81 FR 15394 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Offer Remote ITCH to Trade Options Wave Ports

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 55 (March 22, 2016)

[Federal Register Volume 81, Number 55 (Tuesday, March 22, 2016)]
[Notices]
[Pages 15394-15396]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-06341]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77381; File No. SR-NASDAQ-2016-033]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Offer Remote ITCH to Trade 
Options Wave Ports

March 16, 2016.
    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 2, 2016, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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.
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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 establish a fee for a new optional 
wireless connectivity service, Remote ITCH to Trade Options Wave Ports.
    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 is proposing to amend Nasdaq Options Market (``NOM'') Rules 
chapter XV, section 3, to establish fees for Remote ITCH to Trade 
Options (``ITTO'') Wave Ports for clients co-located at other third-
party data centers located in Mahwah, N.J. (``Mahwah'') and Secaucus, 
N.J. (``Secaucus''), through which Nasdaq ITTO market data will be 
distributed after delivery to those data centers via a wireless 
network. Nasdaq ITTO is a data feed that provides quotation information 
for individual orders on the NOM book, last sale information for trades 
executed on NOM, and Order Imbalance Information as set forth in NOM 
Rules chapter VI, section 8.\3\ Nasdaq ITTO market data is subscribed 
to under NOM Rules chapter XV, section 4.
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    \3\ See Nasdaq Options Rules chapter VI, section 1(a)(3)(A).
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    Nasdaq provides market data via two connectivity mediums: Fiber 
optic networks, and/or wireless networks, (aka, Remote Wave Ports). 
ITTO market data is currently provided only by Nasdaq through fiber 
optic networks. Nasdaq is now proposing to provide ITTO market data 
through Remote Wave Ports. A Remote Wave Port is a physical port 
located in Nasdaq's space within a third-party's (remote) data center 
that receives market data delivered by Nasdaq via a wireless 
network,\4\ which is then simultaneously distributed to Wave Ports 
within that location. Clients must separately subscribe to the data 
received by the Remote Wave Port service.
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    \4\ Wireless technology has been in existence for many years, 
used primarily by the defense, retail, and telecommunications 
industries. Wireless connectivity involves the beaming of signals 
through the air between towers that are within sight of one another. 
Because the signals travel a straight, unimpeded line, and because 
light waves travel faster through air than through glass (fiber 
optics), message latency is reduced. The continued use of this 
technology by the defense industry and regulation of the spectrum by 
the FCC demonstrates the secure nature of wireless networks.
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    Nasdaq offers TotalView ITCH equities market data through Remote 
MITCH Wave Ports for clients co-located at third-party data centers in 
Mahwah and Secaucus.\5\ Nasdaq has recently increased the capacity of 
its wireless networks connecting Nasdaq's Carteret data center to those 
third-party data centers, so that they may now support delivery of ITTO 
market data.
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    \5\ Nasdaq assesses a MITCH Wave Port installation fee of $5,000 
for Mahwah installations and an ongoing monthly fee of $12,500. See 
Nasdaq Rule 7015(g)(1). Nasdaq assesses a MITCH Wave Port 
installation fee of $2,500 for Secaucus installations and an ongoing 
monthly fee of $7,500. Id. Nasdaq notes that the higher ongoing fee 
for Mahwah is reflective of the longer distance from Carteret to 
Mahwah requiring greater investment in infrastructure to connect the 
two locations.
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    Nasdaq is proposing to deliver ITTO market data to Nasdaq-owned 
cabinets at the third-party data centers located in Mahwah and Secaucus 
via a wireless network, as is currently done for TotalView ITCH market 
data. This offering, which is entirely optional, will enable delivery 
of Nasdaq ITTO market data to the third-party data centers at the same 
low latency.\6\ Clients will have the option of cross-connecting to 
their subscribed ITTO Wave Ports in those data centers to receive the 
ITTO data feed.
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    \6\ Nasdaq cannot preclude minor latency variances in delivery 
of Nasdaq ITTO in the third-party data centers to individual clients 
because it does not control the cross-connects in those centers; 
however, the microwave connectivity will provide the same latency to 
all clients' Remote ITTO Wave Ports and offers an improvement in 
latency over fiber optic network connectivity.
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    Nasdaq is proposing to assess an installation charge for a Remote 
Wave Port in Mahwah of $5,000 and a charge of $2,500 for a Remote Wave 
Port in Secaucus. Nasdaq is also proposing a monthly recurring fee of 
$10,000 for a Remote Wave Port in Mahwah and $7,500 for a Remote Wave 
Port in Secaucus. Clients opting to subscribe to a Remote ITTO Wave 
Port will continue to be fee liable for the applicable market data fees 
as described in NOM Rules chapter XV, section 4(a).
    Competition for market data distribution is considerable and the 
Exchange believes that this proposal clearly evidences such 
competition. Nasdaq is offering a new data delivery option via Remote 
Wave Ports to keep pace with changes in the industry and evolving 
customer needs as new technologies emerge and products continue to 
develop and change. The new delivery option is similar to existing 
offerings, entirely optional, and is geared towards attracting new 
customers, as well as retaining existing customers.
    The proposed fees are based on the cost to Nasdaq and its vendors 
of installing and maintaining the wireless connectivity and on the 
value provided to the customer, which receives low latency delivery of 
data feeds. The costs associated with the wireless connectivity system 
are incrementally higher than fiber optics-based solutions due to the 
expense of the wireless equipment, cost of installation, and

