[Federal Register Volume 78, Number 242 (Tuesday, December 17, 2013)]
[Notices]
[Pages 76344-76347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29891]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71035; File No. SR-BX-2013-058]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Establish 
Fees Under Rule 7030(d) for Use of the Carteret Testing Facility Test 
Environment

December 11, 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 27, 2013, NASDAQ OMX BX, Inc. (``BX'' 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to establish fees under Rule 7030(d) for use 
of the Testing Facility (``NTF'') test environment located in Carteret, 
New Jersey, which will provide a virtual trading environment for 
testing. The Exchange will begin assessing the fees immediately; 
however, the installation fee will be waived for subscriptions ordered 
through March 31, 2014.
    The text of the proposed rule change is below. Proposed new 
language is italicized.
* * * * *

7030. Other Services

    (a)-(c) No change.
    (d) Testing Facilit[y]ies
    The Exchange operates two test environments. One is located in 
Ashburn, Virginia and the other in Carteret, New Jersey. Unless 
otherwise

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noted, reference to the ``Testing Facility'' applies to both 
environments.
    (1)-(3) No change.
    (4) Subscribers to the Testing Facility located in Carteret, New 
Jersey shall pay a fee of $1,000 per hand-off, per month for connection 
to the Testing Facility. The hand-off fee includes either a 1Gb or 10Gb 
switch port and a cross connect to the Testing Facility. Subscribers 
shall also pay a one-time installation fee of $1,000 per hand-off, 
which is waived for all installations ordered prior to March 31, 2014.
    The connectivity provided under this rule also provides 
connectivity to the other testing environments of The NASDAQ Stock 
Market LLC and NASDAQ OMX PHLX LLC.
* * * * *

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
    The Exchange is proposing to amend Rule 7030(d) to establish fees 
for connection to a test environment. Specifically, the Exchange 
proposes a one-time, per hand-off installation fee and a per hand-off 
monthly fee assessed for direct connectivity to the Testing Facility 
\3\ test environment located in Carteret, New Jersey (``Carteret''), 
which is also the location of the Exchange's primary trading System.\4\ 
The Testing Facility provides subscribers with a virtual Exchange 
System test environment that closely approximates the production 
environment and on which they may test their automated systems that 
integrate with the Exchange. For example, the Testing Facility provides 
subscribers a virtual System environment for testing upcoming Exchange 
releases and product enhancements, as well as testing firm software 
prior to implementation.
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    \3\ See http://www.nasdaqtrader.com/Trader.aspx?id=TestingFacility for a description of the Testing 
Facility.
    \4\ As defined by Rule 4751(a). The Exchange's System is 
mirrored at other locations as well.
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    The Testing Facility is currently housed solely in the Exchange's 
Ashburn, Virginia facility (``Ashburn''). In addition to housing the 
Testing Facility, Ashburn is also an Exchange disaster recovery 
facility and, as such, some member firms connect to Ashburn for 
disaster recovery purposes in addition to trading system testing. The 
Exchange currently assesses fees on members for physical connectivity 
to Ashburn.\5\ In addition, member firms pay fees to third party 
connectivity providers to provide connection from the member firm to 
Ashburn. The relatively large distance to between the Ashburn Testing 
Facility and the majority of NASDAQ OMX firms results in expensive 
connectivity costs for customers that connect via telecommunication 
providers. As a consequence, a large majority of member firms do not 
connect to Ashburn for Testing Facility connectivity. In an effort to 
improve the utility of the Testing Facility, the Exchange is developing 
a test environment located in Carteret that will provide the same 
functionality as the trading testing functionality of Ashburn, yet more 
closely approximate the live trading environment due to its proximity 
to the System and upgraded hardware. In particular, the Carteret test 
environment will take advantage of technology upgrades the Exchange is 
making to its trading-related systems. Unlike the Ashburn test 
environment, the Carteret test environment will provide dedicated 
connectivity to the facility via a cross-connection to either a member 
firm's direct connection router in Carteret or its co-location 
cabinet.\6\ This connectivity will also provide connectivity to the 
trading testing environments of BX's sister exchanges, The NASDAQ Stock 
Market LLC and NASDAQ OMX PHLX LLC, also located in Carteret, New 
Jersey.\7\ The Exchange will ultimately sunset the trading testing 
functionality at Ashburn, yet retain post trade reporting and ACES 
functionality at that location.\8\
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    \5\ The Exchange assesses fees for direct connection to Ashburn 
and fees for co-location connectivity. See Rules 7051 and 7034(b), 
respectively.
    \6\ Member firms currently use their connectivity to the Ashburn 
test environment for both testing and disaster recovery purposes.
    \7\ Similar to colocation connectivity under Rule 7034(b), firm 
that is a member of multiple NASDAQ OMX exchanges may access the 
testing environments of the exchanges of which it is a member 
through a single connectivity subscription.
    \8\ The Exchange is not upgrading the hardware used for post 
trade reporting and ACES testing at this time, but may do so in the 
future. As noted, the new hardware implemented in the Carteret test 
environment is part of the larger technology upgrade to the System's 
hardware also located in Carteret.
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    The Exchange notes that, because the Carteret facility also houses 
the System, subscribers to the Carteret test environment will no longer 
need to pay for third party connectivity to Ashburn if the sole purpose 
for connecting to Ashburn is for trading testing. Such member firms may 
use an existing connection to Carteret to access the Testing Facility 
through the use of a dedicated switch port and cross connect within the 
facility. The Exchange is proposing to assess a fee for connection to 
the test environment within the Carteret facility. Specifically, the 
Exchange proposes assessing a $1,000 per hand-off, per month fee 
assessed for connectivity to the Carteret test environment for either 
1Gb or 10Gb, and a one-time per hand-off installation fee of $1,000, 
which will cover the Exchange's costs incurred in setting up a 
subscriber in the Carteret facility. The Exchange is proposing to waive 
the installation fee through March 31, 2014, after which the Exchange 
will begin phasing out trading testing at the Ashburn test environment.
    The Exchange is also making a minor clarifying change to the rule 
in light of the operation of dual Testing Facility test environments.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and with Sections 6(b)(4) and 6(b)(5) 
of the Act,\10\ in particular. The Exchange believes that proposal is 
with Section 6(b)(4) of the Act \11\ 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 new fees are equitably 
allocated because all member firms receive connectivity to the Carteret 
test environment for the same fee. The Exchange believes that offering 
subscribers the option to subscribe to either 1Gb or 10Gb for the same 
fee is an equitable allocation because, unlike the live trading 
environment, there is no competitive advantage to possessing a higher 
capacity switch port in the test environment. The test environment is 
designed to closely mirror the live trading environment for 
participants, including matching the capacity of each participant's 
live environment switch

