[Federal Register Volume 78, Number 156 (Tuesday, August 13, 2013)]
[Notices]
[Pages 49308-49311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-19508]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70129; File No. SR-NASDAQ-2013-099]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify NASDAQ Connectivity Options and Fees
August 7, 2013.
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 July 25, 2013 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
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 modify NASDAQ connectivity options and
fees. 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
The Exchange proposes to modify Rule 7034(b) regarding connectivity
to NASDAQ. Specifically, the Exchange proposes to establish
connectivity and
[[Page 49309]]
installation fees for a 10Gb Ultra low latency fiber connection option,
and provide a waiver of installation fees for subscriptions through
August 31, 2013.
The Exchange currently offers various bandwidth options for
connectivity to NASDAQ, including a 40Gb fiber connection, a 10Gb fiber
connection, a 1Gb fiber connection, and a 1Gb copper connection.\3\ In
keeping with changes in technology, the Exchange now proposes to
provide a second 10Gb fiber connection offering, which uses new ultra-
low latency switches.\4\ A switch is a type of network hardware that
acts as the ``gatekeeper'' for all of a co-located client's orders sent
to the System \5\ at the NASDAQ co-location facility and orders them in
sequence for entry into the System for execution. Each of NASDAQ's
current connection offerings use different switches between the
offerings, but the switches are of uniform type within each offering.
As a consequence, all co-located client subscribers to a particular
connectivity option receive the same latency in terms of the
capabilities of their switches. The 10Gb Ultra offering uses a new
ultra-low latency switch, which provides faster processing of orders
sent to it in comparison to the current switch in use for co-location
connectivity. As a consequence, co-located clients needing only 10Gb of
bandwidth, but that seek faster processing of those orders as they
enter NASDAQ's co-location facility now have the option to subscribe to
a faster and more efficient connection to the Exchange.\6\
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\3\ Rule 7034(b).
\4\ The term ``Latency'' for these purposes is a measure of the
time it takes for an order to enter into a switch and then exit for
entry into the System.
\5\ As defined by Rule 4751(a).
\6\ The Exchange is not offering a low latency option for other
bandwidth connections at this time, but may do so in the future.
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The Exchange proposes a monthly subscription fee of $15,000 for a
10Gb Ultra connection, and a one-time installation fee of $1,500, which
is identical to the 40Gb fiber connectivity option. NASDAQ believes
that the pricing is reflective of the value the option will provide and
the hardware and other infrastructure and maintenance costs to NASDAQ
associated with offering technology that is at the forefront of the
industry. The growth in the size of consolidated and proprietary data
feeds has resulted in demand for faster processing of message traffic,
and ultra-low latency switches meet this demand by decreasing the time
individual orders are processed and market data is transmitted by these
new switches. The Exchange's proposal provides the co-located client
the option for faster switch processing, which is highly-valued among
some market participants. NASDAQ notes that other markets have adopted
low-latency connectivity options for their clients. For example, the
International Securities Exchange LLC (``ISE'') offers a 10Gb low
latency Ethernet connectivity option to its clients, which provides a
``higher speed network to access [ISE's] Optimise trading system.'' \7\
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\7\ See Securities Exchange Act Release No. 66525 (March 7,
2012), 77 FR 14847 (March 13, 2012) (SR-ISE-2012-09).
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The Exchange also proposes to provide a waiver of the installation
fees for client orders of 10Gb Ultra fiber connectivity to NASDAQ
completed between the effectiveness of this proposal and August 31,
2013. The Exchange is providing the waiver to assist its co-located
clients in upgrading to lower latency connections to meet the growing
needs of co-located clients' business operations. NASDAQ is adding text
to the rule that makes it clear that the connectivity option also
provides connection to the markets of NASDAQ OMX BX, Inc. (``BX'') and
NASDAQ OMX PHLX LLC (``Phlx). NASDAQ is deleting text that refers to an
installation fee waiver time period for 10Gb and 40Gb fiber
connections, which has since expired.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\8\ in general, and with Section 6(b)(4) of the Act,\9\
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. The Exchange also believes the proposal furthers the
objectives of Section 6(b)(5) of the Act \10\ 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 and is not designed to permit unfair discrimination between
customer, issuers, brokers and dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4).
