Opinion ID: 8410533
Heading Depth: 3
Heading Rank: 2

Heading: Co-Location Services

Text: Some exchanges also rent space to investors to allow them to place their computer servers in close physical proximity to the exchanges’ systems. This proximity helps to reduce the “latency” period—the amount of time that elapses between when a signal is sent to trade a stock and a trading venue’s receipt of that signal. As with proprietary feeds, the SEC also regulates co-location services. Under the Exchange Act, the terms of co-location services must not be unfairly discriminatory and the fees must be equitably allocated and reasonable. See 15 U.S.C. § 78f(b)(4), (5). The SEC has approved the terms of particular co-location services as consistent with the Exchange Act, see, e.g., Self-Regulatory Organizations; the Nasdaq Stock Mid. LLC; Order Approving a Proposed Rule Change to Codify Prices for Co-Location Servs., Exchange Act Release No. 34-62397, 98 SEC Docket 2621, 2010 WL 2589819 (June 28, 2010), while also taking enforcement actions against exchanges for providing such services in violation of the Exchange Act, see, e.g., N.Y. Stock Exch. LLC, Exchange Act Release No. 34-72065, 108 SEC Docket 3659, 2014 WL 1712113 (May 1, 2014), Plaintiffs allege that co-location services are especially attractive to HFT firms, whose trading involves frequent buying and selling in short periods of time, and that such services are cost-prohibitive for most ordinary investors. According to plaintiffs, when co-location services are used in combination with proprietary data feeds or complex order types (or both), co-location services amount to a manipulative device because they allow HFT firms to access and trade on information:before it becomes publicly available.