[Federal Register Volume 78, Number 187 (Thursday, September 26, 2013)]
[Notices]
[Pages 59391-59394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-23425]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70467; File No. SR-NASDAQ-2013-119]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify the Existing Fees To Receive CME Group Multi-Cast Market Data 
Feeds via Wireless Connectivity

September 20, 2013.
    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 September 12, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``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.
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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

    NASDAQ proposes to modify the existing fees clients in NASDAQ's 
Carteret data center to receive CME Group multi-cast market data feeds 
via wireless connectivity. 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, 
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, NASDAQ 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 those 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 parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Background. In July of 2013, NASDAQ began utilize wireless 
technology to make available to its co-located clients third-party data 
from the CME Group, and to assess fees for the delivery of that third 
party market data to market center clients via a wireless network.\3\ 
Clients who choose this optional service use their existing NASDAQ 
cross connect handoffs (1G, 10G, or 40G) to receive the multicast 
market data for CME Group, and NASDAQ act as re-distributor of the 
third party market data feeds, capturing the data at CME Group's data 
centers and transporting the data to NASDAQ's Carteret data center. CME 
Group data is also available via fiber optic network, and therefore the 
wireless connectivity is simply another of many alternative methods of 
acquiring the CME data.
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    \3\ See Securities Exchange Act Release No. 69844; 78 F.R. 39383 
(July 1, 2013) (SR-NASDAQ-2013-084).
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    In July, NASDAQ began assessing clients a $5,000 installation fee 
(a non-recurring charge) and a monthly recurring charge (MRC) of 
$23,500 for connectivity. Clients place orders for the wireless 
connectivity to CME data via NASDAQ's CoLo Console.\4\ Subscribers to 
CME Group's data via a wireless network are currently required to 
subscribe for a minimum of one year, which is standard practice for co-
location offerings. As an incentive to clients, NASDAQ agreed to waive 
the first month's MRC.
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    \4\ The ``CoLo Console'' is a web-based ordering tool NASDAQ 
offers to enable members to place co-location orders.
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    Since July, the wireless network delivering CME data has performed 
well. NASDAQ OMX performed substantial network testing prior to 
offering the service for a fee to members. The wireless network will 
continue to be closely monitored and the client informed of any issues. 
As wireless networks may be affected by severe weather events, clients 
must have redundant methods to receive this market data and must attest 
to having alternate methods or establishing an alternate method in the 
near future when they order this service from the Exchange.
    Current Proposal. NASDAQ is proposing three minor modifications to 
the CME data fees. First, in addition to offering a single MRC fee of 
$23,000 for receiving all available CME data, NASDAQ will offer three 
subsets of data for subscribers seeking only a portion of the total 
available. Specifically, NASDAQ will offer Equities Futures Only data 
for an MRC of $10,000, Fixed Income Futures Only for an MRC of $10,000, 
and Metals Futures Only for an MRC of $3,500. Clients choosing to 
receive all CME data will continue to pay an MRC of $23,500 as they do 
today; clients choosing to receive less data will pay lower fees. The 
single $5,000 installation fee will continue to apply regardless of the 
amount of data clients elect to receive.
    Second, NASDAQ will eliminate the requirement that subscribers 
commit to a minimum 12-month subscription. Since July, NASDAQ has 
determined that clients prefer longer-term arrangements and, therefore, 
that a regulatory requirement is unnecessary. Just as NASDAQ and its 
vendor invest heavily to offer CME data, NASDAQ's clients make 
substantial investments to obtain the CME data and they require long-
term usage to help recover that investment. NASDAQ will also release 
from the 12-month minimum all current clients that adopted the product 
beginning in July subject to that requirement. This will allow all 
users to receive the CME data on the same terms.
    Third, NASDAQ will eliminate the 30-day waiver period for MRC fees 
for CME data. The waiver period is unnecessary because the 12-month 
minimum subscription no longer applies. Clients are now able to connect 
for a short period of time, test the product, and then disconnect 
without penalty at any time if the product does not prove valuable to 
them.
    Representations. The CME data feed delivery option will continue to 
be available to all clients of the data center, and is in response to 
industry demand, as well as to changes in the technology for 
distributing market data. Clients opting not to pay for the wireless 
connectivity will still be able to receive market data via fiber optics 
and standard telecommunications connections, as they do currently, and 
under the same fees. Receipt of trade data via wireless technology is 
completely optional. In addition, clients can choose to receive market 
data via other third-party vendors (Extranets or Telecommunication 
vendors) via fiber optic networks or wireless networks.
    The proposed fees are based on the cost to NASDAQ and the vendor of 
installing and maintaining the wireless

