[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