Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Expand Its Co-Location Services, 77951-77956 [2024-21748]
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Federal Register / Vol. 89, No. 185 / Tuesday, September 24, 2024 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101091; File No. 4–820]
Options Price Reporting Authority;
Notice of Designation of a Longer
Period for Commission Action on a
Proposed Amendment To Modify the
OPRA Plan Relating to Dissemination
of Exchange Proprietary Market Data
Information
September 18, 2024.
On November 8, 2023, the Cboe
Exchange, Inc., Cboe C2 Exchange, Inc.,
Cboe BZX Exchange, Inc., and Cboe
EDGX Exchange, Inc. filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposal (‘‘Proposed
Amendment’’) to amend the plan of the
Options Price Reporting Authority
(‘‘OPRA’’) for reporting of consolidated
options last sale reports and quotation
information (‘‘OPRA Plan’’).1 The
proposed amendment was published for
comment in the Federal Register on
January 22, 2024.2
On April 19, 2024, the Commission
instituted proceedings pursuant to Rule
608(b)(2)(i) of Regulation NMS 3 to
determine whether to approve or
disapprove the Proposed Amendment or
to approve the Proposed Amendment
with any changes or subject to any
conditions the Commission deems
necessary or appropriate.4 On July 11,
2024, pursuant to Rule 608(b)(2)(i) of
Regulation NMS,5 the Commission
extended the period within which to
conclude proceedings regarding the
Proposed Amendment to 240 days from
the date of publication of the Notice.6
The 240th day after publication of the
Notice is September 18, 2024.
Rule 608(b)(2)(ii) of Regulation NMS 7
provides that the time for conclusion of
proceedings to determine whether a
national market system plan or
proposed amendment should be
disapproved may be extended for an
additional period up to 60 days (up to
300 days from the date of notice
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1 See
https://cdn.opraplan.com/documents/
OPRA_Plan.pdf.
2 See Securities Exchange Act Release No. 99345
(Jan. 16, 2024), 89 FR 3963 (Jan. 22, 2024)
(‘‘Notice’’). Comments received in response to the
Notice are available on the Commission’s website
at https://www.sec.gov/comments/4-820/4-820.htm.
3 17 CFR 242.608(b)(2)(i).
4 See Securities Exchange Act Release No. 99994
(Apr. 19, 2024), 89 FR 31785 (Apr. 25, 2024)
(‘‘Order Instituting Proceedings’’). Comments
received in response to the Order Instituting
Proceedings are available on the Commission’s
website at https://www.sec.gov/comments/4-820/4820.htm.
5 See 17 CFR 242.608(b)(2)(i).
6 See Securities Exchange Act Release No. 100495
(July 11, 2024), 89 FR 58212 (July 17, 2024).
7 See 17 CFR 242.608(b)(2)(ii).
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publication) if the Commission
determines that a longer period is
appropriate and publishes the reasons
for such determination or the plan
participants consent to the longer
period. The Commission is extending
this 240 day period.
The Commission finds that it is
appropriate to designate a longer period
within which to conclude proceedings
regarding the Proposed Amendment so
that it has sufficient time to consider the
important policy issues raised by the
Proposed Amendment and the
comments received. Accordingly,
pursuant to Rule 608(b)(2)(ii) of
Regulation NMS,8 the Commission
designates November 15, 2024, as the
date by which the Commission shall
conclude the proceedings to determine
whether to approve or disapprove the
Proposed Amendment or to approve the
Proposed Amendment with any changes
or subject to any conditions the
Commission deems necessary or
appropriate (File No. 4–820).
By the Commission.
Vanessa A. Countryman,
Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101076; File No. SR–ISE–
2024–45]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Expand Its CoLocation Services
September 18, 2024.
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 5, 2024, Nasdaq ISE, LLC
(‘‘ISE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to expand its
co-location services.
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/ise/rules, 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, 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
Statutory Basis for, the Proposed Rule
Change
1. Purpose
[FR Doc. 2024–21767 Filed 9–23–24; 8:45 am]
8 Id.
77951
The Exchange proposes to expand its
co-location services by offering new
cabinet, power, and power distribution
unit options in the Exchange’s
expanded data center.3
The Exchange’s current data center
(‘‘NY11’’) in Carteret, NJ is undergoing
an expansion (‘‘NY11–4’’) in response to
demand for power and cabinets. NY11–
4 is not a new or distinct co-location
facility. Instead, NY11–4 is simply an
expansion of the existing Nasdaq NY11
data center,4 and Nasdaq intends to
operate it generally in the same manner
as existing aspects of NY11.5 Client
connections to the matching engine will
be equal across the board, within and
among NY11 and NY11–4. In 2010, the
Exchange undertook a similar expansion
to its data center, where connectivity to
3 The Exchange previously submitted a similar
proposal earlier this year, see Securities Exchange
Act Release No. 34–100563 (July 19, 2024), 89 FR
60479 (July 25, 2024) (SR–ISE–2024–28) (the ‘‘Prior
Proposal’’), but withdrew it on August 29, 2024 to
allow for the Exchange to address outstanding
comments and concerns raised by the Commission
Staff and commenters.
4 NY11–4 is not a standalone facility. Equinix
considers the site as NY11 with three expansions:
NY11 Phase 1, NY11 Phase 2 and NY11–4.
5 As discussed below in further detail, one aspect
of the data center that will be different (temporarily)
in NY11–4 as compared to NY11 is
telecommunications access and inter-client
connectivity. In NY11–4 at its launch, connections
between colocated client cabinets and the carrier
cage will be equalized as will be inter-client
connectivity. Presently, such connectivity is not
equalized in NY11, but the Exchange intends to
retrofit NY11 to be equalized in the months ahead.
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the Exchange remained equalized, as is
the case with the NY11–4 expansion.
The Exchange submits this filing to
propose offering new services in NY11–
4, as described below, and to the extent
the Exchange offers additional new
services, whether in the existing NY11
data halls or in the new NY11–4 data
hall, the Exchange will submit
additional filings with the Commission.
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New and Upgraded Services in NY11–
4
NY11–4 Expanded Cabinet Optionality:
Ultra High Density Cabinet
Currently, co-location customers have
the option of obtaining cabinets of
various sizes and power densities. Colocation customers may obtain a Half
Cabinet,6 a Low Density Cabinet with
power density less than or equal to 2.88
kilowatts (‘‘kW’’), a Medium Density
Cabinet with power density greater than
2.88 kW and less than or equal to 5 kW,
a Medium-High Density Cabinet with
power density greater than 5 kW and
less than or equal to 7 kW, a High
Density Cabinet with power density
greater than 7 kW and less than 10 kW,
and a Super High Density Cabinet with
power density greater than 10 kW and
less than or equal to 17.3 kW.
The Exchange proposes to introduce a
new cabinet choice in NY11–4, an
‘‘Ultra High Density Cabinet,’’ with
power density greater than 10 kW and
less than or equal to 15 kW. Based on
demand, the Exchange wishes to
introduce the Ultra High Density
Cabinet as an option for customers
between the High Density Cabinet and
the Super High Density Cabinet. The
Ultra High Density Cabinet option
would only be offered in NY11–4
because of the power configuration
necessary for such cabinets, which is
not possible or available in other
portions of the data center due to
different power distribution. Because of
the addition of the Ultra High Density
Cabinet option in NY11–4, the Super
High Density Cabinet in NY11–4 would
have power density greater than 15 kW
and less than or equal to 17.3 kW.
In addition to the Ultra High Density
Cabinet, the Exchange would offer the
other, existing cabinet options in NY11–
4, with the exception of the Low Density
Cabinet and Half Cabinet due to a lack
of demand for such cabinets. The
cabinets in NY11–4 will include certain
features, including but not limited to:
uniform, wider cabinets 7 (32’’ W x 48’’
6 Half cabinets are not available to new
subscribers. See General 8, Section 1(a).
7 In the existing data halls, clients may bring their
own cabinets or use Exchange-provided cabinets.
Because of the cooling system in NY11–4 (hot aisle
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D x 91’’ H), cable management, and a
rear split door and combo lock.
