[Federal Register Volume 76, Number 218 (Thursday, November 10, 2011)]
[Notices]
[Pages 70184-70187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-29108]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65687; File No. SR-BX-2011-073]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing of Proposed Rule Change To Modify Rule 7034 Regarding Low
Latency Network Connections
November 4, 2011.
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 October 31, 2011, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``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
[[Page 70185]]
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, pursuant to Section 19(b)(1) of the Act \3\ and Rule
19b-4 thereunder,\4\ proposes to modify Exchange Rule 7034 entitled
``Co-Location Services'' to establish a program for offering low
latency network connections and to establish the initial fees for such
connections. The Exchange also proposes administrative modifications to
Exchange Rule 7034.
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\3\ 15 U.S.C. 78s(b)(1).
\4\ 17 CFR 240.19b-4.
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The text of the proposed rule change is available at http://www.nasdaqomxbx.cchwallstreet.com/, at the Exchange's principal office,
on the Commission's Web site at http://www.sec.gov, 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
Low Latency Network Connection Option
The purpose of the proposed rule change is to modify Exchange Rule
7034, which governs the Exchange's program for co-location services, to
offer new options for low latency network telecommunication connections
and to establish the initial fees for such connections. As its initial
offering, the Exchange proposes to offer point-to-point
telecommunication connectivity from the co-location facility to select
major financial trading and co-location venues in the New York and New
Jersey metropolitan areas, Toronto, and Chicago.
Background
Currently the Exchange provides a cross connect from a client's
cabinet to its requested telecommunication carrier's cabinet (known as
a ``telco cross connect''). Through the enhanced point-to-point
connectivity service, clients will now have the option to receive low
latency network connectivity from the Exchange's data center to the
client's chosen venue(s), in addition to the telco cross connect. These
connections can be utilized to send market data to and receive orders
from the chosen venues.
The enhanced point-to-point connectivity provides the Exchange's
co-location customers the opportunity to obtain low latency network
connectivity with greater ease than is currently the case, and at a
competitive price. Currently, co-location customers obtain similar
services by negotiating fees, obtaining service level agreements, and
executing service agreements directly with approved telecommunication
carriers. A co-located customer is currently charged a monthly
negotiated fee by the telecommunications carrier in addition to a cross
connection fee by the Exchange. There are currently 16 approved
telecommunication carriers with equipment in the Exchange's data
center, with additional carriers added at the request of a client. In
order to provide the new connectivity option described in this proposed
rule change, the Exchange established a low-latency minimum
standard,\5\ approached those telecommunications carriers with low
latency connections to select major financial trading and co-location
venues in the New York and New Jersey metropolitan areas, Toronto, and
Chicago that met the low-latency minimum standard,\6\ and invited them
to agree to discounted rates. In effect, the Exchange is obtaining
wholesale rates from the carriers and then charging a markup to
compensate it for its efforts to negotiate and establish the
arrangement and integrate the connectivity into the Exchange co-
location connectivity offering, as well as administrative costs
associated with establishing and maintaining each new connection. Of
the 16 approved telecommunication carriers with equipment in the
Exchange's data center, one carrier has, to date, agreed to offer
connections under the program and others are in negotiations with the
Exchange; additional carriers are eligible to join the program upon
meeting the same terms and conditions.
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\5\ The low-latency minimum standard is less than or equal to
0.41 milliseconds for New York/New Jersey routes, less than or equal
to 10.1 milliseconds for Toronto routes, and less than or equal to
17 milliseconds for Chicago routes. This standard will change as the
technology improves and the latency is further reduced.
\6\ The Exchange selected these locations because of the high
numbers of member firms and/or liquidity venues located there.
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Under the program, co-located customers will have the opportunity
to request these new low latency network telecommunication connections
through the same process used to request a new co-located cabinet and
other co-location services, with no need for direct fee negotiations or
new service agreements with telecommunication carriers. The co-located
customer will choose the connection destination,\7\ but the elimination
of direct negotiations and separate service agreements with the
telecommunications provider for these services will allow them to
obtain a similar service at a competitive price and with greater ease
of implementation. In addition, the proposed low latency network
connectivity fees include cross connections and eliminate a separate
fee for that service.
