[Federal Register Volume 77, Number 209 (Monday, October 29, 2012)]
[Notices]
[Pages 65596-65600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-26469]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68085; File No. SR-NASDAQ-2012-119]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change To Establish Fees for New
Optional Wireless Connectivity for Co-located Clients
October 23, 2012.
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 10, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' 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 solicit comments on the
[[Page 65597]]
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 a rule change to establish fees for new
optional means for clients to receive third party market data and
NASDAQ TotalView ITCH market data. NASDAQ proposes to offer wireless
connectivity for co-located clients in NASDAQ's Carteret data center to
receive Direct Edge, BATS, NYSE, and NYSE ARCA multi-cast market data
feeds. It also proposes to offer remote multi-cast ITCH Wave Ports for
clients co-located at other third party data centers, through which
NASDAQ TotalView ITCH market data will be distributed after delivery to
those data centers via wireless network. The text of the proposed rule
change is available at http://nasdaq.cchwallstreet.com, at the
Exchange's principal office, 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ is proposing to amend NASDAQ Rule 7034 to establish fees for
the delivery of third party market data to market center clients via a
wireless network using millimeter wave or microwave technology. It also
proposes to amend NASDAQ Rule 7015 to establish fees for remote Multi-
cast ITCH Wave Ports for clients co-located at other third-party data
centers, through which NASDAQ TotalView ITCH market data will be
distributed after delivery to those data centers via wireless network.
Wireless technology has been in existence for many years, used
primarily by the defense, retail and telecommunications industries.
Wireless connectivity involves the beaming of signals through the air
between towers that are within sight of one another. Because the
signals travel a straight, unimpeded line, and because light waves
travel faster through air than through glass (fiber optics), message
latency is reduced. The continued use of this technology by the defense
industry and regulation of the spectrum by the FCC demonstrates the
secure nature of wireless networks.
Over the last year, wireless technology has been introduced in the
financial services industry. In offering optional wireless
connectivity, NASDAQ is responding to requests from clients that wish
to utilize the technology. Clients have sought to buy roof rights so
that they can install their own microwave dishes on the roof at the
NASDAQ data center in Carteret, New Jersey. Some have already installed
microwave dishes on nearby towers with fiber connectivity to the data
center, or have reserved space to do so. Rather than sell roof rights
to individual clients, which would quickly result in the lack of
physical space on the data center roof to accommodate all clients
fairly and equally, NASDAQ proposes to supply market data, via a
vendor-supplied wireless network, for all data center clients that wish
to avail themselves of it.
Wireless Connectivity in Carteret. NASDAQ will utilize a network
vendor to supply wireless connectivity from the Carteret data center to
the Secaucus Equinix data center (NY4) used by Direct Edge and other
exchanges; the Newark data center used by NYSE as a SFTI Network Point
of Presence; and the Weehawken Savvis data center (NJ2) used by BATS.
The vendor will install, test and maintain the necessary communication
equipment for this wireless network between the data centers.
Clients who choose this optional service will have their NASDAQ
cross connect handoffs (1G, 10G, or 40G) enabled to receive the chosen
raw, multicast market data for Direct Edge, BATS, and/or NYSE. NASDAQ
OMX will continue to act as re-distributor of these third party market
data feeds, capturing the data at the originating data centers and
transporting the data to the Carteret data center. NASDAQ is offering
these particular equity feeds because they are the feeds requested by
clients. There is limited bandwidth available on the wireless
connection, and the Exchange has opted to offer those that are in most
demand to start. Additional feeds may be added based on overall client
demand and bandwidth availability.
The wireless connectivity will be an optional offering, an
alternative to fiber optic network connectivity, and will provide lower
latency. It will not provide a new market data product, but merely an
alternative means of connectivity. NASDAQ's wireless connectivity
offering, in conjunction with NASDAQ's equidistant cross connect
handoffs (1G, 10G, or 40G), will ensure that all clients co-located
within Carteret and electing to use this wireless connectivity offering
will receive the chosen market data at the same low latency, equalizing
any variances that might otherwise result from differences in the
location of client cabinets within the facility or different wireless
networks utilized by clients independently of this offering.
