[Federal Register Volume 78, Number 229 (Wednesday, November 27, 2013)]
[Notices]
[Pages 71018-71021]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28420]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70915; File No. SR-NASDAQ-2013-140]


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

November 21, 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 November 8, 2013, 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 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 from NASDAQ's Web 
site at http://nasdaq.cchwallstreet.com/Filings/, at NASDAQ'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 establish 
connectivity and installation fees for a 1Gb Ultra low latency fiber 
connection option, and to adopt installation fees for subscriptions 
through January 31, 2014.
    The Exchange currently offers various bandwidth and speed options 
for connectivity to NASDAQ, including copper, fiber, and wireless 
options in bandwidths ranging from 1Gb to 40Gb. Thus, for example, 
NASDAQ currently offers both a 1Gb fiber connection, and a 1Gb copper 
connection.\3\
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    \3\ Rule 7034(b).
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    In keeping with changes in technology, the Exchange now proposes to 
provide another 1Gb fiber connection offering, which uses new lower 
latency switches.\4\ A switch is a type of network hardware that acts 
as the ``gatekeeper'' for all of a co-located client's orders sent to 
the System \5\ at the NASDAQ co-

[[Page 71019]]

location facility and orders them in sequence for entry into the System 
for execution. Each of NASDAQ's current connection offerings (copper, 
fiber, wireless) uses different switches, but the switches are of 
uniform type within each offering (i.e., all fiber connectivity options 
currently use the same switches). As a consequence, all co-located 
client subscribers to a particular connectivity option receive the same 
latency in terms of the capabilities of their switches. The 1Gb Ultra 
offering will use a low latency switch, which provides faster 
processing of orders sent to it in comparison to the current 1G switch 
in use for co-location connectivity. As a consequence, co-located 
clients needing only 1Gb of bandwidth, but that seek faster processing 
of those orders as they enter NASDAQ's co-location facility now have 
the option to subscribe to a faster and more efficient connection to 
the Exchange.\6\
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    \4\ The term ``latency'' for these purposes is a measure of the 
time it takes for an order to enter into a switch and then exit for 
entry into the System.
    \5\ As defined by Rule 4751(a).
    \6\ The Exchange is not offering a low latency option for other 
bandwidth connections at this time, but may do so in the future.
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    The Exchange proposes a monthly subscription fee of $2,500 for a 
1Gb Ultra connection, and a one-time installation fee of $1,500. NASDAQ 
believes that the pricing reflects the hardware and other 
infrastructure and maintenance costs to NASDAQ associated with offering 
technology that is at the forefront of the industry. The $1,500 
installation fee for the 1Gb Ultra product exceeds the $1,000 
installation fee for the existing 1Gb product due to the added 
complexity of installing the Ultra product. In order to achieve lower 
latency, the Ultra product requires not only the installation of a 
fiber telecommunications line; it also requires the additional 
installation of sophisticated switching equipment.
    The new low latency service will be completely optional based on 
whether potential users perceive sufficient value to adopt the new 
service. This new low latency service decreases the time individual 
orders are processed and market data is transmitted by these new 
switches. The Exchange's proposal provides the co-located client the 
option for faster switch processing, which is highly-valued among some 
market participants. NASDAQ notes that other markets have adopted low-
latency connectivity options for their users. For example, the 
International Securities Exchange LLC (``ISE'') offers a 10Gb low 
