Document ID: SEC-2013-0108-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-01-18T05:00Z

[Federal Register Volume 78, Number 13 (Friday, January 18, 2013)]
[Notices]
[Pages 4184-4186]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01026]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68648; File No. SR-Phlx-2013-02]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Reduce 
the Fees Assessed for Certain Co-location Services

January 14, 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 January 2, 2013, NASDAQ OMX PHLX LLC (``PHLX'' or ``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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to reduce the fees assessed under Section 
X(a) of the PHLX Fee Schedule for certain co-location services. PHLX is 
proposing that the implementation date of the proposed rule change will 
be January 2, 2013. The text of the proposed rule change is available 
at http://nasdaqomxphlx.cchwallstreet.com, at PHLX'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 those statements may be examined at the places specified in 
Item III [sic] 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
    The Exchange proposes to amend Section X(a) of the PHLX Fee 
Schedule to reduce the monthly recurring cabinet (``MRC'') fees 
assessed for the installation of certain new co-location cabinets. The 
reduced MRC fees will apply to new cabinets ordered by customers using 
the CoLo Console \3\ during the months of January and February of 2013, 
provided that such cabinets are fully operational by May 31, 2013. The 
reduced fee shall apply to any cabinet that increases the number of 
dedicated cabinets beyond the total number dedicated to that customer 
as of December 31, 2012 (``Baseline Number''), for so long as the total 
number of dedicated cabinets exceeds that customer's Baseline Number. 
The reduced MRC fees will apply for a period of 24 months from the date 
the new cabinet becomes fully operational under Phlx rules, provided 
that the customer's total number of cabinets continues to exceed the 
Baseline Number.
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    \3\ The ``CoLo Console'' is Phlx's web-based ordering tool, and 
it is the exclusive means for ordering colocation services.
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    The Exchange proposes to reduce the applicable fees as follows:

------------------------------------------------------------------------
                                              Current         Reduced
              Cabinet type                    ongoing         ongoing
                                            monthly fee     monthly fee
------------------------------------------------------------------------
Low Density.............................          $4,000          $2,000
Medium Density..........................           5,000           2,500
Medium-High Density.....................           6,000           3,500

[[Page 4185]]

 
High Density............................           7,000           4,500
Super High Density......................          13,000           8,000
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    New cabinets shall be assessed standard installation fees.
    Phlx proposes to reduce colocation cabinet fees by different 
amounts to maintain a sliding scale of lower fees for higher density 
cabinets on a per kilowatt basis. The chart below reflects this scale:

----------------------------------------------------------------------------------------------------------------
                                                                    Reduced MRC
                  Cabinet type                        Max kW            fee         Discount %      Fee per KW
----------------------------------------------------------------------------------------------------------------
Low Density.....................................            2.88          $2,000           50.00         $694.44
Medium Density..................................            5              2,500           50.00          500.00
Medium-High Density.............................            7              3,500           41.67          500.00
High Density....................................           10              4,500           35.71          450.00
Super High Density..............................           17              8,000           38.46          470.59
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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. The proposed reduced 
fee will be assessed equally on all customers that place an order for a 
new cabinet during the designated period. The proposed amendments will 
provide an incentive for customers to avail themselves of the 
designated co-location services.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4).
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    Phlx's proposal to reduce fees by differing amounts is fair and 
equitable because it reflects the economic efficiency of higher density 
colocation cabinets. First, the underlying costs for co-location 
cabinets consists of certain fixed costs for the data center facility 
(space, amortization, etc.) and certain variable costs (electrical 
power utilized and cooling required). The variable costs are in total 
higher for the higher power density cabinets, as reflected in their 
higher current prices. Second, the higher density cabinets were 
introduced later than the lower density cabinets (High Density cabinet 
was introduced in 2009 and the Super High Density cabinet was 
introduced in 2011). Due to the competitive pressures that existed in 
2011 and 2012, the fees for Super High Density cabinets were further 
reduced in 2012 to be more comparable with the lower fee per kilowatt 
of the High Density cabinet. As a result of these already-reduced rates 
on higher density cabinets, Phlx has greater flexibility to discount 
fees for lower density cabinets, on a per kilowatt basis.
    Phlx operates in a highly competitive market in which market 
participants can readily favor competing venues if they deem fee levels 
at a particular venue to be excessive. In such an environment, Phlx 
must continually adjust its fees to remain competitive with other 
exchanges and with alternative trading systems that have been exempted 
from compliance with the statutory standards applicable to exchanges. 
Phlx believes that the proposed rule change reflects this competitive 
environment because it is designed to ensure that the charges for use 
of the Phlx colocation facility remain competitive.

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. To 
the contrary, the Exchange's voluntary fee reduction is a response to 
increased competition for colocation services by other exchanges and 
trading venues. As more venues offer colocation services, competition 
drives costs lower. The Exchange, in order to retain existing orders 
and to attract new orders, is forced to offer a lower effective rate 
for aggregate cabinet demand. This competition benefits users, members, 
and investors by lowering the average aggregate cost of trading on the 
Exchange.

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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act,\6\ PHLX has 
designated this proposal as establishing or changing a due, fee, or 
other charge imposed by the self-regulatory organization on any person, 
whether or not the person is a member of the self-regulatory 
organization, which renders the proposed rule change effective upon 
filing.
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    \6\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 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-Phlx-2013-02 on the subject line.

[[Page 4186]]

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-Phlx-2013-02. 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 on official business 
days between the hours of 10:00 a.m. and 3:00 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-Phlx-2013-02, and should be submitted on or before 
February 8, 2013.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01026 Filed 1-17-13; 8:45 am]
BILLING CODE 8011-01-P