Document ID: SEC-2013-1180-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2013-07-01T04:00Z

[Federal Register Volume 78, Number 126 (Monday, July 1, 2013)]
[Notices]
[Pages 39383-39386]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15624]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69844; File No. SR-NASDAQ-2013-084]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Fees for Third Party Market Data Delivered by NASDAQ

June 25, 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 June 14, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' 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 Substance 
of the Proposed Rule Change

    NASDAQ proposes to modify the existing fees clients voluntarily pay 
to receive third party market data delivered by NASDAQ as set forth in 
NASDAQ Rule 7034. NASDAQ proposes to implement the proposed rule change 
on a date that is on, or shortly after, the expiration of the pre-
operative delay provided for in Rule 19b-4(f)(6)(iii).\3\ The text of 
the proposed rule change is available on the Exchange's Web site at 
http://nasdaq.cchwallstreet.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.
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    \3\ 17 CFR 242.19b-4(f)(6)(iii).
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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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Wireless technology has been in existence for many years, used 
primarily by the defense, retail and telecommunications industries. 
Wireless connectivity involves the beaming of signals through the air 
between towers that are within sight of one another. Because the 
signals travel a straight, unimpeded line, and because light waves 
travel faster through air than through glass (fiber optics), message 
latency is reduced. The continued use of this technology by the defense 
industry and regulation of the spectrum by the FCC demonstrates the 
secure nature of wireless networks.
    Over the last year, wireless technology has been introduced in the 
financial services industry. In offering optional wireless 
connectivity, NASDAQ is responding to requests from clients that wish 
to utilize the technology. Clients have sought to buy roof rights so 
that they can install their own microwave dishes on the roof at the 
NASDAQ data center in Carteret, New Jersey. Some have already installed 
microwave dishes on nearby towers with fiber connectivity to the data 
center, or have reserved space to do so. Rather than sell roof rights 
to individual clients, which would quickly result in the lack of 
physical space on the data center roof to accommodate all clients 
fairly and equally, NASDAQ proposes to supply market data, via a 
vendor-supplied wireless network, for all data center clients that wish 
to avail themselves of it.
    NASDAQ is proposing to utilize wireless technology to make 
available to its co-located clients third-party data from the CME 
Group, and to amend NASDAQ Rule 7034 to modify the existing fees for 
the delivery of third party market data to market center clients via a 
wireless network. Specifically, NASDAQ will add fees for access to 
third-party data from the CME Group. NASDAQ will utilize network 
vendors to supply wireless connectivity from the Carteret data center 
to CME Group's Aurora, Illinois data center. The vendors will install, 
test and maintain the necessary communication equipment for this 
wireless network between the data centers.\4\
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    \4\ The vendors supporting wireless transmission of CME data 
will install equipment on transmission towers nearby to NASDAQ and 
CME facilities. This is unlike NASDAQ's current authority to offer 
different third-party data via wireless equipment located on the 
rooftop of NASDAQ's Carteret co-location facility. See Exchange Act 
Release No. 68735 (Jan. 25, 2013); 78 FR 6842 (Jan. 31, 2013) (order 
approving SR-NASDAQ-2012-119). Accordingly, it is unnecessary to 
discuss the competitive impact of limiting roof rights to the 
Carteret facility, which NASDAQ addressed in its previous filing.
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    Wireless connectivity to CME Group data is similar to existing 
access to other data. Clients who choose this optional service will use 
their existing NASDAQ cross connect handoffs (1G, 10G, or 40G) to 
receive the multicast market data for CME Group, and NASDAQ will 
continue to act as re-distributor of the third party market data feeds, 
capturing the data at CME Group's data centers and transporting the 
data to NASDAQ's Carteret data center. The Exchange has opted to offer 
the CME Group data that is most in demand by NASDAQ customers to start. 
Additional feeds may be added based on overall client demand and 
bandwidth availability.
    CME Group data is already available via fiber optic network, and 
therefore the wireless connectivity will be an optional offering, an 
alternative to fiber optic network connectivity, and will provide lower 
latency. In other words, this proposal does not offer a new market data 
product, but merely an alternative means of connectivity. NASDAQ's 
wireless connectivity offering, in conjunction with NASDAQ's 
equidistant cross connect handoffs (1G, 10G, or 40G), will ensure that 
all clients electing to use this wireless connectivity offering will 
receive the chosen market data at the same low latency, equalizing any 
variances that might otherwise result from differences in the location 
of client cabinets within the facility or different wireless networks 
utilized by clients independently of this offering.

