Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify BX Connectivity Options and Fees, 50132-50134 [2013-19908]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 159 (Friday, August 16, 2013)]
[Notices]
[Pages 50132-50134]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-19908]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70160; File No. SR-BX-2013-048]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify BX 
Connectivity Options and Fees

August 12, 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 August 01, 2013, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II 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 BX connectivity options and fees. 
The text of the proposed rule change is available at https://nasdaqomxbx.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 BX. Specifically, the Exchange proposes to establish connectivity 
and 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 the Exchange, 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 Exchange's co-location 
facility and orders them in sequence for entry into the System for 
execution. Each of BX's current connection offerings uses 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 the Exchange'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. The Exchange 
believes that the pricing is reflective of the value the option will 
provide and the hardware and other infrastructure and maintenance costs 
to the Exchange 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. The Exchange 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 the Exchange 
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. The Exchange is 
adding text to the rule that makes it clear that the connectivity 
option also provides connection to the markets of The NASDAQ Stock 
Market LLC (``NASDAQ'') and NASDAQ OMX PHLX LLC (``Phlx''). The 
Exchange is deleting typographical errors in the title and text of the 
rule that refer to connectivity to NASDAQ and replacing them with 
references to BX, since it is a BX connectivity option. Last, the 
Exchange is deleting text under the rule 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

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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 the Exchange must bear. 
The Exchange 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 the Exchange, 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 the Exchange 
offers in terms of bandwidth and latency, respectively.
    The Exchange 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. The Exchange 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, the Exchange 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. 66542 (March 8, 
2012), 77 FR 15169 (March 14, 2012) (SR-BX-2012-012).
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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 clients 
the possibility of reducing the number of their connections to the 
Exchange. As discussed above, ISE offers different connectivity options 
with respect to latency and NYSE Arca, Inc. offers what the Exchange 
believes is a similar connectivity option, yet both options do not 
provide the breadth of connectivity at the same latency as the 
Exchange's proposed 10Gb Ultra fiber connectivity option.\12\ The 
Exchange notes that the 10Gb Ultra fiber option provides connectivity 
to seven of the NASDAQ OMX Group 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 the Exchange 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, the 
Exchange'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 clients 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, the 
Exchange 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 the Exchange 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 the Exchange 
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 the 
Exchange'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 the Exchange and subscribe to the 10Gb 
Ultra connection. There is no differentiation among co-located clients

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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 noting that it operates in a highly competitive 
market in which colocation services are offered to facilitate trading 
activities and that this new service provides clients with the option 
to further enhance their trading immediately. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest so that BX can 
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 (https://www.sec.gov/rules/sro.shtml ); or
     Send an email to rule-comments@sec.gov. Please 
include File Number SR-BX-2013-048 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2013-048. 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-BX-2013-048 and should be 
submitted on or before September 6, 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. 2013-19908 Filed 8-15-13; 8:45 am]
BILLING CODE 8011-01-P