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Notice2024-21748

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Expand Its Co-Location Services

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Published

September 24, 2024

Issuing agencies

Securities and Exchange Commission

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<title>Federal Register, Volume 89 Issue 185 (Tuesday, September 24, 2024)</title>
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[Federal Register Volume 89, Number 185 (Tuesday, September 24, 2024)]
[Notices]
[Pages 77951-77956]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-21748]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101076; File No. SR-ISE-2024-45]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Expand Its Co-
Location Services

September 18, 2024.
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 September 5, 2024, Nasdaq ISE, LLC (``ISE'' 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 expand its co-location services.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rules">https://listingcenter.nasdaq.com/rulebook/ise/rules</a>, 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
The Exchange proposes to expand its co-location services by
offering new cabinet, power, and power distribution unit options in the
Exchange's expanded data center.\3\
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\3\ The Exchange previously submitted a similar proposal earlier
this year, see Securities Exchange Act Release No. 34-100563 (July
19, 2024), 89 FR 60479 (July 25, 2024) (SR-ISE-2024-28) (the ``Prior
Proposal''), but withdrew it on August 29, 2024 to allow for the
Exchange to address outstanding comments and concerns raised by the
Commission Staff and commenters.
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The Exchange's current data center (``NY11'') in Carteret, NJ is
undergoing an expansion (``NY11-4'') in response to demand for power
and cabinets. NY11-4 is not a new or distinct co-location facility.
Instead, NY11-4 is simply an expansion of the existing Nasdaq NY11 data
center,\4\ and Nasdaq intends to operate it generally in the same
manner as existing aspects of NY11.\5\ Client connections to the
matching engine will be equal across the board, within and among NY11
and NY11-4. In 2010, the Exchange undertook a similar expansion to its
data center, where connectivity to

[[Page 77952]]