[[Page 59392]]

connectivity and on the value provided to the customer, which receives 
low latency delivery of data feeds. The costs associated with the 
wireless connectivity system are incrementally higher than fiber 
optics-based solutions due to the expense of the wireless equipment, 
cost of installation and testing and ongoing maintenance of the 
network. The fees also allow NASDAQ to make a profit, and reflect the 
premium received by the clients in terms of lower latency over the 
fiber optics option. Clients can choose to build and maintain their own 
wireless networks or choose their own third party network vendors but 
the upfront and ongoing costs will be much more substantial than this 
Exchange wireless offering.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \5\ in general, and with Sections 6(b)(4), (b)(5) and 
(b)(8) of the Act,\6\ 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. 
NASDAQ's proposal to offer wireless connectivity supports important 
policy objectives of the Act, including the broadest, fairest possible 
dissemination of market data.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4), (5) and (8).
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    The Exchange believes that the proposed fees for wireless 
connectivity to NASDAQ are consistent with Section 6(b)(4) of the Act 
for multiple reasons. The Exchange operates in a highly competitive 
market in which exchanges offer co-location services as a means to 
facilitate the trading activities of those members who believe that co-
location enhances the efficiency of their trading. Accordingly, fees 
charged for co-location services are constrained by the active 
competition for the order flow of such members. If a particular 
exchange charges excessive fees for co-location services, affected 
members will opt to terminate their co-location arrangements with that 
exchange, and adopt a possible range of alternative strategies, 
including co-locating with a different exchange, placing their servers 
in a physically proximate location outside the exchange's data center, 
or pursuing trading strategies not dependent upon co-location. 
Accordingly, the exchange charging excessive fees would stand to lose 
not only co-location revenues but also revenues associated with the 
execution of orders routed to it by affected members. Although 
currently no other exchange offers wireless connectivity, there are no 
constraints on their ability to do so, and it is probable that other 
exchanges will make a similar offering in the near future. The Exchange 
believes that this competitive dynamic imposes powerful restraints on 
the ability of any exchange to charge unreasonable fees for co-location 
services, including fees for wireless connectivity.
    A co-location customer may obtain a similar service by contracting 
with a wireless service provider to install the required dishes on 
towers near the data centers and paying the service provider to 
maintain the service. However, the cost involved in establishing 
service in this manner is substantial and could result in uneven access 
to wireless connectivity. The Exchange's proposed fees will allow these 
clients to utilize wireless connectivity and obtain the lower latency 
transmission of data from third parties and NASDAQ that is available to 
others, at a reasonable cost.\7\
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    \7\ The wireless network offered by the Exchange via the 
provider, although constrained by bandwidth with respect to the 
number of feeds it can carry, can be made available to an unlimited 
number of customers. The factors that differentiate this proposal 
from the Exchange's offerings of and initial fees for low latency 
network telecommunication connections approved by the Commission in 
Securities Exchange Act Release No. 66013 (December 20, 2011) 76 FR 
80992 (December 27, 2011) (SR-NASDAQ-2011-146) are a function of 
technology and program concept, but neither approach implicates a 
burden on competition, for similar reasons: Each offers, at a 
competitive price, a service that customers may obtain by dealing 
directly with the provider rather than the Exchange; and each is 
expected to result in a reduction in fees charged to market 
participants, the very essence of competition. Pursuant to the SEC's 
prior approval, the Exchange offers customers the opportunity to 
obtain low latency telecommunications connectivity by establishing a 
low-latency minimum standard and negotiating with multiple 
telecommunication providers to obtain discounted rates. It then 
passes these wholesale rates along to participating customers, with 
a markup to compensate for the Exchange's role in negotiating and 
establishing the arrangement, and integrating and maintaining each 
new connection. Co-located customers are free to choose the provider 
they wish to use from those participating in the program; or they 
may choose not to avail themselves of the service and obtain 
comparable services directly from the provider. The Exchange does 
not discriminate among telecommunications providers in its program, 
so long as they meet the required latency, destination, and fee 
standards. Wireless technology, in contrast, does not require 
separate avenues of connectivity for each customer, and thus the 
Exchange is not obtaining a wholesale price by negotiating with 
service providers. Rather, it is selecting, on a competitive basis, 
the service provider(s) to install and maintain the system, and 
charging customers for access to that particular system, offering 
lower prices because it is spreading the substantial cost among 
multiple clients. The program, far from burdening competition among 
connectivity service providers, promotes it. A wireless provider 
that can offer to the Exchange--or to a competitor exchange--a lower 
price for installation and maintenance will no doubt get the 
exchanges' business, with the end result that prices for the end 
users will go down.
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    Moreover, the Exchange believes the proposed fees for wireless 
connectivity to NASDAQ are reasonable because they are based on the 
Exchange's and vendor's costs to cover hardware, installation, testing 
and connection, as well expenses involved in maintaining and managing 
the enhanced connection. The proposed fees allow the Exchange to recoup 
these costs and make a profit, while providing customers the ability to 
reduce latency in the transmission of data from third parties and 
NASDAQ, and reducing the cost to them that would be involved if they 
build or buy their own wireless networks. The Exchange believes that 
the proposed fees are reasonable in that they reflect the costs of the 
connection and the benefit of the lower latency to clients.
    The Exchange also believes that the proposed wireless connectivity 
fees are consistent with Section 6(b)(5) of the Act in that the fees 
are equitably allocated and non-discriminatory. All Exchange members 
that voluntarily select this service option will be charged the same 
amount for the same services. As is true of all co-location services, 
all co-located clients have the option to select this voluntary 
connectivity option, and there is no differentiation among customers 
with regard to the fees charged for the service. Further, the latency 
reduction offered will be the same for all co-located clients, 
irrespective of the locations of their cabinets within the data center. 
The same cannot be said of the alternative where entities with 
substantial resources invest in private services and thereby obtain 
lower latency transmission, while those without resources are unable to 
invest in the necessary infrastructure.
    The Exchange's proposal is also consistent with the requirement of 
Section 6(b)(5) of the Act that Exchange rules be designed to prevent 
fraudulent and manipulative acts and practices, 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 and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the

