Notice2024-25316
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
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Published
October 31, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 211 (Thursday, October 31, 2024)</title>
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[Federal Register Volume 89, Number 211 (Thursday, October 31, 2024)]
[Notices]
[Pages 86879-86882]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-25316]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101441; File No. SR-ISE-2024-50]
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
October 25, 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 October 11, 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 Exchange. 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/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 10%, with certain
exceptions.
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\3\ The Exchange initially filed the proposed pricing change on
March 1, 2024 (SR-ISE-2024-09). On April 29, 2024, the Exchange
withdrew that filing and submitted SR-ISE-2024-16. The Exchange
withdrew that filing on June 27, 2024 and replaced it with SR-ISE-
2024-23. The Exchange withdrew SR-ISE-2024-23 and replaced it with
SR-ISE-2024-44 on September 10, 2024. The instant filing replaces
SR-ISE-2024-44.
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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 10%.
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\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. 34-100209 (May 22, 2024), 89 FR 46512 (May 29, 2024)
(SR-ISE-2024-19). Similarly, the Exchange proposes to exclude from
the proposed fee increase those fees that the Exchange recently
established for services in its new NY11-4 expansion facility. See
Securities Exchange Act Release No. 34-101266 (October 7, 2024), 89
FR 82654 (October 11, 2024) (SR-ISE-2024-47).
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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
[[Page 86880]]
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 10% to require that subscribers to the Testing
Facility shall pay a fee of $1,100 per hand-off, per month for
connection to the Testing Facility and a one-time installation fee of
$1,100 per hand-off.
The proposed increases in fees would enable the Exchange to
maintain and improve its market technology and services to remain
competitive with its peers. Over the years, customer demand for more
sophisticated, higher-throughput, lower-latency, and higher-power
connectivity solutions has increased. 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 Nasdaq's existing co-location facility to offer
customers additional space and power. Nevertheless, and 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 prior
to 2017, and many of the fees date back to between 2010 and 2014 (where
inflation has been between roughly 15-17%, as measured using the metric
described below). Nevertheless, the Exchange proposes to increase its
fees only with respect to inflation that has occurred since 2017.
As discussed below, the Exchange proposes to adjust its fees by an
industry- and product-specific inflationary measure. It is reasonable
and consistent with the Act for the Exchange to recoup its investments,
at least in part, by adjusting its fees. Continuing to operate at fees
frozen at 2010-2017 levels impacts the Exchange's ability to enhance
its offerings and the interests of market participants and investors.
The fee increases the Exchange proposes are based on an industry-
specific Producer Price Index (``PPI''), which is a tailored measure of
inflation.\5\ As a general matter, the Producer Price Index is a family
of indexes that measures the average change over time in selling prices
received by domestic producers of goods and services. PPI measures
price change from the perspective of the seller. This contrasts with
other metrics, such as the Consumer Price Index (``CPI''), that measure
price change from the purchaser's perspective.\6\ About 10,000 PPIs for
individual products and groups of products are tracked and released
each month.\7\ PPIs are available for the output of nearly all
industries in the goods-producing sectors of the U.S. economy--mining,
manufacturing, agriculture, fishing, and forestry--as well as natural
gas, electricity, and construction, among others. The PPI program
covers approximately 69 percent of the service sector's output, as
measured by revenue reported in the 2017 Economic Census.
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\5\ See <a href="https://fred.stlouisfed.org/series/PCU51825182#0">https://fred.stlouisfed.org/series/PCU51825182#0</a>.
\6\ See <a href="https://www.bls.gov/ppi/overview.htm">https://www.bls.gov/ppi/overview.htm</a>.
\7\ See Id.
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For purposes of this proposal, the relevant industry-specific PPI
is the Data Processing and Related Services PPI (``Data PPI''), which
is an industry net-output PPI that measures the average change in
selling prices received by companies that provide data processing
services.
The Data PPI was introduced in January 2002 by the Bureau of Labor
Statistics (``BLS'') as part of an ongoing effort to expand Producer
Price Index coverage of the services sector of the U.S. economy and is
identified as NAICS--518210 in the North American Industry
Classification System.\8\ According to the BLS ``[t]he primary output
of NAICS 518210 is the provision of electronic data processing
services. In the broadest sense, computer services companies help their
customers efficiently use technology. The processing services market
consists of vendors who use their own computer systems--often utilizing
proprietary software--to process customers' transactions and data.
Companies that offer processing services collect, organize, and store a
customer's transactions and other data for record-keeping purposes.
Price movements for the NAICS 518210 index are based on changes in the
revenue received by companies that provide data processing services.
