses represents the total cost of the Exchange to provide the
services associated with connectivity. For the avoidance of doubt, no
expense amount was allocated twice. The Exchange is also providing
detailed information regarding the Exchange's cost allocation
methodology--namely, information that explains the Exchange's rationale
for determining that it was reasonable to allocate certain expenses
described in this filing towards the total cost to the Exchange to
provide connectivity.
The Exchange believes that the Connectivity Fees are fair and
reasonable because they will only cover a portion of the total annual
expense that the Exchange projects to incur with providing the services
associated with connectivity versus the total annual revenue the
Exchange projects to collect in connection with providing those
services. Based on connectivity services usage as of May 1st, 2025, as
well as projected use through the remainder of the year, the Exchange
would generate monthly revenues for 2025 of approximately $475,000,
which will result in a loss for the Exchange.
Costs Related To Offering Connectivity
The following chart details the individual line-item costs
considered by LTSE to be related to offering connectivity as well as
the percentage of the Exchange's overall costs per year that such costs
represent for such area (e.g., as set forth below, the Exchange
allocated approximately 15% of its overall Human Resources cost to
offering connectivity for a total of $490,213 per year of costs related
to providing connectivity).
----------------------------------------------------------------------------------------------------------------
Allocated Allocated
Cost drivers monthly costs yearly costs % of all
----------------------------------------------------------------------------------------------------------------
Third-Party Expenses.......................................... $539,276 $6,471,312 60
Human Resources............................................... 40,851 490,213 8
Data Center................................................... 15,713 188,552 31
-------------------------------------------------
Total..................................................... 595,840 7,150,076
----------------------------------------------------------------------------------------------------------------
Below are additional details regarding each of the line-item costs
considered by LTSE to be related to offering connectivity.
Third-Party Expenses
As discussed above, LTSE has undertaken a unique model where it has
outsourced its trading system and related technology to a third-party
technology provider, MEMX Technologies. With this arrangement LTSE
receives, among other things, (1) access to technology used to complete
connections to the Exchange and to connect to external markets, (2)
physical connectivity in the data centers where MEMX Technologies
maintains equipment for LTSE use--such as
[[Page 34047]]
dedicated space, security services, cooling and power, (3) use of
physical ports and logical ports, and (4) use of physical assets and
software, which also includes assets used for testing and monitoring of
infrastructure. MEMX Technologies provides personnel to support the use
and operation of the LTSE trading platform including but not limited
to, monitoring the network, managing system development and testing,
facilitating connection changes and access changes, as well as
performing normal maintenance operations. The Exchange has an
additional third-party vendor which assists the Exchange with services
related to member gateways. Together these two third-parties account
for all the Third-Party expenses detailed above.
The Exchange's Third-Party expenses for providing connectivity
include both fixed and variable. For the fixed costs, the Exchange took
the annual costs for each of these two third-party providers to
determine what portion (or percentage) of these costs related to
providing connectivity and thus bears a relationship that is, ``in
nature and closeness,'' directly related to offering connectivity.
There are four major core technology cost buckets associated with
operating the Exchange: (1) the Member Gateways which include physical
and logical connectivity, (2) connectivity to the Securities
Information Processor (``SIP''), (3) the Trading Engine, and (4) any
downstream services which include system reporting, etc. The Exchange
then reviewed each of these technology cost buckets in great detail and
determined the percentage each of these buckets should be allocated to
the total cost of the third-party expense, with Member Gateways, the
SIP and the Trading Engine each accounting for 30% of the costs related
to a third-party provider, and downstream services being allocated the
remaining 10%. Using this breakdown for both third-party providers, the
Exchange determined the portion of each of these costs that was
associated with providing market data, connectivity services or
neither. Here, the Exchange determined that most of the allocation for
the cost of the Gateways (25%) should be associated with the cost of
offering connectivity, as well as 5% (of the overall 10%) for the cost
of downstream services. Blended together, the Exchange allocated 29% of
its fixed Third-Party costs to offering connectivity.
