[Federal Register Volume 89, Number 135 (Monday, July 15, 2024)]
[Notices]
[Pages 57442-57444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15413]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100482; File No. SR-PHLX-2024-28]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Launch
Proximity-On-Demand, a Managed Colocation Solution
July 9, 2024.
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 June 28, 2024, Nasdaq PHLX LLC (``Phlx'' 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to launch Proximity-On-Demand, a managed
colocation solution.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/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 Exchange proposes to launch Proximity-On-Demand (``POD''), a
managed colocation solution. POD will offer colocation customers a
convenient variant of colocation where applications are deployed on
managed infrastructure in the form of virtual or dedicated servers in
the co-location space.
Current Co-Location Offering
The Exchange currently offers colocation services, which include a
suite of data center space, power, telecommunication, and other
ancillary products and services that allow customers to place their
trading and communications equipment in close physical proximity to the
quoting and execution facilities of the Exchange. The use of colocation
services is entirely voluntary and colocation services are available to
all market participants who desire them.
Colocation customers are not provided any separate or superior
means of direct access to the Exchange quoting and trading facilities.
Nor does the Exchange offer any separate or superior means of access to
the Exchange quoting and trading facilities as among colocation
customers themselves within the data center (or any future expansions
to the data center).\3\
---------------------------------------------------------------------------
\3\ Although the proposal and launch of POD are not dependent on
the expansion of the data center, the Exchange notes that is in the
process of expanding its data center in Carteret, New Jersey. Client
connections to the matching engine will be equal across the board,
within and among the current data center and the expansion.
---------------------------------------------------------------------------
In addition, all orders sent to the Exchange market enter the
marketplace through the same central system quote and order gateway
regardless of whether the sender is co-located in the Exchange data
center or not. In short, the Exchange has created no special market
technology or programming that is available only to co-located
customers and the Exchange has organized its systems to minimize, to
the greatest extent possible, any advantage for one customer versus
another.
Proximity-On-Demand
POD will be an alternative to the traditional offering of space and
power for the physical colocation of customers' equipment. The Exchange
will continue to offer its traditional colocation services.
With POD, customers will not need to order cabinets and power to
install a server or network hardware in the Exchange's data center to
be able to set up their systems and access the market directly.
Instead, POD will provide customers with a variant of colocation where
applications are deployed on a shared computing infrastructure \4\ co-
[[Page 57443]]
located in the data center,\5\ providing customers with a convenient
avenue to do business on the Exchange. With the Exchange's traditional
colocation offering, the Exchange provides space and power and
customers provide the hardware. With POD, the Exchange will provide the
hardware. This allows the Exchange's customers to connect more quickly
and with lower cost.
---------------------------------------------------------------------------
\4\ Shared computing infrastructure means that the Exchange
would provide the infrastructure, including hardware, that can be
used by multiple customers.
\5\ POD will be housed within the same data center as the
existing traditional colocation offering and Exchange systems,
located in Carteret, New Jersey.
---------------------------------------------------------------------------
Customers will be able to select a dedicated server or a virtual
machine. A dedicated server is single-tenant environment, meaning that
only one customer has access to the server hardware. A virtual machine
is a computing environment where each customer has exclusive access to
their virtualized server, including its operating system and
applications. While customers will control their virtual machines
independently, the physical hardware resources, such as the CPU,
memory, and storage, are shared among multiple virtual machines on the
same physical server. Hypervisor technology keeps the separate customer
operating systems securely segmented from each other, allowing a single
server to support multiple virtual machines. This allows quicker
deployment times and provides customers with the flexibility to
dynamically adjust the amount of compute resources needed without
requiring hardware changes. The Exchange anticipates that customers
will choose a dedicated server where better performance is required but
may prefer a virtual server for short-lived requirements or less
performance-sensitive workloads.
The servers (dedicated and virtual) for POD will be located in a
cabinet in the colocation space at the data center. Each customer will
have their own logical network that is fully isolated and not shared
with other customers. Those customers selecting a dedicated server
would also have the option to add an analytics service.\6\ The
analytics service will provide the ability to monitor network traffic
to and from the POD infrastructure, allowing customers access to data
about bandwidth usage, latency, and information related to Precision
Time Protocol (PTP) timestamped messages.
---------------------------------------------------------------------------
\6\ The analytics service is not available for virtual machines
because the compute resourcing for operating analytics is
incompatible with virtual machines.
---------------------------------------------------------------------------
Access to POD will be available via virtual private network (VPN)
or Secure Shell (SSH), similar to how customers would access their
fully owned co-located hardware. Customers will be able to choose from
several existing options for physical connectivity, including 1G Ultra,
10G, 10G Ultra, and 40G. POD will provide access to the market through
the same Extranet network as is used currently by existing colocation
customers. To be clear, POD will not afford its users any special
advantages relative to users of its traditional colocation services.
Exchanges offer colocation services to facilitate the trading
activities of those market participants who believe that colocation
enhances the efficiency of their trading. The Exchange believes that
the launch of POD will benefit an underserved market segment, including
a niche of smaller customers who do not currently co-locate in any form
at the data center but wish to do so. These smaller trading firms that
do not directly connect and interface with the Exchange may struggle
with the complexity, upfront investment, ongoing expense, and knowledge
gaps required to code, connect, host and manage their own
infrastructure, and trade directly with the Exchange.
