Notice2024-17501
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee for Remote Hands Service
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Published
August 8, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 153 (Thursday, August 8, 2024)</title>
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[Federal Register Volume 89, Number 153 (Thursday, August 8, 2024)]
[Notices]
[Pages 64989-64992]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-17501]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100639; File No. SR-MRX-2024-28]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee
for Remote Hands Service
August 2, 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 July 19, 2024, Nasdaq MRX, LLC (``MRX'' 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 fee for Remote Hands
Services, as described further below.
While these amendments are effective upon filing, the Exchange has
designated the proposed amendments to be operative on August 19, 2024.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/mrx/rules">https://listingcenter.nasdaq.com/rulebook/mrx/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
[[Page 64990]]
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 a service fee
relating to connectivity and co-location services. Specifically, the
Exchange proposes to decrease its fee for Remote Hands Services, at
General 8, Section 1, to $151.50 per hour.
General 8, Section 1 includes the Exchange's fees that relate to
co-location services, including ``Remote Hands Services.'' The term
``Remote Hands Services'' refers to the use of Exchange engineers to
perform on-site technical support tasks in its Data Center on behalf of
its co-located customers, including the following: (1) power cycling of
equipment; (2) patching and plugging in cabling and circuits; (3)
observing, describing or reporting on display indicators; (4)
configuration of hardware components instructed by the customer; (5)
diagnosis and repairs as instructed by the customer; (6) swapping
hardware components with customer-supplied spares or upgrades; (7)
troubleshooting heat related issues as instructed by the Customer; and
(8) returning defective equipment to the manufacturer or customer.
Earlier this year, the Exchange increased its $150 per hour fee for
Remote Hands Services, along with other connectivity and co-location
services, by 5.5%, to partially account for the cumulative effects of
inflation on the value to the Exchange of the revenues it earns through
such fees.\3\ Now, the Exchange proposes to lower the Remote Hands
Services fee from its current level, $158 per hour, to $151.50 per
hour, with the net effect of providing for an overall smaller 1%
increase over the original $150 hourly rate.
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\3\ The Exchange initially filed this proposed pricing change on
March 1, 2024 (SR-MRX-2024-04). On April 29, 2024, the Exchange
withdrew that filing and submitted SR-MRX-2024-10. On June 27, 2024,
the Exchange withdrew and replaced that filing with SR-MRX-2024-18.
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The purpose of the proposed change in the Exchange's Remote Hands
Services fee is the same as that which the Exchange expressed when it
increased the fee by 5.5% earlier this year. That is, the change would
enable the Exchange to maintain and improve its market technology and
services. Prior to SR-MRX-2024-18, the Exchange had not increased its
Remote Hands fee since 2017.\4\ 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%.\5\ Moreover, a more specific and pertinent gauge of
inflation--the Producer Price Index (``PPI'') for data processing,
hosting and related services, active services pages, and other IT
infrastructure provisioning services--increased 16.1% from 2017 to
2024.\6\ An even more specific gauge of inflation--average hourly
earnings (``AHE'') growth for Computing Infrastructure--increased 44%
for non-managers and 38% for all employees from 2017 to 2024.\7\
Notwithstanding such significant inflation, the Exchange had not
increased its Remote Hands Service fees during this time, thereby
eroding the value of the revenue it collects through this fee.\8\
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\4\ In 2017, the Exchange synchronized its options for
connecting to the Exchange with that of its sister exchanges and
adopted uniform colocation services, including the Remote Hands
Service. See Securities Exchange Act Release No. 34-81907 (October
19, 2017), 82 FR 49447 (October 25, 2017) (SR-MRX-2017-21).
\5\ 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).
\6\ See <a href="https://data.bls.gov/timeseries/PCU5182105182105">https://data.bls.gov/timeseries/PCU5182105182105</a> (Last
updated June 24, 2024).
\7\ See <a href="https://www.bls.gov/web/empsit/ceseeb3a.htm">https://www.bls.gov/web/empsit/ceseeb3a.htm</a> (Last
updated July 5, 2024); <a href="https://www.bls.gov/web/empsit/ceseeb8a.htm">https://www.bls.gov/web/empsit/ceseeb8a.htm</a>
(Last updated July 5, 2024).
\8\ 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.