The variable costs that are directly related to offering
connectivity are 100% allocated to connectivity within the overall
Third-Party costs. Including the variable costs with the fixed costs,
the Exchange allocated 60% of its Third-Party costs to offering
connectivity.
Human Resources
In addition to the cost of personnel of outsourced third-party
providers that are allocated in the Third-Party Expense section above,
LTSE then calculated an allocation of LTSE employee time for employees
whose functions include providing and maintaining connectivity and
performance thereof (technical operations personnel, market operations
personnel, and software engineering personnel). The Exchange notes that
while MEMX Technologies maintains its own network support services, due
to the Exchange's independent regulatory oversight obligations, the
Exchange and its staff provide certain direct network support services
to Members and non-Members, including network monitoring, reporting and
support services.
The Exchange also allocated Human Resources costs to provide
connectivity to a limited subset of LTSE personnel with ancillary
functions related to establishing and maintaining such connectivity
(such as information security and finance personnel), for which the
Exchange allocated cost on an employee-by-employee basis (i.e., only
including those personnel who do support functions related to providing
connectivity) and then applied a smaller allocation to such employees.
Blended together, Human Resources costs to provide connectivity
accounted for 8% of all Human Resource costs. The Exchange notes that
it has fewer than fifty (50) employees, and each department leader has
direct knowledge of the time spent by each employee with respect to the
various tasks necessary to operate the Exchange. The estimates of Human
Resources cost were therefore determined by consulting with such
department leaders, determining which employees are involved in tasks
related to providing connectivity, and confirming that the proposed
allocations were reasonable based on an understanding of the percentage
of their time such employees devote to tasks related to providing
connectivity. The Exchange notes that senior level executives were only
allocated Human Resources costs to the extent the Exchange believed
they are involved in overseeing tasks related to providing
connectivity. The Human Resources cost was calculated using a blended
rate of compensation reflecting salary, equity and bonus compensation,
benefits, payroll taxes, and 401(k) matching contributions.
Data Center
In addition to the data center costs incurred by MEMX Technologies
which are allocated in the Third-Party Expenses above, the Exchange
also maintains its own footprint in a third-party data center.\17\ Data
center costs include an allocation of the costs the Exchange incurs to
monitor its trading platform (including the Primary facility, Disaster
Recovery facility and Test Environment facility) as well as the costs
to maintain its equipment in the data center. The Exchange does not own
the data center facilities but, instead, leases space in a data center
operated by a third-party.
---------------------------------------------------------------------------
\17\ LTSE has a presence in the Secaucus NY4 data center that is
operated by Equinix.
---------------------------------------------------------------------------
The Exchange has two third-party vendors that account for the Data
Center expenses. Consistent with the exercise above, the Exchange took
the annual costs for each of these two Data Center vendors to determine
what portion (or percentage) of these costs related to offering
connectivity and thus bears a relationship that is, ``in nature and
closeness,'' directly related to connectivity. Costs that are allocated
to connectivity include services such as network packet capture for
performance monitoring, security information and event management,
network connectivity and security monitoring. The Exchange then
reviewed each of the technology cost buckets detailed above and
determined the percentage each of these buckets should be allocated to
the total cost of the Data Center expenses, with Member Gateways, the
SIP and the Trading Engine each accounting for 30% of the costs related
to a third-party provider, and downstream services being allocated the
remaining 10%. Using this breakdown for all Data Center vendors the
Exchange determined the portion of each of these costs was associated
with providing market data, connectivity services or neither. Here, the
Exchange determined that the 15% allocation for the cost of the Member
Gateway (of the overall 30%) should be associated with the cost of
providing connectivity. Additionally, the Exchange determined an
allocation of 12% (of the overall 30%) for the cost of the Trading
Engine was appropriate to associate with the cost of providing
connectivity, as well as 4% (of the overall 10%) should be associated
with the cost to provide downstream services. Blended together that is
31% of the overall data center expenses.
