[Federal Register Volume 76, Number 218 (Thursday, November 10, 2011)]
[Notices]
[Pages 70199-70202]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-29109]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65688; File No. SR-NASDAQ-2011-146]


 Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Modify Rule 7034 Regarding 
Low Latency Network Connections

November 4, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on October 31, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes to modify Exchange Rule 7034 entitled 
``Co-Location Services'' to establish a program for offering low 
latency network connections and to establish the initial fees for such 
connections. The Exchange also proposes administrative modifications to 
Exchange Rule 7034.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaq.cchwallstreet.com, at the principal 
office of the Exchange, on the Commission's Web site at http://www.sec.gov, 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 Exchange 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
Low Latency Network Connection Option
    The purpose of the proposed rule change is to modify Exchange Rule 
7034, which governs the Exchange's program for co-location services, to 
offer new options for low latency network telecommunication connections 
and to establish the initial fees for such connections. As its initial 
offering, the Exchange proposes to offer point-to-point 
telecommunication connectivity from the co-location facility to select 
major financial trading and co-location venues in the New York and New 
Jersey metropolitan areas, Toronto, and Chicago.

[[Page 70200]]

Background
    Currently the Exchange provides a cross connect from a client's 
cabinet to its requested telecommunication carrier's cabinet (known as 
a ``telco cross connect''). Through the enhanced point-to-point 
connectivity service, clients will now have the option to receive low 
latency network connectivity from the Exchange's data center to the 
client's chosen venue(s), in addition to the telco cross connect. These 
connections can be utilized to send market data to and receive orders 
from the chosen venues.
    The enhanced point-to-point connectivity provides the Exchange's 
co-location customers the opportunity to obtain low latency network 
connectivity with greater ease than is currently the case, and at a 
competitive price. Currently, co-location customers obtain similar 
services by negotiating fees, obtaining service level agreements, and 
executing service agreements directly with approved telecommunication 
carriers. A co-located customer is currently charged a monthly 
negotiated fee by the telecommunications carrier in addition to a cross 
connection fee by the Exchange. There are currently 16 approved 
telecommunication carriers with equipment in the Exchange's data 
center, with additional carriers added at the request of a client. In 
order to provide the new connectivity option described in this proposed 
rule change, the Exchange established a low-latency minimum 
standard,\5\ approached those telecommunications carriers with low 
latency connections to select major financial trading and co-location 
venues in the New York and New Jersey metropolitan areas, Toronto, and 
Chicago that met the low-latency minimum standard,\6\ and invited them 
to agree to discounted rates. In effect, the Exchange is obtaining 
wholesale rates from the carriers and then charging a markup to 
compensate it for its efforts to negotiate and establish the 
arrangement and integrate the connectivity into the Exchange co-
location connectivity offering, as well as administrative costs 
associated with establishing and maintaining each new connection. Of 
the 16 approved telecommunication carriers with equipment in the 
Exchange's data center, one carrier has, to date, agreed to offer 
connections under the program and others are in negotiations with the 
Exchange; additional carriers are eligible to join the program upon 
meeting the same terms and conditions.
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    \5\ The low-latency minimum standard is less than or equal to 
0.41 milliseconds for New York/New Jersey routes, less than or equal 
to 10.1 milliseconds for Toronto routes, and less than or equal to 
17 milliseconds for Chicago routes. This standard will change as the 
technology improves and the latency is further reduced.
    \6\ The Exchange selected these locations because of the high 
numbers of member firms and/or liquidity venues located there.
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    Under the program, co-located customers will have the opportunity 
to request these new low latency network telecommunication connections 
through the same process used to request a new co-located cabinet and 
other co-location services, with no need for direct fee negotiations or 