latency Ethernet connectivity option to its users, which provides a 
``higher speed network to access [ISE's] Optimise trading system.'' \7\
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    \7\ See Securities Exchange Act Release No. 66525 (March 7, 
2012), 77 FR 14847 (March 13, 2012) (SR-ISE-2012-09).
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    The Exchange also proposes to provide a waiver of the installation 
fees for client orders of 1Gb Ultra fiber connectivity to NASDAQ 
completed between the effectiveness of this proposal and January 31, 
2014. The Exchange is providing the waiver to assist its co-located 
clients in upgrading to lower latency connections to meet the growing 
needs of co-located clients' business operations.
    NASDAQ is also deleting text that refers to an installation fee 
waiver time period for 10Gb Ultra connections, which has since expired, 
and replacing it with the fee waiver for the 1Gb Ultra offering.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and with Section 6(b)(4) of the Act,\9\ 
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 \10\ 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 is not designed to permit unfair discrimination between 
customer, issuers, brokers and dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act because the fees assessed for 1Gb Ultra fiber 
connectivity allow the Exchange to cover the costs associated with the 
purchase of new equipment for this new offering. NASDAQ is offering 1Gb 
Ultra fiber connectivity at a premium to the current 1Gb offering but 
at a discount to the 10Gb and 40Gb fiber connectivity offerings as 
these provide more bandwidth available on NASDAQ, which is important 
for co-located clients that have high order flow and ingest large 
amounts of market data and demand the greatest bandwidth possible to 
handle such message flow. Some co-located clients, however, do not have 
bandwidth demands that would require 10Gb or 40Gb fiber bandwidth but 
rather put a premium on reducing latency. The 1Gb Ultra fiber 
connectivity it designed to meet this demand.
    NASDAQ believes that the proposed one-time installation fee is 
consistent with Section 6(b)(4) of the Act because it is identical to 
the installation fees assessed for 40Gb fiber connectivity and 10Gb 
Ultra connectivity under the rule. NASDAQ notes that it will incur the 
same costs associated with setting up a subscriber with either 40Gb 
fiber or 10Gb Ultra fiber connectivity. As a consequence, NASDAQ 
believes that it is reasonable to assess the same installation fee as 
40Gb fiber and 10Gb Ultra. The Exchange also believes that its proposal 
to waive temporarily the 1Gb Ultra fiber connection installation fee is 
reasonable because it will assist its co-located clients in upgrading 
to lower latency connections to meet the growing needs of the co-
located clients' business operations at a time in the industry when 
speed continues to be a driver of the U.S. securities markets. 
Moreover, the Exchange notes that it has previously waived the 
installation fees for the 10Gb Ultra and 40Gb fiber connections for a 
limited time after these connectivity options were first 
introduced.\11\
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    \11\ See Securities Exchange Act Release No. 66428 (February 21, 
2012), 77 FR 11602 (February 27, 2012) (SR-NASDAQ-2012-028).
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    In addition to covering costs, the proposed fees provide the 
Exchange a profit while providing customers the ability to reduce the 
latency of their orders sent via these new connections. As discussed 
above, ISE offers different connectivity options with respect to 
latency, charging higher fees for lower latency options.\12\ Therefore, 
the Exchange believes it is reasonable also to charge higher fees for 
lower latency options. Also, NASDAQ's fee compares favorably to fees at 
NYSE Arca, Inc. NYSE Arca offers a 1Gb connection for a monthly fee of 
$5,000, which is double NASDAQ's proposed monthly fee for the 1Gb Ultra 
fiber connectivity option.\13\ NASDAQ notes that the 1Gb Ultra fiber 
option provides connectivity to all seven of the NASDAQ OMX Group 
markets, whereas the offerings of

[[Page 71020]]