[[Page 59393]]

public interest; and are not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
    The proposal is consistent with these requirements insomuch as it 
makes available to market participants, at a reasonable fee and on a 
non-discriminatory basis, access to low latency means of receiving 
market data feeds. Some market participants have already adopted 
wireless technology, using towers near the data centers, and others 
have approached the Exchange seeking to rent roof rights to mount their 
towers. Rather than lease out roof space to the highest bidders, a 
process that would stratify and limit access to the low latency 
delivery, this approach allows unlimited numbers of users to utilize 
the this Exchange service which utilizes vendors who rely on nearby 
towers to house the wireless equipment to receive the market data. It 
will allow the same low latency delivery to those unable to invest in 
the more expensive option of building or acquiring their own wireless 
network, as it does for those whose pockets are deeper.\8\
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    \8\ NASDAQ also believes that it is reasonable and non-
discriminatory to waive the 12-month minimum subscription 
requirement for both new and current subscribers. As stated above, 
this will permit all users to obtain the data on equal terms 
regardless of when they first purchased it.
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    NASDAQ performed substantial network testing prior to making the 
service available to members, the wireless network is closely monitored 
and maintained by the vendor, and the client will be informed of any 
issues. Similar to receiving market data over fiber optic networks, the 
wireless network can encounter delays or outages due to equipment 
issues. As wireless networks may be affected by severe weather events, 
clients will be expected to have redundant methods to receive this 
market data and will be asked to attest to having alternate methods or 
establishing an alternate method in the near future when they order 
this service from the Exchange.
    Finally, for the reasons stated below in Section 4 of Form 19b-4, 
the proposed fees for wireless connectivity are consistent with Section 
6(b)(8) of the Act in that they do not impose a burden on competition 
not necessary or appropriate in furtherance of the purposes of the Act.

