[Federal Register Volume 77, Number 38 (Monday, February 27, 2012)]
[Notices]
[Pages 11602-11604]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-4479]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66428; File No. SR-NASDAQ-2012-028]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify NASDAQ Connectivity Options and Fees

February 21, 2012.
    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 February 13, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to modify NASDAQ connectivity options and 
fees. The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at the Exchange's principal office, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to modify Rule 7034(b) regarding connectivity 
to NASDAQ. Specifically, the Exchange proposes to (i) establish a 
connectivity fee for a 40Gb enhanced bandwidth option; and (ii) provide 
a waiver of installation fees for upgrades.
Enhanced Bandwidth Option
    The Exchange currently offers various bandwidth options for 
connectivity to NASDAQ, including a 10Gb fiber connection, a 1Gb copper 
connection, and a 100 MB connection.\3\ In keeping with changes in 
technology, the Exchange now proposes to provide an enhanced bandwidth 
option to enable its clients a more efficient connection to the 
Exchange. The Exchange proposes a 40G [sic] fiber connection with a 
one-time installation fee of $1,500, and a per-month connectivity fee 
of $15,000. The growth in the size of consolidated and proprietary data 
feeds has resulted in demand for higher bandwidth. As the number of 
feeds available and the size of the feeds increases, the bandwidth 
required for market data feeds steadily rises. The Exchange's proposal 
provides the co-located client the option to select the bandwidth that 
is appropriate for the firm's current needs and enables it to add or 
change services as its needs change.
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    \3\ See Exchange Rule 7034(b), Connectivity to Nasdaq. All co-
location services are provided by NASDAQ Technology Services LLC.
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Waiver of Installation Fees
    The Exchange also proposes to provide a waiver of the installation 
fees for client orders of 10Gb and 40Gb fiber connectivity to NASDAQ 
completed between the effectiveness of this proposal and May 31, 2012. 
The Exchange is providing the waiver to assist its co-located clients 
in upgrading to higher bandwidth connections to meet the growing needs 
of co-located clients' business operations.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \4\ in general, and with Section

[[Page 11603]]