NY–11 4 Cabinet Power and Power
Distribution Units
The Exchange currently provides
various cabinet power options,
including: 2x20 amp 110 volt, 2x30 amp
110 volt, 2x20 amp 208 volt, 2x30 amp
208 volt, Phase 3 2x 20 amp 208 volt,
Phase 3 2x 30 amp 208 volt, 2x60 amp
208 volt, Phase 3 2x 40 amp 208 volt,
Phase 3 2x 50 amp 208 volt, Phase 3 2x
60 amp 208 volt, and 2x30 amp 48 volt
DC. For NY11–4, the data center
operator is bringing in higher voltage
power options, which are more
consistent with power options used in
other data centers across the globe. The
Exchange proposes to amend General 8,
Section 1(c) to add the cabinet power
options for NY11–4, which include:
Phase 1 20 amp 240 volt, Phase 1 32
amp 240 volt, Phase 1 40 amp 240 volt,
Phase 3 20 amp 415 volt, and Phase 3
32 amp 415 volt. The Exchange also
proposes to specify in its Rules that
these cabinet power options are specific
to NY11–4 and that one of these options
must be selected for cabinets in NY11–
4. Although different cabinet power
options will be offered in NY11 and
NY11–4 due to differing power
configurations, the new cabinet power
options are not inherently preferable to
the existing cabinet power options and
the Exchange does not anticipate
material differences in equipment
performance based on the power
distribution. Due to higher voltage
options being offered in NY11–4, the
data center operator is likely to
experience increased power distribution
efficiencies across the data center. As
between the various cabinet power
options, customers choose power based
on their preference and capacity needs.
The Exchange also proposes to offer
power distribution units (‘‘PDUs’’) 8 in
NY11–4 as a convenience to customers.
Rather than sourcing PDUs on a
customer-by-customer basis, as the
Exchange does for customers in NY11,
the Exchange wishes to simplify and
standardize its PDU offering in NY11–
4 by offering Phase 1 and Phase 3 9
containment), all cabinets must be uniform and
therefore, the Exchange will provide all cabinets.
The existing data halls utilize cold aisle
containment to manage temperatures. Hot aisle
containment is a more effective way to manage heat
in the data center.
8 PDUs are devices fitted with multiple outputs
designed to distribute electric power. The
standardized PDUs would only be offered for
NY11–4.
9 Phase 1 PDUs would be compatible with the
following power options: Phase 1 20 amp 240 volt,
Phase 1 32 amp 240 volt, and Phase 1 40 amp 240
volt. Phase 3 PDUs would be compatible with the
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power distribution units. This service is
optional and customers may choose to
provide their own PDUs appropriate for
their power installation choices. The
Exchange also proposes to offer a switch
monitored PDU add on in NY11–4,
which would allow customers to
connect remotely to their PDU and
control the power sockets. With the
switch monitored PDU option,
customers would be able to power cycle
or shut off power remotely. This option
is optional as well and customers may
choose to provide their own switch
monitored PDU, if desired.
Implementation
Although the timing is subject to
change,10 the Exchange anticipates
opening NY11–4 Exchange access on
November 4, 2024. In concert with this
filing, the Exchange will allow
customers to place orders for NY11–4,
which would not be fee liable until
customers are provided access to the
space.11 The Exchange will submit a fee
filing to establish fees for the services
described herein. Allowing customers to
place orders in advance of opening its
doors will allow the Exchange to plan
ahead for capacity and demand for
services, as well as procure necessary
equipment.
Equalization of Telecommunications
Connectivity in NY11–4 and NY11
Although the Exchange has
constructed NY11–4 to address capacity
constraints associated with its existing
data center footprint, as well as to
enable the provision of upgraded power
for customer equipment, an ancillary
design feature of NY11–4 will be that it
will include, at launch, equalized
cabling between customer equipment
and equipment owned and operated by
third-party telecommunications
providers (‘‘telco connectivity’’). This
design feature is incident, but not
strictly relevant to the Proposal at hand.
Nevertheless, we discuss it below
insofar as it garnered attention in the
Prior Proposal, by one commenter, in
particular.12
following power options: Phase 3 20 amp 415 volt
and Phase 3 32 amp 415 volt. Phase 1 and Phase
3 are available in NY11 and NY11–4. Phase 3 PDUs
provide greater power density than Phase 1 PDUs
by delivering power over three wires as opposed to
one wire.
10 The Exchange will announce modifications to
the proposed timing via the Nasdaq Customer
Portal, which is the web portal used for order and
inventory management of colocation services, and
email communication to all colocation customers.
11 Charging customers once access is provided is
consistent with current practice and allows
customers to set up equipment and begin using
power.
12 See Ltr. From J. Considine, McKay Brothers
LLC, to V. Countryman, SEC, dated July 24, 2024,
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Presently, the Exchange does not have
equalized telco connectivity in NY11,
much like several of its peers, IEX,
MEMX, and Cboe, all of which operate
through their Secaucus data center
without equalized telco connectivity.13
The present architecture of NY11 is a
product of its history and that of
technology; the Exchange designed
NY11 at a time when latency differences
were measured by customers in terms of
miles of cable between customer
facilities and exchange data centers,
rather than in feet or inches within
exchange data centers, as is the case
today. As the technology paradigm
shifted, and as variances in telco
connectivity became more meaningful
to some market participants, the
Exchange reevaluated its design of its
data center and determined that telco
connectivity equalization would be in
the best interests of the markets going
forward. Thus, on its own initiative, the
Exchange has embarked on an ambitious
project to equalize telco connectivity
across its entire data center campus,
including both its existing NY11 facility
and the NY11–4 expansion (the
‘‘Equalization Project’’). The launch of
NY11–4 will constitute phase 1 of the
Equalization Project.
The Equalization Project will be
complex, time consuming, and costly to
complete, especially as to NY11, where
the existing facility must be retrofitted
with equalized cabling. In NY11,
thousands of existing customer cables
threaded throughout the facility will
need to be removed and replaced with
new infrastructure to support
equidistant connectivity relative to all
other customers’ locations in the data
center. This painstaking project will
cost millions of dollars in design,
equipment, and labor costs. Due to its
complexity, the Equalization Project
cannot and will not be accomplished
instantaneously.14 Instead, the
available at https://www.sec.gov/comments/srnasdaq-2024-026/srnasdaq2024026-4969951434326.pdf (the ‘‘McKay Letter’’). Akuna
Securities LLC also filed a comment letter that
largely echoed the arguments in the McKay Letter.
See Ltr. From D. DeSalle-Baron, Akuna Securities
LLC to V. Countryman, SEC, dated July 24, 2024,
available at https://www.sec.gov/comments/srnasdaq-2024-026/srnasdaq2024026-4970961434386.pdf.
13 The structure of the Secaucus data center is a
generally known fact within the industry and one
of which the Exchange is itself aware due, among
other things, to its own status as a tenant of the
Secaucus data center.
14 The McKay Letter asserts incorrectly and
without any evidentiary basis that the Exchange is
capable of equalizing telco connectivity quickly and
can do so before launching NY11–4 with only a
minor ensuing delay to the launch. See id. at 4,
n.15. As we explain herein, equalization of NY11
will take many months to accomplish, even at an
aggressive pace, including because of factors
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Exchange estimates that the Project will
require 18–24 months to complete,
commencing as of the launch of NY11–
4. Moreover, it will occur in a
methodical and phased manner to
ensure proper design, testing, and
workmanship, as well as to minimize
the customer disruptions that,
unfortunately, will be unavoidable
during the process. The launch of
NY11–4 with equalized telco
connectivity will be the first phase of
the Equalization Project, with the
equalization of NY11 constituting the
remaining phases of the Project. For the
phased transition of NY11, the
Exchange expects the migration to occur
in tranches over the course of several
weekends at the tail end of the 18–24
project period.
Concerns About the Sequencing of the
Equalization Project Are Unfounded
In the Prior Proposal, the commenter
objected to the Exchange’s plan to
accomplish the Equalization Project by
first launching equalized telco
connectivity in NY11–4 before
launching it in NY11.15 The commenter
argued that this sequencing of the
Equalization Project would be unfairly
discriminatory in that it would
exacerbate existing inequalities in the
Exchange’s Data Center while also
compelling customers to secure
unneeded space in NY11–4 to ensure
that they obtain or maintain the closest
possible geographic proximity to their
telecommunications providers’
equipment.16 These arguments are
simply wrong.
