Notice2024-05945
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Fees for Connectivity and Co-Location Services
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Published
March 21, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 56 (Thursday, March 21, 2024)</title>
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[Federal Register Volume 89, Number 56 (Thursday, March 21, 2024)]
[Notices]
[Pages 20287-20290]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-05945]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99744; File No. SR-NASDAQ-2024-008]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Fees for Connectivity and Co-Location Services
March 15, 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 March 1, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. 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 amend the Exchange's fees for connectivity
and co-location services, as described further below.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/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 purpose of the proposed rule change is to amend the Exchange's
fees relating to connectivity and co-location services. Specifically,
the Exchange proposes to raise its fees for connectivity and co-
location services in General 8, fees assessed for remote multi-cast
ITCH (``MITCH'') Wave Ports in Equity 7, Section 115, and certain fees
related to Nasdaq Testing Facilities in Equity 7, Section 130 by 5.5%,
with certain exceptions.
General 8, Section 1 includes the Exchange's fees that relate to
connectivity, including fees for cabinets, external telco/inter-cabinet
connectivity fees, fees for connectivity to the Exchange, fees for
connectivity to third party services, fees for market data
connectivity, fees for cabinet power install, and fees for additional
charges and services. General 8, Section 2 includes the Exchange's fees
for direct connectivity services, including fees for direct circuit
connection to the Exchange, fees for direct circuit connection to third
party services, and fees for point of presence connectivity. With the
exception of the Exchange's GPS Antenna fees,\3\ the Exchange proposes
to increase its fees throughout General 8 by 5.5%.
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\3\ The Exchange proposes to exclude the GPS Antenna fees from
the proposed fee increase because, unlike the other fees in General
8, the Exchange recently increased its GPS Antenna fees. See
Securities Exchange Act Release No. 34-99126 (December 8, 2023), 88
FR 86712 (December 14, 2023) (SR-NASDAQ-2023-052).
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In addition to increasing fees in General 8, the Exchange also
proposes to increase certain fees in Equity 7. First, the Exchange
proposes to increase the installation and recurring monthly fees
assessed for remote MITCH Wave Ports \4\ in Equity 7, Section 115(g)(1)
by 5.5%. In addition, the Exchange proposes to increase certain fees in
Section 130(d), which relate to the Nasdaq Testing Facility. Equity 7,
[[Page 20288]]
Section 130(d)(1)(C) provides that subscribers to the Nasdaq Testing
Facility (``NTF'') located in Carteret, New Jersey shall pay a fee of
$1,000 per hand-off, per month for connection to the NTF. The hand-off
fee includes either a 1Gb or 10Gb switch port and a cross connect to
the NTF. In addition, Equity 7, Section 130(d)(1)(C) provides that
subscribers shall also pay a one-time installation fee of $1,000 per
hand-off. The Exchange proposes to increase these aforementioned fees
by 5.5% to require that subscribers to the NTF shall pay a fee of
$1,055 per hand-off, per month for connection to the NTF and a one-time
installation fee of $1,055 per hand-off.
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\4\ Remote MITCH Wave Ports are for clients co-located at other
third-party data centers, through which NASDAQ TotalView ITCH market
data is distributed after delivery to those data centers via
wireless network.
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The proposed increases in fees would enable the Exchange to
maintain and improve its market technology and services. With the
exception of fees that were established as part of a new service in
2017 (and have remained unchanged since their adoption), the Exchange
has not increased any of the fees included in the proposal since 2015,
and many of the fees date back to between 2010 and 2014. However, since
2015, there has been notable inflation. Between 2015 and 2024, the
dollar had an average inflation rate of 2.97% per year, producing a
cumulative price increase of 30.12%.\5\ Notwithstanding inflation, the
Exchange historically has not increased its fees every year.\6\ The
proposed fees represent a 5.5% increase from the current fees, which is
far below inflation since 2015, which exceeded 30%.\7\ The proposed
5.5% increase is comparable to recent inflation rates for one-year
periods. For example, in 2023, the inflation rate was 4.12% and in
2022, the inflation rate was 8%.\8\ The Exchange notes that other
exchanges have filed for comparable or higher increases in certain
connectivity-related fees, based in part on similar rationale.\9\
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\5\ See <a href="https://www.officialdata.org/us/inflation/2015?amount=1">https://www.officialdata.org/us/inflation/2015?amount=1</a>
(Last updated February 27, 2024).
