Document ID: SEC-2016-0053-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2016-01-11T05:00Z

[Federal Register Volume 81, Number 6 (Monday, January 11, 2016)]
[Notices]
[Pages 1257-1260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-260]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76825; File No. SR-NASDAQ-2015-162]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Nasdaq Rule 7015

January 5, 2016.
    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 December 23, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is proposing to amend Nasdaq Rule 7015 to clarify the 
connectivity options and application of the fees assessed thereunder.
    The text of the proposed rule change is available at 
nasdaq.cchwallstreet.com [sic] at Nasdaq [sic] principal office, and at 
the Commission's Public Reference Room.

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

    In its filing with the Commission, 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
    Rule 7015 provides the charges Nasdaq assesses for equity 
securities market connectivity to systems operated by Nasdaq. Nasdaq is 
amending Rule 7015 in seven ways: (1) To clarify how Rule 7015 applies 
to FINRA systems; (2) to clarify the term ``port pair''; (3) to clarify 
QIX protocol connectivity options; (4) to clarify FIX protocol 
connectivity options; (5) to eliminate outdated CTCI connectivity 
options that rely on Nasdaq-supported circuits; (6) to eliminate CTCI 
connectivity as it relates to FINRA/NASDAQ Trade Reporting Facility; 
and (7) to add clarifying rule text and numbering to the section of the 
rule concerning other port fees.
    First, Nasdaq is proposing to add clarifying language to the 
preamble of the rule. Specifically, Nasdaq is proposing to note that 
the various connectivity options under the rule include connectivity to 
systems operated by FINRA. Although Nasdaq believes that it is clear 
that some of the systems listed are operated by FINRA (e.g., FINRA's 
OTCBB Service), the Exchange believes that expressly stating that the 
systems include those of FINRA will make the rule more clear. Nasdaq is 
also updating the list of FINRA systems that the connectivity options 
under the rule may connect to. Nasdaq notes that, from time to time, 
new systems are added by Nasdaq and FINRA, and Nasdaq is taking this 
opportunity to update the rule with all of the FINRA systems covered by 
the rule. As such, Nasdaq is updating the rule to include the FINRA 
Trade Reporting and Compliance Engine (``TRACE''), and the FINRA OTC 
Reporting Facility (``ORF'').
    Second, Nasdaq is proposing to clarify the use of the term ``port 
pair,'' which is used inconsistently under the rule. For certain ports 
under Rule 7015 that are used for either trading or data, Nasdaq 
additionally provides a disaster recovery port at no cost. Such a 
disaster recovery port provides connectivity to Nasdaq's or FINRA's 
disaster recovery location in the event of a failure of Nasdaq's or 
FINRA's primary trading infrastructure. Nasdaq has provided disaster 
recovery ports at no cost since 2006 to encourage member firms to 
maintain such connectivity in the event of a market disruption so that 
the market as a whole could continue to operate.\3\ As noted, Nasdaq 
has not used the term port pair consistently under the rule, whereby in 
certain cases, port pair is not noted in the rule yet Nasdaq provides a 
disaster recovery port nonetheless.\4\ Accordingly, the Exchange is 
eliminating the term port pair and is clarifying the rule by 
specifically noting when a disaster recovery port is available for a 
particular protocol under a rule.\5\
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    \3\ Although Nasdaq encourages all member firms and options 
participants to have and use disaster recovery ports and to 
participate in disaster recovery testing, the Exchange historically 
was unable to compel a member firm to connect to, or otherwise take 
the steps necessary to, use a disaster recovery port. Nasdaq 
recently adopted rules to require mandatory business continuity and 
disaster recovery plans testing by certain member firms and options 
participants, consistent with Regulation SCI. See Rule 1170; see 
also Securities Exchange Act Release No. 76368 (November 5, 2015), 
80 FR 70045 (November 12, 2015) (SR-NASDAQ-2015-134). As a 
consequence, certain member firms will be required to use disaster 
recovery ports and participate in business continuity and disaster 
recovery plans testing.
    \4\ For example, a FIX Trading Port under Rule 7015(b).
    \5\ A disaster recovery port is available for QIX, FIX, and CTCI 
protocol ports under Rules 7015(a), (b), (c). Disaster recovery 
ports are also available for all of the ports available under Rule 
7015(g)(2).
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    Third, Nasdaq is reorganizing and adding language to subparagraph 
(a) of

[[Page 1258]]