The Exchange’s Plan for the Launch of
NY11–4 To Constitute Phase One of the
Equalization Project Is Fair and
Reasonable and in the Best Interests of
the Markets
The Exchange’s Plan To Proceed With
NY11–4 as the First Phase of the
Equalization Project Is in the Best
Interests of the Markets
The fact of the matter is that the
Exchange needs to launch NY11–4—and
needs to do so in November 2024—to
ensure that it remains capable of
meeting the growing power and capacity
demands of its customers. Regulation
SCI requires the Exchange to reasonably
anticipate its capacity needs. NY11–4,
which has been three years in the
making, is a product of the SCI planning
process. Delaying the launch of NY11–
outside of its control. The Exchange notes, for
example, that the fiber needed to re-cable NY11 is
in short supply and orders are subject to substantial
waiting periods.
15 See id.
16 See id. at 1–2, 5–6.
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77953
4 to accommodate the equalization of
NY11 would jeopardize the sound and
orderly operation of the Exchange’s
markets. Such a danger readily
outweighs any concerns that some may
have about the fairness of the
Exchange’s plan to sequence the
Equalization Project, even if such
concerns were well-founded, which
they are not.
We note that our customers generally
support this view. One customer sent
the Exchange a letter stating the
following about the Exchange’s plans:
As noted in your August 12, 2024,
comment letter response to the SEC, the
addition of NY11–4 is needed to meet the
growing customer demands for space, power,
and upgraded technological capabilities.
OMC echoes these concerns as one of those
customers, with an immediate and significant
need to expand its colocation space to
accommodate the growing demands of
OMC’s business. OMC is a registered member
of the Nasdaq Stock Market and eight other
options and equities exchanges operated by
Nasdaq (the ‘‘Exchanges’’), with more than
half of those memberships added within
roughly the last year. As a registered Market
Maker for hundreds of listed symbols, OMC
actively provides liquidity across the
Exchanges. Also, as a Designated Liquidity
Provider, OMC plays a key role in supporting
the active and efficient trading of many new
and existing products listed on the
Exchanges. To support this significant
amount of trading activity on the Exchanges,
OMC urgently needs the additional
colocation space made available in NY11–4.
Any halt or delay of the NY11–4 launch
would prevent OMC’s planned expansion
and would endanger OMC’s ability to grow
and meet the liquidity provision demands of
the Exchanges and their customers.17
The Exchange’s Sequencing Plan Is Also
Pragmatic and Efficient
Expanding the existing data center by
building a new wing (NY11–4) from
scratch afforded the Exchange an
opportunity to design the expansion
efficiently with telco connectivity
equalization incorporated therein from
the outset. This approach avoids the
need to later engage in a wasteful
process of retrofitting NY11–4 for telco
connectivity equalization—a process in
which the Exchange must now engage
with respect to NY11.
Launching NY11–4 Before Equalizing
NY11 Will Not Worsen Inequality
The latency profile of a customer
collocating in NY11–4 would be no
better than that of the lowest latency
customer and no worse than that of the
highest latency customer colocating
presently in NY11. In fact, the launch of
a full-equalized NY11–4 before
17 Ltr. From F. Zucek, Old Mission, to B. Kitt,
Nasdaq, dated Aug. 21, 2024.
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equalizing NY11 would actually
diminish the overall average latency
differential among collocated customers’
telecom provider connections because
NY11–4 introduces connections at a
single latency value in between the
slowest and fastest latencies. That is, the
shortest current telco connection
possible into NY11 is 160 ft while the
longest current telco connection
possible into NY11 is 680 feet; the
equidistant telco connections into
NY11–4 will be 590 feet, which falls
between these two extremes.
Moreover, although the Exchange
does not know the precise latency
profiles of each of its colocation
customers, it has provided those
customers with the latency profile for
NY11–4 and interhall connectivity
through its distribution of a technical
specification document via the
Customer Portal. This technical
specification document will allow
customers to determine for themselves
whether their current location in NY11
or alternative space in NY11–4 will
optimize their latency profile. It will
provide a means for customers to plan
ahead and avoid undesirable outcomes
associated with the launch of NY11–4.
Contrary to assertions made by the
commenter in connection with the Prior
Proposal,18 the technical specification
document alleviates uncertainty that
might otherwise compel customers to
waste money to secure unnecessary
space in NY11–4 as a defensive means
of assuring themselves the most
advantageous position available in the
Exchange’s data center campus.
Any Advantage Attainable From the
Launch of NY11–4 First Will Be
Temporary
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Even if a customer was to gain a
latency advantage from the launch of
NY11–4 before equalization of NY11,
such an advantage would be temporary
given the fact that equalization of NY11
will follow soon after the launch of
NY11–4. The fleeting nature of any such
advantage should also disincentivize
colocation customers from engaging in a
‘‘land grab’’ for what they perceive to be
the most geographically advantageous
space in NY11–4. Indeed, the Exchange
sees no evidence of such a land grab
actually occurring with respect to
customers’ expressions of interest in
18 See McKay Ltr., supra, at 3–4 (asserting that
‘‘introduction of NY11–4 before equalizing NY11
will compel many customers to establish a third
point of presence—at a cost in incremental fees
paid to Nasdaq alone of at least $2.5 million on a
three-year commitment—to eliminate the risk that
the NY11–4 connection is a superior connection to
one (or both) of their existing NY11 points of
presence.’’).
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NY11–4, notwithstanding warnings to
that effect from the same commenter. As
of the date of submission of this filing,
only roughly 10 percent of existing
customers, representing a mix of
business models and latency sensitive
activities, have requested space in
NY11–4. Moreover, interest in NY11–4
thus far involves a mix of customers
wanting to expand upon their existing
space in NY11 and others that want to
move their existing space in NY11
entirely to NY11–4.
Equalizing NY11 First Will Not Avoid
Creating Temporary Customer
Disparities
Finally, the commenter’s argument is
incorrect that equalizing NY11 before
launching NY11–4 would avoid creating
disparities among customers with
respect to their telco connections.19
Equalizing telecommunications
connectivity in NY11 before launching
NY11–4 would not avoid the reality that
full telco connectivity equalization—
however accomplished—will require
the introduction of temporary
disparities in the lengths of the cables
running between telecommunications
providers and customers in the data
center complex. Even if the Exchange
were to pursue equalization of NY11
first, doing so would necessarily entail
certain customers in NY11 experiencing
changes to their telco cable lengths
before others during the phased
transition period. Thus, re-sequencing
the Equalization Project to start with
NY11 will do nothing to affect these
temporary customer disparities, but
instead will needlessly place the
markets at risk by delaying the
availability of expanded data center
capacity.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,20 in general, and furthers the
objectives of Section 6(b)(5) of the Act,21
in particular, 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. Today,
the Exchange offers various cabinet
choices and power options in the data
center for colocation customers. The
proposal would expand the cabinet and
power options available, by introducing
an additional cabinet option, the Ultra
High Density Cabinet, and new power
id. at 2.
U.S.C. 78f(b).
21 15 U.S.C. 78f(b)(5).
choices. The proposal would benefit the
public interest by providing customers
more cabinet and power options to
choose from, thereby enhancing their
ability to tailor their colocation
operations to the requirements of their
business operations. In general, the
proposal is consistent with the Act
because the Exchange’s expansion of the
data center and expansion of available
power and cabinets will enable the
Exchange to meet customer needs and
address demand for both cabinets and
power. In lieu of collocating directly
with the Exchange, market participants
may choose not to collocate at all or to
collocate indirectly through a vendor.
The Exchange also believes that the
proposal will not be unfairly
discriminatory, consistent with the
objectives of Section 6(b)(5) of the Act 22
because the expanded cabinet and
power options in the data center would
be offered equally to all customers.
Although certain optionality is only
offered in NY11–4 because of different
power configurations in NY11–4 as
compared to NY11, NY11–4 is merely
an expansion of the data center, and any
customer may order cabinets and power
in NY11–4 (and across the data center
broadly) on the same terms as any other
customer.