To obtain wireless connectivity, clients will be charged a $2,500
installation fee (a non-recurring charge) and a monthly recurring
charge (MRC) that will vary depending upon the feed. The MRC for the
NYSE multi-cast equities data feed, which includes NYSE ArcaBook
Highspeed and NYSE OpenBook (Aggregated or Ultra), will be $10,000; the
MRC for BATS Multicast PITCH, which includes BZX and BYX, will be
$7,500; and the MRC for Direct Edge Depth of Book multi-cast feed,
which includes EDGA and EDGX, will be $7,500. The rates are higher for
the NYSE feeds because the two feeds are larger, and take up more
bandwidth than the BATS and Direct Edge feeds.
Clients will place orders for the wireless connectivity via the
CoLo Console \3\ and would be subject to a one-year minimum lock-in
period. The lock-in feature, which is common practice for collocation
offerings, will ensure that the Exchange can recoup the substantial
investment required to establish the wireless system. As an incentive
to clients, NASDAQ will waive the first month's MRC. Clients will
continue to be charged by NYSE, BATS and Direct Edge for the market
data received, and NASDAQ will continue to be charged the
redistribution fees by the other exchanges, as occurs today. No changes
in these charges will occur as a result of this proposed offering.
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\3\ The ``CoLo Console'' is a web-based ordering tool NASDAQ
offers to enable members to place co-location orders.
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NASDAQ OMX will perform substantial network testing prior to
offering the service for a fee to members. After this ``beta'' testing
period, upon initial roll-out of the service, clients will be offered
the service for a fee, and on a rolling basis, the Exchange will enable
new clients to receive the feed(s) for a minimum of 30 days before
incurring
[[Page 65598]]
any monthly recurring fees. The wireless network will continue to be
closely monitored and the client informed of any issues. Similar to
receiving market data over fiber optic networks, the wireless network
can encounter delays or outages due to equipment issues. As wireless
networks may be affected by severe weather events, clients will be
expected to have redundant methods to receive this market data and will
be asked to attest to having alternate methods or establishing an
alternate method in the near future when they order this service from
the Exchange.
This new data feed delivery option will be available to all clients
of the data center, and is in response to industry demand, as well as
to changes in the technology for distributing market data. Clients
opting not to pay for the wireless connectivity will still be able to
receive market data via fiber optics and standard telecommunications
connections, as they do currently, and under the same fees. Receipt of
trade data via wireless technology is completely optional. In addition,
clients can choose to receive market data via other third-party vendors
(Extranets or Telecommunication vendors) via fiber optic networks or
wireless networks.
Remote Multi-cast ITCH (MITCH) Wave Ports. NASDAQ also proposes to
offer remote multi-cast ITCH Wave Ports for clients co-located at other
third-party data centers. NASDAQ TotalView ITCH market data will be
delivered to NASDAQ-owned cabinets at those data centers via a wireless
network. Clients will have the option of cross-connecting to the MITCH
Wave Ports in those data centers to receive the raw NASDAQ multi-cast
data feed, TotalView ITCH. An installation charge for the remote port
would be, at each of the locations, $2,500 for installation, and $7,500
as a monthly recurring fee. This offering, which is entirely optional,
will enable delivery of NASDAQ TotalView ITCH to the third-party data
centers at the same low latency.\4\ Clients opting to pay for the
remote MITCH Wave Ports will continue to be fee liable for the
applicable market data fees as described in NASDAQ Rule 7026, NASDAQ
Rule 7019 and NASDAQ Rule 7023.
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\4\ NASDAQ cannot preclude minor latency variances in delivery
of NASDAQ TotalView in the third-party data centers to individual
clients because it does not control the cross-connects in those
centers; however, the microwave connectivity will provide the same
latency to all clients' MITCH Wave Ports and offers an improvement
in latency over fiber optic network connectivity.
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Competition for market data distribution is considerable and the
Exchange believes that this proposal clearly evidences such
competition. The Exchange is offering a new wireless connectivity
option and remote wave ports to keep pace with changes in the industry
and evolving customer needs as new technologies emerge and products
continue to develop and change. They are incremental to existing
offerings, entirely optional, and are geared towards attracting new
customers, as well as retaining existing customers.