Each month, companies provide net transaction prices for a specified
service. The transaction is an actual contract selected by probability,
where the price-determining characteristics are held constant while the
service is repriced. The prices used in index calculation are the
actual prices billed for the selected service contract.'' \9\
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\8\ NAICS appears in table 5 of the PPI Detailed Report and is
available at <a href="https://data.bls.gov/timeseries/PCU518210518210">https://data.bls.gov/timeseries/PCU518210518210</a>.
\9\ See <a href="https://www.bls.gov/ppi/factsheets/producer-price-index-for-the-data-processing-and-related-servicesindustry-naics-518210.htm">https://www.bls.gov/ppi/factsheets/producer-price-index-for-the-data-processing-and-related-servicesindustry-naics-518210.htm</a>.
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The Exchange believes the Data PPI is an appropriate measure to be
considered in the context of the proposed rule change to modify the fee
for its connectivity products because the Exchange uses its ``own
computer systems'' and ``proprietary software,'' i.e., its own data
center and proprietary matching engine software, respectively, to
collect, organize, store and report customers' transactions in U.S.
equity securities on the Exchange's proprietary trading platform. In
other words, the Exchange is in the business of data processing and
related services.
For purposes of this proposed rule change, the Exchange examined
the Data PPI value for the period from January 2017 to August 2024. The
Data PPI had a starting value of 105.6 in January 2017 and an ending
value of 116.022 in August 2024, a 10.422% increase. This indicates
that companies who are also in the data storage and processing business
have generally increased prices for a specified service covered under
NAICS 518210 by an average of 10.422% during this period. Based on that
percentage change, the Exchange proposes to make a one-time fee
increase of only 10%, which reflects an increase covering roughly the
entire period since the last price adjustments to these fees were made.
The Exchange further believes the Data PPI is an appropriate
measure for purposes of the proposed rule change on the basis that it
is a stable metric with limited volatility, unlike other consumer-side
inflation metrics. In fact, the Data PPI has not experienced a greater
than 2.16% increase for any one calendar year period since Data PPI was
introduced into the PPI in January 2002. The average calendar year
change from January 2002 to December 2023 was .62%, with a cumulative
increase of 15.67% over this 21-year period. The Exchange believes the
Data PPI is considerably less volatile than other inflation metrics
such as CPI, which has had individual calendar-year increases of more
than 6.5%, and a cumulative increase of over 73% over the same
period.\10\
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\10\ See <a href="https://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changesfrom-1913-to-2008/">https://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changesfrom-1913-to-2008/</a>.
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The Exchange believes the Data PPI, and significant investments
into, and
[[Page 86881]]
enhanced performance of, the Exchange support the reasonableness of the
proposed fee increases.\11\
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\11\ See supra discussion of connectivity product and facility
improvements. Additionally, other exchanges have filed for increases
in certain fees, based in part on comparisons to inflation. See,
e.g., Securities Exchange Act Release Nos. 34-100004 (April 22,
2024), 89 FR 32465 (April 26, 2024) (SR-CboeBYX-2024-012); and 34-
100398 (June 21, 2024), 89 FR 53676 (June 27, 2024) (SR-BOX-2024-
16)l; Securities Exchange Act Release No. 34-100994 (September 10,
2024), 89 FR 75612 (September 16, 2024) (SR-NYSEARCA-2024-79).
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These proposed fee increases will be immediately effective upon
filing. However, going forward and until December 1, 2024, the Exchange
will waive all fees set forth herein to the extent that such fees
exceed the levels that would have been charged for the same products
and services purchased during that time period, had such fees been
calculated at the rates set forth in SR-ISE-2024-44. This waiver is
reasonable, equitable, and not unfairly discriminatory because it will
afford all customers in excess of the 30-day prior notice period for
fee changes set forth in the Exchange's service terms.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\12\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4) and (5).
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This belief is based on two factors. First, the current fees do not
properly reflect the quality 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,
the Exchange believes that investments made in enhancing the capacity
and speed of Exchange systems increase the performance of the services
and products.
The Proposed Rule Change Is Reasonable
As noted above, the Exchange has not increased any of the fees
included in the proposal since 2017 or earlier. However, in the years
following the last fee increases, the Exchange has made significant
investments in upgrades to its connectivity products, services, and
facilities, enhancing the quality of its services, as measured by,
among other things, increased throughput and increased power and space
capacity. In other words, Exchange customers have greatly benefitted,
while the Exchange's ability to recoup its investments has been
hampered. Between 2017 and 2024, the inflation rate is 3.64% per year,
on average, producing a cumulative inflation rate of 28.43%.\14\ Using
the more targeted inflation number of Data PPI, the cumulative
inflation rate was 10.422%. The exchange believes the Data PPI is a
reasonable metric to base this fee increase on because it is targeted
to producer-side increases in the data processing industry, which based
on the definition adopted by BLS would include the Exchange's market
data products.