\6\ Unregulated competitors providing connectivity and co-
location services often have annual price increases written into
their agreements with customers to account for inflation and rising
costs.
\7\ Between 2017 and 2024, inflation exceeded 25%. See <a href="https://www.officialdata.org/us/inflation/2017?amount=1">https://www.officialdata.org/us/inflation/2017?amount=1</a> (Last updated
February 27, 2024).
\8\ See <a href="https://www.officialdata.org/us/inflation/2022?endYear=2023&amount=1">https://www.officialdata.org/us/inflation/2022?endYear=2023&amount=1</a>.
\9\ See, e.g., Securities Exchange Act Release No. 34-99550
(February 16, 2024), 89 FR 13763 (February 23, 2024) (SR-CboeBYX-
2024-006).
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In offering connectivity and co-location services, the Exchange
incurs certain costs, including costs related to the data center
facility, hardware and equipment, and personnel. The Exchange's costs
to offer such services have risen, in part because the Exchange is
subject to annual escalation clauses that increase certain costs for
the Exchange. The Exchange seeks to cover a portion of its increased
costs by the proposed 5.5% increase in fees as described above. The
Exchange does not seek to cover the full extent of its cost increases
with this proposal. In addition, the Exchange continues to invest in
improvements that enhance the value of its connectivity and co-location
services, including by refreshing hardware and expanding the co-
location facility to offer customers additional space and power.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
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This belief is based on a couple factors. First, the current fees
do not properly reflect the value of the services and products, as fees
for the services and products in question have been static in nominal
terms, and therefore falling in real terms due to inflation. Second,
exchange fees are constrained by the fact that market participants can
choose among 16 different venues for equities trading and 17 different
venues for options trading, and therefore no single venue can charge
excessive fees for its products without losing customers and market
share.
Real Exchange Fees Have Fallen
As explained above, with the exception of fees that were
established as part of a new service in 2017 (and have remained
unchanged since their adoption), the Exchange has not increased any of
the fees included in the proposal since 2015, and many of the fees date
back to between 2010 and 2014. This means that such fees have fallen in
real terms due to inflation, which has been notable. Between 2015 and
2024, the dollar had an average inflation rate of 2.97% per year,
producing a cumulative price increase of 30.12%.\12\ Notwithstanding
inflation, the Exchange historically has not increased its fees every
year.\13\ As noted above, the Exchange has not increased the fees in
this proposal for over 8 years (or in the case of services introduced
in 2017, for over 6 years since the services were introduced).
Accordingly, the Exchange believes that the proposed fees are
reasonable as they represent a 5.5% increase from the current fees,
which is far below inflation since 2015, which exceeded 30%.\14\ The
proposed 5.5% increase is comparable to recent inflation rates for one-
year periods. For example, in 2023, the inflation rate was 4.12% and in
2022, the inflation rate was 8%.\15\
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\12\ See <a href="https://www.officialdata.org/us/inflation/2015?amount=1">https://www.officialdata.org/us/inflation/2015?amount=1</a>
(Last updated February 27, 2024).
\13\ As noted above, unregulated competitors providing
connectivity and co-location services often have annual price
increases written into their agreements with customers to account
for inflation and rising costs.
\14\ Between 2017 and 2024, inflation exceeded 25%. See <a href="https://www.officialdata.org/us/inflation/2017?amount=1">https://www.officialdata.org/us/inflation/2017?amount=1</a> (Last updated
February 27, 2024).
\15\ See <a href="https://www.officialdata.org/us/inflation/2022?endYear=2023&amount=1">https://www.officialdata.org/us/inflation/2022?endYear=2023&amount=1</a>.
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Not only have real exchange fees fallen, but the Exchange's costs
to provide connectivity and co-location services have increased. As
stated above, in offering connectivity and co-location services, the
Exchange incurs certain costs, including costs related to the data
center facility, hardware and equipment, and personnel. The Exchange's
costs to offer such services have risen, in part because the Exchange
is subject to annual escalation clauses that increase certain costs for
the Exchange. The Exchange seeks to cover a portion of its increased
costs by the proposed 5.5% increase in fees as described above. The
Exchange does not seek to cover the full extent of its cost increases
with this proposal. In addition, the Exchange continues to invest in
improvements that enhance the value of its connectivity and co-location
services, including by refreshing hardware and expanding the co-
location facility to offer customers additional space and power.