the Exchange remained equalized, as is the case with the NY11-4
expansion.
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\4\ NY11-4 is not a standalone facility. Equinix considers the
site as NY11 with three expansions: NY11 Phase 1, NY11 Phase 2 and
NY11-4.
\5\ As discussed below in further detail, one aspect of the data
center that will be different (temporarily) in NY11-4 as compared to
NY11 is telecommunications access and inter-client connectivity. In
NY11-4 at its launch, connections between colocated client cabinets
and the carrier cage will be equalized as will be inter-client
connectivity. Presently, such connectivity is not equalized in NY11,
but the Exchange intends to retrofit NY11 to be equalized in the
months ahead.
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The Exchange submits this filing to propose offering new services
in NY11-4, as described below, and to the extent the Exchange offers
additional new services, whether in the existing NY11 data halls or in
the new NY11-4 data hall, the Exchange will submit additional filings
with the Commission.
New and Upgraded Services in NY11-4
NY11-4 Expanded Cabinet Optionality: Ultra High Density Cabinet
Currently, co-location customers have the option of obtaining
cabinets of various sizes and power densities. Co-location customers
may obtain a Half Cabinet,\6\ a Low Density Cabinet with power density
less than or equal to 2.88 kilowatts (``kW''), a Medium Density Cabinet
with power density greater than 2.88 kW and less than or equal to 5 kW,
a Medium-High Density Cabinet with power density greater than 5 kW and
less than or equal to 7 kW, a High Density Cabinet with power density
greater than 7 kW and less than 10 kW, and a Super High Density Cabinet
with power density greater than 10 kW and less than or equal to 17.3
kW.
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\6\ Half cabinets are not available to new subscribers. See
General 8, Section 1(a).
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The Exchange proposes to introduce a new cabinet choice in NY11-4,
an ``Ultra High Density Cabinet,'' with power density greater than 10
kW and less than or equal to 15 kW. Based on demand, the Exchange
wishes to introduce the Ultra High Density Cabinet as an option for
customers between the High Density Cabinet and the Super High Density
Cabinet. The Ultra High Density Cabinet option would only be offered in
NY11-4 because of the power configuration necessary for such cabinets,
which is not possible or available in other portions of the data center
due to different power distribution. Because of the addition of the
Ultra High Density Cabinet option in NY11-4, the Super High Density
Cabinet in NY11-4 would have power density greater than 15 kW and less
than or equal to 17.3 kW.
In addition to the Ultra High Density Cabinet, the Exchange would
offer the other, existing cabinet options in NY11-4, with the exception
of the Low Density Cabinet and Half Cabinet due to a lack of demand for
such cabinets. The cabinets in NY11-4 will include certain features,
including but not limited to: uniform, wider cabinets \7\ (32'' W x
48'' D x 91'' H), cable management, and a rear split door and combo
lock.
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\7\ In the existing data halls, clients may bring their own
cabinets or use Exchange-provided cabinets. Because of the cooling
system in NY11-4 (hot aisle containment), all cabinets must be
uniform and therefore, the Exchange will provide all cabinets. The
existing data halls utilize cold aisle containment to manage
temperatures. Hot aisle containment is a more effective way to
manage heat in the data center.
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NY-11 4 Cabinet Power and Power Distribution Units
The Exchange currently provides various cabinet power options,
including: 2x20 amp 110 volt, 2x30 amp 110 volt, 2x20 amp 208 volt,
2x30 amp 208 volt, Phase 3 2x 20 amp 208 volt, Phase 3 2x 30 amp 208
volt, 2x60 amp 208 volt, Phase 3 2x 40 amp 208 volt, Phase 3 2x 50 amp
208 volt, Phase 3 2x 60 amp 208 volt, and 2x30 amp 48 volt DC. For
NY11-4, the data center operator is bringing in higher voltage power
options, which are more consistent with power options used in other
data centers across the globe. The Exchange proposes to amend General
8, Section 1(c) to add the cabinet power options for NY11-4, which
include: Phase 1 20 amp 240 volt, Phase 1 32 amp 240 volt, Phase 1 40
amp 240 volt, Phase 3 20 amp 415 volt, and Phase 3 32 amp 415 volt. The
Exchange also proposes to specify in its Rules that these cabinet power
options are specific to NY11-4 and that one of these options must be
selected for cabinets in NY11-4. Although different cabinet power
