[Federal Register Volume 75, Number 128 (Tuesday, July 6, 2010)]
[Notices]
[Pages 38860-38861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16291]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62397; File No. SR-NASDAQ-2010-019]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Approving a Proposed Rule Change To Codify Prices for Co-Location
Services
June 28, 2010.
I. Introduction
On January 29, 2010, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change relating to co-location services and related fees.
The proposed rule change was published for comment in the Federal
Register on February 10, 2010.\3\ The Commission received no comment
letters on the proposal. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 61488 (February 3,
2010), 75 FR 6748 (``Notice'').
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II. Description
As described in the Notice, NASDAQ is proposing to codify fees for
its existing co-location services. Co-location services are a suite of
hardware, power, telecommunication, and other ancillary products and
services that allows market participants and vendors to place their
trading and communications equipment in close physical proximity to the
quoting and execution facilities of the Exchange and other NASDAQ OMX
Group, Inc. markets. The Exchange provides co-location services and
imposes fees through its wholly-owned subsidiary Nasdaq Technology
Services LLC and pursuant to agreements with the owner/operator of its
data center where both the Exchange's quoting and trading facilities
and co-located customer equipment are housed.\4\ Users of co-location
services include private extranet providers, data vendors, as well as
NASDAQ Exchange members and non-members. The use of co-location
services is entirely voluntary.
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\4\ NASDAQ has provided co-location services at various data
centers since approximately 2004. Currently, the Exchange provides
its co-location services through data centers located in the New
York City and Mid-Atlantic areas.
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As detailed in its fee schedule, NASDAQ imposes a uniform set of
fees for various co-location services, including: Fees for cabinet
space usage, or options for future space usage; installation and
related power provision for hosted equipment; connectivity among
multiple cabinets being used by the same customer as well as customer
connectivity to the Exchange and telecommunications providers; \5\ and
related maintenance and consulting services. Fees related to cabinet
and power usage are incremental, with additional charges being imposed
based on higher levels of cabinet and/or power usage, the use of non-
standard cabinet sizes or special cabinet cooling equipment, or the re-
selling of cabinet space.
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\5\ NASDAQ states that these fees are for telecommunications
connectivity only. Market data fees are charged independently by
NASDAQ and other exchanges.
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NASDAQ is implementing a Cabinet Proximity Option program where,
for a monthly fee, customers can obtain an option for future use on
available currently-unused cabinet floor space in proximity to their
existing equipment. Under the program, customers can reserve up to
maximum of 20 cabinets that the Exchange will endeavor to provide as
close as reasonably possible to the customer's existing cabinet space,
taking into consideration power availability within segments of the
datacenter and the overall efficiency of use of datacenter resources as
determined by the Exchange. Should reserved datacenter space be needed
for use, the reserving customer will have three business days to
formally contract with the Exchange for full payment for the reserved
cabinet space in contention or it will be reassigned. In making
determinations to require exercise or relinquishment of reserved space
as among numerous customers, the Exchange will take into consideration
several factors, including: Proximity between available reserved
cabinet space and the existing space of a customer seeking additional
space for actual cabinet usage; a customer's ratio of cabinets in use
to those reserved; the length of time that a particular reservation(s)
has been in place; and any other factor that the Exchange deems
relevant to ensure overall efficiency in use of the datacenter space.
In the Notice, the Exchange made certain representations regarding
its co-location services. First, the Exchange represents that co-
location customers are not provided any separate or superior means of
direct access to NASDAQ quoting and trading facilities, nor does the
Exchange offer any separate or superior means of access to the Exchange
quoting and trading facilities as among co-location customers
themselves within the datacenter. Second, NASDAQ represents that it
does not make available to co-located customers any market data or data
feed product or service for data going into, or out of, the Exchange
systems that is not likewise available to all the Exchange members.\6\
Finally, the Exchange represents that all orders sent to the Exchange
market enter the marketplace through the same central system quote and
order gateway regardless of whether the sender is co-located in the
Exchange data center or not. In short, according to the Exchange, it
has created no special market technology or programming that is
available only to co-located customers and has organized its systems to
[[Page 38861]]
minimize, to the greatest extent possible, any advantage for one
customer versus another.
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\6\ The Exchange made a 10Gb fiber connection available to co-
located customers early in the first quarter of 2010. On June 21,
2010, the Exchange filed a proposed rule change that would, among
other things, establish pricing for 10Gb fiber connections for
customers who are not co-located in NASDAQ's datacenter. See SR-
NASDAQ-2010-077.
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The Exchange also has represented that co-location services are
generally available to all qualified market participants who desire
them. With the exception of customers participating in the Cabinet
Proximity Option program, the Exchange allocates cabinets and power on
a first-come/first-serve basis. Should available cabinet inventory
shrink to 40 cabinets or less, the Exchange will limit new cabinet
orders to a maximum of 4 cabinets each, and all new cabinets will be
limited to a maximum power level of 5kW. Should available cabinet
inventory shrink to zero, the Exchange will place firms seeking
services on a waiting list based on that date the Exchange receives
signed orders for the services from the firm. In order to be placed on
the waiting list, a firm must have utilized all existing cabinets they
already have in the datacenter. Once on the list, the firms, on a
rolling basis, will be allocated a single 5kW cabinet each time one
becomes available. After receiving a cabinet, the firm will move to the
bottom of the waiting list.
III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.\7\
In particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\8\ which requires that the
rules of a national securities exchange provide for the equitable
allocation of reasonable dues, fees and other charges among its members
and issuers and other persons using its facilities, and with Section
6(b)(5) of the Act,\9\ which requires, among other things, that the
rules of a national securities exchange be 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, and not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\7\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78f(b)(4).
\9\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the proposed co-location fees are
reasonable and equitably allocated insofar as they are applied on the
same terms to similarly-situated market participants. The Commission
notes that charges may vary depending on the use of cabinet space and/
or power usage. In addition, the Commission believes that the co-
location services described in the proposed rule change are not
unfairly discriminatory because: (1) Co-location services are offered
to all interested market participants who request them and pay the
appropriate fees; (2) as represented by NASDAQ, the Exchange has
architected its systems so as to, as much as possible, reduce or
eliminate differences among users of its systems, whether co-located or
not; and (3) the Exchange has stated that it has sufficient space to
accommodate new co-locaters and has set forth in the proposed rule
change objective procedures to allocate space should it become limited
in the future.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-NASDAQ-2010-019) be, and
hereby is, approved.
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\10\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16291 Filed 7-2-10; 8:45 am]
BILLING CODE 8011-01-P