Physical Connectivity Fees
With the launch of the new trading platform, LTSE required Members
and
[[Page 34048]]
non-Members to establish all new connections (both physical and
logical) to the Exchange in order to transmit orders to and receive
information through the new trading platform. Members and non-Members
can also choose to connect to LTSE indirectly through physical
connectivity maintained by a third-party extranet.\18\ Extranet
physical connections may provide access to one or multiple Members and
non-Members on a single connection. Users of LTSE physical connectivity
services (both Members and non-Members) seeking to establish one or
more connections with the Exchange submit a request directly to
Exchange personnel. Upon receipt of the completed instructions, LTSE
establishes the physical connections requested by the market
participant. The number of physical connections assigned to each firm
as of May 1st, 2025, ranges from one to three, depending on the scope
and scale of the firm's trading activity on the Exchange as determined
by the firm, including the firm's determination of the need for
redundant connectivity. The Exchange notes that 58% of its Members do
not maintain a physical connection directly with the Exchange in the
Primary facilities (though many such Members have connectivity through
a third-party provider) and another 42% have one or more physical
connections to the Exchange in the Primary facilities.
---------------------------------------------------------------------------
\18\ The Exchange notes that these third-party extranet
providers were also required to establish new connections to LTSE as
all of the old connections were deemed obsolete with the launch of
the new trading platform.
---------------------------------------------------------------------------
As described above, to cover a portion the aggregate costs of
providing physical connectivity to Members and non-Members, as
described below, the Exchange is proposing to charge a fee of $5,500
per month for each physical connection in the Primary facility and a
fee of $2,750 per month for each physical connection in the Disaster
Recovery and Test Environment facilities. There is no requirement that
any Member or non-Member maintain a specific number of physical
connections and a Member or non-Member may choose to maintain as many
or as few of such connections as each Member or non-Member deems
appropriate. The Exchange notes, however, that pursuant to Rule 2.250
(Mandatory Participation in Testing of Backup Systems), the Exchange
does require a small number of Members to connect and participate in
functional and performance testing as announced by the Exchange, which
occurs at least once every 12 months. Specifically, Members that have
been determined by the Exchange to contribute a meaningful percentage
of the Exchange's overall volume must participate in mandatory testing
of the Exchange's backup systems (i.e., such Members must connect to
the Disaster Recovery facility). The Exchange notes that Members that
have been designated are still able to use third-party providers of
connectivity to access the Exchange at its Disaster Recovery facility
in that these Members do not each have to purchase a separate
connection to the Disaster Recovery facility. Four of the designated
Members use a third-party provider instead of connecting directly to
the Disaster Recovery facility through connectivity provided by the
Exchange. Nonetheless, because some Members are required to connect to
the Disaster Recovery facility pursuant to Rule 2.250 and to encourage
Members and non-Members to connect to the Disaster Recovery facility
generally, the Exchange has proposed to charge one-half of the fee for
a physical connection in the Primary facility. Further, other exchanges
also provide lower connectivity fees for connections to their
respective disaster recovery facilities.\19\
---------------------------------------------------------------------------
\19\ See, e.g., the CBOE BZX equities fee schedule, available at
<a href="https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/">https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/</a>.
---------------------------------------------------------------------------
While Members are required to connect to the Test Environment for
initial protocol certification and may be required to connect to the
Test Environment at other times throughout the year (i.e., if the
Exchange adopts a new order type that requires testing), they do not
have to connect directly and can use an extranet provider to connect or
access the LTSE Test Environment directly.