[[Page 39384]]

    To obtain CME Group data via wireless connectivity, clients will be 
charged a $5,000 installation fee (a non-recurring charge) and a 
monthly recurring charge (MRC) of $23,500 for connectivity. The rates 
are higher for the CME Group feeds compared to the other exchange feeds 
because the distance between the NASDAQ data center in New Jersey and 
the CME Group data center in Aurora, Illinois is 45 times longer than 
the distances to the other New Jersey data centers, which requires a 
more extensive and expensive wireless network to deliver this distant 
market data.
    Clients will place orders for the wireless connectivity via 
NASDAQ's CoLo Console.\5\ As with already-approved products, 
subscribers to CME Group's data via a wireless network will be required 
to subscribe for a minimum of one year, which is standard practice for 
co-location offerings. The minimum subscription period ensures that the 
Exchange and vendor can recoup the substantial investment required to 
establish the wireless system. As an incentive to clients, NASDAQ will 
waive the first month's MRC. The proposed MRC fee covers connectivity 
only; CME Group will charge data recipients directly the user fees for 
the market data received, and charge NASDAQ redistribution fees, as 
occurs today. No changes in CME Group's market data fees will occur as 
a result of this proposed offering.
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    \5\ The ``CoLo Console'' is a web-based ordering tool NASDAQ 
offers to enable members to place co-location orders.
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    NASDAQ OMX will perform substantial network testing prior to 
offering the service for a fee to members. After this ``beta'' testing 
period, upon initial roll-out of the service, clients will be offered 
the service for a fee, and on a rolling basis, the Exchange will enable 
new clients to receive the feed(s) for a minimum of 30 days before 
incurring any monthly recurring fees. The wireless network will 
continue to be closely monitored and the client informed of any issues. 
Similar to receiving market data over fiber optic networks, the 
wireless network can encounter delays or outages due to equipment 
issues. As wireless networks may be affected by severe weather events, 
clients will be expected to have redundant methods to receive this 
market data and will be asked to attest to having alternate methods or 
establishing an alternate method in the near future when they order 
this service from the Exchange.
    This new data feed delivery option will be available to all clients 
of the data center, and is in response to industry demand, as well as 
to changes in the technology for distributing market data. Clients 
opting not to pay for the wireless connectivity will still be able to 
receive market data via fiber optics and standard telecommunications 
connections, as they do currently, and under the same fees. Receipt of 
trade data via wireless technology is completely optional. In addition, 
clients can choose to receive market data via other third-party vendors 
(Extranets or Telecommunication vendors) via fiber optic networks or 
wireless networks.
    The proposed fees are based on the cost to NASDAQ and the vendor of 
installing and maintaining the wireless connectivity and on the value 
provided to the customer, which receives low latency delivery of data 
feeds. The costs associated with the wireless connectivity system are 
incrementally higher than fiber optics-based solutions due to the 
expense of the wireless equipment, cost of installation and testing and 
ongoing maintenance of the network. The fees also allow NASDAQ to make 
a profit, and reflect the premium received by the clients in terms of 
lower latency over the fiber optics option. Clients can choose to build 
and maintain their own wireless networks or choose their own third 
party network vendors but the upfront and ongoing costs will be much 
more substantial than this Exchange wireless offering.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and with Sections 6(b)(4), (b)(5) and 
(b)(8) of the Act,\7\ 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, and 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. 
NASDAQ's proposal to offer wireless connectivity supports important 
policy objectives of the Act, including the broadest, fairest possible 
dissemination of market data.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4), (5) and (8).
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    The Exchange believes that the proposed fees for wireless 
connectivity to NASDAQ are consistent with Section 6(b)(4) of the Act 
for multiple reasons. 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 
competition 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. Although 
currently no other exchange offers wireless connectivity, there are no 
constraints on their ability to do so, and it is probable that other 
exchanges will make a similar offering in the near future. The Exchange 
believes that this competitive dynamic imposes powerful restraints on 
the ability of any exchange to charge unreasonable fees for co-location 
services, including fees for wireless connectivity.
    A co-location customer may obtain a similar service by contracting 
with a wireless service provider to install the required dishes on 
towers near the data centers and paying the service provider to 
maintain the service. However, the cost involved in establishing 
service in this manner is substantial and could result in uneven access 
to wireless connectivity. The Exchange's proposed fees will allow these 
clients to utilize wireless connectivity and obtain the lower latency 
transmission of data from third parties and NASDAQ that is available to 
others, at a reasonable cost.\8\
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    \8\ The wireless network offered by the Exchange via the 
provider, although constrained by bandwidth with respect to the 
number of feeds it can carry, can be made available to an unlimited 
number of customers. The factors that differentiate this proposal 
from the Exchange's offerings of and initial fees for low latency 
network telecommunication connections approved by the Commission in 
Securities Exchange Act Release No. 66013 (December 20, 2011) 76 FR 
80992 (December 27, 2011) (SR-NASDAQ-2011-146) are a function of 
technology and program concept, but neither approach implicates a 
burden on competition, for similar reasons: Each offers, at a 
competitive price, a service that customers may obtain by dealing 
directly with the provider rather than the Exchange; and each is 
expected to result in a reduction in fees charged to market 
participants, the very essence of competition. Pursuant to the SEC's 
prior approval, the Exchange offers customers the opportunity to 
obtain low latency telecommunications connectivity by establishing a 
low-latency minimum standard and negotiating with multiple 
telecommunication providers to obtain discounted rates. It then 
passes these wholesale rates along to participating customers, with 
a markup to compensate for the Exchange's role in negotiating and 
establishing the arrangement, and integrating and maintaining each 
new connection. Co-located customers are free to choose the provider 
they wish to use from those participating in the program; or they 
may choose not to avail themselves of the service and obtain 
comparable services directly from the provider. The Exchange does 
not discriminate among telecommunications providers in its program, 
so long as they meet the required latency, destination, and fee 
standards. Wireless technology, in contrast, does not require 
separate avenues of connectivity for each customer, and thus the 
Exchange is not obtaining a wholesale price by negotiating with 
service providers. Rather, it is selecting, on a competitive basis, 
the service provider(s) to install and maintain the system, and 
charging customers for access to that particular system, offering 
lower prices because it is spreading the substantial cost among 
multiple clients. The program, far from burdening competition among 
connectivity service providers, promotes it. A wireless provider 
that can offer to the Exchange--or to a competitor exchange--a lower 
price for installation and maintenance will no doubt get the 
exchanges' business, with the end result that prices for the end 
users will go down.

