[Federal Register Volume 89, Number 185 (Tuesday, September 24, 2024)]
[Notices]
[Pages 77920-77926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21747]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101074; File No. SR-GEMX-2024-34]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Expand Its Co-
Location Services

September 18, 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 September 5, 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 expand its co-location services.
    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 expand its co-location services by 
offering new cabinet, power, and power distribution

[[Page 77921]]

unit options in the Exchange's expanded data center.\3\
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    \3\ The Exchange previous submitted a similar proposal earlier 
this year, see Securities Exchange Act Release No. 34-100562 (July 
19, 2024), 89 FR 60474 (July 25, 2024) (SR-GEMX-2024-21) (the 
``Prior Proposal''), but withdrew it on August 29, 2024 to allow for 
the Exchange to address outstanding comments and concerns raised by 
the Commission Staff and commenters.
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    The Exchange's current data center (``NY11'') in Carteret, NJ is 
undergoing an expansion (``NY11-4'') in response to demand for power 
and cabinets. NY11-4 is not a new or distinct co-location facility. 
Instead, NY11-4 is simply an expansion of the existing Nasdaq NY11 data 
center,\4\ and Nasdaq intends to operate it generally in the same 
manner as existing aspects of NY11.\5\ Client connections to the 
matching engine will be equal across the board, within and among NY11 
and NY11-4. In 2010, the Exchange undertook a similar expansion to its 
data center, where connectivity to the Exchange remained equalized, as 
is the case with the NY11-4 expansion.
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    \4\ NY11-4 is not a standalone facility. Equinix considers the 
site as NY11 with three expansions: NY11 Phase 1, NY11 Phase 2 and 
NY11-4.
    \5\ As discussed below in further detail, one aspect of the data 
center that will be different (temporarily) in NY11-4 as compared to 
NY11 is telecommunications access and inter-client connectivity. In 
NY11-4 at its launch, connections between colocated client cabinets 
and the carrier cage will be equalized as will be inter-client 
connectivity. Presently, such connectivity is not equalized in NY11, 
but the Exchange intends to retrofit NY11 to be equalized in the 
months ahead.
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    The Exchange submits this filing to propose offering new services 
in NY11-4, as described below, and to the extent the Exchange offers 
additional new services, whether in the existing NY11 data halls or in 
the new NY11-4 data hall, the Exchange will submit additional filings 
with the Commission.
New and Upgraded Services in NY11-4
NY11-4 Expanded Cabinet Optionality: Ultra High Density Cabinet
    Currently, co-location customers have the option of obtaining 
cabinets of various sizes and power densities. Co-location customers 
may obtain a Half Cabinet,\6\ a Low Density Cabinet with power density 
less than or equal to 2.88 kilowatts (``kW''), a Medium Density Cabinet 
with power density greater than 2.88 kW and less than or equal to 5 kW, 
a Medium-High Density Cabinet with power density greater than 5 kW and 
less than or equal to 7 kW, a High Density Cabinet with power density 
greater than 7 kW and less than 10 kW, and a Super High Density Cabinet 
with power density greater than 10 kW and less than or equal to 17.3 
kW.
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    \6\ Half cabinets are not available to new subscribers. See 
General 8, Section 1(a).
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    The Exchange proposes to introduce a new cabinet choice in NY11-4, 
an ``Ultra High Density Cabinet,'' with power density greater than 10 
kW and less than or equal to 15 kW. Based on demand, the Exchange 
wishes to introduce the Ultra High Density Cabinet as an option for 
customers between the High Density Cabinet and the Super High Density 
Cabinet. The Ultra High Density Cabinet option would only be offered in 
NY11-4 because of the power configuration necessary for such cabinets, 
which is not possible or available in other portions of the data center 
due to different power distribution. Because of the addition of the 
Ultra High Density Cabinet option in NY11-4, the Super High Density 
