[Federal Register Volume 76, Number 248 (Tuesday, December 27, 2011)]
[Notices]
[Pages 80992-80993]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-33145]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66013; File No. SR-NASDAQ-2011-146]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving a Proposed Rule Change to Modify Rule 7034 Regarding Low 
Latency Network Connections

December 20, 2011.

I. Introduction

    On October 31, 2011, the NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change 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 proposed administrative modifications to 
Exchange Rule 7034. The proposed rule change was published for comment 
in the Federal Register on November 10, 2011.\3\ The Commission 
received no comments on the proposal. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 65688 (November 4, 
2011), 76 FR 70199 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposed 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 fees for such connections. As its initial offering, the Exchange 
proposed 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.\4\
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    \4\ Id. at 70199. The Exchange represented that it currently 
provides a cross connect from a client's cabinet to its requested 
telecommunication carrier's cabinet (known as a ``telco cross 
connect''). According to the Exchange, clients would have the option 
to use the enhanced point-to-point connectivity service 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 could be utilized to send market data to 
and receive orders from the chosen venues.
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    According to the Exchange, the enhanced point-to-point connectivity 
would provide the Exchange's co-location customers with the opportunity 
to obtain low latency network connectivity with greater ease than is 
currently the case, and at a competitive price.\5\ The Exchange 
represented that co-location customers currently obtain similar 
services by negotiating fees, obtaining service level agreements, and 
executing service agreements directly with approved telecommunication 
carriers, and that such co-location customers are currently charged a 
monthly negotiated fee by the telecommunications carrier in addition to 
a cross connection fee by the Exchange.\6\ The Exchange represented 
that for its low latency network connection services, it would obtain 
wholesale rates from the carriers and then charge a markup to 
compensate the Exchange for its efforts to negotiate and establish the 
arrangement, for integrating the connectivity into the Exchange co-
location connectivity offering, and for administrative costs associated 
with establishing and maintaining each new connection.\7\
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    \5\ Id. at 70200.
    \6\ Id.
    \7\ Id.
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    According to the Exchange, co-location customers would 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.\8\ Co-location customers would 
retain the option of contracting directly with telecommunication 
providers, including either the providers 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.\9\
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    \8\ Id.
    \9\ Id.
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    The Exchange proposed one-time fees for the installation of 
telecommunication connectivity to select major financial trading and 
co-location venues in the New York and New Jersey metropolitan areas, 
Toronto, and Chicago, as well as per-month connectivity fees, at 
connectivity levels of 100MB, 1G, and 10G, respectively.\10\ The 
Exchange represented that the fees were based on anticipated bandwidth 
necessary for the connections and distances to these select venues. The 
Exchange indicated its belief that the fees are reasonable, because 
they are similar and competitive with fees charged for similar services 
by other entities.\11\
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    \10\ Id.
    \11\ Id.

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[[Page 80993]]

    The Exchange also proposed to eliminate references to certain fee 
waivers that expired July 31, 2011.\12\
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    \12\ See Notice, 76 FR at 70201; see also 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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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\13\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(4) of the Act,\14\ which 
requires that the rules of a national securities exchange provide for 
the equitable allocation of reasonable dues, fees and other charges 
among its members and issuers and other persons using its facilities, 
and with Section 6(b)(5) of the Act,\15\ which requires, among other 
things, that the rules of a national securities exchange be 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, and not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \13\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f(b)(5).
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    In the Notice, the Exchange represented that the low latency 
network connections would be offered to market participants in a manner 
that is not unfairly discriminatory.\16\ The Commission believes that 
this program to offer low latency network connectivity, in the manner 
described in the proposal, is consistent with Section 6(b)(5) the 
Exchange Act insofar as NASDAQ makes these connectivity options 
uniformly available to all members who voluntarily request them and pay 
the associated fees. Additionally, the Commission notes that members 
may choose not to obtain low latency network connectivity through the 
Exchange and instead negotiate connectivity options separately through 
other vendors on site.
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    \16\ See Notice, 76 FR at 70201.
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    Regarding the associated fees, the Exchange represented that they 
will be applied uniformly and will not unfairly discriminate between 
similarly situated market participants that use such co-location 
services.\17\ The Exchange also represented that the fees are 
reasonable because, among other things, they enable the Exchange to 
recoup its share of the costs associated with the proposed low latency 
network telecommunication connections.\18\ The Exchange further 
represented that the fees and associated costs of the co-location 
services are comparable to the costs and fees associated with 
comparable services offered by other trading venues.\19\ Finally, the 
Exchange noted its expectation that this service will result in a 
reduction in fees charged to market participants due to enhanced 
competition.\20\ In light of the Exchange's representations, the 
Commission believes that the fees associated with the low latency 
network connection services are consistent with Section 6(b)(4) of the 
Exchange Act.
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    \17\ Id.
    \18\ Id.
    \19\ Id.
    \20\ Id.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NASDAQ-2011-146) be, and it 
hereby is, approved.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Kevin M. O'Neill,
Deputy Secretary.
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    \22\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-33145 Filed 12-23-11; 8:45 am]
BILLING CODE 8011-01-P