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[[Page 39385]]

    Moreover, the Exchange believes the proposed fees for wireless 
connectivity to NASDAQ are reasonable because they are based on the 
Exchange's and vendor's costs to cover hardware, installation, testing 
and connection, as well expenses involved in maintaining and managing 
the enhanced connection. The proposed fees allow the Exchange to recoup 
these costs and make a profit, while providing customers the ability to 
reduce latency in the transmission of data from third parties and 
NASDAQ, and reducing the cost to them that would be involved if they 
build or buy their own wireless networks. The Exchange believes that 
the proposed fees are reasonable in that they reflect the costs of the 
connection and the benefit of the lower latency to clients.
    The Exchange also believes that the proposed wireless connectivity 
fees are consistent with Section 6(b)(5) of the Act in that the fees 
are equitably allocated and non-discriminatory. All Exchange members 
that voluntarily select this service option will be charged the same 
amount for the same services. As is true of all co-location services, 
all co-located clients have the option to select this voluntary 
connectivity option, and there is no differentiation among customers 
with regard to the fees charged for the service. Further, the latency 
reduction offered will be the same for all co-located clients, 
irrespective of the locations of their cabinets within the data center. 
The same cannot be said of the alternative where entities with 
substantial resources invest in private services and thereby obtain 
lower latency transmission, while those without resources are unable to 
invest in the necessary infrastructure.
    The Exchange's proposal is also consistent with the requirement of 
Section 6(b)(5) of the Act that Exchange rules be 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 are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
    The proposal is consistent with these requirements insomuch as it 
makes available to market participants, at a reasonable fee and on a 
non-discriminatory basis, access to low latency means of receiving 
market data feeds. Some market participants have already adopted 
wireless technology, using towers near the data centers, and others 
have approached the Exchange seeking to rent roof rights to mount their 
towers. Rather than lease out roof space to the highest bidders, a 
process that would stratify and limit access to the low latency 
delivery, this approach allows unlimited numbers of users to utilize 
the this Exchange service which utilizes vendors who rely on nearby 
towers to house the wireless equipment to receive the market data. It 
will allow the same low latency delivery to those unable to invest in 
the more expensive option of building or acquiring their own wireless 
network, as it does for those whose pockets are deeper.
    Initially, NASDAQ will perform substantial network testing prior to 
making the service available to members. After this testing period, the 
wireless network will continue to be closely monitored and maintained 
by the vendor and the client will be informed of any issues. 
Additionally, during the initial roll-out of the service and on a 
rolling basis for future clients, the Exchange will enable clients to 
test the receipt of the feed(s) for a minimum of 30 days before 
incurring any monthly recurring fees. Similar to receiving market data 
over fiber optic networks, the wireless network can encounter delays or 
outages due to equipment issues. As wireless networks may be affected 
by severe weather events, clients will be expected to have redundant 
methods to receive this market data and will be asked to attest to 
having alternate methods or establishing an alternate method in the 
near future when they order this service from the Exchange.
    Finally, for the reasons stated below in Section 4 of Form 19b-4, 
the proposed fees for wireless connectivity are consistent with Section 
6(b)(8) of the Act in that they do not impose a burden on competition 
not necessary or appropriate in furtherance of the purposes of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ 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. To the contrary, 
this proposal will promote competition for distribution of market data 
by offering an optional and innovative product enhancement. Wireless 
technology has been in use for decades, is available from multiple 
providers, and may be adopted by other exchanges that decide to offer 
microwave connectivity for delivery of market data. As discussed above, 
the Exchange believes that fees for co-location services, including 
those proposed for microwave connectivity, are constrained by the 
robust competition for order flow among exchanges and non-exchange 
markets, because co-location exists to advance that competition. 
Further, excessive fees for co-location services, including for 
wireless technology, would serve to impair an exchange's ability to 
compete for order flow rather than burdening competition.
    Furthermore, there are multiple effective competitive alternatives 
to NASDAQ's wireless offering. NASDAQ has no arrangement with CME that 
limits the ability of CME to transmit CME data via alternative wireless 
providers. Additionally, NASDAQ does not limit the ability of 
alternative wireless providers to re-transmit data received from CME 
either outside of or within NASDAQ's co-location facility. A 
competitive network provides the same or similar data, at the same or 
similar speed, at the same or similar cost, and NASDAQ's proposal does 
nothing to inhibit or constrain this. Currently, 17 market data vendors 
have fiber optic cables connected to NASDAQ's telco room in Carteret, 
and NASDAQ believes at least ten wireless networks exist or are under 
construction within very close proximity to the Carteret facility.\9\ 
That number can, and