\10\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that its proposal is consistent with Section
6(b)(4) of the Act because the fees assessed for 10Gb Ultra fiber
connectivity fee allow the Exchange to cover the costs associated with
the purchase of new, state of the art switches for this new offering.
Because the switches are best in breed, they are priced at a premium,
the cost of which NASDAQ must bear. NASDAQ is offering 10Gb Ultra fiber
connectivity at the same price as 40Gb fiber connectivity. Both the
proposed 10Gb Ultra fiber connectivity and 40Gb fiber connectivity
represent the best performance available to co-located clients. 40Gb
fiber connectivity provides the greatest bandwidth available on NASDAQ,
which is important for co-located clients that have high order flow and
ingest large amounts of market data and demand the greatest bandwidth
possible to handle such message flow. Some co-located clients, however,
do not have bandwidth demands that would require 40Gb fiber bandwidth
but rather put a premium on reducing latency. The 10Gb Ultra fiber
connectivity it designed to meet this demand. As a consequence, both
40Gb and 10Gb Ultra fiber connectivity represent the best connectivity
NASDAQ offers in terms of bandwidth and latency, respectively.
NASDAQ believes that the proposed one-time installation fee is
consistent with Section 6(b)(4) of the Act because it is identical to
the installation fees assessed for 40Gb fiber connectivity under the
rule. NASDAQ notes that it will incur the same costs associated with
setting up a subscriber with either 40Gb fiber or 10Gb Ultra fiber
connectivity. As a consequence, NASDAQ believes that it is reasonable
to assess the same installation fee as 40Gb fiber. The Exchange also
believes that its proposal to waive temporarily the 10Gb Ultra fiber
connection installation fee is reasonable because it will assist its
co-located clients in upgrading to lower latency connections to meet
the growing needs of the co-located clients' business operations at a
time in the industry when speed continues to be a driver of the U.S.
securities markets. Moreover, the Exchange notes that it has previously
waived the installation fees for the 10Gb and 40Gb fiber connections
for a limited time after these connectivity options were first
introduced.\11\
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\11\ See Securities Exchange Act Release No. 66428 (February 21,
2012), 77 FR 11602 (February 27, 2012) (SR-NASDAQ-2012-028).
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In addition to covering costs, the proposed fees will allow the
Exchange to recoup costs associated with providing the 10Gb Ultra fiber
connection and provide the Exchange a profit while providing customers
the possibility of reducing the number of their connections to the
Exchange. As discussed above, ISE offers different
[[Page 49310]]
connectivity options with respect to latency and NYSE Arca, Inc. offers
what NASDAQ believes is a similar connectivity option, yet both options
do not provide the breadth of connectivity at the same latency as
NASDAQ's proposed 10Gb Ultra fiber connectivity option.\12\ NASDAQ
notes that the 10Gb Ultra fiber option provides connectivity to seven
of the NASDAQ OMX Group's U.S. markets (specifically, the cash equities
and options markets operated by NASDAQ, BX, and Phlx, and the NASDAQ
OMX Futures Exchange), whereas the offerings of other exchanges provide
far fewer.\13\ Moreover, as new leading-edge technology, the switches
to be used for 10Gb Ultra fiber connectivity have lower latency than
the switches currently in use by other markets. For these reasons, the
Exchange believes the proposed fees for 10Gb Ultra fiber connectivity
to NASDAQ are reasonable.
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\12\ NYSE Arca charges $10,000 per month for a 10Gb LCN
(Liquidity Center Network) Connection. See https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees_1.3.2012.pdf, page 13. Although similar, NASDAQ's
10Gb Ultra connection provides even lower latency connectivity to a
larger number of markets, which represents the premium over the NYSE
Arca 10Gb LCN connectivity option.
\13\ The ISE connectivity offering provides access to one market
and the NYSE Arca connectivity offering provides connectivity to the
four markets of NYSE Euronext.
