[Federal Register Volume 88, Number 141 (Tuesday, July 25, 2023)]
[Notices]
[Pages 47937-47940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15655]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97946; File No. SR-BX-2023-016]
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
July 19, 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 July 11, 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 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.\3\ This
follows a recently-filed proposal to offer FPGA technology as an
optional delivery mechanism for BX TotalView.\4\
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\3\ This Proposal was initially filed by the Exchange on May 23,
2023. See Securities Exchange Act Release No. 97627 (May 31, 2023),
88 FR 37112 (June 6, 2023) (SR-BX-2023-014). On July 7, 2023, that
filing was withdrawn and replaced by the instant filing. The instant
filing provides additional information regarding the Proposal, but
does not change it in substance.
\4\ 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.
Reducing jitter can be useful for certain customers due to the
variability in the timing of market data packets transmitted by an
exchange over the course of the trading day. Orders, and therefore
market data packets, typically accumulate in larger numbers at the
beginning and end of the trading day, as well as during the peaks of
activity that occur at random intervals during the day. These bursts of
activity may alter the time interval between the delivery of data
packets because software processes information at variable rates
depending on load to the system. Processing times may increase at
higher loads, and decrease during periods of lesser activity. FPGA
technology processes data packets at a constant time interval, without
regard to the number of packets processed. 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,
as well as the customer's specific system architecture.
Higher determinism does not necessarily mean lower latency. The
concepts of determinism and latency are related, but distinct.
Determinism refers to predictability in the rate of data transmission;
latency refers to the time required to process data or transport it
from one location to another. Low latency is not necessarily
deterministic, and higher determinism does not necessarily mean low
latency. As such, use of FPGA technology will increase determinism, but
does not guarantee lower latency at all times.\5\
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\5\ Because software can be impacted by workload, FPGA has lower
latency during periods of peak activity.
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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
[[Page 47938]]
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,\6\
or to Nasdaq.
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\6\ 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,\7\ and
has been cited by the SEC as an example of a technology useful in the
distribution of market data products.\8\
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\7\ 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).
\8\ 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.\9\
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\9\ 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.\10\ These fees are in addition to Market Data
Distributor Fees,\11\ fees for BX TotalView,\12\ and other fees for
Distribution Models.\13\ 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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\10\ 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.
\11\ See Nasdaq BX, Inc. Rules, Equity 7, Section 119.
\12\ See Id., Section 123.
\13\ 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.\14\ 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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\14\ 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.
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,\15\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal is reasonable and unlikely to burden the market
because the purchase of FPGA technology is optional for all categories
of customers. No customer and no category of customers (such as, for
example, vendors, proprietary trading firms, banks, hedge funds, market
makers, or high frequency trading firms) are required to purchase FPGA
technology for either legal or technological reasons--even a customer
that seeks to reduce jitter.\17\
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\17\ 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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The Nasdaq exchange has over ten years of experience in selling
FPGA technology. That experience has shown that the vast majority of
Nasdaq depth customers do not find value in FPGA. The Exchange expects
such customers to continue to ingest BX TotalView as they do now.
For those customers that may seek to increase determinism, the
purchase of FPGA technology from the BX exchange will be only one of
several options available. FPGA technology is not unique to the
Exchange or even the financial services industry. Third-party data
vendors offer FPGA technology services. Customers may also install
their own FPGA hardware for internal use. All of these are viable
options; the benefits of any particular option will depend on the
particular customer's systems and use cases.
Customers may also choose not to address jitter using FPGA at all.
As noted above, FPGA technology processes the data at a consistently
predictable rate relative to software. This predictability in the rate
of processing may not be advantageous or optimal for all systems
receiving the exchange data feed.
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The design of data processing architecture is complex. The
ingestion of data from an exchange is just one step in the life-cycle
of trading. Customers must also generate and submit orders, evaluate
trades, and then generate new orders while interacting with multiple
exchanges. All of these steps are part of a single trading system.
Changing any one step in the process--by, for example, purchasing FPGA
technology services from one exchange (when other exchanges may not
offer FPGA)--often results in the need for changes to other aspects of
the process. As such, the decision to buy FPGA services will be based
on whether the service is compatible with their trading system as a
whole, not just on whether it may facilitate the processing of data
from a single exchange. The appropriateness of any particular solution
will depend on the customer's system architecture, and the specific use
cases for the market data consumed.
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 US 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 sought a higher degree 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 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.
In the experience of the Nasdaq exchange, FPGA services are
purchased by vendors, proprietary trading firms, banks, high-frequency
trading firms, hedge funds, and market makers. The Nasdaq exchange is
aware of no systematic differences within any of these categories among
market participants that choose to use or not to use FPGA technology.
Few customers of Nasdaq TotalView purchase FPGA services from
Nasdaq. This is because the bulk of customers consume Nasdaq TotalView
for display (i.e., human) usage. FPGA technology impacts performance at
a speed that a human cannot process, and there is no need for FPGA
technology for such usage.
Of the customers that receive Nasdaq TotalView from Nasdaq (either
through a direct feed or an extranet connection), and are in a position
to utilize FPGA technology, only about 15 percent purchase it.
Most strikingly, only approximately 3% of market makers at Nasdaq
purchase FPGA technology. This may seem a surprising result, given that
market makers, by definition, trade throughout the day and during
periods of peak activity, but, as noted above, customers have several
options: purchase FPGA services from a third-party vendor, implement
FPGA technology on their own, or configure their systems to process
data during peaks without the use of FPGA. The fact that only about 3%
of market makers at the Nasdaq exchange purchase FPGA demonstrates that
most customers make use of alternative solutions. As such, the
determining factor in whether to purchase FPGA is not the category 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
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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.\18\
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\18\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-BX-2023-016 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-2023-016. 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 (https://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
a.m. and 3 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-2023-016 and should be
submitted on or before August 15, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-15655 Filed 7-24-23; 8:45 am]
BILLING CODE 8011-01-P