The proposed fee will not apply differently based upon the size or
type of the market participant but rather based upon the number of
physical connections a Member or non-Member requests, which number is
based upon factors deemed relevant by each firm (either a Member,
service bureau or extranet). The Exchange believes these factors
include the costs to maintain connectivity, business model and choices
Members and non-Members make in how to participate on the Exchange, as
further described below. The proposed connectivity fees are designed to
permit the Exchange to cover a portion of costs allocated to providing
connectivity services. The Exchange also reiterates that the Exchange
did not charge any fees for connectivity services prior to October
2024, and its allocation of costs to physical connections was part of a
holistic allocation that also allocated costs to other core services
without double-counting any expenses. As noted above, the Exchange
proposes a lower rate of $2,750 per month for physical connections at
its Disaster Recovery facility and Test Environment. The Exchange has
proposed this lower rate for Disaster Recovery and Test Environment
connectivity in order to encourage Members and non-Members to establish
and maintain such connections. Also, as noted above, a small number of
Members are required pursuant to Rule 2.4 to connect and participate in
testing of the Exchange's backup systems, and the Exchange believes it
is appropriate to provide a lower rate for physical connections at the
Disaster Recovery facility given this requirement. The Exchange notes
that this rate is well below the cost of providing such services and
the Exchange will offer connectivity to the Disaster Recovery facility
and Test Environment without recouping the full amount of such cost
through connectivity services.
Logical Connectivity Fees
Similar to other exchanges, LTSE offers its Members application
sessions, also known as logical ports, for order entry and receipt of
trade execution reports and order messages. Members can also choose to
connect to LTSE indirectly through a session maintained by a third-
party service bureau. Service bureau sessions may provide access to one
or multiple Members on a single session. Users of LTSE connectivity
services (both Members and non-Members) seeking to establish one or
more application sessions with the Exchange shall submit a request to
the Exchange. Upon receipt of the completed instructions, LTSE assigns
the Member or non-Member the number of sessions requested. The number
of sessions assigned to each Member as of September 30, 2024, ranges
from one (1) to more than 58 depending on the scope and scale of the
Member's trading activity on the Exchange (either through a direct
connection or through a service bureau) as determined by the Member.
For example, by using multiple sessions, Members can segregate order
flow from different internal desks, business lines, or customers. The
Exchange does not impose any minimum or maximum requirements for how
many application sessions a Member or service bureau can maintain, and
it is not proposing to impose any minimum or maximum session
requirements for its Members or their service bureaus.
[[Page 34049]]
As described above, to cover a portion of the aggregate costs of
providing application sessions to Members and non-Members, as described
below, the Exchange is proposing to charge a fee of $450 per session
per month. The Exchange notes that it is proposing to waive the fees
for Members and non-Members for their first three sessions, so that
market participants can have no cost to initiate order entry in all
three environments (Primary, Disaster Recovery and Test Environments).
Further, the Exchange believes that providing three free sessions will
encourage Members to connect to the Exchange's backup trading systems
and to conduct appropriate testing of their use of the Exchange.
The proposed fee of $450 per month for each Logical Connectivity
session is designed to permit the Exchange to cover some of the costs
allocated to providing application sessions.
The proposed fee is also designed to encourage Members and non-
Members to be efficient with their application session usage, thereby
resulting in a corresponding increase in the efficiency that the
Exchange would be able to realize in managing its aggregate costs for
providing connectivity services. There is no requirement that any
Member maintain a specific number of application sessions and a Member
may choose to maintain as many or as few of such ports as each Member
deems appropriate. The platform has been designed such that each
logical connectivity session can handle a significant amount of message
traffic (i.e., over 50,000 orders per second), and has no application
flow control or order throttling.
The proposed fee will not apply differently based upon the size or
type of the market participant but rather based upon the number of
application sessions a Member or non-Member requests, which number is
based upon factors deemed relevant by each firm (either a Member or
service bureau on behalf of a Member). The Exchange believes these
factors include the costs to maintain connectivity and choices Members
make in how to segment or allocate their order flow.\20\
---------------------------------------------------------------------------
\20\ The Exchange understands that some Members (or service
bureaus) may also request more sessions to enable the ability to
send a greater number of simultaneous order messages to the Exchange
by spreading orders over more Order Entry Ports, thereby increasing
throughput (i.e., the potential for more orders to be processed in
the same amount of time). The degree to which this usage of sessions
provides any throughput advantage is based on how a particular
market participant sends order messages to LTSE, however the
Exchange notes that the architecture reduces the impact or necessity
of such a strategy. All sessions on LTSE provide the same
throughput, and as noted above, the throughput is likely adequate
even for a market participant sending a significant amount of volume
at a fast pace and is not artificially throttled or limited in any
way by the Exchange.