Rule 7015 to list all QIX connectivity provided by Nasdaq and to 
clarify that the fee assessed for QIX trading ports applies to ports 
that are used exclusively for FINRA connectivity. QIX is a proprietary 
messaging protocol that allows a member firm to send and receive 
messages relating to quotes and order entry. A QIX port may be used 
exclusively for connectivity to Nasdaq or to FINRA's OTCBB. Nasdaq 
assesses a fee of $1,200 per port,\6\ per month for QIX connectivity to 
FINRA.\7\ Thus, a member firm that wishes to connect to both Nasdaq and 
FINRA using the QIX protocol must have two separate ports. Nasdaq 
assesses a fee for QIX ports used exclusively for connectivity to 
facilities of FINRA, but not for ports used for connectivity to Nasdaq. 
As such, Nasdaq is adding new text that clarifies that the charge under 
the rule applies to QIX ports used for FINRA quoting and/or trading, 
and new language that clarifies that QIX ports used for Nasdaq quoting 
and/or trading are provided at no cost. Nasdaq is also eliminating the 
ECN direct connection port pair connectivity option from the rule as it 
is based on outdated technology and Nasdaq does not have any 
subscribers to it. Lastly, Nasdaq is deleting the existing rule text 
concerning unsolicited message ports and is adding new rule text making 
it clear that such ports are for FINRA connectivity.
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    \6\ Unlike other protocols such as FIX, subscription to QIX 
provides three physical connections to either Nasdaq or FINRA. The 
QIX connectivity option is architected in this manner to increase 
throughput performance by separating unsolicited message streams 
from quote/order entry and response streams, and to separate a 
member firm's proprietary quote information from customer orders 
that are reflected in its quotes. For purposes of assessing a fee, 
the QIX trading functionality is deemed to be a single port.
    \7\ Under Rule 7015(a), a member firm may subscribe to a QIX 
trading port, and a QIX unsolicited message port. An unsolicited 
message port is not used for trading, but rather provides 
information concerning orders such as order status and execution 
reports.
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    Fourth, Nasdaq is proposing to add clarifying rule text to 
subparagraph (b) of the rule, which concerns fees assessed for FIX 
ports. A FIX port is a trading port using a FIX-based telecommunication 
protocol. FIX, an abbreviation for Financial Information eXchange, is a 
standard message protocol that defines an electronic message exchange 
for communicating securities transactions between two parties. Nasdaq 
offers four FIX-based trading ports, which vary based on messaging 
formats and capability. Nasdaq is proposing to list these four 
protocols under the rule that a member firm may select when subscribing 
to a FIX trading port. Similarly, Nasdaq is adding clarifying language 
to the FIX Port for Services Other than Trading subscription. A FIX 
Port for Services Other than Trading provides subscribers with a non-
trading port that is used solely to report over the counter trades for 
tape reporting and/or clearing purposes. Nasdaq is proposing to list 
each venue to which a FIX Port for Services Other than Trading may 
connect a member firm. Lastly, Nasdaq is adding language to the rule 
noting that disaster recovery ports are available for FIX connectivity 
at no charge.
    Fifth, Nasdaq is proposing to eliminate rule text under 
subparagraph (c) of the rule that concerns bandwidth-based connectivity 
options to connect to a CTCI station and related fees. The deleted 
table of fees concerns CTCI connectivity that relies on Nasdaq-
supported circuits. These circuits are based on outdated technology and 
Nasdaq does not have any subscribers to any of these circuits. Member 
firms instead use third party connectivity to access their CTCI 
stations. Nasdaq is also adding language to the subparagraph noting 
that disaster recovery ports are available for CTCI station 
connectivity at no charge.
    Sixth, Nasdaq is proposing to eliminate CTCI connectivity from 
subparagraph (e) of the rule, which concerns specialized services 
related to the FINRA/NASDAQ Trade Reporting Facility. Nasdaq is 
proposing to eliminate the connectivity option because this add on fee 
is directly related to the CTCI connectivity options Nasdaq is 
proposing to eliminate, rendering it moot.
    Seventh, Nasdaq is proposing to add clarifying rule text and 
numbering to subparagraph (g) of the rule, which concerns other port 
fees. Subparagraph (g) contains all other connectivity options 
available that are not otherwise described in Rule 7015. These 
connectivity options include wireless connectivity (specifically 
Multicast Wave Ports), and other trading and telecommunications ports. 
Under the rule, the Exchange assesses a charge of $550 per month for 
each port pair, other than Multicast ITCH data feed pairs, for which 
the fee is $1,000 per month for software-based TotalView-ITCH or $2,500 
per month for combined software- and hardware-based TotalView-ITCH, and 
TCP ITCH data feed pairs, for which the fee is $750 per month. The 
Exchange also assesses an additional charge of $200 per month for each 
port used for entering orders or quotes over the Internet. Lastly, the 
Exchange assesses an additional charge of $600 per month for each port 
used for market data delivery over the Internet. The Exchange is 
proposing to list each connectivity option provided under the rule and 
the related fee.
    Under subparagraph (g) of the rule, a member firm may subscribe to 
other port pairs not otherwise noted in the rule. Such port pairs may 
be OUCH and RASH protocol ports or Drop ports. The Exchange is 
proposing to describe each of these options under the rule separately. 
Member firms may subscribe to trading ports, which are exclusively used 
for testing purposes. These ports may not be used for trading in 
securities in the System, and are provided at no cost. The Exchange is 
adding rule text noting that these test ports may be subscribed to 
under the rule. The Exchange also provides optional backup ports for 
OUCH port subscribers at no cost. OUCH backup ports are similar to 
disaster recovery ports; however, unlike disaster recovery ports that 
provide backup connectivity to the Exchange's disaster recovery 
location in Chicago, OUCH backup ports provide alternative port 
hardware in the event of a failure of the primary port hardware in the 
primary connectivity location in Carteret. The Exchange notes that OUCH 
ports have the largest number of subscribers and the hardware used for 
OUCH ports houses the largest number of member firms per hardware unit, 
therefore representing the greatest potential impact to the market 
should there be a hardware failure. Accordingly, the Exchange 
determined that offering OUCH backup ports will help ensure there is 
minimal market impact should there be an OUCH port hardware failure. 
The Exchange is adding OUCH backup ports as a service that may be 
subscribed to at no cost. The Exchange also provides data 
retransmission ports at no cost. Data retransmission ports allow a 
subscriber to replay market data, in the event the data was missed in 
live feed or for verification purposes. Data retransmission ports only 
allow replay of the current trading day and do not provide data 
concerning prior trading days' data. The Exchange is adding rule text 
noting that data retransmission ports may be subscribed to under the 
rule. The Exchange is also expressly noting that disaster recovery 
ports are available for the connectivity options under the rule at no 
cost. Lastly, the Exchange is proposing to eliminate the two 
subscription options and related fees provided under subparagraph (g) 
of the rule assessed for ports that are used for entering orders or 
quotes over the Internet, and ports that are used for market data 
delivery over the Internet. The Exchange notes that it is