[[Page 39386]]

likely will, grow, and nothing in the proposal inhibits additional 
wireless vendors accessing or providing CME data. Any or all of those 
vendors and networks is an effective competitor to the NASDAQ wireless 
offering. A market data vendor could also induce purchasers away from 
NASDAQ with an ever-so-slightly slower but still valuable product at a 
lower price. This variety of price and speed attributes is an effective 
constraint on NASDAQ's pricing power.
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    \9\ This belief is based on a review conducted for NASDAQ of 
publicly-available registration and spectrum reservation databases 
at the Federal Communications Commission. While it is difficult to 
state a definitive number of active vendors, NASDAQ can state 
categorically that multiple vendors currently provide wireless 
services such as NASDAQ is proposing to provide via this proposed 
rule change.
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    Moreover, fiber optic networks are themselves effective competitors 
for wireless data. As stated above, 17 vendors currently offer 
connectivity to the NASDAQ data center at various, competing prices. 
Fiber optic networks are more resilient than wireless networks, which 
can be more susceptible to severe weather affects; this mature market 
for fiber optic networks will remain attractive to many clients who are 
more risk averse. While some NASDAQ firms will opt for faster, costlier 
wireless data, many others will conclude that the price and speed 
attributes of fiber optic data provide a reasonable competitive 
alternative to wireless data.
    Competition between the Exchange and competing trading venues will 
be enhanced by allowing the Exchange to offer its market participants a 
lower latency connectivity option. Competition among market 
participants will also be supported by allowing small and large 
participants the same price for this lower latency connectivity.
    The proposed rule change will likewise enhance competition among 
service providers offering connections between market participants and 
the data centers. The offering will expand the multiple means of 
connectivity available, allowing customers to compare the benefits and 
costs of lower latency transmission and related costs with reference to 
numerous variables. The Exchange, and presumably its competitors, 
selects service providers on a competitive basis in order to pass along 
price advantages to its customers to win and maintain their business. 
The offering is consistent with the Exchange's own economic incentives 
to facilitate as many market participants as possible in connecting to 
its market.

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)(ii)[sic] 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 necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
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    \10\ 15 U.S.C. 78s(b)(3)(a)(ii)[sic].
    \11\ 17 CFR 240.19b-4(f)(6).
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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-2013-084 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-2013-084. 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, 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-2013-084 and should 
be submitted on or before July 22, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Kevin M. O'Neill,
Deputy Secretary.
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    \12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-15624 Filed 6-28-13; 8:45 am]
BILLING CODE 8011-01-P