Document ID: SEC-2010-0980-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-07-02T04:00Z

[Federal Register Volume 75, Number 127 (Friday, July 2, 2010)]
[Notices]
[Pages 38584-38585]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-16145]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62395; File No. SR-Phlx-2010-18]

Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Order 
Approving a Proposed Rule Change To Codify Prices for Co-Location 
Services

June 28, 2010.

I. Introduction

    On January 29, 2010, NASDAQ OMX PHLX (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change 
relating to co-location services and related fees. The proposed rule 
change was published for comment in the Federal Register on February 9, 
2010.\3\ The Commission received no comment letters on the proposal. 
This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 61486 (February 3, 
2010), 75 FR 6426 (``Notice'').
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II. Description

    As described in the Notice, the Exchange is proposing to codify 
fees for its existing co-location services. Co-location services are a 
suite of hardware, power, telecommunication, and other ancillary 
products and services that allows market participants and vendors to 
place their trading and communications equipment in close physical 
proximity to the quoting and execution facilities of the Exchange. Phlx 
provides co-location services and imposes fees through Nasdaq 
Technology Services LLC and pursuant to agreements with the owner/
operator of its data center where both the Exchange's quoting and 
trading facilities and co-located customer equipment are housed.\4\ 
Users of co-location services include private extranet providers, data 
vendors, as well as the Exchange members and non-members. The use of 
co-location services is entirely voluntary.
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    \4\ Currently, the Exchange provides its co-location services 
through data centers located in the New York City and Mid-Atlantic 
areas.
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    As detailed in its fee schedule, the Exchange imposes a uniform set 
of fees for various co-location services, including: fees for cabinet 
space usage, or options for future space usage; installation and 
related power provision for hosted equipment; connectivity among 
multiple cabinets being used by the same customer as well as customer 
connectivity to the Exchange and telecommunications providers; \5\ and 
related maintenance and consulting services. Fees related to cabinet 
and power usage are incremental, with additional charges being imposed 
based on higher levels of cabinet and/or power usage, the use of non-
standard cabinet sizes or special cabinet cooling equipment, or the re-
selling of cabinet space.
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    \5\ The Exchange states that these fees are for 
telecommunications connectivity only. Market data fees are charged 
independently by NASDAQ OMX PHLX and other exchanges.
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    NASDAQ OMX PHLX is implementing a Cabinet Proximity Option program 
where, for a monthly fee, customers can obtain an option for future use 
on available currently-unused cabinet floor space in proximity to their 
existing equipment. Under the program, customers can reserve up to 
maximum of 20 cabinets that the Exchange will

[[Page 38585]]

endeavor to provide as close as reasonably possible to the customer's 
existing cabinet space, taking into consideration power availability 
within segments of the datacenter and the overall efficiency of use of 
datacenter resources as determined by the Exchange. Should reserved 
datacenter space be needed for use, the reserving customer will have 
three business days to formally contract with the Exchange for full 
payment for the reserved cabinet space in contention or it will be 
reassigned. In making determinations to require exercise or 
relinquishment of reserved space as among numerous customers, the 
Exchange will take into consideration several factors, including: 
Proximity between available reserved cabinet space and the existing 
space of a customer seeking additional space for actual cabinet usage; 
a customer's ratio of cabinets in use to those reserved; the length of 
time that a particular reservation(s) has been in place; and any other 
factor that the Exchange deems relevant to ensure overall efficiency in 
use of the datacenter space.
    In the Notice, the Exchange made certain representations regarding 
its co-location services. First, the Exchange represents that co-
location customers are not provided any separate or superior means of 
direct access to the Exchange quoting and trading facilities, nor does 
the Exchange offer any separate or superior means of access to the 
Exchange quoting and trading facilities as among co-location customers 
themselves within the datacenter. Second, the Exchange represents that 
it does not make available to co-located customers any market data or 
data feed product or service for data going into, or out of, the 
Exchange systems that is not likewise available to all the Exchange 
members.\6\ Finally, the Exchange represents that all orders sent to 
the Exchange market enter the marketplace through the same central 
system quote and order gateway regardless of whether the sender is co-
located in the Exchange data center or not. In short, according to the 
Exchange, it has created no special market technology or programming 
that is available only to co-located customers and has organized its 
systems to minimize, to the greatest extent possible, any advantage for 
one customer versus another.
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    \6\ The Exchange made a 10Gb fiber connection available to co-
located customers early in the first quarter of 2010. On March 26, 
2010, the Exchange filed a proposed rule change that would, among 
other things, establish pricing for 10Gb fiber connections for 
customers who are not co-located in Phlx's datacenter. See SR-Phlx-
2010-89.
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    The Exchange also has represented that co-location services are 
generally available to all qualified market participants who desire 
them. With the exception of customers participating in the Cabinet 
Proximity Option program, the Exchange allocates cabinets and power on 
a first-come/first-serve basis. Should available cabinet inventory 
shrink to 40 cabinets or less, the Exchange will limit new cabinet 
orders to a maximum of 4 cabinets each, and all new cabinets will be 
limited to a maximum power level of 5kW. Should available cabinet 
inventory shrink to zero, the Exchange will place firms seeking 
services on a waiting list based on that the Exchange receives signed 
orders for the services from the firm. In order to be placed on the 
waiting list, a firm must have utilized all existing cabinets they 
already have in the datacenter. Once on the list, the firms, on a 
rolling basis, will be allocated a single 5kW cabinet each time one 
becomes available. After receiving a cabinet, the firm will move to the 
bottom of the waiting list.

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\7\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\8\ which requires that the 
rules of a national securities exchange provide for the equitable 
allocation of reasonable dues, fees and other charges among its members 
and issuers and other persons using its facilities, and with Section 
6(b)(5) of the Act,\9\ which requires, among other things, that that 
the rules of a national securities exchange be 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 not 
be designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \7\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(4).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed co-location fees are 
reasonable and equitably allocated insofar as they are applied on the 
same terms to similarly-situated market participants. The Commission 
notes that charges may vary depending on the use of cabinet space and/
or power usage. In addition, the Commission believes that the co-
location services described in the proposed rule change are not 
unfairly discriminatory because: (1) Co-location services are offered 
to all interested market participants who request them and pay the 
appropriate fees; (2) as represented by Phlx, the Exchange has 
architected its systems so as to reduce or eliminate differences among 
users of its systems, whether co-located or not; and (3) the Exchange 
has stated that it has sufficient space to accommodate new co-locaters 
and has set forth in the proposed rule change objective procedures to 
allocate space should it become limited in the future.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-Phlx-2010-18) be, and hereby 
is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16145 Filed 7-1-10; 8:45 am]
BILLING CODE 8010-01-P