---------------------------------------------------------------------------
Proposed Fees--Additional Discussion
As discussed above, the proposed fees for connectivity services do
not by design apply differently to different types or sizes of Members
or non-Members. As discussed in more detail in the Statutory Basis
section, the Exchange believes that the likelihood of higher fees for
certain Members or non-Members subscribing to connectivity services
usage than others is not unfairly discriminatory because it is based on
objective differences in usage of connectivity services among different
Members and non-Members. The Exchange's costs for connectivity services
are directly proportional to the number of connections utilized.
Members and non-Members with higher message traffic and/or Members and
non-Members with more complicated connections established with the
Exchange: (1) consume the most bandwidth and resources of the network;
(2) transact the vast majority of the volume on the Exchange; and (3)
require the high-touch network support services provided by the
Exchange and its technology service provider, including network
monitoring, reporting and support services, resulting in a much higher
cost to the Exchange to provide such connectivity services. For these
reasons, LTSE believes it is not unfairly discriminatory for the
Members and non-Members with higher message traffic and/or Members and
non-Members with more complicated connections to pay a higher share of
the total connectivity services fees. While Members and non-Members
with a business model that results in higher relative inbound message
activity or more complicated connections are projected to pay higher
fees, the level of such fees is based solely on the number of physical
connections and/or application sessions deemed necessary by the Member
and non-Members and not on the business model or type of firm. The
Exchange notes that the correlation between message traffic and usage
of connectivity services is not completely aligned because Members and
non-Members individually determine how many physical connections and
application sessions to request, and Members and non-Members may make
different decisions on the appropriate ways based on facts unique to
their individual businesses. The Exchange believes that a Member, even
with high message traffic, would be able to conduct business on the
Exchange with a relatively small connectivity services footprint.
Finally, the fees for connectivity services will help to encourage
connectivity services usage in a way that aligns with the Exchange's
regulatory obligations. As a national securities exchange, the Exchange
is subject to Regulation Systems Compliance and Integrity (``Reg
SCI'').\21\ Reg SCI Rule 1001(a) requires that the Exchange establish,
maintain, and enforce written policies and procedures reasonably
designed to ensure (among other things) that its Reg SCI systems have
levels of capacity adequate to maintain the Exchange's operational
capability and promote the maintenance of fair and orderly markets.\22\
By encouraging market participants to be efficient with their usage of
connectivity services, the fees will support the Exchange's Reg SCI
obligations in this regard by ensuring that unused application sessions
are available to be allocated based on individual Member or non-Member
needs and as the Exchange's overall order and trade volumes increase.
This will encourage market participants to purchase only what they
need. Additionally, because the Exchange will charge a lower rate for a
physical connection to the Disaster Recovery and Test Environment
facilities and will waive the first three logical connectivity sessions
each month, the proposed fee structure will further support the
Exchange's Reg SCI compliance by reducing the potential impact of a
disruption should the Exchange be required to switch to its Disaster
Recovery Facility and encouraging Members to engage in any necessary
system testing with low or no cost imposed by the Exchange.\23\
---------------------------------------------------------------------------
\21\ 17 CFR 242.1000-1007.
\22\ 17 CFR 242.1001(a).
\23\ While some Members might directly connect to the Disaster
Recovery or Test Environment Facilities and incur the proposed
$2,750 per month fee, there are other ways to connect to the
Exchange, such as through a service bureau or extranet, and because
the Exchange is waiving fees for the first three logical
connectivity sessions, a Member connecting through another method
would not incur any fees charged directly by the Exchange. However,
the Exchange notes that a third-party service provider providing
connectivity to the Exchange likely would charge a fee for providing
such connectivity; such fees are not set by or shared in by the
Exchange.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) \24\ of the Act in general and
furthers the
[[Page 34050]]
objectives of Section 6(b)(4) \25\ of the Act in particular, in that it
is designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and other persons using its
facilities. Additionally, the Exchange believes that the proposed fees
are consistent with the objectives of Section 6(b)(5) \26\ of the Act
in that they are designed to promote just and equitable principles of
trade, to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to a
free and open market and national market system, and, in general, to
protect investors and the public interest, and, particularly, are not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78f.
