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, 65596-65600 [2012-26469]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 209 (Monday, October 29, 2012)]
[Notices]
[Pages 65596-65600]
From the Federal Register Online via the Government Printing 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 https://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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. 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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for 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