[Federal Register Volume 88, Number 108 (Tuesday, June 6, 2023)]
[Notices]
[Pages 37112-37115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-11922]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97627; File No. SR-BX-2023-014]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Establish Fees 
for Field-Programmable Gate Array Technology as an Optional Delivery 
Mechanism for BX TotalView

May 31, 2023.
    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 May 23, 2023, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
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

    The Exchange proposes to set fees for the purchase of field-
programmable gate array (``FPGA'') technology as an

[[Page 37113]]

optional delivery mechanism for BX TotalView.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, 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, 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to establish a fee 
schedule for the purchase of field-programmable gate array (``FPGA'') 
technology as an optional delivery mechanism for BX TotalView. This 
follows a recently-filed proposal to offer FPGA technology as an 
optional delivery mechanism for BX TotalView.\3\
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    \3\ See SR-BX-2023-011 (``A proposal to offer field-programmable 
gate array (`FPGA') technology as an optional delivery mechanism for 
BX TotalView.''), available at https://listingcenter.nasdaq.com/rulebook/BX/rulefilings. A proposal to establish a fee schedule for 
the use of FPGA technology for the Phlx exchange is being filed 
concurrently with this proposal.
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FPGA
    FPGA is a hardware-based delivery mechanism that utilizes an 
integrated circuit that is programmed to reduce ``jitter''--a technical 
term of art referring to the deviation in amplitude, phase timing or 
width of a signal pulse in a digital signal--that will allow data to be 
processed in a more predictable, or ``deterministic,'' fashion. Higher 
levels of determinism means less variable queuing, which improves the 
predictability of data transfer, particularly during times of peak 
market activity.
    The benefits of determinism depend on the use case of the 
customer--in general, customers that process larger amounts of data at 
higher frequencies seek a greater degree of determinism--as well as the 
specific system architecture used by the customer.
    Among customers that seek a higher degree of determinism, the 
benefits of FPGA technology varies, as FPGA technology is one possible 
solution, among a catalog of possible solutions, for increasing the 
consistency and predictability of message throughput over the course of 
the trading day. Some customers are able to adequately control jitter 
without using FPGA technology; other customers address jitter using 
specialized software, coding or other design solutions in conjunction 
with FPGA; still others use FPGA alone. The specific choice depends on 
a complex analysis of the customer's information technology systems in 
the context of their particular use cases.
    FPGA is a broadly-available, commonly-used type of programmable 
circuit that can be modified to suit different use cases. It is used in 
a wide spectrum of industries, including the consumer electronics, 
automotive, and aerospace, as well as in a variety of industrial 
applications. It is not unique to the financial services industry,\4\ 
or to Nasdaq.
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    \4\ See, e.g., Contrive Datum Insights, ``Field-Programmable 
Gate Array (FPGA) Market is expected to reach around USD 22.10 
Billion by 2030, Grow at a CAGR of 15.12% during Forecast Period 
2023 to 2030,'' (February 21, 2023), available at https://www.globenewswire.com/en/news-release/2023/02/21/2612772/0/en/Field-Programmable-Gate-Array-FPGA-Market-Is-Expected-To-Reach-around-USD-22-10-Billion-by-2030-Grow-at-a-CAGR-Of-15-12-during-Forecast-Period-2023-To-2030-Data-By-Contrive-Datum-I.html (describing the 
general size and state of the FPGA market in 2023).
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    FPGA technology has been offered by the Nasdaq Stock Exchange for 
over a decade, and the Nasdaq Options Market for nearly as long,\5\ and 
has been cited by the SEC as an example of a technology useful in the 
distribution of market data products.\6\
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    \5\ See Securities Exchange Act Release No. 67297 (June 28, 
2012), 77 FR 39752 (July 5, 2012) (SR-Nasdaq-2012-063) (introducing 
FPGA technology); see also Nasdaq Data News 2012-13, available at 
http://www.nasdaqtrader.com/TraderNews.aspx?id=dn2012-13 
(introducing TotalView FPGA service as of August 1, 2012); 
Securities Exchange Act Release No. 74745 (April 16, 2015), 80 FR 
22588 (April 22, 2015) (SR-Nasdaq-2015-035) (establishing FPGA for 
the Nasdaq Options Market); The Nasdaq Stock Market LLC Rules, 
Equity 7, Section 126(c) (Hardware-Based Delivery of Nasdaq Depth 
data).
    \6\ See Securities Exchange Act Release No. 90610, 86 FR 18596, 
18647 (April 9, 2021) (File No. S7-03-20) (listing field 
programmable gate array services as an example of a technological 
innovation that could be employed by competing consolidators as part 
of the Market Data Infrastructure rule).
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    The Exchange proposes to offer FPGA technology in conjunction with 
the Exchange's depth of book feed, BX TotalView. BX TotalView is a 
real-time market data product that provides full order depth using a 
series of order messages to track the life of customer orders in the BX 
market, as well as trade data for BX executions and administrative 
messages such as Trading Action messages, Symbol Directory, and Event 
Control messages.\7\
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    \7\ See Nasdaq BX, Inc. Rules, Equity 7, Section 123 (BX 
TotalView); see also Securities Exchange Act Release No. 59307 
(January 28, 2009), 74 FR 6069 (February 4, 2009) (establishing fees 
for BX TotalView).
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Proposed Fees
    BX proposes internal distribution fees of $3,500 per month and 
external distribution fees of $350 for FPGA hardware; customers that 
elect to use FPGA hardware for both internal and external distribution 
will pay both fees.\8\ These fees are in addition to Market Data 
Distributor Fees,\9\ fees for BX TotalView,\10\ and other fees for 
Distribution Models.\11\ Customers that elect to receive BX depth of 
book data without using FPGA technology will pay no fee in addition to 
the underlying fees listed above.
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    \8\ The difference in amount for external and external 
distribution reflects Nasdaq's experience that the Exchange's FPGA 
hardware is best employed at the point of ingestion, as the utility 
of FPGA technology falls as the data moves farther from the source.
    \9\ See Nasdaq BX, Inc. Rules, Equity 7, Section 119.
    \10\ See Id., Section 123.
    \11\ See Id., Section 126.
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    The proposed fees are substantially lower than FPGA fees for the 
Nasdaq exchange, which are set at $25,000 per Distributor for internal 
only distribution, $2,500 for external only, and $27,500 for internal 
and external distribution.\12\ The difference is based, in part, on a 
comparison of peak activity at the two exchanges. As noted above, high 
levels of determinism are particularly valuable during periods of peak 
activity.
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    \12\ See The Nasdaq Stock Market LLC Rules, Equity 7 (Pricing 
Schedule), Section 126(c) (Hardware-based delivery of Nasdaq depth 
data).
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    Although there is considerable variation in the number of messages 
at various peaks, as well as the duration of peak activity, the 
proposed fees are roughly comparable to the differences in average peak 
activity at the BX exchange relative to the Nasdaq exchange. Exchange 
staff have also discussed the proposed fees with customers, and 
believe, based on those discussions and their own business judgment, 
that the proposed fees fairly reflect the value of FPGA technology for 
the BX exchange. A number of customers provisionally agree with this 
assessment, and have indicated that they are interested in testing it.

