[Federal Register Volume 78, Number 187 (Thursday, September 26, 2013)]
[Notices]
[Pages 59391-59394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-23425]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70467; File No. SR-NASDAQ-2013-119]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify the Existing Fees To Receive CME Group Multi-Cast Market Data
Feeds via Wireless Connectivity
September 20, 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 September 12, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a 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
NASDAQ proposes to modify the existing fees clients in NASDAQ's
Carteret data center to receive CME Group multi-cast market data feeds
via wireless connectivity. The text of the proposed rule change is
available on the Exchange's Web site at http://www.nasdaq.cchwallstreet.com, 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, NASDAQ 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 those 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 parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background. In July of 2013, NASDAQ began utilize wireless
technology to make available to its co-located clients third-party data
from the CME Group, and to assess fees for the delivery of that third
party market data to market center clients via a wireless network.\3\
Clients who choose this optional service use their existing NASDAQ
cross connect handoffs (1G, 10G, or 40G) to receive the multicast
market data for CME Group, and NASDAQ act as re-distributor of the
third party market data feeds, capturing the data at CME Group's data
centers and transporting the data to NASDAQ's Carteret data center. CME
Group data is also available via fiber optic network, and therefore the
wireless connectivity is simply another of many alternative methods of
acquiring the CME data.
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\3\ See Securities Exchange Act Release No. 69844; 78 F.R. 39383
(July 1, 2013) (SR-NASDAQ-2013-084).
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In July, NASDAQ began assessing clients a $5,000 installation fee
(a non-recurring charge) and a monthly recurring charge (MRC) of
$23,500 for connectivity. Clients place orders for the wireless
connectivity to CME data via NASDAQ's CoLo Console.\4\ Subscribers to
CME Group's data via a wireless network are currently required to
subscribe for a minimum of one year, which is standard practice for co-
location offerings. As an incentive to clients, NASDAQ agreed to waive
the first month's MRC.
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\4\ The ``CoLo Console'' is a web-based ordering tool NASDAQ
offers to enable members to place co-location orders.
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Since July, the wireless network delivering CME data has performed
well. NASDAQ OMX performed substantial network testing prior to
offering the service for a fee to members. The wireless network will
continue to be closely monitored and the client informed of any issues.
As wireless networks may be affected by severe weather events, clients
must have redundant methods to receive this market data and must attest
to having alternate methods or establishing an alternate method in the
near future when they order this service from the Exchange.
Current Proposal. NASDAQ is proposing three minor modifications to
the CME data fees. First, in addition to offering a single MRC fee of
$23,000 for receiving all available CME data, NASDAQ will offer three
subsets of data for subscribers seeking only a portion of the total
available. Specifically, NASDAQ will offer Equities Futures Only data
for an MRC of $10,000, Fixed Income Futures Only for an MRC of $10,000,
and Metals Futures Only for an MRC of $3,500. Clients choosing to
receive all CME data will continue to pay an MRC of $23,500 as they do
today; clients choosing to receive less data will pay lower fees. The
single $5,000 installation fee will continue to apply regardless of the
amount of data clients elect to receive.
Second, NASDAQ will eliminate the requirement that subscribers
commit to a minimum 12-month subscription. Since July, NASDAQ has
determined that clients prefer longer-term arrangements and, therefore,
that a regulatory requirement is unnecessary. Just as NASDAQ and its
vendor invest heavily to offer CME data, NASDAQ's clients make
substantial investments to obtain the CME data and they require long-
term usage to help recover that investment. NASDAQ will also release
from the 12-month minimum all current clients that adopted the product
beginning in July subject to that requirement. This will allow all
users to receive the CME data on the same terms.
Third, NASDAQ will eliminate the 30-day waiver period for MRC fees
for CME data. The waiver period is unnecessary because the 12-month
minimum subscription no longer applies. Clients are now able to connect
for a short period of time, test the product, and then disconnect
without penalty at any time if the product does not prove valuable to
them.
Representations. The CME data feed delivery option will continue to
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.