\25\ 15 U.S.C. 78f(b)(4).
\26\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed fees for connectivity
services to LTSE are reasonable, equitable and not unfairly
discriminatory because, as described above, the proposed pricing for
connectivity services is directly related to the relative costs to the
Exchange to provide those respective services and does not impose a
barrier to entry to smaller participants.
As detailed above, the Exchange recognizes that there are various
business models and varying sizes of market participants conducting
business on the Exchange. The Exchange's costs for connectivity
services are directly proportional to the number of connections
utilized. Members and non-Members with higher message traffic and/or
Members and non-Members with more complicated connections established
with the Exchange: (1) consume the most bandwidth and resources of the
network; (2) transact the vast majority of the volume on the Exchange;
and (3) require the high-touch network support services provided by the
Exchange and its technology service provider, including network
monitoring, reporting and support services, resulting in a much higher
cost to the Exchange to provide such connectivity services.
Accordingly, the Exchange believes the allocation of the proposed
fees that increase based on the number of physical connections or
application sessions is reasonable based on the resources consumed by
the respective type of market participant (i.e., lowest resource
consuming Members and non-Members will pay the least, and highest
resource consuming Members and non-Members will pay the most),
particularly since higher resource consumption translates directly to
higher costs to the Exchange.
With regard to reasonableness, the Exchange understands that when
appropriate given the context of a proposal the Commission has taken a
market-based approach to examine whether the SRO making the proposal
was subject to significant competitive forces in setting the terms of
the proposal. In looking at this question, the Commission considers
whether the SRO has demonstrated in its filing that: (i) there are
reasonable substitutes for the product or service; (ii) ``platform''
competition constrains the ability to set the fee; and/or (iii) revenue
and cost analysis shows the fee would not result in the SRO taking
supra-competitive profits. If the SRO demonstrates that the fee is
subject to significant competitive forces, the Commission will next
consider whether there is any substantial countervailing basis to
suggest the fee's terms fail to meet one or more standards under the
Exchange Act. If the filing fails to demonstrate that the fee is
constrained by competitive forces, the SRO must provide a substantial
basis, other than competition, to show that it is consistent with the
Exchange Act, which may include production of relevant revenue and cost
data pertaining to the product or service.
LTSE believes the proposed fees for connectivity services are fair
and reasonable as a form of cost recovery for the Exchange's aggregate
costs of offering connectivity services to Members and non-Members. The
proposed fees are expected to generate monthly revenue of approximately
$475,000 \27\ providing partial cost recovery to the Exchange for the
aggregate costs of offering connectivity services, based on a
methodology that narrowly limits the cost drivers that are allocated to
those closely and directly related to the particular service. In
addition, this revenue will allow the Exchange to continue to offer, to
enhance, and to continually refresh its infrastructure as necessary to
offer a state-of-the-art trading platform. The Exchange also believes
the proposed fee is a reasonable means of encouraging firms to be
efficient in the connectivity services they reserve for use, with the
benefits to overall system efficiency to the extent Members and non-
Members consolidate their usage of connectivity services or discontinue
subscriptions to unused physical connectivity.
---------------------------------------------------------------------------
\27\ As stated above, the Exchange launched its new trading
platform on September 23, 2024. This expected revenue is based on
connectivity services usage as of May 1st, 2025, as well as
projected use through the remainder of the year.
---------------------------------------------------------------------------
The Exchange further believes that the proposed fees, as they
pertain to purchasers of each type of connectivity alternative,
constitute an equitable allocation of reasonable fees charged to the
Exchange's Members and non-Members and are allocated fairly amongst the
types of market participants using the facilities of the Exchange.
