[Federal Register Volume 80, Number 71 (Tuesday, April 14, 2015)]
[Notices]
[Pages 20035-20038]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-08452]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74680; File No. SR-NASDAQ-2015-029]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify NASDAQ Rule 7051 Fees Relating to Pricing for Direct Circuit 
Connections

April 8, 2015.
    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 March 26, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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

    NASDAQ is proposing to amend Rule 7051 to increase installation and 
monthly fees assessed for Direct Circuit Connection to NASDAQ, and to 
waive certain installation fees thereunder for a limited time. The 
exchange will implement the proposed changes on April 1, 2015.
    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com 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, 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

[[Page 20036]]

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
    NASDAQ is proposing to amend Rule 7051 entitled ``Direct 
Connectivity to Nasdaq'' to increase the installation and monthly fees 
assessed for 1Gb and 10Gb connectivity to the Exchange. Direct 
connectivity offers market participants one of several means by which 
they may connect to NASDAQ.\3\ Currently, the Exchange offers a 10Gb 
circuit connection, a 1Gb circuit connection, and a 1Gb Ultra 
connection, all of which provide connectivity to the NASDAQ System.\4\ 
The offerings are differentiated by the total capacity of the fiber 
connection (represented in Gigabytes or ``Gb'') and the type of switch 
used. A switch is a type of network hardware that acts as the 
``gatekeeper'' for all clients' orders sent to the System \5\ and 
orders them in sequence for entry into the System for execution. The 
1Gb ``Ultra'' fiber connection offering uses lower latency \6\ switches 
than the 1Gb fiber connection offering.\7\
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    \3\ Market participants may also connect to NASDAQ through the 
colocation facility or third parties. Direct connectivity is offered 
through data centers in Carteret, NJ, Secaucus, NJ, Ashburn, VA, and 
Chicago, IL.
    \4\ See Securities Exchange Act Release No. 62663 (August 9, 
2010), 75 FR 49543 (August 13, 2010) (SR-NASDAQ-2010-077).
    \5\ As defined in Rule 4751(a).
    \6\ The term ``latency'' for the purposes of this rule filing 
means a measure of the time it takes for an order to enter into a 
switch and then exit for entry into the System.
    \7\ Each of NASDAQ's connection offerings use [sic] different 
switches, but the switches are of uniform type within each offering 
(i.e., all 1G connectivity options currently use the same switches). 
As a consequence, all client subscribers to a particular 
connectivity option receive the same latency in terms of the 
capabilities of their switches.
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    The Exchange assesses separate installation and ongoing monthly 
fees for subscription to each option. For 1Gb connectivity, the 
Exchange assesses an installation fee of $1,000 and ongoing monthly 
fees of $1,000. For 10Gb connectivity, the Exchange charges an 
installation fee of $1,000 and ongoing monthly fees of $5,000. For 1Gb 
Ultra, the Exchange charges an installation fee of $1,500 and ongoing 
monthly fees of $1,500. The Exchange adopted 10Gb and 1Gb offering and 
related fees in August 2010, and has not increase [sic] fees for these 
offerings since.\8\ The Exchange adopted 1Gb Ultra in August 2014, and 
has not increased fees for the offering since.\9\
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    \8\ Supra note 4.
    \9\ See Securities Exchange Act Release No. 72811 (August 11, 
2014), 79 FR 48262 (August 15, 2014) (SR-NASDAQ-2014-079).
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    In light of increased costs in offering these fiber connectivity 
options, and declining subscribership to 1Gb connectivity, the Exchange 
is proposing to increase the fees assessed for all three of the 
offerings. In terms of installation fees, the Exchange is proposing to 
harmonize the cost of installation by increasing the installation fees 
assessed for 10Gb and 1Gb connectivity from $1,000 to $1,500, which is 
the fee currently assessed for installation of 1Gb Ultra connectivity. 
The Exchange is proposing to waive the installation fees for the months 
of April through July, 2015, for all three connectivity options. As 
such, both new subscriptions and customers transferring from one 
connectivity option to another during that time will not be assessed 
the installation fee. The Exchange notes that this will allow customers 
to move from one offering to another, or to move the location of their 
connectivity from one direct connectivity access point to another, with 
no penalty in the form of an installation fee.
    The Exchange is also proposing to increase the ongoing monthly fees 
for each connectivity option. Specifically, the Exchange is proposing 
to increase the ongoing monthly fees for 10Gb connectivity from $5,000 
to $7,500. The Exchange is proposing to increase the ongoing monthly 
fee for 1Gb connectivity from $1,000 to $2,500. Lastly, the Exchange is 
proposing to increase the ongoing monthly fee for 1Gb Ultra from $1,500 
to $2,500.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\10\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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 NASDAQ operates or controls, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed increased fees are 
reasonable because they allow the Exchange to realign the fees assessed 
for the service with the costs incurred by NASDAQ in offering the 
service, which have increased since the offerings were first adopted. 
Specifically, NASDAQ has incurred increases in the cost of labor and 
networks in the installation and maintenance of equipment. The Exchange 
notes that the 1Gb and 10Gb infrastructures have been upgraded over the 
last 5 years with improvements in network performance along with a 
continued increase in bandwidth capacity constraints due to market data 
feeds growing. Consequently, this has resulted in higher networking 
costs that NASDAQ is now proposing to pass on through connectivity 
fees. In terms of labor, installation effort and costs have increased, 
which include NASDAQ data center operations and network engineering 
teams in multiple locations, data center vendor costs, and optical 
equipment that needs to be purchased, installed and maintained. The 
Exchange notes that it is not increasing the charge for installation of 
1Gb Ultra connectivity because the fee implemented in 2014 already 
incorporated these elevated costs and continues to cover the 
installation costs.
    The Exchange also believes that the proposed increases in the 
ongoing monthly fees for all three connectivity options are reasonable. 
The Exchange notes that it is increasing the ongoing monthly fees for 
each of the connectivity options in light of the higher networking and 
labor costs NASDAQ incurs in supporting the services. In addition, the 
Exchange has lost subscribers to the 1Gb connectivity option, which has 
resulted in fewer subscribers over which to spread the fixed costs of 
the service. As a consequence, the Exchange believes that it is 
reasonable to increase the monthly charge more than it is increasing 
the monthly charge for the 1Gb Ultra connectivity offering, which will 
result in the same monthly charge for both 1Gb and 1Gb Ultra 
connectivity offerings but will allow NASDAQ to compensate for the 
lower subscribership of the 1Gb connectivity option. The Exchange notes 
that the fees are similar to the fees NASDAQ charges member firms for 
co-location connectivity.\12\ Lastly, the proposed fees are comparable 
to the fees charged for similar connectivity by other exchanges. For 
example, the International Securities Exchange LLC (``ISE'') offers 
four connectivity options that provide access to its two markets. ISE 
charges the following monthly fees for connectivity: $750 for its 1Gb 
option, $4,000 for its 10Gb option, $7,000 for its 10Gb low latency 
option, and $12,500 for its 40Gb