options will be offered in NY11 and NY11-4 due to differing power
configurations, the new cabinet power options are not inherently
preferable to the existing cabinet power options and the Exchange does
not anticipate material differences in equipment performance based on
the power distribution. Due to higher voltage options being offered in
NY11-4, the data center operator is likely to experience increased
power distribution efficiencies across the data center. As between the
various cabinet power options, customers choose power based on their
preference and capacity needs.
The Exchange also proposes to offer power distribution units
(``PDUs'') \8\ in NY11-4 as a convenience to customers. Rather than
sourcing PDUs on a customer-by-customer basis, as the Exchange does for
customers in NY11, the Exchange wishes to simplify and standardize its
PDU offering in NY11-4 by offering Phase 1 and Phase 3 \9\ power
distribution units. This service is optional and customers may choose
to provide their own PDUs appropriate for their power installation
choices. The Exchange also proposes to offer a switch monitored PDU add
on in NY11-4, which would allow customers to connect remotely to their
PDU and control the power sockets. With the switch monitored PDU
option, customers would be able to power cycle or shut off power
remotely. This option is optional as well and customers may choose to
provide their own switch monitored PDU, if desired.
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\8\ PDUs are devices fitted with multiple outputs designed to
distribute electric power. The standardized PDUs would only be
offered for NY11-4.
\9\ Phase 1 PDUs would be compatible with the following power
options: Phase 1 20 amp 240 volt, Phase 1 32 amp 240 volt, and Phase
1 40 amp 240 volt. Phase 3 PDUs would be compatible with the
following power options: Phase 3 20 amp 415 volt and Phase 3 32 amp
415 volt. Phase 1 and Phase 3 are available in NY11 and NY11-4.
Phase 3 PDUs provide greater power density than Phase 1 PDUs by
delivering power over three wires as opposed to one wire.
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Implementation
Although the timing is subject to change,\10\ the Exchange
anticipates opening NY11-4 Exchange access on November 4, 2024. In
concert with this filing, the Exchange will allow customers to place
orders for NY11-4, which would not be fee liable until customers are
provided access to the space.\11\ The Exchange will submit a fee filing
to establish fees for the services described herein. Allowing customers
to place orders in advance of opening its doors will allow the Exchange
to plan ahead for capacity and demand for services, as well as procure
necessary equipment.
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\10\ The Exchange will announce modifications to the proposed
timing via the Nasdaq Customer Portal, which is the web portal used
for order and inventory management of colocation services, and email
communication to all colocation customers.
\11\ Charging customers once access is provided is consistent
with current practice and allows customers to set up equipment and
begin using power.
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Equalization of Telecommunications Connectivity in NY11-4 and NY11
Although the Exchange has constructed NY11-4 to address capacity
constraints associated with its existing data center footprint, as well
as to enable the provision of upgraded power for customer equipment, an
ancillary design feature of NY11-4 will be that it will include, at
launch, equalized cabling between customer equipment and equipment
owned and operated by third-party telecommunications providers (``telco
connectivity''). This design feature is incident, but not strictly
relevant to the Proposal at hand. Nevertheless, we discuss it below
insofar as it garnered attention in the Prior Proposal, by one
commenter, in particular.\12\
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\12\ See Ltr. From J. Considine, McKay Brothers LLC, to V.
Countryman, SEC, dated July 24, 2024, available at <a href="https://www.sec.gov/comments/sr-nasdaq-2024-026/srnasdaq2024026-496995-1434326.pdf">https://www.sec.gov/comments/sr-nasdaq-2024-026/srnasdaq2024026-496995-1434326.pdf</a> (the ``McKay Letter''). Akuna Securities LLC also filed
a comment letter that largely echoed the arguments in the McKay
Letter. See Ltr. From D. DeSalle-Baron, Akuna Securities LLC to V.
Countryman, SEC, dated July 24, 2024, available at <a href="https://www.sec.gov/comments/sr-nasdaq-2024-026/srnasdaq2024026-497096-1434386.pdf">https://www.sec.gov/comments/sr-nasdaq-2024-026/srnasdaq2024026-497096-1434386.pdf</a>.