The Equalization Project Is Consistent
With the Act
In addition to the above, and although
not strictly relevant to the proposal at
hand, the Exchange also believes that
the Equalization Project, as outlined
above and which will begin with the
launch of NY11–4, is consistent with
the Act.
Concerns About the Sequencing of the
Equalization Project Are Unfounded
In the Prior Proposal, the commenter
objected to the Exchange’s plan to
accomplish the Equalization Project by
first launching equalized telco
connectivity in NY11–4 before
launching it in NY11.23 The commenter
argued that this sequencing of the
Equalization Project would be unfairly
discriminatory in that it would
exacerbate existing inequalities in the
Exchange’s Data Center while also
compelling customers to secure
unneeded space in NY11–4 to ensure
that they obtain or maintain the closest
possible geographic proximity to their
telecommunications providers’
equipment.24 These arguments are
simply wrong.
19 See
22 Id.
20 15
23 See
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id. at 1–2, 5–6.
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The Exchange’s Plan for the Launch of
NY11–4 To Constitute Phase One of the
Equalization Project Is Fair and
Reasonable and in the Best Interests of
the Markets
The Exchange’s Plan To Proceed With
NY11–4 as the First Phase of the
Equalization Project Is in the Best
Interests of the Markets
lotter on DSK11XQN23PROD with NOTICES1
The fact of the matter is that the
Exchange needs to launch NY11–4—and
needs to do so in November 2024—to
ensure that it remains capable of
meeting the growing power and capacity
demands of its customers. Regulation
SCI requires the Exchange to reasonably
anticipate its capacity needs. NY11–4,
which has been three years in the
making, is a product of the SCI planning
process. Delaying the launch of NY11–
4 to accommodate the equalization of
NY11 would jeopardize the sound and
orderly operation of the Exchange’s
markets. Such a danger readily
outweighs any concerns that some may
have about the fairness of the
Exchange’s plan to sequence the
Equalization Project, even if such
concerns were well-founded, which
they are not.
We note that our customers generally
support this view. One customer sent
the Exchange a letter stating the
following about the Exchange’s plans:
As noted in your August 12, 2024,
comment letter response to the SEC, the
addition of NY11–4 is needed to meet the
growing customer demands for space, power,
and upgraded technological capabilities.
OMC echoes these concerns as one of those
customers, with an immediate and significant
need to expand its colocation space to
accommodate the growing demands of
OMC’s business. OMC is a registered member
of the Nasdaq Stock Market and eight other
options and equities exchanges operated by
Nasdaq (the ‘‘Exchanges’’), with more than
half of those memberships added within
roughly the last year. As a registered Market
Maker for hundreds of listed symbols, OMC
actively provides liquidity across the
Exchanges. Also, as a Designated Liquidity
Provider, OMC plays a key role in supporting
the active and efficient trading of many new
and existing products listed on the
Exchanges. To support this significant
amount of trading activity on the Exchanges,
OMC urgently needs the additional
colocation space made available in NY11–4.
Any halt or delay of the NY11–4 launch
would prevent OMC’s planned expansion
and would endanger OMC’s ability to grow
and meet the liquidity provision demands of
the Exchanges and their customers.25
25 Ltr. From F. Zucek, Old Mission, to B. Kitt,
Nasdaq, dated Aug. 21, 2024.
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18:07 Sep 23, 2024
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The Exchange’s Sequencing Plan Is Also
Pragmatic and Efficient
Expanding the existing data center by
building a new wing (NY11–4) from
scratch afforded the Exchange an
opportunity to design the expansion
efficiently with telco connectivity
equalization incorporated therein from
the outset. This approach avoids the
need to later engage in a wasteful
process of retrofitting NY11–4 for telco
connectivity equalization—a process in
which the Exchange must now engage
with respect to NY11.
Launching NY11–4 Before Equalizing
NY11 Will Not Worsen Inequality
The latency profile of a customer
collocating in NY11–4 would be no
better than that of the lowest latency
customer and no worse than that of the
highest latency customer colocating
presently in NY11. In fact, the launch of
a full-equalized NY11–4 before
equalizing NY11 would actually
diminish the overall average latency
differential among collocated customers’
telecom provider connections because
NY11–4 introduces connections at a
single latency value in between the
slowest and fastest latencies. That is, the
shortest current telco connection
possible into NY11 is 160 ft while the
longest current telco connection
possible into NY11 is 680 feet; the
equidistant telco connections into
NY11–4 will be 590 feet, which falls
between these two extremes.
Moreover, although the Exchange
does not know the precise latency
profiles of each of its colocation
customers, it has provided those
customers with the latency profile for
NY11–4 and interhall connectivity
through its distribution of a technical
specification document via the
Customer Portal. This technical
specification document will allow
customers to determine for themselves
whether their current location in NY11
or alternative space in NY11–4 will
optimize their latency profile. It will
provide a means for customers to plan
ahead and avoid undesirable outcomes
associated with the launch of NY11–4.
Contrary to assertions made by the
commenter in connection with the Prior
Proposal,26 the technical specification
document alleviates uncertainty that
might otherwise compel customers to
26 See McKay Ltr., supra, at 3–4 (asserting that
‘‘introduction of NY11–4 before equalizing NY11
will compel many customers to establish a third
point of presence—at a cost in incremental fees
paid to Nasdaq alone of at least $2.5 million on a
three-year commitment—to eliminate the risk that
the NY11–4 connection is a superior connection to
one (or both) of their existing NY11 points of
presence.’’).
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77955
waste money to secure unnecessary
space in NY11–4 as a defensive means
of assuring themselves the most
advantageous position available in the
Exchange’s data center campus.
Any Advantage Attainable From the
Launch of NY11–4 First Will Be
Temporary
Even if a customer was to gain a
latency advantage from the launch of
NY11–4 before equalization of NY11,
such an advantage would be temporary
given the fact that equalization of NY11
will follow soon after the launch of
NY11–4. The fleeting nature of any such
advantage should also disincentivize
colocation customers from engaging in a
‘‘land grab’’ for what they perceive to be
the most geographically advantageous
space in NY11–4. Indeed, the Exchange
sees no evidence of such a land grab
actually occurring with respect to
customers’ expressions of interest in
NY11–4, notwithstanding warnings to
that effect from the same commenter. As
of the date of submission of this filing,
only roughly 10 percent of existing
customers, representing a mix of
business models and latency sensitive
activities, have requested space in
NY11–4. Moreover, interest in NY11–4
thus far involves a mix of customers
wanting to expand upon their existing
space in NY11 and others that want to
move their existing space in NY11
entirely to NY11–4.
Equalizing NY11 First Will Not Avoid
Creating Temporary Customer
Disparities
Finally, the commenter’s argument is
incorrect that equalizing NY11 before
launching NY11–4 would avoid creating
disparities among customers with
respect to their telco connections.27
Equalizing telecommunications
connectivity in NY11 before launching
NY11–4 would not avoid the reality that
full telco connectivity equalization—
however accomplished—will require
the introduction of temporary
disparities in the lengths of the cables
running between telecommunications
providers and customers in the data
center complex.
Even if the Exchange were to pursue
equalization of NY11 first, doing so
would necessarily entail certain
customers in NY11 experiencing
changes to their telco cable lengths
before others during the phased
transition period. Thus, re-sequencing
the Equalization Project to start with
NY11 will do nothing to affect these
temporary customer disparities, but
instead will needlessly place the
27 See
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Federal Register / Vol. 89, No. 185 / Tuesday, September 24, 2024 / Notices
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markets at risk by delaying the
availability of expanded data center
capacity.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
Nothing in the proposal imposes any
burden on the ability of other exchanges
to compete. The Exchange operates in a
highly competitive market in which
exchanges and other vendors offer
colocation services as a means to
facilitate the trading and other market
activities of those market participants
who believe that colocation enhances
the efficiency of their operations. As
part of its colocation offering, the
Exchange currently offers similar
cabinets and power, as do other
exchanges.
Nothing in the Proposal burdens
intra-market competition because the
Exchange’s colocation services,
including those proposed herein, are
available to any customer and customers
that wish to order cabinets and power
can do so on a non-discriminatory basis.
Use of any colocation service is
completely voluntary, and each market
participant is able to determine whether
to use colocation services based on the
requirements of its business operations.
