[Federal Register Volume 89, Number 136 (Tuesday, July 16, 2024)]
[Notices]
[Pages 57971-57973]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15499]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100485; File No. SR-GEMX-2024-16]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Launch 
Proximity-On-Demand, a Managed Colocation Solution

July 10, 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 GEMX, LLC (``GEMX'' 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 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/gemx/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\
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    \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.
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    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

[[Page 57972]]

shared computing infrastructure \4\ co-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.
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    \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.
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    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.
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    \6\ The analytics service is not available for virtual machines 
because the compute resourcing for operating analytics is 
incompatible with virtual machines.
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    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.
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    \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.
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    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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    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

[[Page 57973]]

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. 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\
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    \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.
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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. 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-GEMX-2024-16 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-GEMX-2024-16. 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-GEMX-2024-16 and should be 
submitted on or before August 6, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-15499 Filed 7-15-24; 8:45 am]
BILLING CODE 8011-01-P