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[[Page 77953]]

Presently, the Exchange does not have equalized telco connectivity
in NY11, much like several of its peers, IEX, MEMX, and Cboe, all of
which operate through their Secaucus data center without equalized
telco connectivity.\13\ The present architecture of NY11 is a product
of its history and that of technology; the Exchange designed NY11 at a
time when latency differences were measured by customers in terms of
miles of cable between customer facilities and exchange data centers,
rather than in feet or inches within exchange data centers, as is the
case today. As the technology paradigm shifted, and as variances in
telco connectivity became more meaningful to some market participants,
the Exchange reevaluated its design of its data center and determined
that telco connectivity equalization would be in the best interests of
the markets going forward. Thus, on its own initiative, the Exchange
has embarked on an ambitious project to equalize telco connectivity
across its entire data center campus, including both its existing NY11
facility and the NY11-4 expansion (the ``Equalization Project''). The
launch of NY11-4 will constitute phase 1 of the Equalization Project.
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\13\ The structure of the Secaucus data center is a generally
known fact within the industry and one of which the Exchange is
itself aware due, among other things, to its own status as a tenant
of the Secaucus data center.
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The Equalization Project will be complex, time consuming, and
costly to complete, especially as to NY11, where the existing facility
must be retrofitted with equalized cabling. In NY11, thousands of
existing customer cables threaded throughout the facility will need to
be removed and replaced with new infrastructure to support equidistant
connectivity relative to all other customers' locations in the data
center. This painstaking project will cost millions of dollars in
design, equipment, and labor costs. Due to its complexity, the
Equalization Project cannot and will not be accomplished
instantaneously.\14\ Instead, the Exchange estimates that the Project
will require 18-24 months to complete, commencing as of the launch of
NY11-4. Moreover, it will occur in a methodical and phased manner to
ensure proper design, testing, and workmanship, as well as to minimize
the customer disruptions that, unfortunately, will be unavoidable
during the process. The launch of NY11-4 with equalized telco
connectivity will be the first phase of the Equalization Project, with
the equalization of NY11 constituting the remaining phases of the
Project. For the phased transition of NY11, the Exchange expects the
migration to occur in tranches over the course of several weekends at
the tail end of the 18-24 project period.
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\14\ The McKay Letter asserts incorrectly and without any
evidentiary basis that the Exchange is capable of equalizing telco
connectivity quickly and can do so before launching NY11-4 with only
a minor ensuing delay to the launch. See id. at 4, n.15. As we
explain herein, equalization of NY11 will take many months to
accomplish, even at an aggressive pace, including because of factors
outside of its control. The Exchange notes, for example, that the
fiber needed to re-cable NY11 is in short supply and orders are
subject to substantial waiting periods.
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Concerns About the Sequencing of the Equalization Project Are Unfounded
In the Prior Proposal, the commenter objected to the Exchange's
plan to accomplish the Equalization Project by first launching
equalized telco connectivity in NY11-4 before launching it in NY11.\15\
The commenter argued that this sequencing of the Equalization Project
would be unfairly discriminatory in that it would exacerbate existing
inequalities in the Exchange's Data Center while also compelling
customers to secure unneeded space in NY11-4 to ensure that they obtain
or maintain the closest possible geographic proximity to their
telecommunications providers' equipment.\16\ These arguments are simply
wrong.
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\15\ See id.
\16\ See id. at 1-2, 5-6.
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The Exchange's Plan for the Launch of NY11-4 To Constitute Phase One of
the Equalization Project Is Fair and Reasonable and in the Best
Interests of the Markets
The Exchange's Plan To Proceed With NY11-4 as the First Phase of the
Equalization Project Is in the Best Interests of the Markets
The fact of the matter is that the Exchange needs to launch NY11-
4--and needs to do so in November 2024--to ensure that it remains
capable of meeting the growing power and capacity demands of its
customers. Regulation SCI requires the Exchange to reasonably
anticipate its capacity needs. NY11-4, which has been three years in
the making, is a product of the SCI planning process. Delaying the
launch of NY11-4 to accommodate the equalization of NY11 would
jeopardize the sound and orderly operation of the Exchange's markets.
Such a danger readily outweighs any concerns that some may have about
the fairness of the Exchange's plan to sequence the Equalization
Project, even if such concerns were well-founded, which they are not.
We note that our customers generally support this view. One
customer sent the Exchange a letter stating the following about the
Exchange's plans:

As noted in your August 12, 2024, comment letter response to the
SEC, the addition of NY11-4 is needed to meet the growing customer
demands for space, power, and upgraded technological capabilities.
OMC echoes these concerns as one of those customers, with an
immediate and significant need to expand its colocation space to
accommodate the growing demands of OMC's business. OMC is a
registered member of the Nasdaq Stock Market and eight other options
and equities exchanges operated by Nasdaq (the ``Exchanges''), with
more than half of those memberships added within roughly the last
year. As a registered Market Maker for hundreds of listed symbols,
OMC actively provides liquidity across the Exchanges. Also, as a
Designated Liquidity Provider, OMC plays a key role in supporting
the active and efficient trading of many new and existing products
listed on the Exchanges. To support this significant amount of
trading activity on the Exchanges, OMC urgently needs the additional
colocation space made available in NY11-4. Any halt or delay of the
NY11-4 launch would prevent OMC's planned expansion and would
endanger OMC's ability to grow and meet the liquidity provision
demands of the Exchanges and their customers.\17\
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\17\ Ltr. From F. Zucek, Old Mission, to B. Kitt, Nasdaq, dated
Aug. 21, 2024.
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[[Page 77954]]

equalizing NY11 would actually diminish the overall average latency
differential among collocated customers' telecom provider connections
because NY11-4 introduces connections at a single latency value in
between the slowest and fastest latencies. That is, the shortest
current telco connection possible into NY11 is 160 ft while the longest
current telco connection possible into NY11 is 680 feet; the
equidistant telco connections into NY11-4 will be 590 feet, which falls
between these two extremes.
Moreover, although the Exchange does not know the precise latency
profiles of each of its colocation customers, it has provided those
customers with the latency profile for NY11-4 and interhall
connectivity through its distribution of a technical specification
document via the Customer Portal. This technical specification document
will allow customers to determine for themselves whether their current
location in NY11 or alternative space in NY11-4 will optimize their
latency profile. It will provide a means for customers to plan ahead
and avoid undesirable outcomes associated with the launch of NY11-4.
Contrary to assertions made by the commenter in connection with the
Prior Proposal,\18\ the technical specification document alleviates
uncertainty that might otherwise compel customers to waste money to
secure unnecessary space in NY11-4 as a defensive means of assuring
themselves the most advantageous position available in the Exchange's
data center campus.
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\18\ See McKay Ltr., supra, at 3-4 (asserting that
``introduction of NY11-4 before equalizing NY11 will compel many
customers to establish a third point of presence--at a cost in
incremental fees paid to Nasdaq alone of at least $2.5 million on a
three-year commitment--to eliminate the risk that the NY11-4
connection is a superior connection to one (or both) of their
existing NY11 points of presence.'').
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Any Advantage Attainable From the Launch of NY11-4 First Will Be
Temporary
Even if a customer was to gain a latency advantage from the launch
of NY11-4 before equalization of NY11, such an advantage would be
temporary given the fact that equalization of NY11 will follow soon
after the launch of NY11-4. The fleeting nature of any such advantage
should also disincentivize colocation customers from engaging in a
``land grab'' for what they perceive to be the most geographically
advantageous space in NY11-4. Indeed, the Exchange sees no evidence of
such a land grab actually occurring with respect to customers'
expressions of interest in NY11-4, notwithstanding warnings to that
effect from the same commenter. As of the date of submission of this
filing, only roughly 10 percent of existing customers, representing a
mix of business models and latency sensitive activities, have requested
space in NY11-4. Moreover, interest in NY11-4 thus far involves a mix
of customers wanting to expand upon their existing space in NY11 and
others that want to move their existing space in NY11 entirely to NY11-
4.
Equalizing NY11 First Will Not Avoid Creating Temporary Customer
Disparities
Finally, the commenter's argument is incorrect that equalizing NY11
before launching NY11-4 would avoid creating disparities among
customers with respect to their telco connections.\19\ Equalizing
telecommunications connectivity in NY11 before launching NY11-4 would
not avoid the reality that full telco connectivity equalization--
however accomplished--will require the introduction of temporary
disparities in the lengths of the cables running between
telecommunications providers and customers in the data center complex.
Even if the Exchange were to pursue equalization of NY11 first, doing
so would necessarily entail certain customers in NY11 experiencing
changes to their telco cable lengths before others during the phased
transition period. Thus, re-sequencing the Equalization Project to
start with NY11 will do nothing to affect these temporary customer
disparities, but instead will needlessly place the markets at risk by
delaying the availability of expanded data center capacity.
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\19\ See id. at 2.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\20\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\21\ in particular, 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. Today, the Exchange offers various cabinet choices and power
options in the data center for colocation customers. The proposal would
expand the cabinet and power options available, by introducing an
additional cabinet option, the Ultra High Density Cabinet, and new
power choices. The proposal would benefit the public interest by
providing customers more cabinet and power options to choose from,
thereby enhancing their ability to tailor their colocation operations
to the requirements of their business operations. In general, the
proposal is consistent with the Act because the Exchange's expansion of
the data center and expansion of available power and cabinets will
enable the Exchange to meet customer needs and address demand for both
cabinets and power. In lieu of collocating directly with the Exchange,
market participants may choose not to collocate at all or to collocate
indirectly through a vendor.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
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The Exchange also believes that the proposal will not be unfairly
discriminatory, consistent with the objectives of Section 6(b)(5) of
the Act \22\ because the expanded cabinet and power options in the data
center would be offered equally to all customers. Although certain
optionality is only offered in NY11-4 because of different power
configurations in NY11-4 as compared to NY11, NY11-4 is merely an
expansion of the data center, and any customer may order cabinets and
power in NY11-4 (and across the data center broadly) on the same terms
as any other customer.
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\22\ Id.
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The Equalization Project Is Consistent With the Act
In addition to the above, and although not strictly relevant to the
proposal at hand, the Exchange also believes that the Equalization
Project, as outlined above and which will begin with the launch of
NY11-4, is consistent with the Act.
Concerns About the Sequencing of the Equalization Project Are Unfounded
In the Prior Proposal, the commenter objected to the Exchange's
plan to accomplish the Equalization Project by first launching
equalized telco connectivity in NY11-4 before launching it in NY11.\23\
The commenter argued that this sequencing of the Equalization Project
would be unfairly discriminatory in that it would exacerbate existing
inequalities in the Exchange's Data Center while also compelling
customers to secure unneeded space in NY11-4 to ensure that they obtain
or maintain the closest possible geographic proximity to their
telecommunications providers' equipment.\24\ These arguments are simply
wrong.
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\23\ See McKay Ltr., supra.
\24\ See id. at 1-2, 5-6.