Additionally, and although not
strictly relevant to the Proposal, nothing
about the Equalization Plan, as
described above, would impose an
undue burden on competition. The
Exchange intends for the Equalization
Plan to facilitate increased competition
among its colocation customers by
eliminating telco connectivity
disparities that currently provide some
customers with latency advantages
relative to others. For the reasons
discussed above, the Exchange believes
that it is fair and necessary to sequence
the Equalization Project by beginning
with the launch of NY11–4 with an
equalized design, rather than with
NY11. Specifically, the timely launch of
NY11–4 is necessary for the Exchange to
meet its capacity needs and those of its
customers, while retrofitting NY11 will
be a complex process that will require
many months to complete. Moreover,
the current sequencing plan will not
worsen existing inequalities, but instead
will improve the overall average
disparity in telco cable lengths in the
data center. Even though the sequencing
plan will cause some customers to be
subject to telco connectivity
equalization before others, this result is
unavoidable even if the Exchange were
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18:07 Sep 23, 2024
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to equalize NY11 first. Any customer
advantage or disadvantage that might
arise from the Equalization Project
would be temporary. Finally, the
Exchange has been transparent about its
plans and afforded opportunities to
customers to make informed choices
about how to mitigate any adverse
consequences, competitive or otherwise.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange received a written letter
of support from Old Mission Capital
LLC, dated August 21, 2024.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 28 and
subparagraph (f)(6) of Rule 19b–4
thereunder.29
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. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
• Send an email to rule-comments@
sec.gov. Please include file number SR–
ISE–2024–45 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–ISE–2024–45. 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 website (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 website 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–ISE–2024–45 and should be
submitted on or before October 15,
2024.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Vanessa A. Countryman,
Secretary.
Electronic Comments
[FR Doc. 2024–21748 Filed 9–23–24; 8:45 am]
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
BILLING CODE 8011–01–P
28 15
U.S.C. 78s(b)(3)(A)(iii).
29 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
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 satisfied this
requirement.
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SMALL BUSINESS ADMINISTRATION
Reporting and Recordkeeping
Requirements Under OMB Review
Small Business Administration.
30-Day notice.
AGENCY:
ACTION:
30 17
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CFR 200.30–3(a)(12).
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[Federal Register Volume 89, Number 185 (Tuesday, September 24, 2024)]
[Notices]
[Pages 77951-77956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21748]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101076; File No. SR-ISE-2024-45]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Expand Its Co-
Location Services
September 18, 2024.
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 5, 2024, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``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.
---------------------------------------------------------------------------
\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 expand its co-location services.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, 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, 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to expand its co-location services by
offering new cabinet, power, and power distribution unit options in the
Exchange's expanded data center.\3\
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\3\ The Exchange previously submitted a similar proposal earlier
this year, see Securities Exchange Act Release No. 34-100563 (July
19, 2024), 89 FR 60479 (July 25, 2024) (SR-ISE-2024-28) (the ``Prior
Proposal''), but withdrew it on August 29, 2024 to allow for the
Exchange to address outstanding comments and concerns raised by the
Commission Staff and commenters.
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The Exchange's current data center (``NY11'') in Carteret, NJ is
undergoing an expansion (``NY11-4'') in response to demand for power
and cabinets. NY11-4 is not a new or distinct co-location facility.
Instead, NY11-4 is simply an expansion of the existing Nasdaq NY11 data
center,\4\ and Nasdaq intends to operate it generally in the same
manner as existing aspects of NY11.\5\ Client connections to the
matching engine will be equal across the board, within and among NY11
and NY11-4. In 2010, the Exchange undertook a similar expansion to its
data center, where connectivity to
[[Page 77952]]
the Exchange remained equalized, as is the case with the NY11-4
expansion.
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\4\ NY11-4 is not a standalone facility. Equinix considers the
site as NY11 with three expansions: NY11 Phase 1, NY11 Phase 2 and
NY11-4.
\5\ As discussed below in further detail, one aspect of the data
center that will be different (temporarily) in NY11-4 as compared to
NY11 is telecommunications access and inter-client connectivity. In
NY11-4 at its launch, connections between colocated client cabinets
and the carrier cage will be equalized as will be inter-client
connectivity. Presently, such connectivity is not equalized in NY11,
but the Exchange intends to retrofit NY11 to be equalized in the
months ahead.
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The Exchange submits this filing to propose offering new services
in NY11-4, as described below, and to the extent the Exchange offers
additional new services, whether in the existing NY11 data halls or in
the new NY11-4 data hall, the Exchange will submit additional filings
with the Commission.
New and Upgraded Services in NY11-4
NY11-4 Expanded Cabinet Optionality: Ultra High Density Cabinet
Currently, co-location customers have the option of obtaining
cabinets of various sizes and power densities. Co-location customers
may obtain a Half Cabinet,\6\ a Low Density Cabinet with power density
less than or equal to 2.88 kilowatts (``kW''), a Medium Density Cabinet
with power density greater than 2.88 kW and less than or equal to 5 kW,
a Medium-High Density Cabinet with power density greater than 5 kW and
less than or equal to 7 kW, a High Density Cabinet with power density
greater than 7 kW and less than 10 kW, and a Super High Density Cabinet
with power density greater than 10 kW and less than or equal to 17.3
kW.
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\6\ Half cabinets are not available to new subscribers. See
General 8, Section 1(a).
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The Exchange proposes to introduce a new cabinet choice in NY11-4,
an ``Ultra High Density Cabinet,'' with power density greater than 10
kW and less than or equal to 15 kW. Based on demand, the Exchange
wishes to introduce the Ultra High Density Cabinet as an option for
customers between the High Density Cabinet and the Super High Density
Cabinet. The Ultra High Density Cabinet option would only be offered in
NY11-4 because of the power configuration necessary for such cabinets,
which is not possible or available in other portions of the data center
due to different power distribution. Because of the addition of the
Ultra High Density Cabinet option in NY11-4, the Super High Density
Cabinet in NY11-4 would have power density greater than 15 kW and less
than or equal to 17.3 kW.
In addition to the Ultra High Density Cabinet, the Exchange would
offer the other, existing cabinet options in NY11-4, with the exception
of the Low Density Cabinet and Half Cabinet due to a lack of demand for
such cabinets. The cabinets in NY11-4 will include certain features,
including but not limited to: uniform, wider cabinets \7\ (32'' W x
48'' D x 91'' H), cable management, and a rear split door and combo
lock.
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\7\ In the existing data halls, clients may bring their own
cabinets or use Exchange-provided cabinets. Because of the cooling
system in NY11-4 (hot aisle containment), all cabinets must be
uniform and therefore, the Exchange will provide all cabinets. The
existing data halls utilize cold aisle containment to manage
temperatures. Hot aisle containment is a more effective way to
manage heat in the data center.
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NY-11 4 Cabinet Power and Power Distribution Units
The Exchange currently provides various cabinet power options,
including: 2x20 amp 110 volt, 2x30 amp 110 volt, 2x20 amp 208 volt,
2x30 amp 208 volt, Phase 3 2x 20 amp 208 volt, Phase 3 2x 30 amp 208
volt, 2x60 amp 208 volt, Phase 3 2x 40 amp 208 volt, Phase 3 2x 50 amp
208 volt, Phase 3 2x 60 amp 208 volt, and 2x30 amp 48 volt DC. For
NY11-4, the data center operator is bringing in higher voltage power
options, which are more consistent with power options used in other
data centers across the globe. The Exchange proposes to amend General
8, Section 1(c) to add the cabinet power options for NY11-4, which
include: Phase 1 20 amp 240 volt, Phase 1 32 amp 240 volt, Phase 1 40
amp 240 volt, Phase 3 20 amp 415 volt, and Phase 3 32 amp 415 volt. The
Exchange also proposes to specify in its Rules that these cabinet power
options are specific to NY11-4 and that one of these options must be
selected for cabinets in NY11-4. Although different cabinet power
options will be offered in NY11 and NY11-4 due to differing power
configurations, the new cabinet power options are not inherently
preferable to the existing cabinet power options and the Exchange does
not anticipate material differences in equipment performance based on
the power distribution. Due to higher voltage options being offered in
NY11-4, the data center operator is likely to experience increased
power distribution efficiencies across the data center. As between the
various cabinet power options, customers choose power based on their
preference and capacity needs.