[[Page 15395]]

testing. The differing fee levels between Mahwah and Secaucus are 
reflective of higher cost of connecting to Mahwah based on the longer 
distance to Mahwah, thus a higher network cost, and higher charges 
incurred by Nasdaq in co-locating and connecting within Mahwah.
    The fees also allow Nasdaq to make a profit, and reflect the 
premium received by the clients in terms of lower latency over the 
fiber optics option. Clients can choose to build and maintain their own 
wireless networks or choose their own third party network vendors but 
the upfront and ongoing costs will be much more substantial than this 
Nasdaq wireless offering.
    Nasdaq notes that the proposed fees are identical to, or less than, 
the analogous installation and monthly fees assessed for Remote MITCH 
Wave Ports located in the same third-party data centers in Mahwah and 
Secaucus.\7\
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    \7\ See Nasdaq Rule 7015(g)(1).
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2. Statutory Basis
    Nasdaq believes that its proposal is consistent with section 6(b) 
of the Act,\8\ in general, and with sections 6(b)(4) and (b)(5) of the 
Act,\9\ 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, and 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    Nasdaq operates in a highly competitive market in which exchanges 
offer co-location and connectivity services as a means to facilitate 
the trading activities of those members who believe that co-location 
and low latency connectivity enhances the efficiency of their trading.
    Accordingly, fees charged for co-location and connectivity services 
are constrained by the active competition for the order flow of such 
members. If a particular exchange charges excessive fees for these 
services, affected members will opt to terminate their co-location and/
or connectivity arrangements with that exchange, and adopt a possible 
range of alternative strategies, including using another vendor for 
connectivity services, co-locating with a different exchange, placing 
their servers in a physically proximate location outside the exchange's 
data center, or pursuing trading strategies not dependent upon co-
location. Thus, the exchange charging excessive fees would stand to 
lose not only co-location and connectivity revenues but also revenues 
associated with the execution of orders routed to it by affected 
members.
    Nasdaq notes that the Commission recently approved an NYSE MKT LLC 
(``NYSE MKT'') rule change to offer similar services.\10\ Nasdaq 
believes that this competitive dynamic imposes powerful restraints on 
the ability of any exchange to charge unreasonable fees for co-location 
or connectivity services, including fees for wireless connectivity.
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    \10\ See Securities Exchange Act Release No. 76750 (December 23, 
2015), 80 FR 81648 (December 30, 2015) (SR-NYSEMKT-2015-
85)(approving the offering of a wireless connection to allow users 
to receive market data feeds from third party markets).
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    A co-location customer may obtain a similar service by contracting 
with a wireless service provider to install the required dishes on 
towers near the data centers and paying the service provider to 
maintain the service. However, the cost involved in establishing 
service in this manner is substantial and could result in uneven access 
to wireless connectivity. Nasdaq's proposed fees will allow these 
clients to utilize wireless connectivity and obtain the lower latency 
transmission of data from Nasdaq that is available to others, at a 
reasonable cost.
    Moreover, Nasdaq believes that the proposed fees for wireless 
connectivity to Nasdaq are reasonable because they are based on 
Nasdaq's and its vendors' costs to cover hardware, installation, 
testing and connection, as well expenses involved in maintaining and 
managing the new connection. The proposed fees allow Nasdaq to recoup 
these costs and make a profit, while providing customers the ability to 
reduce latency in the transmission of data from Nasdaq, and reducing 
the cost to them that would be involved if they build or buy their own 
wireless networks.
    Nasdaq believes that the proposed fees are reasonable in that they 
reflect the costs of the connection and the benefit of the lower 
latency to clients. Last [sic], the proposed fees are reasonable 
because they are identical to, or less than, the analogous installation 
and monthly fees assessed by Nasdaq for Remote Wave Ports located in 
the same third-party data centers in Mahwah and Secaucus that receive 
ITCH market data.
    Nasdaq believes the proposed Remote Wave Port fees are equitably 
allocated and non-discriminatory in that all co-location clients that 
voluntarily select this service option will be charged the same amount 
for the same services. As is true of all co-location services, all co-
located clients have the option to select this voluntary connectivity 
option, and there is no differentiation among customers with regard to 
the fees charged for the service. Further, the latency reduction 
offered will be the same for all clients who choose to receive this 
wireless feed from the Remote Wave Ports, The [sic] same cannot be said 
of the alternative where entities with substantial resources invest in 
private services and thereby obtain lower latency transmission, while 
those without resources are unable to invest in the necessary 
infrastructure.
    Nasdaq's proposal is also consistent with the requirement of 
section 6(b)(5) of the Act that Exchange rules be designed to promote 
just and equitable principles of trade [sic] to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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 are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. The proposal is consistent with these requirements insomuch as 
it makes available to market participants, at a reasonable fee and on a 
non-discriminatory basis, access to low latency means of receiving 
Nasdaq's market data feeds at third-party data centers.
    Initially, Nasdaq will perform substantial network testing prior to 
making the service available to members. After this testing period, the 
wireless network will continue to be closely monitored and maintained 
by the vendor and the client will be informed of any issues. 
Additionally, during the initial roll-out of the service and on a 
rolling basis for future clients, the Exchange will enable clients to 
test the receipt of the feed(s) for a minimum of 30 days before 
incurring any monthly recurring fees. Similar to receiving market data 
over fiber optic networks, the wireless network can encounter delays or 
outages due to equipment issues. As wireless networks may be affected 
by severe weather events, clients will be expected to have redundant 
methods to receive this market data and will be asked to attest to 
having alternate methods or establishing an alternate method in the