6(b)(4) of the Act,\5\ 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. The Exchange also believes the 
proposal furthers the objectives of Section 6(b)(5) of the Act \6\ in 
that it 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 and are [sic] not designed to permit 
unfair discrimination between customer, issuers, brokers and dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4).
    \6\ 15 U.S.C. 78f(b)(5).
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Enhanced Bandwidth Option
    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act 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.
Reasonable Fees
    The Exchange's proposal for 40Gb fiber connectivity will provide 
co-location clients the ability to increase data transmission and 
reduce latency, thereby enhancing their operations. The Exchange 
believes the proposed fees for 40B [sic] fiber connectivity to NASDAQ 
are reasonable because the fees charged for the higher bandwidth allow 
the Exchange to cover the hardware, installation, testing and 
connection costs to maintain and manage the enhanced connection. The 
proposed fees allow the Exchange to recoup costs associated with 
providing the 40Gb connection and provide the Exchange a profit while 
providing customers the possibility of reducing the number of their 
connections to the Exchange. While no other Exchange currently offers 
the proposed 40Gb bandwidth connection, the Exchange further believes 
that the proposed fees are reasonable in that the proposed fees are 
proportionately less than the fees charged by other trading venues for 
similar connectivity services.\7\
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    \7\ NYSE charges $10,000 per month for 10Gb LCN (Liquidity 
Center Network) Connection. See https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees_1.3.2012.pdf, page 13. Furthermore, ISE charges $4,000 per month for 
10Gb Ethernet network connections. See http://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf, page 9. By 
contrast, NASDAQ is proposing to offer four times the bandwidth for 
a monthly fee of $15,000.
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Equitable Allocation
    The Exchange also believes the proposed 40Gb fiber fee for 
connectivity to NASDAQ is equitably allocated in that all Exchange 
members that voluntarily select this service option will be charged the 
same amount to cover the hardware, installation, testing and connection 
costs to maintain and manage the enhanced connection. The proposed fees 
allow the Exchange to recoup costs associated with providing the 40Gb 
connection and provide the Exchange a profit while providing customers 
the possibility of reducing the number of their connections to the 
Exchange. All Exchange members have the option to select this voluntary 
co-location service.
    The Exchange also believes the proposal furthers the objectives of 
Section 6(b)(5) of the Act \8\ in that it 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 and are 
[sic] not designed to permit unfair discrimination between customer, 
issuers, brokers and dealers.
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    \8\ 15 U.S.C. 78f(b)(5).
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Removes Impediments and Perfects Mechanism of a Free and Open Market
    Furthermore, the enhanced 40Gb fiber connectivity assists the co-
located clients in making their network connectivity more efficient, as 
clients could consolidate the number of connections to NASDAQ. Due to 
the continuous growth of the size of consolidated and proprietary 
market data feeds transmitted over the NASDAQ connections, clients need 
to monitor their connections for data spikes and data gapping issues 
which can result in potential trading errors, trading losses and may 
require network resource intervention to resolve. The Exchange believes 
the enhanced 40Gb connection will remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the enhanced connectivity option will remove the potential for 
data spikes and data gapping issues that result from the transmission 
of the growing size of the consolidated and proprietary market data 
feeds.
Protects Investors and the Public Interest
    The Exchange also believes that the reduction in latencies 
attributed to the enhanced 40Gb connection option further serves to 
protect investors and the public interest. The reduction in latencies 
will remove the potential for data spikes and data gapping issues that 
result from the transmission of the growing size of the consolidated 
and proprietary market data feeds. Such data spiking and data gapping 
issues have the potential of disrupting the marketplace which could 
negatively impact the investors as well as the public interest.
Not Unfairly Discriminatory
    The Exchange also believes the proposed 40Gb fiber fee for 
connectivity to NASDAQ is not unfairly discriminatory in that all 
NASDAQ members have the option of selecting the 40Gb connection to 
NASDAQ, and there is no differentiation among members with regard to 
the fees charged for this option. Furthermore, the Exchange believes 
the [sic] providing all NASDAQ Members the proposed connectivity option 
for the proposed fees, which covers the hardware, installation, testing 
and connection costs to maintain and manage the enhanced connection, 
promotes just and equitable principles of trade.
Waiver of Installation Fees
    The Exchange believes that its proposal for the waiver of 
installation fees is consistent with Section 6(b) of the Act \9\ in 
general, and with Section 6(b)(4) of the Act,\10\ 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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Reasonable Waiver of Fees
    The Exchange believes that its proposal to waive the 10Gb and 40Gb 
fiber connection installation fees is reasonable because it is being 
provided to assist its co-located clients in upgrading to higher 
bandwidth connections to meet the growing needs of the co-located 
clients' business operations at a time in the industry when the ever-
increasing size of consolidated and proprietary data fees are [sic] 
causing higher demand for larger bandwidth options to reduce potential 
disruption in the marketplace.
Equitably Allocated
    The Exchange also believes the proposal to waive the 10Gb and 40Gb 
fiber connection installation fee is equitably allocated in that all 
Exchange

[[Page 11604]]

members that voluntarily select these service options will be afforded 
the waiver of fees until May 31, 2012. All Exchange members have the 
option to select these voluntary co-location services.
Not Unfairly Discriminatory
    The Exchange also believes the proposal to waive the 10Gb and 40Gb 
fiber connection installation fee is not unfairly discriminatory in 
that the waiver of fees is provided to all NASDAQ members that 
volunteer for these particular service options, and there is no 
differentiation among members with regard to the waiver of fees for 
these options.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.

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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because such waiver will facilitate trading activities by 
providing members an option to enhance the efficiency of their trading 
through the 40Gb connectivity. Therefore, the Commission designates the 
proposal operative upon filing.\13\
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    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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-2012-028 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-2012-028. 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 
publicly available. All submissions should refer to File Number SR-
NASDAQ-2012-028, and should be submitted on or before March 19, 2012.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-4479 Filed 2-24-12; 8:45 am]
BILLING CODE 8011-01-P