Home/Federal/Federal Register/2024-10815

Notice2024-10815

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

Primary source

Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.

Published

May 17, 2024

Issuing agencies

Securities and Exchange Commission

Full Text

<html>
<head>
<title>Federal Register, Volume 89 Issue 97 (Friday, May 17, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 97 (Friday, May 17, 2024)]
[Notices]
[Pages 43444-43446]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-10815]

[[Page 43444]]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100120; File No. SR-ISE-2024-16]

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

May 13, 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 April 29, 2024, Nasdaq ISE, LLC (``ISE'' 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.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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/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 purpose of the proposed rule change is to amend the Exchange's
fees relating to connectivity and co-location services.\3\
Specifically, the Exchange proposes to raise its fees for connectivity
and co-location services in General 8 as well as certain fees related
to its Testing Facilities in Options 7, Section 8 by 5.5%, with certain
exceptions.
---------------------------------------------------------------------------

\3\ The Exchange initially filed the proposed pricing change on
March 1, 2024 (SR-ISE-2024-09). The instant filing replaces SR-ISE-
2024-09, which was withdrawn on April 29, 2024.
---------------------------------------------------------------------------

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 and the Cabinet Proximity
Option Fee for cabinets with power density >10kW,\4\ the Exchange
proposes to increase its fees throughout General 8 by 5.5%.
---------------------------------------------------------------------------

\4\ 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. 34-99131 (December 11, 2023), 88
FR 86979 (December 15, 2023) (SR-ISE-2023-33). The Exchange also
proposes to exclude the Cabinet Proximity Option Fee for cabinets
with power density >10kW from the proposed fee increase because the
Exchange recently established such fee. See Securities Exchange Act
Release No. 34-99799 (March 20, 2024), 89 FR 21162 (March 26, 2024)
(SR-ISE-2024-13).
---------------------------------------------------------------------------

In addition to increasing fees in General 8, the Exchange also
proposes to increase certain fees in Options 7, Section 8, which relate
to the Testing Facility. Options 7, Section 8(I) provides that
subscribers to the Testing Facility located in Carteret, New Jersey
shall pay a fee of $1,000 per hand-off, per month for connection to the
Testing Facility. The hand-off fee includes either a 1Gb or 10Gb switch
port and a cross connect to the Testing Facility. In addition, Options
7, Section 8(I) 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 Testing Facility shall pay a fee of $1,055 per hand-off, per
month for connection to the Testing Facility and a one-time
installation fee of $1,055 per hand-off.
The proposed increases in fees would enable the Exchange to
maintain and improve its market technology and services. The Exchange
has not increased any of the fees included in the proposal since
2017.\5\ However, since 2017, there has been notable inflation. Between
2017 and 2024, the dollar had an average inflation rate of 3.34% per
year, producing a cumulative price increase of 25.82%.\6\
Notwithstanding inflation, the Exchange historically has not increased
its fees every year.\7\ The proposed fees represent a 5.5% increase
from the current fees, which is far below inflation since 2017, which
exceeded 25%. In addition to being far below the cumulative inflation
rate since 2017, the Exchange also believes that the proposed 5.5%
increase is reasonable because it 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 is
sensitive to the sticker shock that would occur if the Exchange raised
its fees by more than 25% and therefore proposes a more modest
increase, similar to that of inflation in recent one-year periods.
---------------------------------------------------------------------------

\5\ See Securities Exchange Act Release No. 34-81903 (October
19, 2017), 82 FR 49450 (October 25, 2017) (SR-ISE-2017-91).
\6\ 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).
\7\ Unregulated competitors providing connectivity and
colocation services often have annual price increases written into
their agreements with customers to account for inflation and rising
costs.
\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. 34-100004
(April 22, 2024), 89 FR 32465 (April 26, 2024) (SR-CboeBYX-2024-
012).
---------------------------------------------------------------------------

In addition, the Exchange continues to invest in maintaining,
improving, and enhancing its connectivity and co-location products,
services, and facilities--for the benefit and often at the behest of
its customers. Such