Cabinet in NY11-4 would have power density greater than 15 kW and less 
than or equal to 17.3 kW.
    In addition to the Ultra High Density Cabinet, the Exchange would 
offer the other, existing cabinet options in NY11-4, with the exception 
of the Low Density Cabinet and Half Cabinet due to a lack of demand for 
such cabinets. The cabinets in NY11-4 will include certain features, 
including but not limited to: uniform, wider cabinets \7\ (32'' W x 
48'' D x 91'' H), cable management, and a rear split door and combo 
lock.
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    \7\ In the existing data halls, clients may bring their own 
cabinets or use Exchange-provided cabinets. Because of the cooling 
system in NY11-4 (hot aisle containment), all cabinets must be 
uniform and therefore, the Exchange will provide all cabinets. The 
existing data halls utilize cold aisle containment to manage 
temperatures. Hot aisle containment is a more effective way to 
manage heat in the data center.
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NY-11 4 Cabinet Power and Power Distribution Units
    The Exchange currently provides various cabinet power options, 
including: 2x20 amp 110 volt, 2x30 amp 110 volt, 2x20 amp 208 volt, 
2x30 amp 208 volt, Phase 3 2x20 amp 208 volt, Phase 3 2x30 amp 208 
volt, 2x60 amp 208 volt, Phase 3 2x40 amp 208 volt, Phase 3 2x50 amp 
208 volt, Phase 3 2x60 amp 208 volt, and 2x30 amp 48 volt DC. For NY11-
4, the data center operator is bringing in higher voltage power 
options, which are more consistent with power options used in other 
data centers across the globe. The Exchange proposes to amend General 
8, Section 1(c) to add the cabinet power options for NY11-4, which 
include: Phase 1 20 amp 240 volt, Phase 1 32 amp 240 volt, Phase 1 40 
amp 240 volt, Phase 3 20 amp 415 volt, and Phase 3 32 amp 415 volt. The 
Exchange also proposes to specify in its Rules that these cabinet power 
options are specific to NY11-4 and that one of these options must be 
selected for cabinets in NY11-4. Although different cabinet power 
options will be offered in NY11 and NY11-4 due to differing power 
configurations, the new cabinet power options are not inherently 
preferable to the existing cabinet power options and the Exchange does 
not anticipate material differences in equipment performance based on 
the power distribution. Due to higher voltage options being offered in 
NY11-4, the data center operator is likely to experience increased 
power distribution efficiencies across the data center. As between the 
various cabinet power options, customers choose power based on their 
preference and capacity needs.
    The Exchange also proposes to offer power distribution units 
(``PDUs'') \8\ in NY11-4 as a convenience to customers. Rather than 
sourcing PDUs on a customer-by-customer basis, as the Exchange does for 
customers in NY11, the Exchange wishes to simplify and standardize its 
PDU offering in NY11-4 by offering Phase 1 and Phase 3 \9\ power 
distribution units. This service is optional and customers may choose 
to provide their own PDUs appropriate for their power installation 
choices. The Exchange also proposes to offer a switch monitored PDU add 
on in NY11-4, which would allow customers to connect remotely to their 
PDU and control the power sockets. With the switch monitored PDU 
option, customers would be able to power cycle or shut off power 
remotely. This option is optional as well and customers may choose to 
provide their own switch monitored PDU, if desired.
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    \8\ PDUs are devices fitted with multiple outputs designed to 
distribute electric power. The standardized PDUs would only be 
offered for NY11-4.
    \9\ Phase 1 PDUs would be compatible with the following power 
options: Phase 1 20 amp 240 volt, Phase 1 32 amp 240 volt, and Phase 
1 40 amp 240 volt. Phase 3 PDUs would be compatible with the 
following power options: Phase 3 20 amp 415 volt and Phase 3 32 amp 
415 volt. Phase 1 and Phase 3 are available in NY11 and NY11-4. 
Phase 3 PDUs provide greater power density than Phase 1 PDUs by 
delivering power over three wires as opposed to one wire.
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Implementation
    Although the timing is subject to change,\10\ the Exchange 
anticipates opening NY11-4 Exchange access on November 4, 2024. In 
concert with this filing, the Exchange will allow customers to place 
orders for NY11-4,

