Document ID: SEC-2013-2153-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-12-17T05:00Z

[Federal Register Volume 78, Number 242 (Tuesday, December 17, 2013)]
[Notices]
[Pages 76350-76353]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29892]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71036; File No. SR-Phlx-2013-116]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Establish 
Fees Under the PHLX Pricing Schedule for Use of the Carteret Testing 
Facility Test Environment

December 11, 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 November 27, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II and 
III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to establish fees under the Pricing Schedule 
for use of the Testing Facility (``NTF'') test environment located in 
Carteret, New Jersey, which will provide a virtual equities trading 
environment for testing. The Exchange will begin assessing the fees 
immediately; however, the installation fee will be waived for 
subscriptions ordered through March 31, 2014.
    The text of the proposed rule change is below. Proposed new 
language is italicized.
* * * * *

NASDAQ OMX PHLX LLC \1\ PRICING SCHEDULE

    ALL BILLING DISPUTES MUST BE SUBMITTED TO THE EXCHANGE IN WRITING 
AND MUST BE ACCOMPANIED BY SUPPORTING DOCUMENTATION. ALL DISPUTES

[[Page 76351]]

MUST BE SUBMITTED NO LATER THAN SIXTY (60) DAYS AFTER RECEIPT OF A 
BILLING INVOICE, EXCEPT FOR DISPUTES CONCERNING NASDAQ OMX PSX FEES, 
PROPRIETARY DATA FEED FEES AND CO-LOCATION SERVICES FEES. AS OF JANUARY 
3, 2011, THE EXCHANGE WILL CALCULATE FEES ON A TRADE DATE BASIS.

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    \1\ PHLX[supreg] is a registered trademark of The NASDAQ OMX 
Group, Inc.
* * * * *

VIII. NASDAQ OMX PSX FEES

* * * * *
Testing Facilities[y][dagger]
    The Exchange operates two test environments. One is located in 
Ashburn, Virginia and the other in Carteret, New Jersey. Unless 
otherwise noted, reference to the ``Testing Facility'' applies to both 
environments.
    (a)-(c) No change.
    (d) Subscribers to the Testing Facility located in Carteret, New 
Jersey shall pay a fee of $1,000 per hand-off, per month for connection 
to the Testing Facility. The hand-off fee includes either a 1Gb or 10Gb 
switch port and a cross connect to the Testing Facility. Subscribers 
shall also pay a one-time installation fee of $1,000 per hand-off, 
which is waived for all installations ordered prior to March 31, 2014.