The Exchange notes that similar services are currently offered by,
and customers may obtain such service from, managed service providers
that operate at the Carteret data center. For example, Pico and
Options-IT currently offer managed service colocation at the Carteret
data center.\7\ In addition to managed service providers currently
offering POD-like services at the data center, additional providers
offer similar services in other locations and will likely be in the
Carteret data center in the future as well.\8\ ICE offers a comparable
service, ``Compute on Demand,'' \9\ in select locations, including at
NY4 (located in Secaucus, New Jersey).\10\ Customers of ICE's Compute
on Demand could (and presumably do) connect to national securities
exchanges.
---------------------------------------------------------------------------
\7\ See https://www.pico.net/infrastructure/colocation-hosting/;
https://www.options-it.com/products/trading-infrastructure/exchange-colos/.
\8\ See, e.g., https://deploy.equinix.com/product/bare-metal/;
https://tnsi.com/resource/fin/tns-dedicated-server-comprehensive-cloud-server-management-press-release/.
\9\ See https://www.ice.com/fixed-income-data-services/access-and-delivery/connectivity-and-feeds/hosting-managed-services#demand.
Compute on Demand provides customers with a managed solution and is
a delivery model in which computing resources are made available to
customers on an on-demand basis. ICE offers Compute on Demand in
collaboration with Beeks. The Exchange also intends to launch POD in
partnership with Beeks. Beeks will provide the hardware that will
allow the Exchange to offer POD. In addition, the Johannesburg Stock
Exchange currently offers an advanced managed infrastructure as a
service solution, similar to POD, in collaboration with Beeks. See
https://beeksgroup.com/news/johannesburg-stock-exchange-jse-choose-beeks-and-ipc-to-power-private-cloud-deployments-for-their-customers/.
\10\ Cboe affiliated exchanges utilize the Equinix NY4 data
center in Secaucus, NJ.
---------------------------------------------------------------------------
POD will provide customers with increased options for colocation.
POD will be entirely optional and available to all market participants
who desire to subscribe to POD. It is a business decision of each firm
whether to subscribe to POD. Rather than choosing POD, customers may
choose to (1) directly co-locate at the data center by ordering cabinet
space and power, and placing their equipment at the data center; (2)
co-locate through a third party; or (3) not co-locate at all.
Implementation
The Exchange intends to submit a fee filing in the future to
establish fees for POD, including fees for a dedicated server, a
dedicated server with analytics, and a virtual machine. Implementation
of the proposal described herein to offer POD would coincide with the
subsequent fee filing.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\12\ in particular, 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 because POD would provide customers with increased optionality
to access the Exchange. The Exchange operates in a highly competitive
market in which exchanges offer colocation services to facilitate the
trading activities of those customers who believe that colocation
enhances the efficiency of their trading. POD is a voluntary variant of
colocation where customers can directly access the market without
needing to procure physical hardware independently, instead they can
use a shared computing infrastructure co-located in the data center.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the launch of POD will benefit an
underserved market segment, including smaller customers who do not
currently co-locate in any form at the data center but wish to do so.
These smaller trading firms that do not directly connect and interface
with the Exchange may struggle with the complexity, upfront
[[Page 57444]]
investment, ongoing expense, and knowledge gaps required to code,
connect, host and manage their own infrastructure, and trade directly
with the Exchange. As such, the Exchange believes that the proposal
would further the objective of removing impediments to and perfecting
the mechanism of a free and open market and a national market system.
The proposal would benefit the public interest by providing
customers more colocation options to choose from, thereby enhancing
their ability to tailor their colocation operations to the requirements
of their business operations. As noted above, POD will be entirely
optional and available to all market participants who desire to
subscribe to POD. Rather than choosing to co-locate via POD, customers
may choose to (1) directly co-locate at the data center by ordering
cabinet space and power, and placing their equipment at the data
center; (2) co-locate through a third party; or (3) not co-locate at
all. Services comparable to POD are currently offered by, and customers
may obtain such service from, any managed service providers that
operate at the Carteret data center.
Again, POD will offer its users no special advantages relative to
users of the Exchange's traditional colocation services. Though POD
will allow customers to use Exchange-provided hardware to access the
Exchange, POD does not otherwise fundamentally differ from current
connectivity to the Exchange. The Exchange is not proposing to change
the nature of the services provided today. Rather, POD will differ as
to who provides the hardware.
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.
Nothing in the proposal imposes any burden on the ability of other
exchanges to compete. The Exchange operates in a highly competitive
market in which exchanges and other vendors offer colocation services
to facilitate the trading and other market activities of those market
participants who believe that colocation enhances the efficiency of
their operations.
Nothing in the Proposal burdens intra-market competition because
POD will be available to any customer and customers that wish to co-
locate via POD can do so on a non-discriminatory basis. Use of any
colocation service is completely voluntary, and each market participant
is able to determine whether to use colocation services, including POD,
based on the requirements of its business operations. POD will offer
its users no special advantages relative to users of the Exchange's
traditional colocation services.
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
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \13\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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 satisfied this requirement.
---------------------------------------------------------------------------
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. 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-PHLX-2024-28 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-PHLX-2024-28. 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-PHLX-2024-28 and should be
submitted on or before August 5, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15413 Filed 7-12-24; 8:45 am]
BILLING CODE 8011-01-P