[[Page 77922]]

which would not be fee liable until customers are provided access to 
the space.\11\ The Exchange will submit a fee filing to establish fees 
for the services described herein. Allowing customers to place orders 
in advance of opening its doors will allow the Exchange to plan ahead 
for capacity and demand for services, as well as procure necessary 
equipment.
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    \10\ The Exchange will announce modifications to the proposed 
timing via the Nasdaq Customer Portal, which is the web portal used 
for order and inventory management of colocation services, and email 
communication to all colocation customers.
    \11\ Charging customers once access is provided is consistent 
with current practice and allows customers to set up equipment and 
begin using power.
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Equalization of Telecommunications Connectivity in NY11-4 and NY11
    Although the Exchange has constructed NY11-4 to address capacity 
constraints associated with its existing data center footprint, as well 
as to enable the provision of upgraded power for customer equipment, an 
ancillary design feature of NY11-4 will be that it will include, at 
launch, equalized cabling between customer equipment and equipment 
owned and operated by third-party telecommunications providers (``telco 
connectivity''). This design feature is incident, but not strictly 
relevant to the Proposal at hand. Nevertheless, we discuss it below 
insofar as it garnered attention in the Prior Proposal, by one 
commenter, in particular.\12\
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    \12\ See Ltr. From J. Considine, McKay Brothers LLC, to V. 
Countryman, SEC, dated July 24, 2024, available at https://www.sec.gov/comments/sr-nasdaq-2024-026/srnasdaq2024026-496995-1434326.pdf (the ``McKay Letter''). Akuna Securities LLC also filed 
a comment letter that largely echoed the arguments in the McKay 
Letter. See Ltr. From D. DeSalle-Baron, Akuna Securities LLC to V. 
Countryman, SEC, dated July 24, 2024, available at https://www.sec.gov/comments/sr-nasdaq-2024-026/srnasdaq2024026-497096-1434386.pdf.
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    Presently, the Exchange does not have equalized telco connectivity 
in NY11, much like several of its peers, IEX, MEMX, and Cboe, all of 
which operate through their Secaucus data center without equalized 
telco connectivity.\13\ The present architecture of NY11 is a product 
of its history and that of technology; the Exchange designed NY11 at a 
time when latency differences were measured by customers in terms of 
miles of cable between customer facilities and exchange data centers, 
rather than in feet or inches within exchange data centers, as is the 
case today. As the technology paradigm shifted, and as variances in 
telco connectivity became more meaningful to some market participants, 
the Exchange reevaluated its design of its data center and determined 
that telco connectivity equalization would be in the best interests of 
the markets going forward. Thus, on its own initiative, the Exchange 
has embarked on an ambitious project to equalize telco connectivity 
across its entire data center campus, including both its existing NY11 
facility and the NY11-4 expansion (the ``Equalization Project''). The 
launch of NY11-4 will constitute phase 1 of the Equalization Project.
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    \13\ The structure of the Secaucus data center is a generally 
known fact within the industry and one of which the Exchange is 
itself aware due, among other things, to its own status as a tenant 
of the Secaucus data center.
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    The Equalization Project will be complex, time consuming, and 
costly to complete, especially as to NY11, where the existing facility 
must be retrofitted with equalized cabling. In NY11, thousands of 
existing customer cables threaded throughout the facility will need to 
be removed and replaced with new infrastructure to support equidistant 
connectivity relative to all other customers' locations in the data 
center. This painstaking project will cost millions of dollars in 
design, equipment, and labor costs. Due to its complexity, the 
Equalization Project cannot and will not be accomplished 
instantaneously.\14\ Instead, the Exchange estimates that the Project 
will require 18-24 months to complete, commencing as of the launch of 
NY11-4. Moreover, it will occur in a methodical and phased manner to 
ensure proper design, testing, and workmanship, as well as to minimize 
the customer disruptions that, unfortunately, will be unavoidable 
during the process. The launch of NY11-4 with equalized telco 
connectivity will be the first phase of the Equalization Project, with 
the equalization of NY11 constituting the remaining phases of the 
Project. For the phased transition of NY11, the Exchange expects the 
migration to occur in tranches over the course of several weekends at 
the tail end of the 18-24 project period.
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    \14\ The McKay Letter asserts incorrectly and without any 
evidentiary basis that the Exchange is capable of equalizing telco 
connectivity quickly and can do so before launching NY11-4 with only 
a minor ensuing delay to the launch. See id. at 4, n.15. As we 
explain herein, equalization of NY11 will take many months to 
accomplish, even at an aggressive pace, including because of factors 
outside of its control. The Exchange notes, for example, that the 
fiber needed to re-cable NY11 is in short supply and orders are 
subject to substantial waiting periods.
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Concerns About the Sequencing of the Equalization Project Are Unfounded
    In the Prior Proposal, the commenter objected to the Exchange's 
plan to accomplish the Equalization Project by first launching 
equalized telco connectivity in NY11-4 before launching it in NY11.\15\ 
The commenter argued that this sequencing of the Equalization Project 
would be unfairly discriminatory in that it would exacerbate existing 
inequalities in the Exchange's Data Center while also compelling 
customers to secure unneeded space in NY11-4 to ensure that they obtain 
or maintain the closest possible geographic proximity to their 
telecommunications providers' equipment.\16\ These arguments are simply 
wrong.
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    \15\ See id.
    \16\ See id. at 1-2, 5-6.
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The Exchange's Plan for the Launch of NY11-4 To Constitute Phase One of 
the Equalization Project Is Fair and Reasonable and in the Best 
Interests of the Markets
The Exchange's Plan To Proceed With NY11-4 as the First Phase of the 
Equalization Project Is in the Best Interests of the Markets
    The fact of the matter is that the Exchange needs to launch NY11-
4--and needs to do so in November 2024--to ensure that it remains 
capable of meeting the growing power and capacity demands of its 
customers. Regulation SCI requires the Exchange to reasonably 
anticipate its capacity needs. NY11-4, which has been three years in 
the making, is a product of the SCI planning process. Delaying the 
launch of NY11-4 to accommodate the equalization of NY11 would 
jeopardize the sound and orderly operation of the Exchange's markets. 
Such a danger readily outweighs any concerns that some may have about 
the fairness of the Exchange's plan to sequence the Equalization 
Project, even if such concerns were well-founded, which they are not.
    We note that our customers generally support this view. One 
customer sent the Exchange a letter stating the following about the 
Exchange's plans:

    As noted in your August 12, 2024, comment letter response to the 
SEC, the addition of NY11-4 is needed to meet the growing customer 
demands for space, power, and upgraded technological capabilities. 
OMC echoes these concerns as one of those customers, with an 
immediate and significant need to expand its colocation space to 
accommodate the growing demands of OMC's business. OMC is a 
registered member of the Nasdaq Stock Market and eight other options 
and equities exchanges operated by Nasdaq (the ``Exchanges''), with 
more than half of those memberships added within roughly the last 
year. As a registered Market Maker for hundreds of listed symbols, 
OMC actively provides liquidity across the Exchanges. Also, as a 
Designated Liquidity Provider, OMC plays a key role in supporting

[[Page 77923]]

the active and efficient trading of many new and existing products 
listed on the Exchanges. To support this significant amount of 
trading activity on the Exchanges, OMC urgently needs the additional 
colocation space made available in NY11-4. Any halt or delay of the 
NY11-4 launch would prevent OMC's planned expansion and would 
endanger OMC's ability to grow and meet the liquidity provision 
demands of the Exchanges and their customers.\17\
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    \17\ Ltr. From F. Zucek, Old Mission, to B. Kitt, Nasdaq, dated 
Aug. 21, 2024.
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The Exchange's Sequencing Plan Is Also Pragmatic and Efficient
    Expanding the existing data center by building a new wing (NY11-4) 
from scratch afforded the Exchange an opportunity to design the 
expansion efficiently with telco connectivity equalization incorporated 
therein from the outset. This approach avoids the need to later engage 
in a wasteful process of retrofitting NY11-4 for telco connectivity 
equalization--a process in which the Exchange must now engage with 
respect to NY11.
Launching NY11-4 Before Equalizing NY11 Will Not Worsen Inequality
    The latency profile of a customer collocating in NY11-4 would be no 
better than that of the lowest latency customer and no worse than that 
of the highest latency customer colocating presently in NY11. In fact, 
the launch of a full-equalized NY11-4 before equalizing NY11 would 
actually diminish the overall average latency differential among 
collocated customers' telecom provider connections because NY11-4 
introduces connections at a single latency value in between the slowest 
and fastest latencies. That is, the shortest current telco connection 
possible into NY11 is 160 ft while the longest current telco connection 
possible into NY11 is 680 feet; the equidistant telco connections into 
NY11-4 will be 590 feet, which falls between these two extremes.
    Moreover, although the Exchange does not know the precise latency 
profiles of each of its colocation customers, it has provided those 
customers with the latency profile for NY11-4 and interhall 
connectivity through its distribution of a technical specification 
document via the Customer Portal. This technical specification document 
will allow customers to determine for themselves whether their current 
location in NY11 or alternative space in NY11-4 will optimize their 
latency profile. It will provide a means for customers to plan ahead 
and avoid undesirable outcomes associated with the launch of NY11-4. 
Contrary to assertions made by the commenter in connection with the 
Prior Proposal,\18\ the technical specification document alleviates 
uncertainty that might otherwise compel customers to waste money to 
secure unnecessary space in NY11-4 as a defensive means of assuring 
themselves the most advantageous position available in the Exchange's 
data center campus.
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    \18\ See McKay Ltr., supra, at 3-4 (asserting that 
``introduction of NY11-4 before equalizing NY11 will compel many 
customers to establish a third point of presence--at a cost in 
incremental fees paid to Nasdaq alone of at least $2.5 million on a 
three-year commitment--to eliminate the risk that the NY11-4 