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    [dagger] Testing Facility fees will be waived for the period 
ending on the sixth full calendar month following the launch of 
NASDAQ OMX PSX.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASDAQ included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of those statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend the Pricing Schedule to 
establish fees for connection to a test environment. Specifically, the 
Exchange proposes a one-time, per hand-off installation fee and a per 
hand-off monthly fee assessed for direct connectivity to the Testing 
Facility \3\ test environment located in Carteret, New Jersey 
(``Carteret''), which is also the location of the Exchange's primary 
trading System.\4\ The Testing Facility provides subscribers with a 
virtual Exchange System test environment that closely approximates the 
production environment and on which they may test their automated 
systems that integrate with the Exchange. For example, the Testing 
Facility provides subscribers a virtual System environment for testing 
upcoming Exchange releases and product enhancements, as well as testing 
firm software prior to implementation.
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    \3\ See http://www.nasdaqtrader.com/Trader.aspx?id=TestingFacility for a description of the Testing 
Facility.
    \4\ As defined by Rule 3301(a). The Exchange's System is 
mirrored at other locations as well.
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    The Testing Facility is currently housed solely in the Exchange's 
Ashburn, Virginia facility (``Ashburn''). In addition to housing the 
Testing Facility, Ashburn is also an Exchange disaster recovery 
facility and, as such, some member firms connect to Ashburn for 
disaster recovery purposes in addition to trading system testing. The 
Exchange currently assesses fees on members for physical connectivity 
to Ashburn.\5\ In addition, member firms pay fees to third party 
connectivity providers to provide connection from the member firm to 
Ashburn. The relatively large distance to between the Ashburn Testing 
Facility and the majority of NASDAQ OMX firms results in expensive 
connectivity costs for customers that connect via telecommunication 
providers. As a consequence, a large majority of member firms do not 
connect to Ashburn for Testing Facility connectivity. In an effort to 
improve the utility of the Testing Facility, the Exchange is developing 
a test environment located in Carteret that will provide the same 
functionality as the equity trading testing functionality of Ashburn, 
yet more closely approximate the live PSX \6\ trading environment due 
to its proximity to the System and upgraded hardware. In particular, 
the Carteret test environment will take advantage of technology 
upgrades the Exchange is making to its trading-related systems. Unlike 
the Ashburn test environment, the Carteret test environment will 
provide dedicated connectivity to the facility via a cross-connection 
to either a member firm's direct connection router in Carteret or its 
co-location cabinet.\7\ This connectivity will also provide 
connectivity to the trading test environments of the Phlx's sister 
exchanges, The NASDAQ Stock Market LLC and NASDAQ OMX BX, Inc., also 
located in Carteret, New Jersey.\8\ The Exchange will ultimately sunset 
the trading testing functionality at Ashburn, yet retain post trade 
reporting and ACES functionality at that location.\9\
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    \5\ The Exchange assesses fees for direct connection to Ashburn 
and fees for co-location connectivity. See Chapters XI and X(b), 
respectively.
    \6\ PSX is the Exchange's equity trading platform.
    \7\ Member firms currently use their connectivity to the Ashburn 
test environment for both testing and disaster recovery purposes.
    \8\ Similar to colocation connectivity under Chapter X(b) of the 
Pricing Schedule, firm that is a member of multiple NASDAQ OMX 
exchanges may access the testing environments of the exchanges of 
which it is a member through a single connectivity subscription.
    \9\ The Exchange is not upgrading the hardware used for post 
trade reporting and ACES testing at this time, but may do so in the 
future. As noted, the new hardware implemented in the Carteret test 
environment is part of the larger technology upgrade to the System's 
hardware also located in Carteret.
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    The Exchange notes that, because the Carteret facility also houses 
the System, subscribers to the Carteret test environment will no longer 
need to pay for third party connectivity to Ashburn if the sole purpose 
for connecting to Ashburn is for trading testing. Such member firms may 
use an existing connection to Carteret to access the Testing Facility 
through the use of a dedicated switch port and cross connect within the 
facility. The Exchange is proposing to assess a fee for connection to 
the test environment within the Carteret facility. Specifically, the 
Exchange proposes assessing a $1,000 per hand-off, per month fee 
assessed for connectivity to the Carteret test environment for either 
1Gb or 10Gb, and a one-time per hand-off installation fee of $1,000, 
which will cover the Exchange's costs incurred in setting up a 
subscriber in the Carteret facility. The Exchange is proposing to waive 
the installation fee through March 31, 2014, after which the Exchange 
will begin phasing out trading testing at the Ashburn test environment.
    The Exchange is also making a minor clarifying change to the rule 
in light of the operation of dual Testing Facility test environments.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \10\ in general, and with

[[Page 76352]]

Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in particular. The 
Exchange believes that proposal is with Section 6(b)(4) of the Act \12\ 
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 new fees are equitably allocated because all member firms receive 
connectivity to the Carteret test environment for the same fee. The 
Exchange believes that offering subscribers the option to subscribe to 
either 1Gb or 10Gb for the same fee is an equitable allocation because, 
unlike the live trading environment, there is no competitive advantage 
to possessing a higher capacity switch port in the test environment. 
The test environment is designed to closely mirror the live equity 
trading environment for PSX participants, including matching the 
capacity of each participant's live environment switch port. In the 
absence of any competitive advantage, charging a uniform fee for both 
1Gb and 10Gb switch ports is an equitable allocation of fees. The 
Exchange believes that charging a uniform fee rather than mirroring the 
fees for the live trading environment \13\ will encourage member firms 
to subscribe to Carteret, and further encourage those that subscribe to 
use the same hardware as is used by them for connectivity to the live 
trading environment. The Exchange also believes that waiver of the 
installation fee for all installations ordered prior to March 31, 2014 
is an equitable allocation as it is available to all member firms 
during the time frame; thus any member firm may avail itself of the 
free period if it so chooses.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
    \12\ 15 U.S.C. 78f(b)(4).
    \13\ Members are assessed a monthly fees of $5,000 for 10 Gb and 
$1,000 for 1 Gb direct connectivity to PSX. See Chapter XI of the 
Pricing Schedule.
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    The new fees are reasonable because they are designed to cover the 
costs the Exchange has incurred in developing and offering the new test 
environment. The proposed fee should allow the Exchange to recoup these 
costs and make a profit, while providing member firms with a superior 
test environment that more closely mirrors that of the live trading 
environment on the Exchange. The Exchange believes that offering both 
1Gb and 10Gb connectivity for the same fee is reasonable as the 
increased incremental cost it incurs by offering the 10Gb switch port 
at the lower fee is outweighed by the benefit all subscribers will 
receive if Carteret participants use hardware identical to what they 
use in the live trading environment, hence furthering the goal of 
creating a test environment that closely mirrors the live trading 
environment. Waiver of the installation fee for a limited period is 
reasonable because the Exchange believes such a waiver will attract new 
users to the test environment, thus ensuring a certain minimum level of 
monthly revenue to support the facility initially.
    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 Exchange does not believe that the proposed 
fees are unfairly discriminatory to subscribers to 10Gb live trading 
environment connectivity because, unlike the live trading environment 
where the capacity of connectivity to the Exchange may confer a 
competitive advantage to a market participant and therefore price 
differentiation is appropriate for the benefit conferred, there is no 
such benefit conferred in the trade test environment. The Exchange does 
not believe that the proposed fees are unfairly discriminatory among 
subscribers to the Carteret test facility because all member firms that 
subscribe to the service will be assessed the same fees. Because the 
proposed fees do not discriminate between 1Gb and 10Gb connectivity 
options, member firms are able to subscribe to Carteret without regard 
to the cost of their switch port capacity election. The Exchange 
believes that by not discriminating on this basis it will encourage 
participants to connect to the Carteret test environment in the same 
manner as they do to the live trading environment, and thereby help 
Carteret more closely mirror the live trading environment, as discussed 
above. Providing a more useful and accurate testing environment will 
serve to improve live trading on the Exchange and the national market 
system by permitting member firms the ability to accurately test 
changes prior to implementing them in the live trading environment, 
thereby reducing the likelihood of a potentially disruptive system 
failure in the live trading environment, which has the potential to 
affect all market participants. Last, the Exchange does not believe 
that waiver of the installation fee is unfairly discriminatory as it is 
uniformly applied for a limited time, during which any member firm may 
subscribe.
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    \14\ 15 U.S.C. 78f(b)(5).
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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. 
Because the new test environment more closely approximates the live 
trading environment, subscribing member firms will be able to more 
accurately test their trading systems and avoid potentially disruptive 
system failures in the live trading environment.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing change has become effective pursuant to Section 
19(b)(3)(A) of the Act,\15\ and paragraph (f) \16\ of Rule 19b-4, 
thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2013-116 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.

[[Page 76353]]

All submissions should refer to File Number SR-Phlx-2013-116. This file 
number should be included on the subject line if email is used.
    To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room on 
official business days between the hours of 10:00 a.m. and 3:00 p.m. 
Copies of such filing also will be available for inspection and copying 
at the principal offices 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-Phlx-2013-116, and should be submitted 
on or before January 7, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29892 Filed 12-16-13; 8:45 am]
BILLING CODE 8011-01-P