As described above, the Exchange believes the proposed fees are
equitably allocated because the Exchange's costs for connectivity
services are directly proportional to the number of connections
utilized. Members and non-Members with higher message traffic and/or
Members and non-Members with more complicated connections established
with the Exchange: (1) consume the most bandwidth and resources of the
network; (2) transact the vast majority of the volume on the Exchange;
and (3) require the high-touch network support services provided by the
Exchange and its technology service provider, including network
monitoring, reporting and support services, resulting in a much higher
cost to the Exchange to provide such connectivity services.
Commission staff previously noted that the generation of supra-
competitive profits is one of several potential factors in considering
whether an exchange's proposed fees are consistent with the Act.\28\ As
described in the Fee Guidance, the term ``supra-competitive profits''
refers to profits that exceed the profits that can be obtained in a
competitive market. The proposed fee structure would not result in
excessive pricing or supra-competitive profits for the Exchange. As
stated above, the proposed fee structure is merely designed to permit
the Exchange to cover some of the costs allocated to providing
connectivity services. Thus, the Exchange believes that its proposed
pricing for Connectivity Fees is fair, reasonable, and equitable.
Accordingly, the Exchange believes that its proposal is consistent with
Section 6(b)(4) of the Act because the proposed fees will permit
recovery of the Exchange's costs and will not result in excessive
pricing or supra-competitive profit.
---------------------------------------------------------------------------
\28\ See Fee Guidance, supra note 13 [sic].
---------------------------------------------------------------------------
The proposed fees for connectivity services will allow the Exchange
to cover a portion of costs incurred by the Exchange for offering
connectivity to Members and non-Members. As detailed above, the
Exchange has numerous internal and third-party expenses associated with
providing connectivity, including maintaining necessary
[[Page 34051]]
hardware and other network infrastructure as well as network monitoring
and support services; without such hardware, infrastructure, monitoring
and support the Exchange would be unable to offer the connectivity
services. Further, the Exchange routinely works with MEMX Technologies
to improve the performance of the network's hardware and software. The
costs associated with maintaining and enhancing a state-of-the-art
exchange network is a significant portion of the overall expense of the
technology provider's services, and thus the Exchange believes that it
is reasonable and appropriate to help offset those costs by adopting
fees for connectivity services. The Exchange's Cost Analysis estimates
the monthly costs to provide connectivity services at approximately
$600,000. Based on connectivity services usage as of May 1st, 2025, as
well as projected use through the remainder of the year, the Exchange
would generate monthly revenues for 2025 of approximately $475,000,
which will result in a loss for the Exchange. Even if the Exchange
earns that amount or incrementally more, the Exchange believes the
proposed fees for connectivity services are fair and reasonable because
they will not result in excessive pricing or supra-competitive profit,
when comparing the total expense of LTSE associated with providing
connectivity services versus the total projected revenue of the
Exchange associated with network connectivity services.
The Exchange notes that another exchange offers similar
connectivity options to market participants and that the Exchange's
proposed connectivity fees are lower.\29\ The Exchange further notes
that this exchange charges for all logical connectivity sessions and
does not offer the three free sessions per month the Exchange is
proposing to offer.\30\
---------------------------------------------------------------------------
\29\ See, e.g., the MEMX Connectivity fee schedule, available at
<a href="https://info.memxtrading.com/connectivity-fees/">https://info.memxtrading.com/connectivity-fees/</a>.
\30\ See id.
---------------------------------------------------------------------------
In conclusion, the Exchange submits that its proposed fee structure
satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of the Act
\31\ for the reasons discussed above in that it provides for the
equitable allocation of reasonable dues, fees and other charges among
its Members and other persons using its facilities, does not permit
unfair discrimination between customers, issuers, brokers, or dealers,
and is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system and in general to protect investors
and the public interest, particularly as the proposal neither targets
nor will it have a disparate impact on any particular category of
market participant.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange notes that the Cost Analysis was based on the
Exchange's first year of outsourcing the LTSE trading system and
certain associated services and projections. As such, the Exchange
believes that its costs will remain relatively similar in future years.