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

    NASDAQ 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. To the contrary, 
this proposal will promote competition for distribution of market data 
by offering an optional and innovative product enhancement. Wireless 
technology has been in use for decades, is available from multiple 
providers, and may be adopted by other exchanges that decide to offer 
microwave connectivity for delivery of market data. As discussed above, 
the Exchange believes that fees for co-location services, including 
those proposed for microwave connectivity, are constrained by the 
robust competition for order flow among exchanges and non-exchange 
markets, because co-location exists to advance that competition. 
Further, excessive fees for co-location services, including for 
wireless technology, would serve to impair an exchange's ability to 
compete for order flow rather than burdening competition.
    Furthermore, there are multiple effective competitive alternatives 
to NASDAQ's wireless offering. NASDAQ has no arrangement with CME that 
limits the ability of CME to transmit CME data via alternative wireless 
providers. Additionally, NASDAQ does not limit the ability of 
alternative wireless providers to re-transmit data received from CME 
either outside of or within NASDAQ's co-location facility. A 
competitive network provides the same or similar data, at the same or 
similar speed, at the same or similar cost, and NASDAQ's proposal does 
nothing to inhibit or constrain this. Currently, 17 market data vendors 
have fiber optic cables connected to NASDAQ's telco room in Carteret, 
and NASDAQ believes at least ten wireless networks exist or are under 
construction within very close proximity to the Carteret facility.\9\ 
That number can, and likely will, grow, and nothing in the proposal 
inhibits additional wireless vendors accessing or providing CME data. 
Any or all of those vendors and networks is an effective competitor to 
the NASDAQ wireless offering. A market data vendor could also induce 
purchasers away from NASDAQ with an ever-so-slightly slower but still 
valuable product at a lower price. This variety of price and speed 
attributes is an effective constraint on NASDAQ's pricing power.
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    \9\ This belief is based on a review conducted for NASDAQ of 
publicly-available registration and spectrum reservation databases 
at the Federal Communications Commission. While it is difficult to 
state a definitive number of active vendors, NASDAQ can state 
categorically that multiple vendors currently provide wireless 
services such as NASDAQ is proposing to provide via this proposed 
rule change.
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    Moreover, fiber optic networks are themselves effective competitors 
for wireless data. As stated above, 17 vendors currently offer 
connectivity to the NASDAQ data center at various, competing prices. 
Fiber optic networks are more resilient than wireless networks, which 
can be more susceptible to severe weather affects; this mature market 
for fiber optic networks will remain attractive to many clients who are 
more risk averse. While some NASDAQ firms will opt for faster, costlier 
wireless data, many others will conclude that the price and speed 
attributes of fiber optic data provide a reasonable competitive 
alternative to wireless data.
    Competition between the Exchange and competing trading venues will 
be enhanced by allowing the Exchange to offer its market participants a 
lower latency connectivity option. Competition among market 
participants will also be supported by allowing small and large 
participants the same price for this lower latency connectivity.
    The proposed rule change will likewise enhance competition among 
service providers offering connections between market participants and 
the data centers. The offering will expand the multiple means of 
connectivity available, allowing customers to compare the benefits and 
costs of lower latency transmission and related costs with reference to 
numerous variables. The Exchange, and presumably its competitors, 
selects service providers on a competitive basis in order to pass along 
price advantages to its customers to win and maintain their business. 
The offering is consistent with the Exchange's own economic incentives 
to facilitate as many market participants as possible in connecting to 
its market.

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

    The foregoing change has become effective pursuant to Section 
19(b)(3)(A) of the Act,\10\ and paragraph (f) \11\ of Rule 19b-4, 
thereunder. 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

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investors, or otherwise in furtherance of the purposes of the Act.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f).
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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-2013-119 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-2013-119. 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 
10:00 a.m. and 3:00 p.m. Copies of the 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-2013-119 and should 
be submitted on or before October 17, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23425 Filed 9-25-13; 8:45 am]
BILLING CODE 8011-01-P