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port. In the absence of any competitive advantage, charging a uniform 
fee for both 1Gb and 10Gb switch ports is an equitable allocation of 
fees. The Exchange believes that charging a uniform fee rather than 
mirroring the fees for the live trading environment \12\ will encourage 
member firms to subscribe to Carteret, and further encourage those that 
subscribe to use the same hardware as is used by them for connectivity 
to the live trading environment. The Exchange also believes that waiver 
of the installation fee for all installations ordered prior to March 
31, 2014 is an equitable allocation as it is available to all member 
firms during the time frame; thus any member firm may avail itself of 
the free period if it so chooses.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ Members are assessed a monthly fee of $5,000 for 10 Gb and 
$1,000 for 1 Gb direct connectivity to BX. See Rule 7051.
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    The new fees are reasonable because they are designed to cover the 
costs the Exchange has incurred in developing and offering the new test 
environment. The proposed fee should allow the Exchange to recoup these 
costs and make a profit, while providing member firms with a superior 
test environment that more closely mirrors that of the live trading 
environment on the Exchange. The Exchange believes that offering both 
1Gb and 10Gb connectivity for the same fee is reasonable as the 
increased incremental cost it incurs by offering the 10Gb switch port 
at the lower fee is outweighed by the benefit all subscribers will 
receive if Carteret participants use hardware identical to what they 
use in the live trading environment, hence furthering the goal of 
creating a test environment that closely mirrors the live trading 
environment. Waiver of the installation fee for a limited period is 
reasonable because the Exchange believes such a waiver will attract new 
users to the test environment, thus ensuring a certain minimum level of 
monthly revenue to support the facility initially.
    The Exchange also believes the proposal furthers the objectives of 
Section 6(b)(5) of the Act \13\ 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 Exchange does not believe that the proposed 
fees are unfairly discriminatory to subscribers to 10Gb live trading 
environment connectivity because, unlike the live trading environment 
where the capacity of connectivity to the Exchange may confer a 
competitive advantage to a market participant and therefore price 
differentiation is appropriate for the benefit conferred, there is no 
such benefit conferred in the trade test environment. The Exchange does 
not believe that the proposed fees are unfairly discriminatory among 
subscribers to the Carteret test facility because all member firms that 
subscribe to the service will be assessed the same fees. Because the 
proposed fees do not discriminate between 1Gb and 10Gb connectivity 
options, member firms are able to subscribe to Carteret without regard 
to the cost of their switch port capacity election. The Exchange 
believes that by not discriminating on this basis it will encourage 
participants to connect to the Carteret test environment in the same 
manner as they do to the live trading environment, and thereby help 
Carteret more closely mirror the live test environment, as discussed 
above. Providing a more useful and accurate test environment will serve 
to improve live trading on the Exchange and the national market system 
by permitting member firms the ability to accurately test changes prior 
to implementing them in the live trading environment, thereby reducing 
the likelihood of a potentially disruptive system failure in the live 
trading environment, which has the potential to affect all market 
participants. Last, the Exchange does not believe that waiver of the 
installation fee is unfairly discriminatory as it is uniformly applied 
for a limited time, during which any member firm may subscribe.
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    \13\ 15 U.S.C. 78f(b)(5).
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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. 
Because the new test environment more closely approximates the live 
trading environment, subscribing member firms will be able to more 
accurately test their trading systems and avoid potentially disruptive 
system failures in the live trading environment.

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,\14\ and paragraph (f) \15\ of Rule 19b-4, 
thereunder.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(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-BX-2013-058 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-BX-2013-058. 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 on 
official business days between the hours of 10:00 a.m. and 3:00 p.m. 
Copies of such filing also

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will be available for inspection and copying at the principal offices 
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-BX-
2013-058, and should be submitted on or before January 7, 2014.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29891 Filed 12-16-13; 8:45 am]
BILLING CODE 8011-01-P