new service agreements with telecommunication carriers. The co-located 
customer will choose the connection destination,\7\ but the elimination 
of direct negotiations and separate service agreements with the 
telecommunications provider for these services will allow them to 
obtain a similar service at a competitive price and with greater ease 
of implementation. In addition, the proposed low latency network 
connectivity fees include cross connections and eliminate a separate 
fee for that service.
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    \7\ As additional providers join the program, customers will 
also have the opportunity to choose from among these providers.
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    The Exchange is making the low latency network telecommunication 
connections available as a convenience to customers and notes that 
receipt of these connections is completely voluntary. Customers retain 
the option of contracting directly with telecommunication providers, 
including either the provider(s) that participate in the program, the 
current providers in the data center who have not yet agreed to 
participate, or any new carrier that is approved to install equipment 
in the Exchange's data center.
Low Latency Pricing Structure
    The Exchange proposes: (1) A one-time fee of $1,165 for the 
installation of 100 MB of telecommunication connectivity to select New 
York and New Jersey metropolitan area financial trading and co-location 
venues, which includes fiber telecommunication cross connects within 
the NASDAQ OMX data center, along with a per-month connectivity fee of 
$1,650; (2) a one-time fee of $2,150 for the installation of 1G of 
telecommunication connectivity to select New York and New Jersey 
metropolitan area financial trading and co-location venues, which 
includes fiber telecommunication cross connects within the NASDAQ OMX 
data center, along with a per-month connectivity fee of $2,150; (3) a 
one-time fee of $5,000 for the installation of 10G of telecommunication 
connectivity to select New York and New Jersey metropolitan area 
financial trading and co-location venues, which includes fiber 
telecommunication cross connects within the NASDAQ OMX data center, 
along with a per-month connectivity fee of $5,000; (4) a one-time fee 
of $5,150 for the installation of 100 MB of telecommunication 
connectivity to select Toronto area financial trading and co-location 
venues, which includes fiber telecommunication cross connects within 
the NASDAQ OMX data center, along with a per-month connectivity fee of 
$4,350; (5) a one-time fee of $8,200 for the installation of 1G of 
telecommunication connectivity to select Toronto area financial trading 
and co-location venues, which includes fiber telecommunication cross 
connects within the NASDAQ OMX data center, along with a per-month 
connectivity fee of $10,450; (6) a one-time fee of $15,150 for the 
installation of 10G of telecommunication connectivity to select Toronto 
area financial trading and co-location venues, which includes fiber 
telecommunication cross connects within the NASDAQ OMX data center, 
along with a per-month connectivity fee of $32,400; (7) a one-time fee 
of $4,850 for the installation of 100 MB of telecommunication 
connectivity to select Chicago area financial trading and co-location 
venues, which includes fiber telecommunication cross connects within 
the NASDAQ OMX data center, along with a per-month connectivity fee of 
$8,350; (8) a one-time fee of $5,900 for the installation of 1G of 
telecommunication connectivity to select Chicago area financial trading 
and co-location venues, which includes fiber telecommunication cross 
connects within the NASDAQ OMX data center, along with a per-month 
connectivity fee of $16,400; and (9) a one-time fee of $12,050 for the 
installation of 10G of telecommunication connectivity to select Chicago 
area financial trading and co-location venues, which includes fiber 
telecommunication cross connects within the NASDAQ OMX data center, 
along with a per-month connectivity fee of $39,750.
    The fees are based on anticipated bandwidth necessary for the 
connections and distances to these select venues. Furthermore, the 
Exchange believes the fees are reasonable as they are similar and 
competitive with fees charged for similar services by other 
entities.\8\
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    \8\ See http://www.cmegroup.com/globex/files/CMEGlobexConnectionAgrmt.pdf; http://nysetechnologies.nyx.com/global-connectivity/sfti-americas/sfti-ip-americas; http://nysetechnologies.nyx.com/sites/technologies.nyx.com/files/SFTI_Americas_Market_Connectivity.pdf; http://nysetechnologies.nyx.com/global-connectivity/sfti-americas.

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[[Page 70201]]