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[[Page 77955]]

As noted in your August 12, 2024, comment letter response to the
SEC, the addition of NY11-4 is needed to meet the growing customer
demands for space, power, and upgraded technological capabilities.
OMC echoes these concerns as one of those customers, with an
immediate and significant need to expand its colocation space to
accommodate the growing demands of OMC's business. OMC is a
registered member of the Nasdaq Stock Market and eight other options
and equities exchanges operated by Nasdaq (the ``Exchanges''), with
more than half of those memberships added within roughly the last
year. As a registered Market Maker for hundreds of listed symbols,
OMC actively provides liquidity across the Exchanges. Also, as a
Designated Liquidity Provider, OMC plays a key role in supporting
the active and efficient trading of many new and existing products
listed on the Exchanges. To support this significant amount of
trading activity on the Exchanges, OMC urgently needs the additional
colocation space made available in NY11-4. Any halt or delay of the
NY11-4 launch would prevent OMC's planned expansion and would
endanger OMC's ability to grow and meet the liquidity provision
demands of the Exchanges and their customers.\25\
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\25\ Ltr. From F. Zucek, Old Mission, to B. Kitt, Nasdaq, dated
Aug. 21, 2024.
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The Exchange's Sequencing Plan Is Also Pragmatic and Efficient
Expanding the existing data center by building a new wing (NY11-4)
from scratch afforded the Exchange an opportunity to design the
expansion efficiently with telco connectivity equalization incorporated
therein from the outset. This approach avoids the need to later engage
in a wasteful process of retrofitting NY11-4 for telco connectivity
equalization--a process in which the Exchange must now engage with
respect to NY11.
Launching NY11-4 Before Equalizing NY11 Will Not Worsen Inequality
The latency profile of a customer collocating in NY11-4 would be no
better than that of the lowest latency customer and no worse than that
of the highest latency customer colocating presently in NY11. In fact,
the launch of a full-equalized NY11-4 before equalizing NY11 would
actually diminish the overall average latency differential among
collocated customers' telecom provider connections because NY11-4
introduces connections at a single latency value in between the slowest
and fastest latencies. That is, the shortest current telco connection
possible into NY11 is 160 ft while the longest current telco connection
possible into NY11 is 680 feet; the equidistant telco connections into
NY11-4 will be 590 feet, which falls between these two extremes.
Moreover, although the Exchange does not know the precise latency
profiles of each of its colocation customers, it has provided those
customers with the latency profile for NY11-4 and interhall
connectivity through its distribution of a technical specification
document via the Customer Portal. This technical specification document
will allow customers to determine for themselves whether their current
location in NY11 or alternative space in NY11-4 will optimize their
latency profile. It will provide a means for customers to plan ahead
and avoid undesirable outcomes associated with the launch of NY11-4.
Contrary to assertions made by the commenter in connection with the
Prior Proposal,\26\ the technical specification document alleviates
uncertainty that might otherwise compel customers to waste money to
secure unnecessary space in NY11-4 as a defensive means of assuring
themselves the most advantageous position available in the Exchange's
data center campus.
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\26\ See McKay Ltr., supra, at 3-4 (asserting that
``introduction of NY11-4 before equalizing NY11 will compel many
customers to establish a third point of presence--at a cost in
incremental fees paid to Nasdaq alone of at least $2.5 million on a
three-year commitment--to eliminate the risk that the NY11-4
connection is a superior connection to one (or both) of their
existing NY11 points of presence.'').
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Any Advantage Attainable From the Launch of NY11-4 First Will Be
Temporary
Even if a customer was to gain a latency advantage from the launch
of NY11-4 before equalization of NY11, such an advantage would be
temporary given the fact that equalization of NY11 will follow soon
after the launch of NY11-4. The fleeting nature of any such advantage
should also disincentivize colocation customers from engaging in a
``land grab'' for what they perceive to be the most geographically
advantageous space in NY11-4. Indeed, the Exchange sees no evidence of
such a land grab actually occurring with respect to customers'
expressions of interest in NY11-4, notwithstanding warnings to that
effect from the same commenter. As of the date of submission of this
filing, only roughly 10 percent of existing customers, representing a
mix of business models and latency sensitive activities, have requested
space in NY11-4. Moreover, interest in NY11-4 thus far involves a mix
of customers wanting to expand upon their existing space in NY11 and
others that want to move their existing space in NY11 entirely to NY11-
4.
Equalizing NY11 First Will Not Avoid Creating Temporary Customer
Disparities
Finally, the commenter's argument is incorrect that equalizing NY11
before launching NY11-4 would avoid creating disparities among
customers with respect to their telco connections.\27\ Equalizing
telecommunications connectivity in NY11 before launching NY11-4 would
not avoid the reality that full telco connectivity equalization--
however accomplished--will require the introduction of temporary
disparities in the lengths of the cables running between
telecommunications providers and customers in the data center complex.
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\27\ See id. at 2.
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Even if the Exchange were to pursue equalization of NY11 first,
doing so would necessarily entail certain customers in NY11
experiencing changes to their telco cable lengths before others during
the phased transition period. Thus, re-sequencing the Equalization
Project to start with NY11 will do nothing to affect these temporary
customer disparities, but instead will needlessly place the