The Exchange also proposes to offer power distribution units
(``PDUs'') \8\ in NY11-4 as a convenience to customers. Rather than
sourcing PDUs on a customer-by-customer basis, as the Exchange does for
customers in NY11, the Exchange wishes to simplify and standardize its
PDU offering in NY11-4 by offering Phase 1 and Phase 3 \9\ power
distribution units. This service is optional and customers may choose
to provide their own PDUs appropriate for their power installation
choices. The Exchange also proposes to offer a switch monitored PDU add
on in NY11-4, which would allow customers to connect remotely to their
PDU and control the power sockets. With the switch monitored PDU
option, customers would be able to power cycle or shut off power
remotely. This option is optional as well and customers may choose to
provide their own switch monitored PDU, if desired.
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\8\ PDUs are devices fitted with multiple outputs designed to
distribute electric power. The standardized PDUs would only be
offered for NY11-4.
\9\ Phase 1 PDUs would be compatible with the following power
options: Phase 1 20 amp 240 volt, Phase 1 32 amp 240 volt, and Phase
1 40 amp 240 volt. Phase 3 PDUs would be compatible with the
following power options: Phase 3 20 amp 415 volt and Phase 3 32 amp
415 volt. Phase 1 and Phase 3 are available in NY11 and NY11-4.
Phase 3 PDUs provide greater power density than Phase 1 PDUs by
delivering power over three wires as opposed to one wire.
---------------------------------------------------------------------------
Implementation
Although the timing is subject to change,\10\ the Exchange
anticipates opening NY11-4 Exchange access on November 4, 2024. In
concert with this filing, the Exchange will allow customers to place
orders for NY11-4, which would not be fee liable until customers are
provided access to the space.\11\ The Exchange will submit a fee filing
to establish fees for the services described herein. Allowing customers
to place orders in advance of opening its doors will allow the Exchange
to plan ahead for capacity and demand for services, as well as procure
necessary equipment.
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\10\ The Exchange will announce modifications to the proposed
timing via the Nasdaq Customer Portal, which is the web portal used
for order and inventory management of colocation services, and email
communication to all colocation customers.
\11\ Charging customers once access is provided is consistent
with current practice and allows customers to set up equipment and
begin using power.
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Equalization of Telecommunications Connectivity in NY11-4 and NY11
Although the Exchange has constructed NY11-4 to address capacity
constraints associated with its existing data center footprint, as well
as to enable the provision of upgraded power for customer equipment, an
ancillary design feature of NY11-4 will be that it will include, at
launch, equalized cabling between customer equipment and equipment
owned and operated by third-party telecommunications providers (``telco
connectivity''). This design feature is incident, but not strictly
relevant to the Proposal at hand. Nevertheless, we discuss it below
insofar as it garnered attention in the Prior Proposal, by one
commenter, in particular.\12\
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\12\ See Ltr. From J. Considine, McKay Brothers LLC, to V.
Countryman, SEC, dated July 24, 2024, available at https://www.sec.gov/comments/sr-nasdaq-2024-026/srnasdaq2024026-496995-1434326.pdf (the ``McKay Letter''). Akuna Securities LLC also filed
a comment letter that largely echoed the arguments in the McKay
Letter. See Ltr. From D. DeSalle-Baron, Akuna Securities LLC to V.
Countryman, SEC, dated July 24, 2024, available at https://www.sec.gov/comments/sr-nasdaq-2024-026/srnasdaq2024026-497096-1434386.pdf.
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[[Page 77953]]
Presently, the Exchange does not have equalized telco connectivity
in NY11, much like several of its peers, IEX, MEMX, and Cboe, all of
which operate through their Secaucus data center without equalized
telco connectivity.\13\ The present architecture of NY11 is a product
of its history and that of technology; the Exchange designed NY11 at a
time when latency differences were measured by customers in terms of
miles of cable between customer facilities and exchange data centers,
rather than in feet or inches within exchange data centers, as is the
case today. As the technology paradigm shifted, and as variances in
telco connectivity became more meaningful to some market participants,
the Exchange reevaluated its design of its data center and determined
that telco connectivity equalization would be in the best interests of
the markets going forward. Thus, on its own initiative, the Exchange
has embarked on an ambitious project to equalize telco connectivity
across its entire data center campus, including both its existing NY11
facility and the NY11-4 expansion (the ``Equalization Project''). The
launch of NY11-4 will constitute phase 1 of the Equalization Project.
---------------------------------------------------------------------------
\13\ The structure of the Secaucus data center is a generally
known fact within the industry and one of which the Exchange is
itself aware due, among other things, to its own status as a tenant
of the Secaucus data center.
---------------------------------------------------------------------------
The Equalization Project will be complex, time consuming, and
costly to complete, especially as to NY11, where the existing facility
must be retrofitted with equalized cabling. In NY11, thousands of
existing customer cables threaded throughout the facility will need to
be removed and replaced with new infrastructure to support equidistant
connectivity relative to all other customers' locations in the data
center. This painstaking project will cost millions of dollars in
design, equipment, and labor costs. Due to its complexity, the
Equalization Project cannot and will not be accomplished
instantaneously.\14\ Instead, the Exchange estimates that the Project
will require 18-24 months to complete, commencing as of the launch of
NY11-4. Moreover, it will occur in a methodical and phased manner to
ensure proper design, testing, and workmanship, as well as to minimize
the customer disruptions that, unfortunately, will be unavoidable
during the process. The launch of NY11-4 with equalized telco
connectivity will be the first phase of the Equalization Project, with
the equalization of NY11 constituting the remaining phases of the
Project. For the phased transition of NY11, the Exchange expects the
migration to occur in tranches over the course of several weekends at
the tail end of the 18-24 project period.
---------------------------------------------------------------------------
\14\ The McKay Letter asserts incorrectly and without any
evidentiary basis that the Exchange is capable of equalizing telco
connectivity quickly and can do so before launching NY11-4 with only
a minor ensuing delay to the launch. See id. at 4, n.15. As we
explain herein, equalization of NY11 will take many months to
accomplish, even at an aggressive pace, including because of factors
outside of its control. The Exchange notes, for example, that the
fiber needed to re-cable NY11 is in short supply and orders are
subject to substantial waiting periods.
---------------------------------------------------------------------------
Concerns About the Sequencing of the Equalization Project Are Unfounded
In the Prior Proposal, the commenter objected to the Exchange's
plan to accomplish the Equalization Project by first launching
equalized telco connectivity in NY11-4 before launching it in NY11.\15\
The commenter argued that this sequencing of the Equalization Project
would be unfairly discriminatory in that it would exacerbate existing
inequalities in the Exchange's Data Center while also compelling
customers to secure unneeded space in NY11-4 to ensure that they obtain
or maintain the closest possible geographic proximity to their
telecommunications providers' equipment.\16\ These arguments are simply
wrong.
---------------------------------------------------------------------------
\15\ See id.
\16\ See id. at 1-2, 5-6.
---------------------------------------------------------------------------
The Exchange's Plan for the Launch of NY11-4 To Constitute Phase One of
the Equalization Project Is Fair and Reasonable and in the Best
Interests of the Markets
The Exchange's Plan To Proceed With NY11-4 as the First Phase of the
Equalization Project Is in the Best Interests of the Markets
The fact of the matter is that the Exchange needs to launch NY11-
4--and needs to do so in November 2024--to ensure that it remains
capable of meeting the growing power and capacity demands of its
customers. Regulation SCI requires the Exchange to reasonably
anticipate its capacity needs. NY11-4, which has been three years in
the making, is a product of the SCI planning process. Delaying the
launch of NY11-4 to accommodate the equalization of NY11 would
jeopardize the sound and orderly operation of the Exchange's markets.
Such a danger readily outweighs any concerns that some may have about
the fairness of the Exchange's plan to sequence the Equalization
Project, even if such concerns were well-founded, which they are not.
We note that our customers generally support this view. One
customer sent the Exchange a letter stating the following about the
Exchange's plans:
As noted in your August 12, 2024, comment letter response to the
SEC, the addition of NY11-4 is needed to meet the growing customer
demands for space, power, and upgraded technological capabilities.