Customers Have a Choice in Trading Venue
Customers face many choices in where to trade both equities and
options. Market participants will continue to choose trading venues and
the method of connectivity based on their specific needs. No broker-
dealer is required to become a Member of the Exchange. There is no
regulatory requirement that any market participant connect to any one
exchange, nor that any market participant connect at a particular
connection speed or act in a particular capacity on the Exchange, or
trade any particular product offered on an exchange. Moreover,
membership is not a requirement to participate on the Exchange. Indeed,
the Exchange is unaware of any one exchange whose
[[Page 20289]]
membership includes every registered broker-dealer. The Exchange also
believes substitutable products and services are available to market
participants, including, among other things, other equities and options
exchanges that a market participant may connect to in lieu of the
Exchange, indirect connectivity to the Exchange via a third-party
reseller of connectivity, and/or trading of equities or options
products within markets which do not require connectivity to the
Exchange, such as the Over-the-Counter (OTC) markets.
There are currently 16 registered equities exchanges that trade
equities and 17 exchanges offering options trading services. No single
equities exchange has more than 15% of the market share.\16\ No single
options exchange trades more than 14% of the options market by volume
and only one of the 17 options exchanges has a market share over 10
percent.\17\ This broad dispersion of market share demonstrates that
market participants can and do exercise choice in trading venues.
Further, low barriers to entry mean that new exchanges may rapidly
enter the market and offer additional substitute platforms to further
compete with the Exchange and the products it offers.
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\16\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (Last updated January 11, 2024), available at
<a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
\17\ See Nasdaq, Options Market Statistics (Last updated January
11, 2024), available at <a href="https://www.nasdaqtrader.com/Trader.aspx?id=OptionsVolumeSummary">https://www.nasdaqtrader.com/Trader.aspx?id=OptionsVolumeSummary</a>.
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As such, the Exchange must set its fees, including its fees for
connectivity and co-location services and products, competitively. If
not, customers may move to other venues or reduce use of the Exchange's
services. ``If competitive forces are operative, the self-interest of
the exchanges themselves will work powerfully to constrain unreasonable
or unfair behavior.'' \18\ Accordingly, ``the existence of significant
competition provides a substantial basis for finding that the terms of
an exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \19\ Disincentivizing market
participants from purchasing Exchange connectivity would only serve to
discourage participation on the Exchange, which ultimately does not
benefit the Exchange. Moreover, if the Exchange charges excessive fees,
it may stand to lose not only connectivity revenues but also other
revenues, including revenues associated with the execution of orders.
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\18\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
\19\ Id.
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In summary, the proposal represents an equitable allocation of
reasonable dues, fees and other charges because Exchange fees have
fallen in real terms and customers have a choice in trading venue and
will exercise that choice and trade at another venue if exchange fees
are not set competitively.
No Unfair Discrimination
The Exchange believes that the proposed fee changes are not
unfairly discriminatory because the fees are assessed uniformly across
all market participants that voluntarily subscribe to or purchase
connectivity and co-location services or products, which are available
to all customers.
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 burdens inter-market competition (the
competition among self-regulatory organizations) because approval of
the proposal does not impose any burden on the ability of other
exchanges to compete. The Exchange operates in a highly competitive
market in which market participants can determine whether or not to
connect to the Exchange based on the value received compared to the
cost of doing so. Indeed, market participants have numerous alternative
exchanges that they may participate on and direct their order flow, as
well as off-exchange venues, where competitive products are available
for trading.
Nothing in the proposal burdens intra-market competition (the
competition among consumers) because the Exchange's connectivity and
co-location services are available to any customer under the same fee
schedule as any other customer, and any market participant that wishes
to purchase such services can do so on a non-discriminatory basis.
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\20\
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\20\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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: (i)
necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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#d5a7a0b9b0f8b6bab8b8b0bba1a695a6b0b6fbb2baa3"><span class="__cf_email__" data-cfemail="691b1c050c440a0604040c071d1a291a0c0a470e061f">[email protected]</span></a>. Please include
file number SR-NASDAQ-2024-008 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-NASDAQ-2024-008. 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,
[[Page 20290]]
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-NASDAQ-2024-008 and should
be submitted on or before April 11, 2024.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-05945 Filed 3-20-24; 8:45 am]
BILLING CODE 8011-01-P
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