connection is a superior connection to one (or both) of their 
existing NY11 points of presence.'').
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Any Advantage Attainable From the Launch of NY11-4 First Will Be 
Temporary
    Even if a customer was to gain a latency advantage from the launch 
of NY11-4 before equalization of NY11, such an advantage would be 
temporary given the fact that equalization of NY11 will follow soon 
after the launch of NY11-4. The fleeting nature of any such advantage 
should also disincentivize colocation customers from engaging in a 
``land grab'' for what they perceive to be the most geographically 
advantageous space in NY11-4. Indeed, the Exchange sees no evidence of 
such a land grab actually occurring with respect to customers' 
expressions of interest in NY11-4, notwithstanding warnings to that 
effect from the same commenter. As of the date of submission of this 
filing, only roughly 10 percent of existing customers, representing a 
mix of business models and latency sensitive activities, have requested 
space in NY11-4. Moreover, interest in NY11-4 thus far involves a mix 
of customers wanting to expand upon their existing space in NY11 and 
others that want to move their existing space in NY11 entirely to NY11-
4.
Equalizing NY11 First Will Not Avoid Creating Temporary Customer 
Disparities
    Finally, the commenter's argument is incorrect that equalizing NY11 
before launching NY11-4 would avoid creating disparities among 
customers with respect to their telco connections.\19\ Equalizing 
telecommunications connectivity in NY11 before launching NY11-4 would 
not avoid the reality that full telco connectivity equalization--
however accomplished--will require the introduction of temporary 
disparities in the lengths of the cables running between 
telecommunications providers and customers in the data center complex. 
Even if the Exchange were to pursue equalization of NY11 first, doing 
so would necessarily entail certain customers in NY11 experiencing 
changes to their telco cable lengths before others during the phased 
transition period. Thus, re-sequencing the Equalization Project to 
start with NY11 will do nothing to affect these temporary customer 
disparities, but instead will needlessly place the markets at risk by 
delaying the availability of expanded data center capacity.
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    \19\ See id. at 2.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\20\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\21\ 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. Today, the Exchange offers various cabinet choices and power 
options in the data center for colocation customers. The proposal would 
expand the cabinet and power options available, by introducing an 
additional cabinet option, the Ultra High Density Cabinet, and new 
power choices. The proposal would benefit the public interest by 
providing customers more cabinet and power options to choose from, 
thereby enhancing their ability to tailor their colocation operations 
to the requirements of their business operations. In general, the 
proposal is consistent with the Act because the Exchange's expansion of 
the data center and expansion of available power and cabinets will 
enable the Exchange to meet customer needs and address demand for both 
cabinets and power. In lieu of collocating directly with the Exchange, 
market participants may choose not to collocate at all or to collocate 
indirectly through a vendor.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that the proposal will not be unfairly 
discriminatory, consistent with the objectives of Section 6(b)(5) of 
the Act \22\ because the expanded cabinet and power options in the data 
center would be offered equally to all customers. Although certain 
optionality is only offered in NY11-4 because of different power 
configurations in NY11-4 as compared to NY11, NY11-4 is merely an 
expansion of the data center, and any customer may order cabinets and 
power in NY11-4 (and across the data center

