Nasdaq proposes change to billing rules in relation to SIAC systems issue

Maria Nikolova

A systems issue experienced by SIAC on August 12, 2019 impacted trade and quote dissemination across all markets.

Recent issues involving SIAC have prompted Nasdaq to propose rule changes. Nasdaq proposes to modify the manner in which it calculates volume, liquidity and quoting thresholds applicable to billing on the Exchange in relation to a systems issue experienced by SIAC on August 12, 2019, which impacted trade and quote dissemination across all markets.

SIAC is the operator of the Consolidated Quote System and Consolidated Tape System, which disseminate real-time trade and quote information in New York Stock Exchange LLC and Bats, NYSE Arca, NYSE American and other regional exchange listed securities.

In particular, on August 12, 2019, SIAC determined to fail over to back up servers after receiving indications that its primary systems had become unstable, causing connectivity disruptions. The fail over to secondary systems failed to fix the problem, leading to market-wide issues with the Consolidated Quote System and the Consolidated Tape System, including gaps in the intra-day trades, quotes, and other messages that were attempted to be sent to it. As a result, the accuracy of the transaction and quotation data for August 12, 2019 is unknown, Nasdaq says.

Nasdaq notes that, as a result of these issues, it is unable to accurately calculate member transaction fees and credits, including calculations for the Exchange’s incentive programs, as a number of the Exchange’s transaction fees and credits are based on trading, quoting and liquidity thresholds that members must satisfy in order to qualify for the particular rates. That is why Nasdaq proposes to exclude August 12, 2019 from all tier calculations described in Equity 7, Sections 114 (which concerns the Exchange’s market quality incentive programs) and 118 (which concerns the fees and credits for use of the Exchange’s order execution and routing services). The aim of the change is to ensure that a member that would otherwise qualify for a particular threshold during August 2019, and the corresponding transaction rate and/or incentive, would not be negatively impacted by the August 12, 2019 systems issue.

Nasdaq argues the proposed change is reasonable because it would reasonably ensure that a member’s qualification for various pricing programs would be based on the data that the Exchange believes is accurate. The Exchange also believes that the proposed rule change is reasonable because the SIAC systems issue that caused inaccurate transaction and quotation data was not within Nasdaq’s control nor can Nasdaq correct or otherwise remediate the issue.

The United States Securities and Exchange Commission is inviting comments on the proposal.

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