[[Page 20037]]

low latency option. The Exchange notes that its connectivity options 
provide access to three exchanges (NASDAQ, NASDAQ OMX BX and NASDAQ OMX 
PHLX), which is reflected in the premium above the comparable ISE 
connectivity.\13\
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    \12\ See Rule 7034(b).
    \13\ See ISE Fee Schedule, Section IV.B. available at http://www.ise.com/fees.
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    The Exchange believes that the fees for these services are 
equitably allocated consistent with Section 6(b)(4) of the Act and are 
non-discriminatory consistent with Section 6(b)(5) of the Act in that 
all direct connect clients are offered the same service and there is no 
differentiation among them with regard to the fees charged for such 
services. In particular, the proposed fees are equitably allocated 
because all member firms that subscribe to a particular connectivity 
option under the rule will be assessed the same fee. The proposed 
installation fees are [sic] and are not unfairly discriminatory because 
the Exchange is increasing the fees for each service in amounts that 
are reflective of the increased costs associated with offering each of 
the connectivity options, and are in amounts representative of the 
value provided to their subscribers. The proposed waiver of the 
installation fees is both equitable and not unfairly discriminatory 
because it will allow all subscribers the option to subscribe to 
another connectivity offering, to the extent the proposed connectivity 
fees of their existing connections are deemed too high in relationship 
to the benefit received. With regard to the ongoing monthly fee 
increases, the 10Gb connectivity option provides the fastest 
connectivity option with the greatest capacity and also represents the 
greatest cost to NASDAQ in offering it among the three options. 
Accordingly, NASDAQ is increasing the fee the most to users that 
receive the greatest benefit. As noted above, NASDAQ is increasing the 
1Gb ongoing monthly fees more than the 1Gb Ultra connectivity option, 
which provides the same capacity but lower latency than the 1Gb option. 
The Exchange believes that the proposed increase in the 1Gb 
connectivity option monthly fee is both an equitable allocation of a 
fee and not unfairly discriminatory because lower subscribership to the 
option has resulted in fewer subscribers to bear the increased costs of 
offering the service.
    The Exchange notes that should a particular exchange charges [sic] 
excessive fees for direct connectivity services affected members will 
opt to terminate their direct connectivity arrangements with that 
exchange, and pursue a range of alternative trading strategies not 
dependent upon the exchange's direct connectivity services. 
Accordingly, the exchange charging excessive fees would stand to lose 
not only direct connectivity revenues, but also any other revenues 
associated with the customer's operations. Moreover, all of the 
Exchange's fees for these services are equitably allocated consistent 
with Section 6(b)(4) of the Act and consistent with Section 6(b)(5) of 
the Act are non-discriminatory in that all direct connect clients are 
offered the same service and there is no differentiation among them 
with regard to the fees charged for such services.

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.\14\ 
As discussed above, the Exchange believes that the proposed fees for 
direct connectivity services are comparable to the fees charged for the 
same service provided to other exchanges' customers. Additionally, such 
costs are constrained by the robust competition for order flow among 
exchanges and non-exchange markets, because direct connectivity exists 
to advance that competition, and excessive fees for direct connectivity 
services would serve to impair an exchange's ability to compete for 
order flow. Therefore, the Exchange believes that the proposed rule 
change enhances, rather than burdens, competition.
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    \14\ 15 U.S.C. 78f(b)(8).
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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)(ii) of the Act.\15\ 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: (i) Necessary or appropriate in the public 
interest; (ii) for the protection of investors; or (iii) otherwise in 
furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2015-029 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2015-029. 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-2015-029 and should 
be submitted on or before May 5, 2015.


[[Page 20038]]


    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).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-08452 Filed 4-13-15; 8:45 am]
 BILLING CODE 8011-01-P