Nasdaq Texas, LLC, a self-regulatory organization under the Securities Exchange Act of 1934, has filed a proposed rule change with the Securities and Exchange Commission to expand its co-location services. The filing, effective immediately upon submission on March 5, 2026, introduces cabinet offerings, power options, and related services in the exchange's new data center expansion area, designated as NY11-5. This development comes as part of ongoing efforts to accommodate growing demand for co-location, where market participants house their servers near exchange systems to reduce latency in trading. Published in the Federal Register on March 20, 2026, the notice invites public comments and underscores the exchange's push to standardize services across its data center campus while adhering to statutory requirements. The significance lies in enhancing customer options without altering competitive dynamics in the market.
Background on Co-Location Services
Co-location allows market participants, such as trading firms and brokers, to place their computer servers in the same data center as an exchange's matching engine. This setup minimizes delays in data transmission, which is critical for high-frequency trading and other time-sensitive activities. Nasdaq Texas operates its data center in a campus that includes the original NY11 area, the existing expansion NY11-4, and now the forthcoming NY11-5. Current rules under General 8, Section 1 outline various cabinet and power configurations available in NY11 and NY11-4. The proposal extends select NY11-4 options to NY11-5, responding to capacity needs as the exchange anticipates opening this area in the first quarter of 2026. This builds on prior expansions, such as the introduction of NY11-4 services, which were designed to handle diverse power requirements without favoring any user group.
Details of the Proposed Rule Change
The core of the proposal involves replicating NY11-4's cabinet offering in NY11-5, including standardized cabinets that support uniform cooling, power distribution, and structural loads. As noted in the filing, the exchange does not permit customer-provided cabinets to maintain consistency across the facility. Additionally, five specific cabinet power options currently limited to NY11-4 will now be available in NY11-5: 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. These options cater to varying capacity needs, with Phase 3 providing higher power density through a three-wire delivery system compared to Phase 1's single-wire approach.
Power distribution units, or PDUs - devices that distribute electric power to multiple outputs - are also extended to NY11-5. This includes Phase 1 and Phase 3 PDUs, compatible with the aforementioned power circuits, as well as a switch-monitored PDU add-on for remote control of power sockets. Customers can opt for these or supply their own PDUs, emphasizing the voluntary nature of the services. The filing specifies that fees for NY11-5 offerings will be established in a separate proposal, with current rule amendments marking placeholders like 'TBD' for installation and monthly charges. Implementation allows advance orders to gauge demand, though fee liability begins only upon access to the space.
Statutory Basis and Regulatory Compliance
The exchange justifies the proposal under Section 6(b) of the Securities Exchange Act, which requires rules to promote just and equitable principles of trade and protect investors. Specifically, it aligns with Section 6(b)(5) by removing impediments to a free and open market through increased optionality. The filing argues that the changes do not unfairly discriminate, as all customers can access the services on equal terms, and usage remains voluntary. Alternatives include indirect co-location via vendors or forgoing it entirely. On competition, the exchange states no burden is imposed, noting that similar offerings exist across other exchanges and that the proposal is limited to physical services, not data communications or speed-related aspects like the ongoing Equalization Project.
The rule change qualifies for immediate effectiveness under Section 19(b)(3)(A)(iii) and Rule 19b-4(f)(6), as it does not significantly affect investor protection or competition. The SEC waived the 30-day operative delay, allowing prompt implementation. No comments were received prior to filing, but the notice solicits input within 60 days.
Perspectives and Implications
Stakeholders view co-location expansions differently. Market participants, including high-frequency traders, may welcome the added capacity for its potential to support scalable operations, as evidenced by the exchange's emphasis on meeting business needs. Regulators and consumer advocates, however, often scrutinize such developments for risks of unequal access, though the filing's non-discriminatory stance addresses this. Short-term implications include smoother integration for users transitioning to NY11-5, with advance ordering aiding infrastructure planning. Long-term, this could influence market efficiency by accommodating more participants, potentially stabilizing latency amid growing trading volumes. Critics might argue that varying power options across areas could create subtle preferences, but the exchange counters that choices depend on user needs, not inherent superiority. Precedents like prior SEC approvals for similar Nasdaq expansions reinforce the proposal's viability, while ongoing debates in securities regulation highlight tensions between innovation and fairness.
In summary, Nasdaq Texas's proposal extends established co-location options to NY11-5, fostering greater flexibility in a competitive landscape. Potential next steps include the fee filing and public comment review, which could shape final implementation. Challenges may arise from evolving demand or regulatory scrutiny, while debates persist on balancing technological advancement with equitable market access.