[[Page 37114]]

    No other exchange currently offers FPGA technology as a separate 
service in conjunction with the delivery of a proprietary data feed, 
and therefore there are no other fees for comparison. If BX is 
incorrect in its determination that the proposed fees reflect the 
underlying value of FPGA technology, customers will not purchase the 
product. FPGA technology is not necessary for a customer to ingest and 
process depth of book information, and those customers that seek a 
higher degree of determinism have a number of options at their disposal 
to reduce jitter without using FPGA.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ 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, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed changes to the pricing schedule are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for order flow, which 
constrains its pricing determinations. The fact that the market for 
order flow is competitive has long been recognized by the courts. In 
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit 
stated, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers' . . . .'' \15\
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    \15\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting 
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention to determine 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues, and also recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \16\
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    \16\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Congress directed the Commission to ``rely on `competition, 
whenever possible, in meeting its regulatory responsibilities for 
overseeing the SROs and the national market system.' '' \17\ As a 
result, the Commission has historically relied on competitive forces to 
determine whether a fee proposal is equitable, fair, reasonable, and 
not unreasonably or unfairly discriminatory. ``If competitive forces 
are operative, the self-interest of the exchanges themselves will work 
powerfully to constrain unreasonable or unfair behavior.'' \18\ 
Accordingly, ``the existence of significant competition provides a 
substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not unreasonably or 
unfairly discriminatory.'' \19\ In its 2019 guidance on fee proposals, 
Commission staff indicated that they would look at factors beyond the 
competitive environment, such as cost, only if a ``proposal lacks 
persuasive evidence that the proposed fee is constrained by significant 
competitive forces.'' \20\
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    \17\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep. 
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that 
the national market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed.'').
    \18\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \19\ Id.
    \20\ See U.S. Securities and Exchange Commission, ``Staff 
Guidance on SRO Rule filings Relating to Fees'' (May 21, 2019), 
available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
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Substitutes for FPGA Technology
    No customer is required to purchase FPGA technology for either 
legal or technological reasons--even a customer that seeks to reduce 
jitter.\21\ Indeed, a majority of Nasdaq depth customers are not 
concerned with jitter because they do not process information at 
sufficiently high speeds for jitter to become a concern. These 
customers can continue to ingest BX TotalView as they do now.
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    \21\ Not all customers of depth of book information process at 
sufficiently high speeds for jitter to become a concern. Neither 
FPGA hardware nor its substitutes are required to ingest depth of 
book information.
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    Customers searching for greater determinism have an array of 
options for optimizing their systems. The benefits of selecting any 
particular option depend on a number of factors, including, but not 
limited to, the design of the customer's information system 
architecture, how its computer code is written, the types of hardware 
it uses to process information, and the cost of each option.
    To illustrate the choice faced by exchange customers, consider the 
decisions made by the two consolidated data processors, the UTP and CTA 
Plans, two different systems that use dissimilar means to achieve an 
optimal solution. Both perform the same task--combining quotes and 
trades from all U.S. exchanges into a consolidated data feed with 
relatively low jitter. Yet only one processor--the CTA Plan--uses FPGA 
hardware, while the other--the UTP Plan--does not.
    This is because the UTP Plan's design, coding and hardware achieve 
the desired level of determinism without FPGA technology. The CTA Plan, 
by contrast, elected to incorporate FPGA technology into its system 
design. Notwithstanding these different design decisions, both plans 
achieve broadly similar levels of performance. FPGA technology is 
therefore not essential to addressing jitter, but rather is one option 
among many to address the issue.
    Market data customers face an array of choices to optimize 
determinism, much like the UTP and CTA Plans. For example, a customer 
may purchase and deploy its own FPGA hardware, without purchasing the 
proposed FPGA technology service from the Exchange, after receiving 
data from the Exchange. Another customer may find use of the Exchange's 
FPGA technology, which lowers the level of jitter prior to the 
customer's receipt of the data, to be a better fit for its system 
architecture. The solution chosen will vary based on the needs and 
design choices of the customer.
    The experience of the Nasdaq exchange in offering FPGA technology 
shows that customers sensitive to jitter often avail themselves of 
substitutes for FPGA technology, a decision that can change over time. 
Over the past decade, a total of 21 current or potential users of FPGA 
technology--all of which required high degrees of determinism--
substituted FPGA with an alternative solution. Six of these customers 
were in the process of developing and testing FPGA hardware but 
ultimately decided not to purchase it before completing this process. 
The remaining 15 customers purchased FPGA technology, only to