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\7\ As additional providers join the program, customers will
also have the opportunity to choose from among these providers.
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The Exchange is making the low latency network telecommunication
connections available as a convenience to customers and notes that
receipt of these connections is completely voluntary. Customers retain
the option of contracting directly with telecommunication providers,
including either the provider(s) that participate in the program, the
current providers in the data center who have not yet agreed to
participate, or any new carrier that is approved to install equipment
in the Exchange's data center.
Low Latency Pricing Structure
The Exchange proposes: (1) A one-time fee of $1,165 for the
installation of 100 MB of telecommunication connectivity to select New
York and New Jersey metropolitan area financial trading and co-location
venues, which includes fiber telecommunication cross connects within
the NASDAQ OMX data center, along with a per-month connectivity fee of
$1,650; (2) a one-time fee of $2,150 for the installation of 1G of
telecommunication connectivity to select New York and New Jersey
metropolitan area financial trading and co-location venues, which
includes fiber telecommunication cross connects within the NASDAQ OMX
data center, along with a per-month connectivity fee of $2,150; (3) a
one-time fee of $5,000 for the installation of 10G of
[[Page 70186]]
telecommunication connectivity to select New York and New Jersey
metropolitan area financial trading and co-location venues, which
includes fiber telecommunication cross connects within the NASDAQ OMX
data center, along with a per-month connectivity fee of $5,000; (4) a
one-time fee of $5,150 for the installation of 100 MB of
telecommunication connectivity to select Toronto area financial trading
and co-location venues, which includes fiber telecommunication cross
connects within the NASDAQ OMX data center, along with a per-month
connectivity fee of $4,350; (5) a one-time fee of $8,200 for the
installation of 1G of telecommunication connectivity to select Toronto
area financial trading and co-location venues, which includes fiber
telecommunication cross connects within the NASDAQ OMX data center,
along with a per-month connectivity fee of $10,450; (6) a one-time fee
of $15,150 for the installation of 10G of telecommunication
connectivity to select Toronto area financial trading and co-location
venues, which includes fiber telecommunication cross connects within
the NASDAQ OMX data center, along with a per-month connectivity fee of
$32,400; (7) a one-time fee of $4,850 for the installation of 100 MB of
telecommunication connectivity to select Chicago area financial trading
and co-location venues, which includes fiber telecommunication cross
connects within the NASDAQ OMX data center, along with a per-month
connectivity fee of $8,350; (8) a one-time fee of $5,900 for the
installation of 1G of telecommunication connectivity to select Chicago
area financial trading and co-location venues, which includes fiber
telecommunication cross connects within the NASDAQ OMX data center,
along with a per-month connectivity fee of $16,400; and (9) a one-time
fee of $12,050 for the installation of 10G of telecommunication
connectivity to select Chicago area financial trading and co-location
venues, which includes fiber telecommunication cross connects within
the NASDAQ OMX data center, along with a per-month connectivity fee of
$39,750.
The fees are based on anticipated bandwidth necessary for the
connections and distances to these select venues. Furthermore, the
Exchange believes the fees are reasonable as they are similar and
competitive with fees charged for similar services by other
entities.\8\
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\8\ See http://www.cmegroup.com/globex/files/CMEGlobexConnectionAgrmt.pdf; http://nysetechnologies.nyx.com/global-connectivity/sfti-americas/sfti-ip-americas; http://nysetechnologies.nyx.com/sites/technologies.nyx.com/files/SFTI_Americas_Market_Connectivity.pdf; http://nysetechnologies.nyx.com/global-connectivity/sfti-americas.
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Elimination of Obsolete Rule Language Concerning Waiver of Fees
The Exchange also proposes to eliminate references to certain fee
waivers that expired July 31, 2011.\9\ Since the fee waivers expired,
such language is no longer necessary.