Elimination of Obsolete Rule Language Concerning Waiver of Fees
    The Exchange also proposes to eliminate references to certain fee 
waivers that expired July 31, 2011.\9\ Since the fee waivers expired, 
such language is no longer necessary.
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    \9\ See Securities Exchange Act Release No. 64630 (June 8, 
2011), 76 FR 34783 (June 14, 2011) (SR-NASDAQ-2011-074); and 
Securities Exchange Act Release No. 64858 (July 12, 2011), 76 FR 
42152 (July 18, 2011) (SR-NASDAQ-2011-094).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \10\ in general, and Sections 6(b)(4) and (b)(5) of the 
Act \11\ in particular, in that it provides for the equitable 
allocation of reasonable dues, fees and other charges among members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls, 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. The proposal 
is designed to provide a method of connectivity between the Exchange's 
co-location facility and various remote locations. Currently, market 
participants obtain such connections by negotiating directly with 
telecommunication providers. Through its efforts to negotiate standard 
wholesale rates with providers, the Exchange seeks to offer market 
participants an opportunity to obtain the same connectivity service at 
a potentially lower cost and with greater ease of implementation. The 
Exchange believes that this change will be unambiguously beneficial to 
market participants, who will retain all current options for obtaining 
connectivity through direct negotiations with telecommunications 
providers, while also receiving a new option for obtaining the service 
through the Exchange's program.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed fees for the service cover the costs charged to the 
Exchange by telecommunication provider(s). The fees charged to the 
Exchange are based on anticipated bandwidth necessary for the 
connections and distances to the available locations covered by the 
service (New York/New Jersey, Chicago, and Toronto). The proposed fees 
also include a markup to allow the Exchange to cover its administrative 
costs and to earn a profit on its provision of the service. The 
Exchange believes that it is reasonable to use fees assessed on this 
basis as a means to recoup NASDAQ's share of the costs associated with 
the proposed low latency network telecommunication connections, provide 
a convenience for the customers, and to the extent the costs are 
covered, provide the Exchange a profit. The Exchange further believes 
that the proposed fees are reasonable in light of the costs associated 
with the service and the fees charged by other trading venues for 
comparable services.\12\
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    \12\ See supra n. 8.
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    The proposed co-location services are entirely voluntary and 
available to all members, with uniform fees charged to all market 
participants that opt to obtain connectivity through the Exchange. 
Moreover, market participants may choose to obtain services through the 
Exchange, or may choose to negotiate their own connectivity with 16 
different providers. Accordingly, the Exchange's proposed fees are non-
discriminatory, and equitably allocated to market participants that 
choose to avail themselves of the Exchange's services, rather than 
obtaining comparable services directly.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. First, competition between the 
Exchange and competing trading venues will be enhanced by allowing the 
Exchange to offer its market participants connectivity to its data 
center at a potentially lower price, and with greater ease. As noted 
above, NYSE already offers comparable services, at comparable fees, to 
its market participants. Accordingly, the proposal will allow the 
Exchange to enhance its competitive standing vis-[agrave]-vis other 
trading venues. Conversely, any delay in the effectiveness of the 
proposed rule change would burden competition by preventing the 
Exchange from mounting a response to a primary competitor. Second, 
competition among market participants will be supported by allowing 
small and large participants to pay a lower price for data center 
connectivity.
    The Exchange believes that the proposed rule change will likewise 
enhance competition among telecommunications providers that seek to 
offer connections between market participants and the Exchange's data 
center. As discussed above, the Exchange does not discriminate among 
telecommunication providers, but rather allows providers to access the 
data center upon request of a market participant. As a result, 16 
providers are currently connected. Likewise, the Exchange does not 
discriminate among providers with respect to eligibility to offer 
connectivity through the Exchange under the service proposed in this 
filing, provided the latency, destinations, and fees offered by the 
provider are consistent with the minimum standards established by the 
Exchange. Thus, telecommunications providers can choose to participate 
in the program, or can choose to service market participants 
exclusively through direct negotiations with customers. The Exchange's 
approach is consistent with its own economic incentives to facilitate 
as many market participants as possible in connecting to its market. 
Burdening competition among telecommunications providers would be 
antithetical to the Exchange's own competitive interests, since 
impaired competition would make it more expensive and more difficult 
for market participants to send order flow to the Exchange.
    The Exchange expects that the result of the proposal will be a 
reduction in fees charged to market participants, the very essence of 
competition. To the extent that fees under the program are less 
expensive than the rates currently paid by many market participants, 
the welfare of these market participants will increase, and other 
telecommunications providers will be incentivized to lower their own 
rates. This will, in turn, facilitate the introduction of greater 
volumes of order flow to the Exchange.

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

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings

[[Page 70202]]

to determine whether the proposed rule change should be 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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2011-146 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-NASDAQ-2011-146. 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 
a.m. and 3 p.m. Copies of such 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-NASDAQ-2011-146 and should 
be submitted on or before December 1, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29109 Filed 11-9-11; 8:45 am]
BILLING CODE 8011-01-P