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The Exchange also believes the proposed 10Gb Ultra fiber
installation and connectivity fees are equitably allocated in that all
co-located clients that voluntarily select this service option will be
charged the same amount to cover the hardware, installation, testing
and connection costs to maintain and manage the enhanced connection.
The proposed fees allow the Exchange to recoup costs associated with
providing the 10Gb Ultra fiber connection and provide the Exchange a
profit while providing customers with the most efficient connection to
the System in terms of latency. All co-located clients have the option
to select this voluntary co-location connectivity option; however,
NASDAQ is not eliminating any existing connectivity options.
Accordingly, a co-located client may elect not to subscribe to the 10Gb
Ultra fiber connectivity option and retain the option to which it is
currently subscribed.
The Exchange also believes the proposal furthers the objectives of
Section 6(b)(5) of the Act \14\ 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 and is not
designed to permit unfair discrimination between customer, issuers,
brokers and dealers. The 10Gb Ultra fiber connectivity option assists
co-located clients in making their network connectivity more efficient
by reducing the time orders take to reach the System once sent from
their co-located server and also the time that market data takes to
reach their co-located server. Speed and efficiency are important
drivers of the U.S. securities markets and NASDAQ is offering a co-
location connectivity solution that promotes these drivers by providing
state of the art technology that is available to all co-located
clients. The Exchange believes the enhanced 10Gb Ultra connection will
remove impediments to and perfect the mechanism of a free and open
market and a national market system because NASDAQ will provide state
of the art switching technology to market participants, which will
improve the speed and efficiency of processing orders arriving at the
market from clients' co-located servers.
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\14\ 15 U.S.C. 78f(b)(5).
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The Exchange also believes that the reduction in latencies
attributed to the enhanced 10Gb Ultra connection option serves to
protect investors and the public interest. The reduction in latency
will provide investors with the most efficient means of processing
orders once they reach the Exchange. Higher bandwidth options like
NASDAQ's current 10Gb and 40Gb fiber connectivity and the proposed 10Gb
Ultra fiber option also remove the potential for data spikes and data
gapping issues that result from the transmission of the growing size of
the consolidated and proprietary market data feeds. Such data spiking
and data gapping issues have the potential for disrupting the
marketplace which could negatively impact investors as well as the
public interest.
The Exchange also believes the proposed installation and
subscription fees for the 10Gb Ultra fiber connectivity option are not
unfairly discriminatory because all clients have the option to
subscribe to co-locate with NASDAQ and subscribe to the 10Gb Ultra
connection. There is no differentiation among co-located clients with
regard to the fees charged for these services. The Exchange believes
the proposal to waive the 10Gb Ultra fiber connection installation fee
is not unfairly discriminatory because the waiver of fees is provided
to all co-located clients that volunteer for this particular service
option during the prescribed timeframe, and there is no differentiation
among co-located clients with regard to the waiver of fees for this
option.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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.
Specifically, the Exchange believes that the changes will promote
competition by offering co-located clients an additional connectivity
option that will enhance their trading operations and ultimately bring
greater speed and efficiency to trading in the marketplace.
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
Because the foregoing proposed rule change does not: (1)
Significantly affect the protection of investors or the public
interest; (2) impose any significant burden on competition; and (3) by
its terms does not become operative for 30 days after the date of this
filing, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public interest,
the proposed rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with written notice of its intent to file the proposed rule change,
along with a brief description and text of 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 met this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. The Exchange has asked the Commission to waive the
30-day operative delay so that the proposal may become operative
immediately upon filing. The Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and
the public interest so that NASDAQ can
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immediately offer the 10GB Ultra connectivity to those clients that
believe it can enhance the efficiency of their trading.\17\
Accordingly, the Commission hereby grants the Exchange's request and
designates the proposal operative upon filing.
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\17\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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.
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-2013-099 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-2013-099.
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-2013-099 and should be submitted on or before September 3, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-19508 Filed 8-12-13; 8:45 am]
BILLING CODE 8011-01-P