[[Page 1259]]

eliminating these ports because they are outmoded means of connecting 
to the Exchange and neither have any subscribers.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\8\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\9\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility or system which Nasdaq operates or controls, and is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the clarifying changes to the rule 
protect investors and the public interest because they explicitly 
describe the fees assessed for all ports under the rule. Describing all 
services covered by the rule will serve to avoid investor confusion 
over the scope of what connectivity options are available, and the 
costs of such options. The Exchange notes that it is not adding new 
connectivity options or functionality, but is rather describing more 
specifically what is currently offered under the rule. In this regard, 
the Exchange is adding new rule text that describes all functionality 
available under each subparagraph of the rule, and is reorganizing some 
rule text under the rule in an effort to make the rule clearer. The 
Exchange notes that much of the new text concerns testing ports, and 
ports used in the event of a disaster or hardware failure. These ports 
help ensure that a fair and orderly market is maintained by allowing 
member firms to test their systems prior to connecting to the live 
trading environment, and to provide backup connectivity in the event of 
a failure or disaster. Thus, the Exchange believes the proposed 
clarifying changes are consistent with the protection of investors and 
the public interest.
    The Exchange believes that the proposed deletion of the ECN direct 
connection port pair under Rule 7014(a) [sic], the deletion of the CTCI 
connectivity options under Rule 7014(c) [sic] and (e) [sic], as well as 
the deletion of the Internet-based port fees under Rule 7014(g) [sic], 
are reasonable, equitably allocated, and not unfairly discriminatory 
because there are no subscribers to these connectivity options, all of 
which are based on outmoded means of connecting to the Exchange. As a 
consequence, no member firms will be impacted by deletion of the 
connectivity options. The Exchange notes that it is not altering the 
charges assessed for the remaining connectivity options under Rule 
7015.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. Specifically, Nasdaq is 
making clarifying changes to Rule 7015, which does not impose any 
burden on competition whatsoever. To the contrary, the proposed change 
facilitates competition by clarifying what connectivity options are 
provided by the Exchange, thereby informing [sic] other market venues a 
better understanding of what connectivity options are available for 
Nasdaq. With that better understanding, other market venues may improve 
existing connectivity options or offer new connectivity options to 
compete with Nasdaq. Accordingly, the proposed changes do not inhibit 
market participants' ability to compete among each other, nor do they 
impose any burden on competition among market venues, but rather may 
promote competition among market venues.

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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change does not: (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 \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\ 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: (i) Necessary or appropriate in the 
public interest; (ii) for the protection of investors; or (iii) 
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.
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    \10\ 15 U.S.C. 78s(b)(3)(a)(iii) [sic].
    \11\ 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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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-NASDAQ-2015-162 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-NASDAQ-2015-162. 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

[[Page 1260]]

printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2015-162 and should 
be submitted on or before February 1, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-260 Filed 1-8-16; 8:45 am]
BILLING CODE 8011-01-P