81 FR 7597 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Retroactively Apply Recently-Reduced Port Fees

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 29 (February 12, 2016)

[Federal Register Volume 81, Number 29 (Friday, February 12, 2016)]
[Notices]
[Pages 7597-7599]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-02837]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77077; File No. SR-NASDAQ-2016-014]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Retroactively Apply Recently-Reduced Port Fees

February 8, 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 January 29, 2016, The NASDAQ Stock Market LLC (``Nasdaq'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by Nasdaq. 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 [sic] Sec.  240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to retroactively apply recently-reduced port fees 
charged to members and non-members for ports used to enter orders into 
Nasdaq systems, in connection with the use of the FIX, RASH, and OUCH 
trading protocols under Nasdaq Rules 7015(b) and (g) beginning January 
4, 2016.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq 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. Nasdaq 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
    The purpose of the proposed rule change is to apply recently-
reduced port fees charged to members and non-members for ports used to 
enter orders into Nasdaq systems, in connection with the use of the 
FIX, RASH, and OUCH trading protocols under Nasdaq Rules 7015(b) and 
(g) during the period from January 4, 2016 to January 19, 2016.
    Effective January 4, 2016, Nasdaq increased fees for FIX Ports 
under Rule 7015(b) and for RASH and OUCH Ports under Rule 7015(g) from 
$550 per port, per month to $575 per port, per month.\3\ Nasdaq 
increased the fees to offset costs associated with upgrading these 
ports with new field-programmable gate array (``FPGA'') technology, 
which is a hardware-delivery mechanism that provides improved 
performance in terms of predictability.\4\ Nasdaq implemented the new 
FPGA hardware

[[Page 7598]]

in mid-December 2015 and increased the related port fees on January 4, 
2016.\5\
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    \3\ See SR-NASDAQ-2016-001, which was withdrawn by Nasdaq on 
January 19, 2016 (available at http://nasdaq.cchwallstreet.com/NASDAQ/pdf/nasdaq-filings/2016/SR-NASDAQ-2016-001.pdf).
    \4\ FPGA hardware is able to process more data packets during 
peak market conditions without the introduction of variable queuing 
latency, which improves the predictability of telecommunications 
ports over non-FPGA hardware and thereby adds value to the user.
    \5\ See note 3 above.
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    Nasdaq recently encountered a few unforeseen minor, but not easily 
rectifiable, issues with the new implementation that potentially could 
have a greater impact on the market. As a consequence, Nasdaq 
determined that the risk associated with keeping the FPGA technology in 
terms of potential disruption to trading outweighed the benefit 
provided in terms of increased performance. Effective January 7, 2016, 
Nasdaq removed the FPGA hardware and reverted all FIX, RASH, and OUCH 
ports to the infrastructure that was in place prior to the upgrade to 
those ports. Nasdaq also filed a rule change with the Commission to 
reduce the fees assessed for FIX, RASH, and OUCH ports back to their 
lower levels of $550 per port, per month, which was effective January 
19, 2016.\6\
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    \6\ See SR-NASDAQ-2016-007, which has not yet been published in 
the Federal Register (available at http://nasdaq.cchwallstreet.com/NASDAQ/pdf/nasdaq-filings/2016/SR-NASDAQ-2016-007.pdf). The 
Commission notes that this filing was subsequently withdrawn, 
because it was deemed unnecessary. Nasdaq's withdrawal of SR-NASDAQ-
2016-001 effectively caused the rule text to revert to the lower 
fees that were in place prior to January 4, 2016. See note 3.
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    Nasdaq proposes to apply the reduced fees of $550 per port, per 
month during the period from January 4, 2016 to their reduction on 
January 19, 2016, effectively eliminating any fee increase for FIX, 
RASH, and OUCH ports. Subscribers to the affected ports did not enjoy 
the benefit of the improved hardware for any significant time, as the 
issues with the ports began to manifest themselves on December 30, 2015 
up to the point at which Nasdaq determined to remove the hardware and 
revert the ports back to the infrastructure in place before. Thus, 
Nasdaq believes that it is inappropriate to apply the higher fees at 
any point during January 2016.\7\
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    \7\ Nasdaq bills in arrears for the connectivity provided under 
Rule 7015. Thus, subscribers have not yet been billed at the higher 
rate in place from January 4, 2016 to January 19, 2016.
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2. Statutory Basis
    This proposal is consistent with the provisions of section 6 of the 
Act,\8\ in general, and with sections 6(b)(4) and 6(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 Nasdaq operates or 
controls, and is designed 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 is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    Retroactively applying the lower fees that were assessed prior to 
the upgrade to the FIX, RASH and OUCH ports effective January 4, 2016 
is reasonable because the improved hardware did not provide a trouble-
free benefit to subscribers for a significant time during the month of 
January 2016. Nasdaq did not provide an improved service for the ports 
in return for the increased fees paid during the period from January 4, 
2016 to their reduction on January 19, 2016. The basis for the 
increased fees was the costs associated with purchasing hardware 
(capital expenditures) and supporting and maintaining the 
infrastructure (operating expenditures) for the FPGA enhancement. Thus, 
retroactively applying the reduced pre-upgrade fee is reasonable.
    Applying the lower pre-upgrade fees retroactively is both an 
equitable allocation and not unfairly discriminatory because it will 
apply uniformly to all market participants that subscribed to FIX Ports 
under Rule 7015(b), and OUCH and RASH Ports under Rule 7015(g) during 
the timeframe of January 4, 2016 to January 19, 2016 based on the 
number of such ports subscribed. Accordingly, all subscribers to the 
ports under Rule 7015(b) and (g) will be assessed the fees in place 
prior to the increase, since they did not realize a significant and 
trouble-free benefit from the hardware.

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

    The proposed rule change will not impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of the Act. 
In terms of inter-market competition, Nasdaq notes that it 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, or rebate opportunities available at other venues to be 
more favorable.
    Nasdaq proposes to retroactively apply a lower fee since it did not 
provide the improved connectivity trouble-free for a significant time. 
Thus, Nasdaq does not believe that proposal places any burden on 
competition, but rather reduces fees assessed subscribers to a service, 
which will help maintain Nasdaq's competitiveness among equities 
markets.

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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    In its filing, Nasdaq requested that the Commission waive the 30-
day operative delay so that Nasdaq may implement the fee reduction 
prior to the end of its monthly billing cycle. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Nasdaq bills its 
members at the end of the month, and, as of the time of filing, it had 
not yet assessed the higher port fees put in place by SR-NASDAQ-2016-
001. Waiver of the 30-day operative delay will not only allow Nasdaq to 
manage its billing process more efficiently, but it will also ensure 
that subscribers are not charged erroneous and inflated fees. For this 
reason, the Commission designates the proposed rule change to be 
operative upon filing.\12\
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    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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:

[[Page 7599]]

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-2016-014 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2016-014. 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 the filing also will be available 
for inspection and copying at Nasdaq's principal office. 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-2016-014 and should 
be submitted on or before March 4, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR [sic] Sec.  200.30-3(a)(12) and (59).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-02837 Filed 2-11-16; 8:45 am]
 BILLING CODE 8011-01-P