Document ID: SEC-2012-0453-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2012-03-20T04:00Z

[Federal Register Volume 77, Number 54 (Tuesday, March 20, 2012)]
[Notices]
[Pages 16309-16311]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-6616]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66591; File No. SR-NASDAQ-2012-036]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Eliminate the 100MB Connectivity Option and Fee

March 14, 2012.
    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 6, 2012, 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 and 
II 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

    The Exchange proposes to eliminate 100MB connectivity between the 
Exchange and co-located servers, as well as associated fees, as set 
forth in NASDAQ Rule 7034(b). The Exchange will implement the proposed 
change on April 1, 2012. 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 proposes to modify Rule 7034(b) to eliminate 100MB 
connectivity between the Exchange and co-located servers, as well as 
associated fees.\3\ NASDAQ currently offers each co-located customer 
one 100MB connection to the Exchange at no charge; additional 
connections are available for a $50 one-time installation fee and a 
monthly fee of $100.\4\ Due to the continuous growth of the size of 
consolidated and proprietary market data feeds, use of 100MB 
connectivity to the Exchange may result in high data transmission 
latencies, a loss of data packets, and a reduction in client service 
satisfaction. As a result, the Exchange proposes to eliminate the 100MB 
connection option to the Exchange. The proposal to eliminate the 100MB 
connection option will eliminate potential latencies and loss of data 
that could occur with lower bandwidths, issues that are potentially 
damaging to investors.\5\
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    \3\ All co-location services are provided by NASDAQ Technology 
Services LLC and pursuant to agreements with the owner/operator of 
its data center.
    \4\ See Exchange Rule 7034(b), Connectivity to Nasdaq. All co-
location services are provided by NASDAQ Technology Services LLC.
    \5\ The 100MB option that is being eliminated--which is used to 
connect co-located servers to the Exchange--should be contrasted 
with a recently introduced option for customers to establish 100MB 
connections between their co-located servers and select external 
locations. These external connections are generally combined with 
other bandwidth options and are not utilized to transmit the same 
volume of data as the 100MB connection between co-located servers 
and the Exchange. For this reason, the Exchange believes that the 
same latency and data loss considerations that are prompting it to 
eliminate the 100MB connection to the Exchange do not apply to the 
100MB connection to external locations.
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    Currently, there are seven co-located customers that utilize 100MB 
connectivity to the Exchange. All seven clients also have larger 
bandwidth connections to the Exchange. While these customers will need 
to assess the adequacy of their bandwidth and may need to make 
adjustments, NASDAQ strongly believes that these changes will be 
beneficial to these customers because they will decrease the risk of 
latency and data loss. In addition, as the number of customers making 
use of 100MB connectivity to the Exchange dwindles, maintaining the 
option would require NASDAQ to impose associated

[[Page 16310]]

fixed costs on a smaller customer base, or upon customers that are not 
themselves using this legacy connectivity option. NASDAQ believes that 
it is reasonable and equitable to avoid this result by eliminating the 
option and helping customers migrate to more suitable connections.
    To provide all affected customers sufficient time to migrate from 
their 100MB connections to larger bandwidths, the Exchange has proposed 
(in a separate filing) to waive installation fees for 10Gb and 40Gb 
connectivity until May 31, 2012.\6\
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    \6\ See Securities Exchange Act Release No. 66428 (February 21, 
2012)(SR-NASDAQ-2012-028). The Exchange is not proposing to waive 
fees for migrating to 1GB connectivity, since the Exchange is 
concerned that this bandwidth level will prove inadequate for most 
members in the near future. Accordingly, rather than creating a 
scenario in which customers face repeated concerns about the 
adequacy of their bandwidth, NASDAQ believes that it is reasonable 
to use the fee waiver to encourage customers to move to connectivity 
options that are likely to be adequate for a more extended period.
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    The Exchange also proposes to eliminate the word ``additional'' 
from the fee schedule in several instances to reflect the elimination 
of the 100MB connection that was previously offered at no charge.
2. Statutory Basis
    The Exchange believes the proposal is consistent with the 
provisions of Section 6 of the Act \7\ in general, and with the 
objectives of Section 6(b)(5) of the Act \8\ in particular, in that it 
is designed 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, and 
dealers.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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Removes Impediments and Perfects Mechanism of a Free and Open Market