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\9\ See Securities Exchange Act Release No. 64631 (June 8,
2011), 76 FR 34785 (June 14, 2011) (SR-BX-2011-032); and Securities
Exchange Act Release No. 64840 (July 8, 2011), 76 FR 41534 (July 14,
2011)(SR-BX-2011-043).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \10\ in general, and Sections 6(b)(4) and (b)(5) of the
Act \11\ 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 or system which the
Exchange operates or controls, and 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. The proposal
is designed to provide a method of connectivity between the Exchange's
co-location facility and various remote locations. Currently, market
participants obtain such connections by negotiating directly with
telecommunication providers. Through its efforts to negotiate standard
wholesale rates with providers, the Exchange seeks to offer market
participants an opportunity to obtain the same connectivity service at
a potentially lower cost and with greater ease of implementation. The
Exchange believes that this change will be unambiguously beneficial to
market participants, who will retain all current options for obtaining
connectivity through direct negotiations with telecommunications
providers, while also receiving a new option for obtaining the service
through the Exchange's program.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
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The proposed fees for the service cover the costs charged to the
Exchange by telecommunication provider(s). The fees charged to the
Exchange are based on anticipated bandwidth necessary for the
connections and distances to the available locations covered by the
service (New York/New Jersey, Chicago, and Toronto). The proposed fees
also include a markup to allow the Exchange to cover its administrative
costs and to earn a profit on its provision of the service. The
Exchange believes that it is reasonable to use fees assessed on this
basis as a means to recoup the Exchange's share of the costs associated
with the proposed low latency network telecommunication connections,
provide a convenience for the customers, and to the extent the costs
are covered, provide the Exchange a profit. The Exchange further
believes that the proposed fees are reasonable in light of the costs
associated with the service and the fees charged by other trading
venues for comparable services.\12\
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\12\ See supra n. 8.
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The proposed co-location services are entirely voluntary and
available to all members, with uniform fees charged to all market
participants that opt to obtain connectivity through the Exchange.
Moreover, market participants may choose to obtain services through the
Exchange, or may choose to negotiate their own connectivity with 16
different providers. Accordingly, the Exchange's proposed fees are non-
discriminatory, and equitably allocated to market participants that
choose to avail themselves of the Exchange's services, rather than
obtaining comparable services directly.
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. First, competition between the
Exchange and competing trading venues will be enhanced by allowing the
Exchange to offer its market participants connectivity to its data
center at a potentially lower price, and with greater ease. As noted
above, NYSE already offers comparable services, at comparable fees, to
its market participants. Accordingly, the proposal will allow the
Exchange to enhance its competitive standing vis-[agrave]-vis other
trading venues. Conversely, any delay in the effectiveness of the
proposed rule change would burden competition by preventing the
Exchange from mounting a response to a primary competitor. Second,
competition among market participants will be supported by allowing
small and large participants to pay a lower price for data center
connectivity.
The Exchange believes that the proposed rule change will likewise
enhance competition among
[[Page 70187]]
telecommunications providers that seek to offer connections between
market participants and the Exchange's data center. As discussed above,
the Exchange does not discriminate among telecommunication providers,
but rather allows providers to access the data center upon request of a
market participant. As a result, 16 providers are currently connected.
Likewise, the Exchange does not discriminate among providers with
respect to eligibility to offer connectivity through the Exchange under
the service proposed in this filing, provided the latency,
destinations, and fees offered by the provider are consistent with the
minimum standards established by the Exchange. Thus, telecommunications
providers can choose to participate in the program, or can choose to
service market participants exclusively through direct negotiations
with customers. The Exchange's approach is consistent with its own
economic incentives to facilitate as many market participants as
possible in connecting to its market. Burdening competition among
telecommunications providers would be antithetical to the Exchange's
own competitive interests, since impaired competition would make it
more expensive and more difficult for market participants to send order
flow to the Exchange.
The Exchange expects that the result of the proposal will be a
reduction in fees charged to market participants, the very essence of
competition. To the extent that fees under the program are less
expensive than the rates currently paid by many market participants,
the welfare of these market participants will increase, and other
telecommunications providers will be incentivized to lower their own
rates. This will, in turn, facilitate the introduction of greater
volumes of order flow to the Exchange.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2011-073 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2011-073. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site 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 such filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2011-073 and should be
submitted on or before December 1, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29108 Filed 11-9-11; 8:45 am]
BILLING CODE 8011-01-P