80 FR 66947 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Options Testing Facility

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 210 (October 30, 2015)

[Federal Register Volume 80, Number 210 (Friday, October 30, 2015)]
[Notices]
[Pages 66947-66949]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-27650]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76259; File No. SR-NASDAQ-2015-117]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Options Testing Facility

October 26, 2015.
    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 October 16, 2015, 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, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its Options Pricing at Chapter XV to 
adopt a new Section 13, entitled ``Testing Facilities'' which describes 
fees in connection with the use of the Testing Facility (``NTF'') test 
environment located in Carteret, New Jersey.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on October 26, 
2015.
    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.

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
    Nasdaq proposes to amend its Options Pricing at Chapter XV to adopt 
a new Section 13, entitled ``Testing Facilities'' to establish fees to 
subscribe for testing. Currently, Options Participants may test in a 
virtual trading environment for purposes of testing in Ashburn, 
Virginia (``Ashburn''), at no cost. The NTF provides subscribers a 
virtual System environment for testing upcoming Nasdaq releases and 
product enhancements, as well as testing firm software prior to 
implementation. The test environment closely approximates the 
production environment to enable subscribers to test their automated 
systems that integrate with the Exchange.
    The Exchange is moving the options test environment from the 
Ashburn location to Carteret, NJ (``Carteret''), which is also the 
location of Nasdaq's primary trading System. While Options Participants 
will be able to continue to utilize the Ashburn facility at no cost 
until that facility is no longer in use, Options Participants will be 
able to subscribe to the Carteret test facility for future testing.\3\
---------------------------------------------------------------------------

    \3\ The Exchange anticipates that it will sunset the Ashburn 
trading testing functionality on January 29, 2016.
---------------------------------------------------------------------------

    The relatively large distance between the Ashburn Testing Facility 
and the majority of Nasdaq firms results in expensive connectivity 
costs for customers that connect via telecommunication providers. As a 
consequence, a large majority of member firms do not connect to Ashburn 
for NTF connectivity. In an effort to improve the utility of the NTF, 
Nasdaq is developing a test environment located in Carteret that will 
provide the same functionality as the testing functionality of Ashburn, 
yet more closely approximate the live trading environment due to its 
proximity to the System and upgraded hardware. In particular, the 
Carteret test environment will take advantage of technology upgrades 
Nasdaq is making to its trading-related systems. Unlike the Ashburn 
test environment, the Carteret test environment will provide dedicated 
connectivity to the facility via a cross-connection to either a member 
firm's direct connection router in Carteret or its co-location cabinet.
    Nasdaq notes that, because the Carteret facility also houses the 
System, subscribers to the Carteret test environment will no longer 
need to pay for third party connectivity to Ashburn,\4\ provided the 
sole purpose for connecting to Ashburn is for testing and not also for 
co-location or disaster recovery. Such member firms may use an existing 
connection to Carteret to access the NTF through the use of a dedicated 
switch port and cross connect within the facility. Similar to the 
equities test facility,\5\ the Exchange will assess a fee for the 
connection to this virtual trading environment for testing. 
Specifically, Nasdaq proposes a $1,000 per hand-off, per month fee for 
connection to the Testing Facility. The hand-off fee includes either a 
1Gb or 10Gb switch port and a cross connect to the Testing Facility. 
Subscribers shall also pay a one-time installation fee of $1,000 per 
hand-off.
---------------------------------------------------------------------------

    \4\ Today, member firms pay fees to third party connectivity 
providers to provide connection from the member firm to Ashburn.
    \5\ See Nasdaq Rule 7030, concerning equities pricing.
---------------------------------------------------------------------------

    The connectivity provided under this rule also provides 
connectivity to the other test environments of NASDAQ OMX PHLX LLC and 
NASDAQ OMX BX, Inc. Additionally, the connectivity may be utilized for 
either equities or options testing. If for example a Phlx [sic] member 
has already paid the $1,000 per hand-off, per month for connection to 
the Testing Facility in Carteret, there would be no need to pay this 
fee for options testing.
    Notwithstanding the foregoing, Nasdaq will also continue to offer 
certain limited testing capabilities free of charge at Carteret. 
Options Participants that connect to Cartert's [sic] NTF through a 
virtual private network (``VPN'') through the internet for site-to-site 
limited order routing