[[Page 77924]]

broadly) on the same terms as any other customer.
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    \22\ Id.
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The Equalization Project Is Consistent With the Act
    In addition to the above, and although not strictly relevant to the 
proposal at hand, the Exchange also believes that the Equalization 
Project, as outlined above and which will begin with the launch of 
NY11-4, is consistent with the Act.
Concerns About the Sequencing of the Equalization Project Are Unfounded
    In the Prior Proposal, the commenter objected to the Exchange's 
plan to accomplish the Equalization Project by first launching 
equalized telco connectivity in NY11-4 before launching it in NY11.\23\ 
The commenter argued that this sequencing of the Equalization Project 
would be unfairly discriminatory in that it would exacerbate existing 
inequalities in the Exchange's Data Center while also compelling 
customers to secure unneeded space in NY11-4 to ensure that they obtain 
or maintain the closest possible geographic proximity to their 
telecommunications providers' equipment.\24\ These arguments are simply 
wrong.
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    \23\ See McKay Ltr., supra.
    \24\ See id. at 1-2, 5-6.
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The Exchange's Plan for the Launch of NY11-4 To Constitute Phase One of 
the Equalization Project Is Fair and Reasonable and in the Best 
Interests of the Markets
The Exchange's Plan To Proceed With NY11-4 as the First Phase of the 
Equalization Project Is in the Best Interests of the Markets
    The fact of the matter is that the Exchange needs to launch NY11-
4--and needs to do so in November 2024--to ensure that it remains 
capable of meeting the growing power and capacity demands of its 
customers. Regulation SCI requires the Exchange to reasonably 
anticipate its capacity needs. NY11-4, which has been three years in 
the making, is a product of the SCI planning process. Delaying the 
launch of NY11-4 to accommodate the equalization of NY11 would 
jeopardize the sound and orderly operation of the Exchange's markets. 
Such a danger readily outweighs any concerns that some may have about 
the fairness of the Exchange's plan to sequence the Equalization 
Project, even if such concerns were well-founded, which they are not.
    We note that our customers generally support this view. One 
customer sent the Exchange a letter stating the following about the 
Exchange's plans:

    As noted in your August 12, 2024, comment letter response to the 
SEC, the addition of NY11-4 is needed to meet the growing customer 
demands for space, power, and upgraded technological capabilities. 
OMC echoes these concerns as one of those customers, with an 
immediate and significant need to expand its colocation space to 
accommodate the growing demands of OMC's business. OMC is a 
registered member of the Nasdaq Stock Market and eight other options 
and equities exchanges operated by Nasdaq (the ``Exchanges''), with 
more than half of those memberships added within roughly the last 
year. As a registered Market Maker for hundreds of listed symbols, 
OMC actively provides liquidity across the Exchanges. Also, as a 
Designated Liquidity Provider, OMC plays a key role in supporting 
the active and efficient trading of many new and existing products 
listed on the Exchanges. To support this significant amount of 
trading activity on the Exchanges, OMC urgently needs the additional 
colocation space made available in NY11-4. Any halt or delay of the 
NY11-4 launch would prevent OMC's planned expansion and would 
endanger OMC's ability to grow and meet the liquidity provision 
demands of the Exchanges and their customers.\25\
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    \25\ Ltr. From F. Zucek, Old Mission, to B. Kitt, Nasdaq, dated 
Aug. 21, 2024.
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The Exchange's Sequencing Plan Is Also Pragmatic and Efficient
    Expanding the existing data center by building a new wing (NY11-4) 
from scratch afforded the Exchange an opportunity to design the 
expansion efficiently with telco connectivity equalization incorporated 
therein from the outset. This approach avoids the need to later engage 
in a wasteful process of retrofitting NY11-4 for telco connectivity 
equalization--a process in which the Exchange must now engage with 
respect to NY11.
Launching NY11-4 Before Equalizing NY11 Will Not Worsen Inequality
    The latency profile of a customer collocating in NY11-4 would be no 
better than that of the lowest latency customer and no worse than that 
of the highest latency customer colocating presently in NY11. In fact, 
the launch of a full-equalized NY11-4 before equalizing NY11 would 
actually diminish the overall average latency differential among 
collocated customers' telecom provider connections because NY11-4 
introduces connections at a single latency value in between the slowest 
and fastest latencies. That is, the shortest current telco connection 
possible into NY11 is 160 ft while the longest current telco connection 
possible into NY11 is 680 feet; the equidistant telco connections into 
NY11-4 will be 590 feet, which falls between these two extremes.
    Moreover, although the Exchange does not know the precise latency 
profiles of each of its colocation customers, it has provided those 
customers with the latency profile for NY11-4 and interhall 
connectivity through its distribution of a technical specification 
document via the Customer Portal. This technical specification document 
will allow customers to determine for themselves whether their current 
location in NY11 or alternative space in NY11-4 will optimize their 
latency profile. It will provide a means for customers to plan ahead 
and avoid undesirable outcomes associated with the launch of NY11-4. 
Contrary to assertions made by the commenter in connection with the 
Prior Proposal,\26\ the technical specification document alleviates 
uncertainty that might otherwise compel customers to waste money to 
secure unnecessary space in NY11-4 as a defensive means of assuring 
themselves the most advantageous position available in the Exchange's 
data center campus.
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    \26\ See McKay Ltr., supra, at 3-4 (asserting that 
``introduction of NY11-4 before equalizing NY11 will compel many 
customers to establish a third point of presence--at a cost in 
incremental fees paid to Nasdaq alone of at least $2.5 million on a 
three-year commitment--to eliminate the risk that the NY11-4 
connection is a superior connection to one (or both) of their 
existing NY11 points of presence.'').
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Any Advantage Attainable From the Launch of NY11-4 First Will Be 
Temporary
    Even if a customer was to gain a latency advantage from the launch 
of NY11-4 before equalization of NY11, such an advantage would be 
temporary given the fact that equalization of NY11 will follow soon 
after the launch of NY11-4. The fleeting nature of any such advantage 
should also disincentivize colocation customers from engaging in a 
``land grab'' for what they perceive to be the most geographically 
advantageous space in NY11-4. Indeed, the Exchange sees no evidence of 
such a land grab actually occurring with respect to customers' 
expressions of interest in NY11-4, notwithstanding warnings to that 
effect from the same commenter. As of the date of submission of this 
filing, only roughly 10 percent of existing customers, representing a 
mix of business models and latency sensitive activities, have requested 
space in NY11-4. Moreover, interest in NY11-4 thus far involves a mix 
of customers wanting to expand upon their existing space in NY11 and 
others that want to