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\14\ See <a href="https://www.officialdata.org/us/inflation/2017?amount=1">https://www.officialdata.org/us/inflation/2017?amount=1</a>.
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Notwithstanding inflation, as noted above, the Exchange has not
increased its fees at all for over seven years for the subject
services. The proposed fee changes represent a modest increase from the
current fees. The Exchange believes the proposed fee increase is
reasonable in light of the Exchange's continued expenditure in
maintaining a robust technology ecosystem. Furthermore, the Exchange
continues to invest in maintaining and enhancing its connectivity
products--for the benefit and often at the behest of its customers and
global investors. Such enhancements include refreshing all aspects of
the technology ecosystem including software, hardware, and network
while introducing new and innovative products and expanded and
modernized facilities.\15\ The goal of the enhancements discussed
above, among other things, is to provide faster, higher-capacity, and
more modern connectivity products and services. Accordingly, the
Exchange continues to expend resources to innovate and modernize
technology so that it may benefit its members in offering its
connectivity products and services.
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\15\ See, e.g., Securities Exchange Act Release No.34-101076
(September 18, 2024), 89 FR 77951 (September 24, 2024) (SR-ISE-2024-
45 (Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Expand [the Exchange's] Co-Location Services).
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The Proposed Fees Are Equitably Allocated and Not Unfairly
Discriminatory
The Exchange believes that the proposed fee increases are equitably
allocated and not unfairly discriminatory because they would apply to
all market participants that choose to purchase connectivity products
and services from the Exchange. Any participant that chooses to
purchase the Exchange's connectivity products and services would be
subject to the same Fee Schedule, regardless of what type of business
they operate or the use they plan to make use of the products and
services. Additionally, the fee increase would be applied uniformly to
market participants without regard to Exchange membership status or the
extent of any other business with the Exchange or affiliated entities.
The Exchange also believes that the proposal represents an equitable
allocation of reasonable dues, fees and other charges because Exchange
fees have fallen in real terms during the relevant period. Finally, the
Exchange believes that the proposed fee changes are not unfairly
discriminatory because the fees would be assessed uniformly across all
market participants, in the same manner they are today, that
voluntarily purchase the Exchange's connectivity products and services,
which would remain available for purchase by all market participants.
These proposed fee increases will be immediately effective upon
filing. However, going forward and until December 1, 2024, the Exchange
will waive all fees set forth herein to the extent that such fees
exceed the levels that would have been charged for the same products
and services purchased during that time period, had such fees been
calculated at the rates set forth in SR-ISE-2024-44. This waiver is
reasonable, equitable, and not unfairly discriminatory because it will
afford all customers in excess of the 30-day prior notice period for
fee changes set forth in the Exchange's service terms.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed fees will impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Intramarket Competition
The Exchange believes that the proposed fees do not put any market
participants at a relative disadvantage compared to other market
participants. As noted above, the fee schedule would continue to apply
to all purchasers of the Exchange's connectivity products and services
in the same manner as it does today albeit at inflation-adjusted rates
for certain fees, and customers may choose whether to purchase these
products and services at all. The Exchange also believes that the level
of the proposed fees neither favor nor penalize one or more categories
of market participants in a manner that would impose an undue burden on
[[Page 86882]]
competition. Likewise, the proposed fee waiver described above will
apply to all purchasers of the Exchange's connectivity products and
services in the same manner and therefore will not burden competition
among them.
Intermarket Competition
The Exchange believes that the proposed fees do not impose a burden
on competition or on other SROs that is not necessary or appropriate.
In determining the proposed fees, the Exchange utilized an objective
and stable metric with limited volatility. Utilizing Data PPI over a
specified period of time is a reasonable means of recouping the
Exchange's investment in maintaining and enhancing its connectivity
products, services, and facilities. The Exchange believes utilizing
Data PPI, a tailored measure of inflation, to increase certain fees for
connectivity products and services to recoup the Exchange's investment
in maintaining and enhancing such products, services, and its
facilities would not impose a burden on competition.
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.\16\ 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.
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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#aad8dfc6cf87c9c5c7c7cfc4ded9ead9cfc984cdc5dc"><span class="__cf_email__" data-cfemail="cebcbba2abe3ada1a3a3aba0babd8ebdabade0a9a1b8">[email protected]</span></a>. Please include
file number SR-ISE-2024-50 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-2024-50. 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-2024-50 and should be
submitted on or before November 21, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-25316 Filed 10-30-24; 8:45 am]
BILLING CODE 8011-01-P
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