[[Page 43445]]

enhancements include refreshing hardware and expanding the Exchange's
existing co-location facility to offer customers additional space and
power. These investments, and the value they provide to customers, far
exceed the amount of the proposed price increases. It is reasonable and
consistent with the Act for the Commission to allow the Exchange to
recoup these investments by charging fees, lest the Commission will
disincentivize the Exchange to make similar investments in the future--
a result that would be detrimental to the Exchange's competitiveness as
well as the interests of market participants and investors.
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.
---------------------------------------------------------------------------

\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

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 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, the Exchange has not increased any of the fees
included in the proposal since 2017. This means that such fees have
fallen in real terms due to inflation, which has been notable. Between
2017 and 2024, the dollar had an average inflation rate of 3.34% per
year, producing a cumulative price increase of 25.82%.\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 6 years. 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
2017, which exceeded 25%. In addition to being far below the inflation
rate since 2017, the Exchange also believes that the proposed 5.5%
increase is reasonable because it 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%.\14\ The Exchange is
sensitive to the sticker shock that would occur if the Exchange raised
its fees by more than 25% and therefore proposes a more modest
increase, similar to that of inflation in recent one-year periods.
---------------------------------------------------------------------------

\12\ 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).
\13\ As noted above, unregulated competitors providing
connectivity and colocation services often have annual price
increases written into their agreements with customers to account
for inflation and rising costs.
\14\ 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>.
---------------------------------------------------------------------------

The Exchange believes that it is reasonable to increase its fees to
compensate for inflation because, over time, inflation has degraded the
value of each dollar that the Exchange collects in fees, such that the
real revenue collected today is considerably less than that same
revenue collected in 2017. The Exchange notes that this inflationary
effect is a general phenomenon that is independent of any change in the
Exchange's costs in providing its goods and services. The Exchange
believes that it is reasonable for it to offset, in part, this erosion
in the value of the revenues it collects.
In addition, the Exchange continues to invest in maintaining,
improving, and enhancing its connectivity and co-location products,
services, and facilities--for the benefit and often at the behest of
its customers. Such enhancements include refreshing hardware and
expanding the Exchange's existing co-location facility to offer
customers additional space and power. Again, these investments, and the
value they provide to customers, far exceed the amount of the proposed
price increases. It is reasonable and consistent with the Act for the
Commission to allow the Exchange to recoup these investments by
charging fees, lest the Commission will disincentivize the Exchange to
make similar investments in the future--a result that would be
detrimental to the Exchange's competitiveness as well as the interests
of market participants and investors.
Customers Have a Choice in Trading Venue
Customers face many choices in where to trade 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 membership includes every registered
broker-dealer. The Exchange also believes substitutable products and
services are available to market participants, including, among other
things, other 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 options
products within markets which do not require connectivity to the
Exchange, such as the Over-the-Counter (OTC) markets.
There are currently 17 exchanges offering options trading services.
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.\15\ 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.
---------------------------------------------------------------------------

\15\ 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>.
---------------------------------------------------------------------------

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.'' \16\ 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.'' \17\ Disincentivizing market
participants from purchasing Exchange connectivity would only serve

[[Page 43446]]

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.
---------------------------------------------------------------------------

\16\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\17\ Id.
---------------------------------------------------------------------------

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.\18\ 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.
---------------------------------------------------------------------------

\18\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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#ccbeb9a0a9e1afa3a1a1a9a2b8bf8cbfa9afe2aba3ba"><span class="__cf_email__" data-cfemail="750700191058161a1818101b0106350610165b121a03">[email&#160;protected]</span></a>. Please include
file number SR-ISE-2024-16 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-2024-16. 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-2024-16 and should be
submitted on or before June 7, 2024.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

\19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10815 Filed 5-16-24; 8:45 am]
BILLING CODE 8011-01-P

</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>

View on FederalRegister.gov →Plain-text source

Indexed from Federal Register on May 17, 2024.

This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.