Document ID: SEC-2011-0354-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2011-03-14T04:00Z

[Federal Register Volume 76, Number 49 (Monday, March 14, 2011)]
[Notices]
[Pages 13686-13688]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5763]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64060; File No. SR-NASDAQ-2011-035]

Self-Regulatory Organizations; the NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Fees for Co-Location Services

March 8, 2011.
    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 March 1, 2011, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to modify pricing for co-location services. 
The Exchange will implement the proposed change on March 1, 2011. The 
text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at the Exchange's principal office, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange is amending its co-location fee schedule to: (1) 
Institute a monthly fee of $300 for telecommunications and inter-
cabinet cross connections; and (2) fees for additional patch and power 
cords.
    Under the proposal, co-location customers having telecommunications 
cross-connections to approved telecommunication carriers in the 
datacenter will be assessed a monthly fee of $300 per connection. For 
the convenience of its customers, the Exchange allows 
telecommunications carriers to maintain a presence in the data center 
free of charge. In addition, inter-cabinet connections to other 
customers in the datacenter will be likewise assessed a $300 per-month, 
per-connection fee. These fees will only be assessed on the customer 
that requested the initiation of the connection, and cross-connections 
between cabinets being used by the same customer will not be assessed 
the fee.
    The Exchange is also proposing to introduce fees for patch and 
power cords. Under the proposal, the Exchange will maintain an 
inventory of patch cords (ethernet and fiber optic cables) and power 
cords at the datacenter and make them available to customers should 
they desire to purchase them. The proposed fees for patch cords vary 
with their capabilities and length, with copper patch cord being 
charged at $4.50 + $.50 per foot; multi-mode fiber patch cord being 
priced at $20 + $1.50 per-meter, and single-mode fiber patch cord 
priced at $24 + $.75 per-meter. For power cords, the Exchange proposes 
to charge $5 for 5-15P--C13 cords of two to four feet in length, and 
$10 for C14--C19 cords also of two to four feet in length.\3\ The 
Exchange is making the cords available as a convenience to customers, 
and notes that use of Exchange-provided patch and power cords is 
completely voluntary, and that such cords may be freely obtained by 
[sic] other vendors for use by customers in the datacenter.
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    \3\ The P, C, and number designations reflect differences in the 
shape of a cord's plug as well a cord's power throughput capability.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\4\ in general, and with 
Section 6(b)(4) of the Act,\5\ in particular, in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility or 
system which the Exchange operates or controls.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4).
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    The Exchange operates in a highly competitive market, in which 
exchanges offer co-location services as a means to facilitate the 
trading activities of those members who believe that co-location 
enhances the efficiency of their trading. Accordingly, fees charged for 
co-location services are constrained by the active competitive [sic] 
for the order flow of such members. If a particular exchange charges 
excessive fees for co-location services, affected members will opt to 
terminate their co-location arrangements with that exchange, and adopt 
a possible range of alternative strategies, including co-locating with 
a different exchange, placing their servers in a physically proximate 
location outside the exchange's data center, or pursuing trading 
strategies not dependent upon co-location. Accordingly, the exchange 
charging excessive fees would stand to lose not only co-location 
revenues but also revenues associated with the execution of orders 
routed to it by affected members. The Exchange believes that this 
competitive dynamic imposes powerful restraints on the ability of any 
exchange to charge unreasonable fees for co-location services. 
Moreover, all of the Exchange's fees for co-location services are 
equitably allocated and non-discriminatory, in that all co-location 
customers are offered the same range of products and services and there 
is no differentiation among customers with regard to the fees charged 
for a particular product, service, or piece of equipment.
    It should be noted, however, that the costs associated with 
operating a co-

[[Page 13687]]

location facility, like the costs of operating the electronic trading 
facility with which the co-location facility is associated, are 
primarily fixed costs, and in the case of co-location are primarily the 
costs of renting or owning data center space and retaining a staff of 
technical personnel. Accordingly, the Exchange establishes a range of 
co-location fees with the goal of covering these fixed costs, covering 
less significant marginal costs, such as the cost of electricity, and 
earning a return on its investment. Because fixed costs must be 
allocated among all customers, the Exchange's fee schedule reflects an 
effort to assess a range of relatively low fees for specific aspects of 
co-location services, which, in the aggregate, will allow the Exchange 
to cover its costs and earn a return on investment.
    In the case of inter-cabinet connection fees, the proposed fee of 
$300 per month covers the marginal costs of establishing and 
maintaining such connections, and also allows customers maintaining 
such connections to contribute to the fixed costs of data center 
operation. Notably, because telecommunications providers are provided 
with free data center space as a convenience to co-located customers, 
the Exchange believes that it is reasonable to impose charges on 
persons connecting to such providers as a means of defraying the fixed 
rental cost incurred in making such space available to the 
telecommunications providers. The Exchange further believes that the 
number of data center cross connections correlates to the extent and 
complexity of a customer's operations within the data center. 
Accordingly, the Exchange believes that it is reasonable to use fees 
assessed on this basis as a means to recoup a share of fixed costs and 
earn a return on investment.
    The Exchange also notes that the New York Stock Exchange (``NYSE'') 
imposes charges for connections within the data center that include a 
$500 per month charge for connections between cabinets of the same 
customer, and charges for connectivity bundles that include a limited 
number of connections to telecommunications providers and connections 
within the data center for monthly fees ranging from $13,000 to $61,000 
per month, depending on the number of connections and the bandwidth. 
NYSEArca charges $600 per month for all connections within its data 
center. See http://www.nyse.com/pdfs/nyse_equities_pricelist.pdf at 
page 14 and. http://www.nyse.com/pdfs/nysearcaMarketplaceFees112011-Clean.pdf at p. 10. Accordingly, the Exchange believes that its 
proposed fee of $300 per month is reasonable in comparison with fees 
already charged for comparable services of other exchanges offering co-
location.
    With respect to the Exchange's proposed fees for power cords, the 
Exchange believes that its fees are a reasonable reflection of its 
costs to obtain and resell such cords as a convenience to its 
customers. Notably, the fees charged by the Exchange are generally 
comparable to prices charged by unregulated vendors for similar 
products. See http://www.comegacity.com/cables-computer/power-cables/tripp-lite-p047-002-2ft-ac-power-cord-c19-c14-10; and http://www.cables.com/Products/NEMA-5-15P-TO-IEC320-C13-13a-4-Feet_PCRD-4-13A.aspx. The same is true for the proposed patch cord pricing. See 
http://www.cablestogo.com/product_list.asp?cat_id=3525; and http://www.cablestogo.com/product.asp?cat_id=2323&sku=33027.

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. As 
discussed above, the Exchange believes that fees for co-location 
services are constrained by the robust competition for order flow among 
exchanges and non-exchange markets, because co-location exists to 
advance that competition, and excessive fees for co-location services 
would serve to impair an exchange's ability to compete for order flow 
rather than burdening competition.

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 rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\6\ 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.
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    \6\ 15 U.S.C. 78s(b)(3)(a)(ii). [sic]
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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, as amended, 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-035 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2011-035. This 
file number should be included on the subject line if e-mail 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 (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 a.m. and 3 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-NASDAQ-2011-035, and should be submitted on or before 
April 4, 2011.

[[Page 13688]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5763 Filed 3-11-11; 8:45 am]
BILLING CODE 8011-01-P