other exchanges provide far fewer.\14\ For these reasons, the Exchange 
believes the proposed fees for 1Gb Ultra fiber connectivity to NASDAQ 
are reasonable.
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    \12\ ISE offers both an Ethernet connectivity option and an 
Ethernet/Low Latency connectivity option. At 10Gb, the Ethernet 
option costs $4,000 monthly and the Ethernet/Low Latency option 
costs $7,000 monthly. See http://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf.
    \13\ NYSE charges $5,000 per month for a 1Gb LCN (Liquidity 
Center Network) Connection. See https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_price_list_9_3_13_-_corrected.pdf, page 14.
    \14\ The ISE connectivity offering provides access to one market 
and the NYSE Arca connectivity offering provides connectivity to the 
four markets of NYSE Euronext.
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    The Exchange also believes the proposed 1Gb Ultra fiber 
installation and connectivity fees are equitably allocated in that all 
co-located clients 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 1Gb Ultra fiber connection and provide the Exchange a 
profit while providing customers with the more efficient connection to 
the System in terms of latency. All co-located clients have the option 
to select this voluntary co-location connectivity option; however, 
NASDAQ is not currently eliminating any existing connectivity options. 
Accordingly, a co-located client may elect not to subscribe to the 1Gb 
Ultra fiber connectivity option and retain the option to which it is 
currently subscribed.
    The Exchange also believes the proposal furthers the objectives of 
Section 6(b)(5) of the Act \15\ 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 is not 
designed to permit unfair discrimination between customer, issuers, 
brokers and dealers. The 1Gb Ultra fiber connectivity option assists 
co-located clients in making their network connectivity more efficient 
by reducing the time orders take to reach the System once sent from 
their co-located server and also the time that market data takes to 
reach their co-located server. Speed and efficiency are important 
drivers of the U.S. securities markets and NASDAQ is offering a co-
location connectivity solution that promotes these drivers by providing 
technology that is available to all co-located clients. The Exchange 
believes the enhanced 1Gb Ultra connection will remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system because NASDAQ will provide this switching technology to 
market participants, which will improve the speed and efficiency of 
processing orders arriving at the market from clients' co-located 
servers.
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    \15\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that the reduction in latencies 
attributed to the enhanced 1Gb Ultra connection option serves to 
protect investors and the public interest. The reduction in latency 
will provide investors with the most efficient means of processing 
orders once they reach the Exchange. Not all clients require the Higher 
bandwidth options like NASDAQ's current 10Gb, 10Gb Ultra and 40Gb fiber 
connectivity, so this new option enables clients to lower their latency 
while not increasing the bandwidth.
    The Exchange also believes the proposed installation and 
subscription fees for the 1Gb Ultra fiber connectivity option are not 
unfairly discriminatory because all users have the option to subscribe 
to co-locate with NASDAQ and subscribe to the 1Gb Ultra connection. 
There is no differentiation among co-located clients with regard to the 
fees charged for these services. The Exchange believes the proposal to 
waive the 1Gb Ultra fiber connection installation fee is not unfairly 
discriminatory because the waiver of fees is provided to all co-located 
clients that volunteer for this particular service option during the 
prescribed timeframe, and there is no differentiation among co-located 
clients with regard to the waiver of fees for this option.

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. To 
the contrary, the Exchange believes that the proposed changes will 
promote competition by offering co-located clients an additional 
connectivity option that will enhance their trading operations and 
ultimately bring greater speed and efficiency to trading in the 
marketplace. NASDAQ further notes that the proposed option is voluntary 
in that the Exchange is not required to offer this connectivity, and 
the user is not required to utilize it. The competitiveness of the 
offering will determine whether a particular user will adopt the option 
or not.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \16\ and Rule 19b-4(f)(6) thereunder.\17\ 
Because the foregoing proposed rule change does not: (1) Significantly 
affect the protection of investors or the public interest; (2) impose 
any significant burden on competition; and (3) by its terms does not 
become operative for 30 days after the date of this filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\18\ and Rule 19b-4(f)(6) thereunder.\19\
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its 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 met this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\21\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange represented 
that its proposal provides co-located clients an option to enhance the 
efficiency of their trading through the 1Gb Ultra connectivity and 
believes that the benefits gained in the facilitation of trading 
activities warrants the waiver of the 30-day operative delay. The 
Exchange stated it is also providing a waiver of the installation fee 
for the 1Gb Ultra connection service to allow the co-located clients 
who select this service to receive its benefits immediately. For the 
above reasons, the Commission believes waiver of the operative delay is 
appropriate and hereby grants the Exchange's request and designates the 
proposal operative upon filing.\22\
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    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).

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[[Page 71021]]

    At any time within 60 days of the filing of such 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \23\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \23\ 15 U.S.C. 78s(b)(2)(B).
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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-2013-140 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-2013-140. 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-2013-140 and should 
be submitted on or before December 18, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28420 Filed 11-26-13; 8:45 am]
BILLING CODE 8011-01-P