OMC echoes these concerns as one of those customers, with an
immediate and significant need to expand its colocation space to
accommodate the growing demands of OMC's business. OMC is a
registered member of the Nasdaq Stock Market and eight other options
and equities exchanges operated by Nasdaq (the ``Exchanges''), with
more than half of those memberships added within roughly the last
year. As a registered Market Maker for hundreds of listed symbols,
OMC actively provides liquidity across the Exchanges. Also, as a
Designated Liquidity Provider, OMC plays a key role in supporting
the active and efficient trading of many new and existing products
listed on the Exchanges. To support this significant amount of
trading activity on the Exchanges, OMC urgently needs the additional
colocation space made available in NY11-4. Any halt or delay of the
NY11-4 launch would prevent OMC's planned expansion and would
endanger OMC's ability to grow and meet the liquidity provision
demands of the Exchanges and their customers.\17\
---------------------------------------------------------------------------
\17\ Ltr. From F. Zucek, Old Mission, to B. Kitt, Nasdaq, dated
Aug. 21, 2024.
---------------------------------------------------------------------------
The Exchange's Sequencing Plan Is Also Pragmatic and Efficient
Expanding the existing data center by building a new wing (NY11-4)
from scratch afforded the Exchange an opportunity to design the
expansion efficiently with telco connectivity equalization incorporated
therein from the outset. This approach avoids the need to later engage
in a wasteful process of retrofitting NY11-4 for telco connectivity
equalization--a process in which the Exchange must now engage with
respect to NY11.
Launching NY11-4 Before Equalizing NY11 Will Not Worsen Inequality
The latency profile of a customer collocating in NY11-4 would be no
better than that of the lowest latency customer and no worse than that
of the highest latency customer colocating presently in NY11. In fact,
the launch of a full-equalized NY11-4 before
[[Page 77954]]
equalizing NY11 would actually diminish the overall average latency
differential among collocated customers' telecom provider connections
because NY11-4 introduces connections at a single latency value in
between the slowest and fastest latencies. That is, the shortest
current telco connection possible into NY11 is 160 ft while the longest
current telco connection possible into NY11 is 680 feet; the
equidistant telco connections into NY11-4 will be 590 feet, which falls
between these two extremes.
Moreover, although the Exchange does not know the precise latency
profiles of each of its colocation customers, it has provided those
customers with the latency profile for NY11-4 and interhall
connectivity through its distribution of a technical specification
document via the Customer Portal. This technical specification document
will allow customers to determine for themselves whether their current
location in NY11 or alternative space in NY11-4 will optimize their
latency profile. It will provide a means for customers to plan ahead
and avoid undesirable outcomes associated with the launch of NY11-4.
Contrary to assertions made by the commenter in connection with the
Prior Proposal,\18\ the technical specification document alleviates
uncertainty that might otherwise compel customers to waste money to
secure unnecessary space in NY11-4 as a defensive means of assuring
themselves the most advantageous position available in the Exchange's
data center campus.
---------------------------------------------------------------------------
\18\ See McKay Ltr., supra, at 3-4 (asserting that
``introduction of NY11-4 before equalizing NY11 will compel many
customers to establish a third point of presence--at a cost in
incremental fees paid to Nasdaq alone of at least $2.5 million on a
three-year commitment--to eliminate the risk that the NY11-4
connection is a superior connection to one (or both) of their
existing NY11 points of presence.'').
---------------------------------------------------------------------------
Any Advantage Attainable From the Launch of NY11-4 First Will Be
Temporary
Even if a customer was to gain a latency advantage from the launch
of NY11-4 before equalization of NY11, such an advantage would be
temporary given the fact that equalization of NY11 will follow soon
after the launch of NY11-4. The fleeting nature of any such advantage
should also disincentivize colocation customers from engaging in a
``land grab'' for what they perceive to be the most geographically
advantageous space in NY11-4. Indeed, the Exchange sees no evidence of
such a land grab actually occurring with respect to customers'
expressions of interest in NY11-4, notwithstanding warnings to that
effect from the same commenter. As of the date of submission of this
filing, only roughly 10 percent of existing customers, representing a
mix of business models and latency sensitive activities, have requested
space in NY11-4. Moreover, interest in NY11-4 thus far involves a mix
of customers wanting to expand upon their existing space in NY11 and
others that want to move their existing space in NY11 entirely to NY11-
4.
Equalizing NY11 First Will Not Avoid Creating Temporary Customer
Disparities
Finally, the commenter's argument is incorrect that equalizing NY11
before launching NY11-4 would avoid creating disparities among
customers with respect to their telco connections.\19\ Equalizing
telecommunications connectivity in NY11 before launching NY11-4 would
not avoid the reality that full telco connectivity equalization--
however accomplished--will require the introduction of temporary
disparities in the lengths of the cables running between
telecommunications providers and customers in the data center complex.
Even if the Exchange were to pursue equalization of NY11 first, doing
so would necessarily entail certain customers in NY11 experiencing
changes to their telco cable lengths before others during the phased
transition period. Thus, re-sequencing the Equalization Project to
start with NY11 will do nothing to affect these temporary customer
disparities, but instead will needlessly place the markets at risk by
delaying the availability of expanded data center capacity.
---------------------------------------------------------------------------
\19\ See id. at 2.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\20\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\21\ in particular, 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. Today, the Exchange offers various cabinet choices and power
options in the data center for colocation customers. The proposal would
expand the cabinet and power options available, by introducing an
additional cabinet option, the Ultra High Density Cabinet, and new
power choices. The proposal would benefit the public interest by
providing customers more cabinet and power options to choose from,
thereby enhancing their ability to tailor their colocation operations
to the requirements of their business operations. In general, the
proposal is consistent with the Act because the Exchange's expansion of
the data center and expansion of available power and cabinets will
enable the Exchange to meet customer needs and address demand for both
cabinets and power. In lieu of collocating directly with the Exchange,
market participants may choose not to collocate at all or to collocate
indirectly through a vendor.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange also believes that the proposal will not be unfairly
discriminatory, consistent with the objectives of Section 6(b)(5) of
the Act \22\ because the expanded cabinet and power options in the data
center would be offered equally to all customers. Although certain
optionality is only offered in NY11-4 because of different power
configurations in NY11-4 as compared to NY11, NY11-4 is merely an
expansion of the data center, and any customer may order cabinets and
power in NY11-4 (and across the data center broadly) on the same terms
as any other customer.
---------------------------------------------------------------------------
\22\ Id.
---------------------------------------------------------------------------
The Equalization Project Is Consistent With the Act
In addition to the above, and although not strictly relevant to the
proposal at hand, the Exchange also believes that the Equalization
Project, as outlined above and which will begin with the launch of
NY11-4, is consistent with the Act.
Concerns About the Sequencing of the Equalization Project Are Unfounded
In the Prior Proposal, the commenter objected to the Exchange's
plan to accomplish the Equalization Project by first launching
equalized telco connectivity in NY11-4 before launching it in NY11.\23\
The commenter argued that this sequencing of the Equalization Project
would be unfairly discriminatory in that it would exacerbate existing
inequalities in the Exchange's Data Center while also compelling
customers to secure unneeded space in NY11-4 to ensure that they obtain
or maintain the closest possible geographic proximity to their
telecommunications providers' equipment.\24\ These arguments are simply
wrong.
---------------------------------------------------------------------------
\23\ See McKay Ltr., supra.
\24\ See id. at 1-2, 5-6.
---------------------------------------------------------------------------
[[Page 77955]]
The Exchange's Plan for the Launch of NY11-4 To Constitute Phase One of
the Equalization Project Is Fair and Reasonable and in the Best
Interests of the Markets
The Exchange's Plan To Proceed With NY11-4 as the First Phase of the
Equalization Project Is in the Best Interests of the Markets
The fact of the matter is that the Exchange needs to launch NY11-
4--and needs to do so in November 2024--to ensure that it remains
capable of meeting the growing power and capacity demands of its
customers. Regulation SCI requires the Exchange to reasonably
anticipate its capacity needs. NY11-4, which has been three years in
the making, is a product of the SCI planning process. Delaying the
launch of NY11-4 to accommodate the equalization of NY11 would
jeopardize the sound and orderly operation of the Exchange's markets.