The proposed fees are based on the cost to NASDAQ and the vendor of
installing and maintaining the wireless
[[Page 59392]]
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 and ongoing maintenance of the
network. 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), (b)(5) and
(b)(8) 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.
NASDAQ's proposal to offer wireless connectivity supports important
policy objectives of the Act, including the broadest, fairest possible
dissemination of market data.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(4), (5) and (8).
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The Exchange believes that the proposed fees for wireless
connectivity to NASDAQ are consistent with Section 6(b)(4) of the Act
for multiple reasons. 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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Moreover, the Exchange believes the proposed fees for wireless
connectivity to NASDAQ are reasonable because they are based on the
Exchange's and vendor'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 also believes that the proposed wireless connectivity
fees are consistent with Section 6(b)(5) of the Act in that the fees
are equitably allocated and non-discriminatory. 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 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
[[Page 59393]]
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 this Exchange service which utilizes vendors who rely on nearby
towers to house the wireless equipment to receive the market data. 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.\8\
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\8\ NASDAQ also believes that it is reasonable and non-
discriminatory to waive the 12-month minimum subscription
requirement for both new and current subscribers. As stated above,
this will permit all users to obtain the data on equal terms
regardless of when they first purchased it.
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NASDAQ performed substantial network testing prior to making the
service available to members, the wireless network is closely monitored
and maintained by the vendor, and the client will be 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.
Finally, for the reasons stated below in Section 4 of Form 19b-4,
the proposed fees for wireless connectivity are consistent with Section
6(b)(8) of the Act in that they do not impose a burden on competition
not necessary or appropriate in furtherance of the purposes of the Act.
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.
Furthermore, there are multiple effective competitive alternatives
to NASDAQ's wireless offering. NASDAQ has no arrangement with CME that
limits the ability of CME to transmit CME data via alternative wireless
providers. Additionally, NASDAQ does not limit the ability of
alternative wireless providers to re-transmit data received from CME
either outside of or within NASDAQ's co-location facility. A
competitive network provides the same or similar data, at the same or
similar speed, at the same or similar cost, and NASDAQ's proposal does
nothing to inhibit or constrain this. Currently, 17 market data vendors
have fiber optic cables connected to NASDAQ's telco room in Carteret,
and NASDAQ believes at least ten wireless networks exist or are under
construction within very close proximity to the Carteret facility.\9\
That number can, and likely will, grow, and nothing in the proposal
inhibits additional wireless vendors accessing or providing CME data.
Any or all of those vendors and networks is an effective competitor to
the NASDAQ wireless offering. A market data vendor could also induce
purchasers away from NASDAQ with an ever-so-slightly slower but still
valuable product at a lower price. This variety of price and speed
attributes is an effective constraint on NASDAQ's pricing power.
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\9\ This belief is based on a review conducted for NASDAQ of
publicly-available registration and spectrum reservation databases
at the Federal Communications Commission. While it is difficult to
state a definitive number of active vendors, NASDAQ can state
categorically that multiple vendors currently provide wireless
services such as NASDAQ is proposing to provide via this proposed
rule change.
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Moreover, fiber optic networks are themselves effective competitors
for wireless data. As stated above, 17 vendors currently offer
connectivity to the NASDAQ data center at various, competing prices.
Fiber optic networks are more resilient than wireless networks, which
can be more susceptible to severe weather affects; this mature market
for fiber optic networks will remain attractive to many clients who are
more risk averse. While some NASDAQ firms will opt for faster, costlier
wireless data, many others will conclude that the price and speed
attributes of fiber optic data provide a reasonable competitive
alternative to wireless data.
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,
selects service providers on a competitive basis in order to pass along
price advantages to its customers 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
The foregoing change has become effective pursuant to Section
19(b)(3)(A) of the Act,\10\ and paragraph (f) \11\ of Rule 19b-4,
thereunder. 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
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investors, or otherwise in furtherance of the purposes of the Act.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f).
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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-2013-119 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-2013-119. 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-2013-119 and should
be submitted on or before October 17, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23425 Filed 9-25-13; 8:45 am]
BILLING CODE 8011-01-P