It is possible however that such costs will either decrease or
increase. To the extent the Exchange sees growth in use of connectivity
services it will receive additional revenue to offset future cost
increases. However, if use of connectivity services is static or
decreases, the Exchange might not realize the revenue that it
anticipates or needs in order to cover applicable costs. Accordingly,
the Exchange is committing to conduct a one-year review after
implementation of these fees. The Exchange expects that it may propose
to adjust fees at that time, to increase fees in the event that
revenues fail to cover costs and a reasonable mark-up of such costs.
Similarly, the Exchange would propose to decrease fees in the event
that revenue materially exceeds our current projections. In addition,
the Exchange will periodically conduct a review to inform its decision
making on whether a fee change is appropriate (e.g., to monitor for
costs increasing/decreasing or subscribers increasing/decreasing, etc.
in ways that suggest the then-current fees are becoming dislocated from
the prior cost-based analysis) and would propose to increase fees in
the event that revenues fail to cover its costs and a reasonable mark-
up, or decrease fees in the event that revenue or the mark-up
materially exceeds our current projections. In the event that the
Exchange determines to propose a fee change, the results of a timely
review, including an updated cost estimate, will be included in the
rule filing proposing the fee change. More generally, we believe that
it is appropriate for an exchange to refresh and update information
about its relevant costs and revenues in seeking any future changes to
fees, and the Exchange commits to do so.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\32\ the Exchange
does not believe that the proposed rule change would impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act.
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
Intramarket Competition
The Exchange does not believe that the proposed rule change to
establish connectivity fees would place certain market participants at
the Exchange at a relative disadvantage compared to other market
participants because the proposed connectivity pricing is associated
with relative usage of the Exchange by each market participant and does
not impose a barrier to entry to smaller participants. The Exchange
believes its proposed pricing is reasonable and lower than what another
exchange charges and, when coupled with the availability of third-party
providers that also offer connectivity solutions, that participation on
the Exchange is affordable for all market participants, including
smaller trading firms. As described above, the connectivity services
purchased by market participants typically increase based on their
additional message traffic and/or the complexity of their operations.
The market participants that utilize more connectivity services
typically utilize the most bandwidth, and those are the participants
that consume the most resources from the network. Accordingly, the
proposed fees for connectivity services do not favor certain categories
of market participants in a manner that would impose a burden on
competition; rather, the allocation of the proposed fees for
connectivity reflects the network resources consumed by the various
size of market participants and the costs to the Exchange of providing
such connectivity services.
Intermarket Competition
The Exchange does not believe the proposed fees for connectivity to
LTSE place an undue burden on competition on other SROs that is not
necessary or appropriate. Additionally, another exchange has similar
connectivity alternatives for their participants, but with higher rates
to connect.\33\ The Exchange is also unaware of any assertion that the
proposed fees for connectivity services would somehow unduly impair its
competition with other exchanges. In sum, LTSE's proposed fees for
connectivity for Members and non-Members are comparable to and
generally lower than fees charged by another exchange for the same or
similar services.
---------------------------------------------------------------------------
\33\ See supra note 31 [sic].
---------------------------------------------------------------------------
[[Page 34052]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
This proposed rule change establishes dues, fees or other charges
among its members and, as such, may take effect upon filing with the
Commission pursuant to Section 19(b)(3)(A)(ii) of the Act \34\ and
paragraph (f)(2) of Rule 19b-4 thereunder.\35\ Accordingly, the
proposed rule change would take effect upon filing with the Commission.
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78s(b)(3)(A)(ii).
\35\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend the rule
change if it appears to the Commission that the action is necessary or
appropriate in the public interest, for the protection of investors, or
would otherwise further the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#bfcdcad3da92dcd0d2d2dad1cbccffccdadc91d8d0c9"><span class="__cf_email__" data-cfemail="a8daddc4cd85cbc7c5c5cdc6dcdbe8dbcdcb86cfc7de">[email protected]</span></a>. Please include
file number SR-LTSE-2025-14 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-LTSE-2025-14. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-LTSE-2025-14 and
should be submitted on or before August 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
---------------------------------------------------------------------------
\36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-13481 Filed 7-17-25; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on July 18, 2025.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.