[[Page 66948]]

capability only will not be assessed a fee.
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) and 6(b)(5) 
of the Act,\7\ in particular. Nasdaq believes the proposal is 
consistent with Section 6(b)(4) of the Act \8\ 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
    \8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The proposed fees are equitably allocated because all Options 
Participants desiring to connect to the Carteret test environment will 
be assessed a uniform fee for those services. The Exchange believes 
that offering subscribers the option to subscribe to either 1Gb or 10Gb 
for the same fee is an equitable allocation because, unlike the live 
trading environment, there is no competitive advantage to possessing a 
higher capacity switch port in the test environment. The test 
environment is designed to closely mirror the live trading environment 
for Options Participants, including matching the capacity of each 
Options Participant's live environment switch port. In the absence of 
any competitive advantage, charging a uniform fee for both 1Gb and 10Gb 
switch ports is an equitable allocation of fees. Nasdaq believes that 
charging a uniform fee will encourage member firms to subscribe to 
Carteret, and further encourage those that subscribe to use the same 
hardware as is used by them for connectivity to the live trading 
environment.
    The proposed fees are reasonable because they are designed to cover 
the costs incurred by the Exchange to develop the test facility and the 
costs incurred by the Exchange to continue to offer the test 
environment. The proposed fee should allow the Exchange to recoup these 
costs and also make a profit, while providing Options Participants with 
a superior test environment that more closely mirrors that of the live 
trading environment on the Exchange. Nasdaq believes that offering both 
1Gb and 10Gb connectivity for the same fee is reasonable as the 
increased incremental cost it incurs by offering the 10Gb switch port 
at the lower fee is outweighed by the benefit all subscribers will 
receive if Options Participants use hardware identical to what they use 
in the live trading environment, hence furthering the goal of creating 
a test environment that closely mirrors the live trading environment.
    Further, the connectivity provided under this rule also provides 
connectivity to the other test environments of NASDAQ OMX PHLX LLC and 
NASDAQ OMX BX, Inc. This connectivity may be utilized for either 
equities or options testing. If for example a Nasdaq member has already 
paid the $1,000 per hand-off, per month for connection to the Testing 
Facility in Carteret, there would be no need to pay this fee for 
options testing.
    The Exchange also believes the proposal furthers the objectives of 
Section 6(b)(5) of the Act \9\ in that it 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 and is not 
designed to permit unfair discrimination between customer, issuers, 
brokers and dealers. Nasdaq does not believe that the proposed fees are 
unfairly discriminatory to subscribers to 10Gb live trading environment 
connectivity because, unlike the live trading environment where the 
capacity of connectivity to Nasdaq may confer a competitive advantage 
to a market participant and therefore price differentiation is 
appropriate for the benefit conferred, there is no such benefit 
conferred in the trade test environment. Nasdaq does not believe that 
the proposed fees are unfairly discriminatory among subscribers to the 
Carteret test facility because all Options Participants that subscribe 
to the service will be assessed the same fees. Because the proposed 
fees do not discriminate between 1Gb and 10Gb connectivity options, 
Options Participants are able to subscribe to Carteret without regard 
to the cost of their switch port capacity election. Nasdaq believes 
that by not discriminating on this basis it will encourage participants 
to connect to the Carteret test environment in the same manner as they 
do to the live trading environment, and thereby help Carteret more 
closely mirror the live test environment, as discussed above. Providing 
a more useful and accurate test environment will serve to improve live 
trading on Nasdaq and the national market system by permitting Options 
Participants the ability to accurately test changes prior to 
implementing them in the live trading environment, thereby reducing the 
likelihood of a potentially disruptive system failure in the live 
trading environment, which has the potential to affect all market 
participants.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Finally, the Exchange will continue to offer Options Participants 
certain limited testing capabilities free of charge at Carteret through 
VPN. While this feature offers limited capability in terms of 
functionality, the Exchange continues to offer a free of charge 
alternative to Options Participants desiring to utilize the NTF.

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

    Nasdaq does not believe that the proposed rule change will result 
in any intra-market or inter-market burdens on competition that are not 
necessary or appropriate in furtherance of the purposes of the Act, as 
amended. The proposed fees for access to the Carteret test environment 
more closely approximate the live trading environment, subscribing 
member firms will be able to more accurately test their trading systems 
and avoid potentially disruptive system failures in the live trading 
environment. Despite the fee that will now be assessed to Options 
Participants for testing, the Exchange believes that Options 
Participants utilizing this service will benefit from the move to 
Carteret because the test environment is designed to closely mirror the 
live trading environment for Options Participants, including matching 
the capacity of each Options Participant's live environment switch 
port. Subscribing to the test facility is optional.
    Also, the connectivity provided under this rule also provides 
connectivity to the other test environments of NASDAQ OMX PHLX LLC and 
NASDAQ OMX BX, Inc. Members that are already connected for equities 
testing would not incur an additional charge. This connectivity may be 
utilized for either equities or options testing. Finally, subscribing 
to the test facility is optional.
    Additionally, the Exchange does not believe that the move to 
Carteret and imposition of connectivity fees to the NTF creates an 
undue burden on competition because the Exchange will continue to offer 
Options Participants certain limited testing capabilities free of 
charge at Carteret through VPN.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

[[Page 66949]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\10\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 [email protected]. Please include 
File Number SR-NASDAQ-2015-117 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2015-117. 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 such 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-2015-117, and should 
be submitted on or before November 20, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-27650 Filed 10-29-15; 8:45 am]
BILLING CODE 8011-01-P