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The proposed fee represents a decrease in the existing $158 per
hour rate, and a net overall 1% increase from the original $150 per
month fee. The 1% fee increase, resulting in a proposed amended rate of
$151.50 per hour, is far below the rates of inflation, as measured by
either the CPI, the PPI, or the AHE since 2017. Although the Exchange
believes it would be reasonable to increase the fee by an amount equal
to the full rates of inflation, however measured, to reestablish the
initial value of the revenues it earns through its fees, the Exchange
does not propose to do this. In fact, the Exchange now proposes to
recalibrate even its initial 5.5% fee increase, because the Exchange is
sensitive to the sticker shock that customers may experience when the
Exchange raises rates. Instead, the Exchange proposes only a modest 1%
increase over the prior $150 per month rate, an amount that the
Exchange believes to be reasonable on its face as it is significantly
less than various measures of inflation discussed above, and even less
than the original 5.5% increase.
The Exchange believes that it is reasonable to increase its fee 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. 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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\9\ See, e.g., Securities Exchange Act Release No. 34-100342
(June 14, 2024), 89 FR 52132 (June 21, 2024) (SR-CboeBYX-2024-021).
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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. These investments, and the value
they provide to customers, far exceed the amount of the proposed net
price increase over the prior $150 per hour rate. 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.
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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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[[Page 64991]]
This belief is based on a couple factors. First, the current fee
does not properly reflect the value of the service, as fees for the
service in question has 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, prior to SR-MRX-2024-18, the Exchange had not
increased its Remote Hands Service fee since it introduced the fee in
2017. This means that this fee has 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\ Moreover, a more specific and pertinent
gauge of inflation--the Producer Price Index (``PPI'') for data
processing, hosting and related services, active services pages, and
other IT infrastructure provisioning services--increased 16.1% from
2017 to 2024.\13\ An even more specific gauge of inflation--average
hourly earnings (``AHE'') growth for Computing Infrastructure--
increased 44% for non-managers and 38% for all employees from 2017 to
2024.\14\ Notwithstanding such significant inflation, the Exchange had
not increased its connectivity fees until 2024, thereby eroding the
value of the revenue it collects through such fee.
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\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\ See <a href="https://data.bls.gov/timeseries/PCU5182105182105">https://data.bls.gov/timeseries/PCU5182105182105</a> (Last
updated June 24, 2024).
\14\ See <a href="https://www.bls.gov/web/empsit/ceseeb3a.htm">https://www.bls.gov/web/empsit/ceseeb3a.htm</a> (Last
updated July 5, 2024); <a href="https://www.bls.gov/web/empsit/ceseeb8a.htm">https://www.bls.gov/web/empsit/ceseeb8a.htm</a>
(Last updated July 5, 2024).
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The proposed fee represents a decrease from the existing $158 per
hour fee and a 1% overall net increase from the original $150 per hour
fee, which is far below the rates of inflation, as measured by either
the CPI, the PPI, or AHE since 2017. Although the Exchange believes it
would be reasonable to increase the fee by an amount equal to the full
rates of inflation, however measured, to reestablish the initial value
of the revenues it earns through its fees, the Exchange does not
propose to do this. In fact, the Exchange now proposes to recalibrate
even its initial 5.5% fee increase, because the Exchange is sensitive
to the sticker shock that customers may experience when the Exchange
raises rates. Instead, the Exchange proposes only a modest 1% increase
over the prior $150 per month rate, an amount that the Exchange
believes to be reasonable on its face as it is significantly less than
various measures of inflation discussed above, and even less than the
original 5.5% increase.
The Exchange believes that it is reasonable to increase its fee 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 increase. 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.
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\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>.
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As such, the Exchange must set its fees, including its fees for
Remote Hands Services, 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 Remote Hands Services for Exchange connectivity would
only serve to discourage participation on the Exchange. Moreover, if
the Exchange charges excessive fees, it may stand to lose not only co-
location and connectivity revenues but also other revenues, including
revenues associated with the execution of orders.
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\16\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
\17\ 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
[[Page 64992]]
trade at another venue if exchange fees are not set competitively.
No Unfair Discrimination
The Exchange believes that the proposed fee change is not unfairly
discriminatory because the fee is assessed uniformly across all market
participants that voluntarily purchase Remote Hands Services, 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 Remote Hands
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\
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\18\ 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#f280879e97df919d9f9f979c8681b2819791dc959d84"><span class="__cf_email__" data-cfemail="2351564f460e404c4e4e464d5750635046400d444c55">[email protected]</span></a>. Please include
file number SR-MRX-2024-28 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-MRX-2024-28. 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-MRX-2024-28 and should be
submitted on or before August 29, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-17501 Filed 8-7-24; 8:45 am]
BILLING CODE 8011-01-P
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