[[Page 37115]]

cancel it after using it. Because all of these customers continued to 
utilize the underlying data, these cancelations demonstrate that FPGA 
technology is an optional service, even for those customers that seek 
to reduce jitter.
    Moreover, as noted above, no other exchange currently offers FPGA 
technology in conjunction with their proprietary data feeds as a 
separate service, notwithstanding the fact that it is a widely 
available technology, providing further evidence that customers have 
multiple options at their disposal to address jitter.
    The Exchange is aware of no systematic differences among market 
participants that choose to use or not to use FPGA technology. Jitter 
is a potential issue for any intensive user of market data, including 
banks, high-frequency trading firms, and hedge funds, yet not all of 
these customers purchase FPGA technology. The determining factor is not 
the type of customer, but rather the compatibility of FPGA technology 
with the customer's specific systems architecture and technical 
requirements, which can and do change over time as systems are 
modified, replaced or updated.
    For all of these reasons, customers can discontinue the use of FPGA 
technology at any time, or decide not to purchase it, for any reason, 
including the level of fees.
    Customers that choose not to purchase FPGA technology are not 
impacted by the proposal.
    The proposed fees will be available to all customers on a non-
discriminatory basis, and therefore are not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
    This Proposal, a response to customer demand, is a product of a 
competitive marketplace. To date, lower levels of peak activity at the 
BX Exchange relative to the Nasdaq exchange have been associated with 
low levels of customer interest in this product. Recently, however, BX 
has heard from customers interested in using FPGA technology for BX 
TotalView. To address this customer demand, and to drive liquidity to 
the BX Exchange by making it a more attractive trading venue, BX has 
decided to offer this product.
    Approval of this Proposal will further promote competition by 
providing market participants additional choices in the transmission of 
depth of book data.
    Nothing in the Proposal burdens inter-market competition (the 
competition among self-regulatory organizations) because approval of 
the Proposal does not impose any burden on the ability of other 
exchanges to compete. As noted above, FPGA technology is generally 
available and any exchange has the ability to offer it if it so 
chooses.
    Nothing in the Proposal burdens intra-market competition (the 
competition among consumers of exchange data) because FPGA technology 
is available to any customer under the same fee schedule as any other 
customer, and any market participant that wishes to purchase FPGA 
technology can do so on a non-discriminatory basis.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\22\
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    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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: (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.

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-2023-014 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-BX-2023-014. 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 website (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 website 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. Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright protection. All submissions 
should refer to File Number SR-BX-2023-014, and should be submitted on 
or before June 27, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-11922 Filed 6-5-23; 8:45 am]
BILLING CODE 8011-01-P