[[Page 77956]]

markets at risk by delaying the availability of expanded data center
capacity.

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

The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Nothing in the proposal imposes any burden on the ability of other
exchanges to compete. The Exchange operates in a highly competitive
market in which exchanges and other vendors offer colocation services
as a means to facilitate the trading and other market activities of
those market participants who believe that colocation enhances the
efficiency of their operations. As part of its colocation offering, the
Exchange currently offers similar cabinets and power, as do other
exchanges.
Nothing in the Proposal burdens intra-market competition because
the Exchange's colocation services, including those proposed herein,
are available to any customer and customers that wish to order cabinets
and power can do so on a non-discriminatory basis. Use of any
colocation service is completely voluntary, and each market participant
is able to determine whether to use colocation services based on the
requirements of its business operations.
Additionally, and although not strictly relevant to the Proposal,
nothing about the Equalization Plan, as described above, would impose
an undue burden on competition. The Exchange intends for the
Equalization Plan to facilitate increased competition among its
colocation customers by eliminating telco connectivity disparities that
currently provide some customers with latency advantages relative to
others. For the reasons discussed above, the Exchange believes that it
is fair and necessary to sequence the Equalization Project by beginning
with the launch of NY11-4 with an equalized design, rather than with
NY11. Specifically, the timely launch of NY11-4 is necessary for the
Exchange to meet its capacity needs and those of its customers, while
retrofitting NY11 will be a complex process that will require many
months to complete. Moreover, the current sequencing plan will not
worsen existing inequalities, but instead will improve the overall
average disparity in telco cable lengths in the data center. Even
though the sequencing plan will cause some customers to be subject to
telco connectivity equalization before others, this result is
unavoidable even if the Exchange were to equalize NY11 first. Any
customer advantage or disadvantage that might arise from the
Equalization Project would be temporary. Finally, the Exchange has been
transparent about its plans and afforded opportunities to customers to
make informed choices about how to mitigate any adverse consequences,
competitive or otherwise.

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

The Exchange received a written letter of support from Old Mission
Capital LLC, dated August 21, 2024.

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

Because the foregoing 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, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \28\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\29\
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\28\ 15 U.S.C. 78s(b)(3)(A)(iii).
\29\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

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 necessary or
appropriate in the public interest, for the protection of investors, or
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

<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#dcaea9b0b9f1bfb3b1b1b9b2a8af9cafb9bff2bbb3aa"><span class="__cf_email__" data-cfemail="582a2d343d753b3735353d362c2b182b3d3b763f372e">[email&#160;protected]</span></a>. Please include
file number SR-ISE-2024-45 on the subject line.

Paper Comments

<bullet> 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-ISE-2024-45. 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 website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). 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 website 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-ISE-2024-45 and should be
submitted on or before October 15, 2024.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-21748 Filed 9-23-24; 8:45 am]
BILLING CODE 8011-01-P

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