Such a danger readily outweighs any concerns that some may have about
the fairness of the Exchange's plan to sequence the Equalization
Project, even if such concerns were well-founded, which they are not.
We note that our customers generally support this view. One
customer sent the Exchange a letter stating the following about the
Exchange's plans:
As noted in your August 12, 2024, comment letter response to the
SEC, the addition of NY11-4 is needed to meet the growing customer
demands for space, power, and upgraded technological capabilities.
OMC echoes these concerns as one of those customers, with an
immediate and significant need to expand its colocation space to
accommodate the growing demands of OMC's business. OMC is a
registered member of the Nasdaq Stock Market and eight other options
and equities exchanges operated by Nasdaq (the ``Exchanges''), with
more than half of those memberships added within roughly the last
year. As a registered Market Maker for hundreds of listed symbols,
OMC actively provides liquidity across the Exchanges. Also, as a
Designated Liquidity Provider, OMC plays a key role in supporting
the active and efficient trading of many new and existing products
listed on the Exchanges. To support this significant amount of
trading activity on the Exchanges, OMC urgently needs the additional
colocation space made available in NY11-4. Any halt or delay of the
NY11-4 launch would prevent OMC's planned expansion and would
endanger OMC's ability to grow and meet the liquidity provision
demands of the Exchanges and their customers.\25\
---------------------------------------------------------------------------
\25\ Ltr. From F. Zucek, Old Mission, to B. Kitt, Nasdaq, dated
Aug. 21, 2024.
---------------------------------------------------------------------------
The Exchange's Sequencing Plan Is Also Pragmatic and Efficient
Expanding the existing data center by building a new wing (NY11-4)
from scratch afforded the Exchange an opportunity to design the
expansion efficiently with telco connectivity equalization incorporated
therein from the outset. This approach avoids the need to later engage
in a wasteful process of retrofitting NY11-4 for telco connectivity
equalization--a process in which the Exchange must now engage with
respect to NY11.
Launching NY11-4 Before Equalizing NY11 Will Not Worsen Inequality
The latency profile of a customer collocating in NY11-4 would be no
better than that of the lowest latency customer and no worse than that
of the highest latency customer colocating presently in NY11. In fact,
the launch of a full-equalized NY11-4 before equalizing NY11 would
actually diminish the overall average latency differential among
collocated customers' telecom provider connections because NY11-4
introduces connections at a single latency value in between the slowest
and fastest latencies. That is, the shortest current telco connection
possible into NY11 is 160 ft while the longest current telco connection
possible into NY11 is 680 feet; the equidistant telco connections into
NY11-4 will be 590 feet, which falls between these two extremes.
Moreover, although the Exchange does not know the precise latency
profiles of each of its colocation customers, it has provided those
customers with the latency profile for NY11-4 and interhall
connectivity through its distribution of a technical specification
document via the Customer Portal. This technical specification document
will allow customers to determine for themselves whether their current
location in NY11 or alternative space in NY11-4 will optimize their
latency profile. It will provide a means for customers to plan ahead
and avoid undesirable outcomes associated with the launch of NY11-4.
Contrary to assertions made by the commenter in connection with the
Prior Proposal,\26\ the technical specification document alleviates
uncertainty that might otherwise compel customers to waste money to
secure unnecessary space in NY11-4 as a defensive means of assuring
themselves the most advantageous position available in the Exchange's
data center campus.
---------------------------------------------------------------------------
\26\ See McKay Ltr., supra, at 3-4 (asserting that
``introduction of NY11-4 before equalizing NY11 will compel many
customers to establish a third point of presence--at a cost in
incremental fees paid to Nasdaq alone of at least $2.5 million on a
three-year commitment--to eliminate the risk that the NY11-4
connection is a superior connection to one (or both) of their
existing NY11 points of presence.'').
---------------------------------------------------------------------------
Any Advantage Attainable From the Launch of NY11-4 First Will Be
Temporary
Even if a customer was to gain a latency advantage from the launch
of NY11-4 before equalization of NY11, such an advantage would be
temporary given the fact that equalization of NY11 will follow soon
after the launch of NY11-4. The fleeting nature of any such advantage
should also disincentivize colocation customers from engaging in a
``land grab'' for what they perceive to be the most geographically
advantageous space in NY11-4. Indeed, the Exchange sees no evidence of
such a land grab actually occurring with respect to customers'
expressions of interest in NY11-4, notwithstanding warnings to that
effect from the same commenter. As of the date of submission of this
filing, only roughly 10 percent of existing customers, representing a
mix of business models and latency sensitive activities, have requested
space in NY11-4. Moreover, interest in NY11-4 thus far involves a mix
of customers wanting to expand upon their existing space in NY11 and
others that want to move their existing space in NY11 entirely to NY11-
4.
Equalizing NY11 First Will Not Avoid Creating Temporary Customer
Disparities
Finally, the commenter's argument is incorrect that equalizing NY11
before launching NY11-4 would avoid creating disparities among
customers with respect to their telco connections.\27\ Equalizing
telecommunications connectivity in NY11 before launching NY11-4 would
not avoid the reality that full telco connectivity equalization--
however accomplished--will require the introduction of temporary
disparities in the lengths of the cables running between
telecommunications providers and customers in the data center complex.
---------------------------------------------------------------------------
\27\ See id. at 2.
---------------------------------------------------------------------------
Even if the Exchange were to pursue equalization of NY11 first,
doing so would necessarily entail certain customers in NY11
experiencing changes to their telco cable lengths before others during
the phased transition period. Thus, re-sequencing the Equalization
Project to start with NY11 will do nothing to affect these temporary
customer disparities, but instead will needlessly place the
[[Page 77956]]
markets at risk by delaying the availability of expanded data center
capacity.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Nothing in the proposal imposes any burden on the ability of other
exchanges to compete. The Exchange operates in a highly competitive
market in which exchanges and other vendors offer colocation services
as a means to facilitate the trading and other market activities of
those market participants who believe that colocation enhances the
efficiency of their operations. As part of its colocation offering, the
Exchange currently offers similar cabinets and power, as do other
exchanges.
Nothing in the Proposal burdens intra-market competition because
the Exchange's colocation services, including those proposed herein,
are available to any customer and customers that wish to order cabinets
and power can do so on a non-discriminatory basis. Use of any
colocation service is completely voluntary, and each market participant
is able to determine whether to use colocation services based on the
requirements of its business operations.
Additionally, and although not strictly relevant to the Proposal,
nothing about the Equalization Plan, as described above, would impose
an undue burden on competition. The Exchange intends for the
Equalization Plan to facilitate increased competition among its
colocation customers by eliminating telco connectivity disparities that
currently provide some customers with latency advantages relative to
others. For the reasons discussed above, the Exchange believes that it
is fair and necessary to sequence the Equalization Project by beginning
with the launch of NY11-4 with an equalized design, rather than with
NY11. Specifically, the timely launch of NY11-4 is necessary for the
Exchange to meet its capacity needs and those of its customers, while
retrofitting NY11 will be a complex process that will require many
months to complete. Moreover, the current sequencing plan will not
worsen existing inequalities, but instead will improve the overall
average disparity in telco cable lengths in the data center. Even
though the sequencing plan will cause some customers to be subject to
telco connectivity equalization before others, this result is
unavoidable even if the Exchange were to equalize NY11 first. Any
customer advantage or disadvantage that might arise from the
Equalization Project would be temporary. Finally, the Exchange has been
transparent about its plans and afforded opportunities to customers to
make informed choices about how to mitigate any adverse consequences,
competitive or otherwise.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange received a written letter of support from Old Mission
Capital LLC, dated August 21, 2024.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \28\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\29\
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78s(b)(3)(A)(iii).
\29\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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 satisfied this requirement.
---------------------------------------------------------------------------
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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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 [email protected]. Please include
file number SR-ISE-2024-45 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-ISE-2024-45. 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 website (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 website 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-ISE-2024-45 and should be
submitted on or before October 15, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
---------------------------------------------------------------------------
\30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-21748 Filed 9-23-24; 8:45 am]
BILLING CODE 8011-01-P