The proposed fees are based on the cost to NASDAQ of installing and
maintaining the wireless connectivity and on the value provided to the
customer, which receives low latency delivery of data feeds. The costs
associated with the wireless connectivity system are incrementally
higher than fiber optics-based solutions due to the expense of the
wireless equipment, cost of installation, and testing. The fees also
allow NASDAQ to make a profit, and reflect the premium received by the
clients in terms of lower latency over the fiber optics option. Clients
can choose to build and maintain their own wireless networks or choose
their own third party network vendors but the upfront and ongoing costs
will be much more substantial than this Exchange wireless offering.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \5\ in general, and with Sections 6(b)(4) and (b)(5) of
the Act,\6\ 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.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange operates in a highly competitive market in which
exchanges offer co-location services as a means to facilitate the
trading activities of those members who believe that co-location
enhances the efficiency of their trading. Accordingly, fees charged for
co-location services are constrained by the active competition for the
order flow of such members. If a particular exchange charges excessive
fees for co-location services, affected members will opt to terminate
their co-location arrangements with that exchange, and adopt a possible
range of alternative strategies, including co-locating with a different
exchange, placing their servers in a physically proximate location
outside the exchange's data center, or pursuing trading strategies not
dependent upon co-location. Accordingly, the exchange charging
excessive fees would stand to lose not only co-location revenues but
also revenues associated with the execution of orders routed to it by
affected members. Although currently no other exchange offers wireless
connectivity, there are no constraints on their ability to do so, and
it is probable that other exchanges will make a similar offering in the
near future. The Exchange believes that this competitive dynamic
imposes powerful restraints on the ability of any exchange to charge
unreasonable fees for co-location services, including fees for wireless
connectivity.
A co-location customer may obtain a similar service by contracting
with a wireless service provider to install the required dishes on
towers near the data centers and paying the service provider to
maintain the service. However, the cost involved in establishing
service in this manner is substantial and could result in uneven access
to wireless connectivity. The Exchange's proposed fees will allow these
clients to utilize wireless connectivity and obtain the lower latency
transmission of data from third parties and NASDAQ that is available to
others, at a reasonable cost.\7\
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\7\ The wireless network offered by the Exchange via the
provider, although constrained by bandwidth with respect to the
number of feeds it can carry, can be made available to an unlimited
number of customers. The factors that differentiate this proposal
from the Exchange's offerings of and initial fees for low latency
network telecommunication connections approved by the Commission in
Securities Exchange Act Release No. 66013 (December 20, 2011) 76 FR
80992 (December 27, 2011) (SR-NASDAQ-2011-146) are a function of
technology and program concept, but neither approach implicates a
burden on competition, for similar reasons: each offers, at a
competitive price, a service that customers may obtain by dealing
directly with the provider rather than the Exchange; and each is
expected to result in a reduction in fees charged to market
participants, the very essence of competition. Pursuant to the SEC's
prior approval, the Exchange offers customers the opportunity to
obtain low latency telecommunications connectivity by establishing a
low-latency minimum standard and negotiating with multiple
telecommunication providers to obtain discounted rates. It then
passes these wholesale rates along to participating customers, with
a markup to compensate for the Exchange's role in negotiating and
establishing the arrangement, and integrating and maintaining each
new connection. Co-located customers are free to choose the provider
they wish to use from those participating in the program; or they
may choose not to avail themselves of the service and obtain
comparable services directly from the provider. The Exchange does
not discriminate among telecommunications providers in its program,
so long as they meet the required latency, destination, and fee
standards. Wireless technology, in contrast, does not require
separate avenues of connectivity for each customer, and thus the
Exchange is not obtaining a wholesale price by negotiating with
service providers. Rather, it is selecting, on a competitive basis,
the service provider(s) to install and maintain the system, and
charging customers for access to that particular system, offering
lower prices because it is spreading the substantial cost among
multiple clients. The program, far from burdening competition among
connectivity service providers, promotes it. A wireless provider
that can offer to the Exchange--or to a competitor exchange--a lower
price for installation and maintenance will no doubt get the
exchanges' business, with the end result that prices for the end
users will go down.