[[Page 77925]]

move their existing space in NY11 entirely to NY11-4.
Equalizing NY11 First Will Not Avoid Creating Temporary Customer 
Disparities
    Finally, the commenter's argument is incorrect that equalizing NY11 
before launching NY11-4 would avoid creating disparities among 
customers with respect to their telco connections.\27\ Equalizing 
telecommunications connectivity in NY11 before launching NY11-4 would 
not avoid the reality that full telco connectivity equalization--
however accomplished--will require the introduction of temporary 
disparities in the lengths of the cables running between 
telecommunications providers and customers in the data center complex.
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    \27\ See id. at 2.
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    Even if the Exchange were to pursue equalization of NY11 first, 
doing so would necessarily entail certain customers in NY11 
experiencing changes to their telco cable lengths before others during 
the phased transition period. Thus, re-sequencing the Equalization 
Project to start with NY11 will do nothing to affect these temporary 
customer disparities, but instead will needlessly place the markets at 
risk by delaying the availability of expanded data center capacity.

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 
as a means to facilitate the trading and other market activities of 
those market participants who believe that colocation enhances the 
efficiency of their operations. As part of its colocation offering, the 
Exchange currently offers similar cabinets and power, as do other 
exchanges.
    Nothing in the Proposal burdens intra-market competition because 
the Exchange's colocation services, including those proposed herein, 
are available to any customer and customers that wish to order cabinets 
and power 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 based on the 
requirements of its business operations.
    Additionally, and although not strictly relevant to the Proposal, 
nothing about the Equalization Plan, as described above, would impose 
an undue burden on competition. The Exchange intends for the 
Equalization Plan to facilitate increased competition among its 
colocation customers by eliminating telco connectivity disparities that 
currently provide some customers with latency advantages relative to 
others. For the reasons discussed above, the Exchange believes that it 
is fair and necessary to sequence the Equalization Project by beginning 
with the launch of NY11-4 with an equalized design, rather than with 
NY11. Specifically, the timely launch of NY11-4 is necessary for the 
Exchange to meet its capacity needs and those of its customers, while 
retrofitting NY11 will be a complex process that will require many 
months to complete. Moreover, the current sequencing plan will not 
worsen existing inequalities, but instead will improve the overall 
average disparity in telco cable lengths in the data center. Even 
though the sequencing plan will cause some customers to be subject to 
telco connectivity equalization before others, this result is 
unavoidable even if the Exchange were to equalize NY11 first. Any 
customer advantage or disadvantage that might arise from the 
Equalization Project would be temporary. Finally, the Exchange has been 
transparent about its plans and afforded opportunities to customers to 
make informed choices about how to mitigate any adverse consequences, 
competitive or otherwise.

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

    The Exchange received a written letter of support from Old Mission 
Capital LLC, dated August 21, 2024.

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 \28\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\29\
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    \28\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \29\ 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-2024-34 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-2024-34. 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

[[Page 77926]]

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-2024-34 and should be submitted on or before October 15, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-21747 Filed 9-23-24; 8:45 am]
BILLING CODE 8011-01-P