[[Page 15396]]

near future when they order this service from the Exchange.

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

    Nasdaq 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, this proposal will promote competition for 
distribution of market data by offering an optional and innovative 
product enhancement. Wireless technology has been in use for decades, 
is available from multiple providers, and has been adopted by other 
exchanges to offer microwave connectivity for delivery of market data.
    As discussed above, the Exchange believes that fees for co-location 
services, including those proposed for microwave connectivity, are 
constrained by the robust competition for order flow among exchanges 
and non-exchange markets, because co-location exists to advance that 
competition. Further, excessive fees for co-location services, 
including for wireless technology, would serve to impair an exchange's 
ability to compete for order flow rather than burdening competition.
    Competition between the Exchange and competing trading venues will 
be enhanced by allowing the Exchange to offer its market participants a 
lower latency connectivity option to receive market data, which is 
currently available through other connectivity. Competition among 
market participants will also be supported by allowing small and large 
participants the same price for this lower latency connectivity.
    The proposed rule change will likewise enhance competition among 
service providers offering connections between market participants and 
the data centers. The offering will expand the multiple means of 
connectivity available, allowing customers to compare the benefits and 
costs of lower latency transmission and related costs with reference to 
numerous variables.
    The Exchange, and presumably its competitors, selects service 
providers on a competitive basis in order to pass along price 
advantages to their customers, and to win and maintain their business. 
The offering is consistent with the Exchange's own economic incentives 
to facilitate as many market participants as possible in connecting to 
its market.

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.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-2016-033 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-2016-033. 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 will also 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-2016-033 and should 
be submitted on or before April 12, 2016.

    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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-06341 Filed 3-21-16; 8:45 am]
 BILLING CODE 8011-01-P