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[[Page 65599]]
Moreover, the Exchange believes the proposed fees for wireless
connectivity to NASDAQ are reasonable because they are based on the
Exchange's costs to cover hardware, installation, testing and
connection, as well expenses involved in maintaining and managing the
enhanced connection. The proposed fees allow the Exchange to recoup
these costs and make a profit, while providing customers the ability to
reduce latency in the transmission of data from third parties and
NASDAQ, and reducing the cost to them that would be involved if they
build or buy their own wireless networks. The Exchange believes that
the proposed fees are reasonable in that they reflect the costs of the
connection and the benefit of the lower latency to clients.
The Exchange believes the proposed wireless connectivity fee is
equitably allocated and non-discriminatory in that all Exchange members
that voluntarily select this service option will be charged the same
amount for the same services. As is true of all co-location services,
all co-located clients have the option to select this voluntary
connectivity option, and there is no differentiation among customers
with regard to the fees charged for the service. Further, the latency
reduction offered will be the same for all co-located clients,
irrespective of the locations of their cabinets within the data center.
The same cannot be said of the alternative where entities with
substantial resources invest in private services and thereby obtain
lower latency transmission, while those without resources are unable to
invest in the necessary infrastructure.
The Exchange's proposal is also consistent with the requirement of
Section 6(b)(5) of the Act that Exchange rules be designed to promote
just and equitable principles of trade to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, 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; and are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.
The proposal is consistent with these requirements insomuch as it
makes available to market participants, at a reasonable fee and on a
non-discriminatory basis, access to low latency means of receiving
market data feeds. Some market participants have already adopted
wireless technology, using towers near the data centers, and others
have approached the Exchange seeking to rent roof rights to mount their
towers. Rather than lease out roof space to the highest bidders, a
process that would stratify and limit access to the low latency
delivery, this approach allows unlimited numbers of users to utilize
the equipment that the Exchange will mount and accommodates all clients
fairly and equally. It will allow the same low latency delivery to
those unable to invest in the more expensive option of building or
acquiring their own wireless network, as it does for those whose
pockets are deeper.
Initially, NASDAQ will perform substantial network testing prior to
making the service available to members. After this testing period, the
wireless network will continue to be closely monitored and maintained
by the vendor and the client will be informed of any issues.
Additionally, during the initial roll-out of the service and on a
rolling basis for future clients, the Exchange will enable clients to
test the receipt of the feed(s) for a minimum of 30 days before
incurring any monthly recurring fees. Similar to receiving market data
over fiber optic networks, the wireless network can encounter delays or
outages due to equipment issues. As wireless networks may be affected
by severe weather events, clients will be expected to have redundant
methods to receive this market data and will be asked to attest to
having alternate methods or establishing an alternate method in the
near future when they order this service from the Exchange.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. To the contrary,
this proposal will promote competition for distribution of market data
by offering an optional and innovative product enhancement. Wireless
technology has been in use for decades, is available from multiple
providers, and may be adopted by other Exchanges that decide to offer
microwave connectivity for delivery of market data. As discussed above,
the Exchange believes that fees for co-location services, including
those proposed for microwave connectivity, are constrained by the
robust competition for order flow among exchanges and non-exchange
markets, because co-location exists to advance that competition.
Further, excessive fees for co-location services, including for
wireless technology, would serve to impair an exchange's ability to
compete for order flow rather than burdening competition.
Competition between the Exchange and competing trading venues will
be enhanced by allowing the Exchange to offer its market participants a
lower latency connectivity option. Competition among market
participants will also be supported by allowing small and large
participants the same price for this lower latency connectivity.
The proposed rule change will likewise enhance competition among
service providers offering connections between market participants and
the data centers. The offering will expand the multiple means of
connectivity available, allowing customers to compare the benefits and
costs of lower latency transmission and related costs with reference to
numerous variables. The Exchange, and presumably its competitors,
select their service providers on a competitive basis in order to pass
along price advantages to their customers, and to win and maintain
their business. The offering is consistent with the Exchange's own
economic incentives to facilitate as many market participants as
possible in connecting to its market.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor 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 self-regulatory organization consents, the Commission will:
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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-NASDAQ-2012-119 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-NASDAQ-2012-119. 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
10:00 a.m. and 3:00 p.m. Copies of the 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-NASDAQ-2012-119 and should
be submitted on or before November 19, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-26469 Filed 10-26-12; 8:45 am]
BILLING CODE 8011-01-P