    The Exchange's proposal is designed to eliminate data transmission 
latencies and loss of data risks that are associated with 100MB 
connectivity, and thereby provide a more efficient mechanism for 
trading. Since the migration to a higher bandwidth option will reduce 
the potential disruption and consequently provide greater efficiency of 
trading in the marketplace, the effects of this proposal will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, which in turn will protect investors and the 
public interest.

Not Unfairly Discriminatory

    The proposal to eliminate the 100MB connectivity option applies to 
all Exchange members that have voluntarily elected this service option. 
Currently, there are seven co-located customers that utilize 100MB 
connectivity to the Exchange. All seven clients also have larger 
bandwidth connections to the Exchange. While these customers will need 
to assess the adequacy of their bandwidth and may need to make 
adjustments, NASDAQ strongly believes that these changes will be 
beneficial to these customers because they will decrease the risk of 
latency and data loss. In addition, as the number of customers making 
use of 100MB connectivity to the Exchange dwindles, maintaining the 
option would require NASDAQ to impose associated fixed costs on a 
smaller customer base, or upon customers that are not themselves using 
this legacy connectivity option.
    To assist co-located customers with migration to larger bandwidths, 
the Exchange has proposed (in a separate filing) to waive installation 
fees for 10Gb and 40Gb connectivity until May 31, 2012.\9\ Given the 
ever-increasing size of market data, the Exchange decided to apply the 
waiver of installation fees only to the 10Gb and 40Gb connection 
instead of offering the waiver for the next available bandwidth, the 
1Gb connection. This will provide the clients the opportunity to 
migrate to a bandwidth that will more efficiently sustain the client's 
business needs over a longer period of time. The co-located customers 
that currently have the 100MB connectivity to the Exchange have until 
March 31, 2012 to migrate from the 100MB connection to a larger 
bandwidth. Furthermore, eliminating the 100MB connectivity to NASDAQ is 
consistent with the connections offered by other exchanges,\10\ and 
NASDAQ does not believe that it would be unfairly discriminatory to 
eliminate a connectivity option that is not routinely offered by other 
exchanges.
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    \9\ See, supra note 6.
    \10\ See http://www.nyse.com/pdfs/NYSEArca_Equities_Fees.pdf, 
page 13, for NYSE Equities, Inc. Fee Schedule where the bandwidth 
starts at 1Gb. See also http://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf, page 9, for the 
International Securities Exchange Fee Schedule where the bandwidth 
also starts at 1Gb.
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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. 
Specifically, the Exchange believes that eliminating the 100MB 
connectivity service option will not burden competition since the 100MB 
connectivity option is not routinely offered by other exchanges. In 
fact, requiring NASDAQ to continue to offer this option would unfairly 
burden competition by requiring it to incur costs that are not 
typically incurred by any of its competitors.

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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
\12\ thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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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    The Exchange has asked that the Commission waive the 30-day pre-
operative waiting period contained in Rule 19b-4(f)(6)(iii).\13\ The 
Exchange represents that investors and the public interest are best 
served by waiving the pre-operative delay to minimize potential risks 
of market disruption associated with the use of lower bandwidth at a 
time of increasing data traffic. For these reasons, the Commission 
believes it is consistent with the protection of investors and the 
public interest to waive the 30-day operative delay, and hereby grants 
such waiver.\14\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(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

[[Page 16311]]

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.

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-2012-036 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-2012-036. 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 
a.m. and 3 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-2012-036 and should 
be submitted on or before April 10, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-6616 Filed 3-19-12; 8:45 am]
BILLING CODE 8011-01-P