Notice2024-30521
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 3
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Published
December 23, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 246 (Monday, December 23, 2024)</title>
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[Federal Register Volume 89, Number 246 (Monday, December 23, 2024)]
[Notices]
[Pages 104584-104587]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-30521]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101943; File No. SR-NASDAQ-2024-081]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Options 7, Section 3
December 17, 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 December 3, 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 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 increase the Exchange's port pricing in
The Nasdaq Options Market LLC (``NOM'') Rules at Options 7, Section 3
for the Specialized Quote Feed (``SQF'') \3\ Ports and SQF Purge Ports.
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\3\ ``Specialized Quote Feed'' or ``SQF'' is an interface that
allows Market Makers to connect, send, and receive messages related
to quotes and Immediate-or-Cancel Orders into and from the Exchange.
Features include the following: (1) options symbol directory
messages (e.g., underlying instruments); (2) system event messages
(e.g., start of trading hours messages and start of opening); (3)
trading action messages (e.g., halts and resumes); (4) execution
messages; (5) quote messages; (6) Immediate-or-Cancel Order
messages; (7) risk protection triggers and purge notifications; and
(8) opening imbalance messages. The SQF Purge Interface only
receives and notifies of purge requests from the Market Maker.
Market Makers may only enter interest into SQF in their assigned
options series. Immediate-or-Cancel Orders entered into SQF are not
subject to the Order Price Protection, Market Order Spread
Protection, or Size Limitation in Options 3, Section 15(a)(1) and
(a)(2), and (b)(2), respectively. See Options 3, Section 7(e)(1)(B).
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While these amendments are effective upon filing, the Exchange has
designated the proposed amendments to be operative on January 1,
2025.\4\
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\4\ The Exchange initially filed this fee proposal as SR-NASDAQ-
2024-063 on October 18, 2024. On December 3, 2024, the Exchange
withdrew SR-NASDAQ-2024-063 and replaced it with this fee change.
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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
[[Page 104585]]
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 Options 7,
Section 9, B to increase the Exchange's SQF Port Fee and SQF Purge Port
Fees by 10%.
Options 7, Section 9, B includes the Exchange's fees that relate to
SQF Ports and SQF Purge Ports that Market Makers \5\ use to connect to
the Exchange to send quotes. Today, NOM assesses SQF Ports and SQF
Purge Ports a per port, per month fee based on a tiered fee schedule.
Specifically, NOM assesses an SQF Port and an SQF Purge Port Fee of
$1,500 per port, per month for the first 5 ports (1-5), a $1,000 per
port, per month fee for the next 15 ports (6-20), and a $500 per port,
per month fee for all ports over 20 ports (21 and above). With this
proposal, NOM would assess Market Makers the following SQF Port and an
SQF Purge Port Fees: $1,650 per port, per month for the first 5 ports
(1-5), a $1,100 per port, per month fee for the next 15 ports (6-20),
and a $550 per port, per month fee for all ports over 20 ports (21 and
above). The fees represent a 10% increase from the current tiered fees.
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\5\ The term ``NOM Market Maker'' or (``M'') is a Participant
that has registered as a Market Maker on NOM pursuant to Options 2,
Section 1, and must also remain in good standing pursuant to Options
2, Section 9. In order to receive NOM Market Maker pricing in all
securities, the Participant must be registered as a NOM Market Maker
in at least one security. See Options 7, Section 1(a).
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The proposed SQF Port Fee and SQF Purge Port Fee increases 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 risk protections and capacity has increased. The Exchange
continues to invest in maintaining, improving, and enhancing its port
protocols like SQF Ports and SQF Purge Ports-for the benefit and often
at the behest of its customers. Such enhancements include refreshing
hardware, upgrading risk protections and information security, and
offering customers additional capacity. Nevertheless, the Exchange has
not increased NOM's SQF Port Fee since 2016,\6\ and has not increased
its SQF Purge Port Fee since 2018 \7\ where inflation has been roughly
10% since 1016 and 9% since 2018 as measured using the metric described
below. As such, the Exchange proposes to increase its SQF Port Fee and
SQF Purge Port Fees by 10% with respect to inflation that has occurred
since 2016 and since 2018 to align with the foregoing fee increases.
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\6\ See Securities Exchange Act Release No. 79619 (December 20,
2016), 81 FR 95250 (December 27, 2016) (SR-NASDAQ-2016-178).
\7\ See Securities Exchange Act Release No. 83193 (May 9, 2018),
83 FR 22539 (May 15, 2018) (SR-NASDAQ-2018-036).
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As discussed below, the Exchange proposes to adjust its pricing 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 pricing. Continuing to
operate at pricing frozen at 2016 and 2018 levels, respectively,
impacts the Exchange's ability to enhance its offerings and the
interests of market participants and investors.
The pricing increases the Exchange proposes are based on an
industry-specific Producer Price Index (``PPI''), which is a tailored
measure of inflation.\8\ 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.\9\ About 10,000 PPIs for individual products and groups of
products are tracked and released each month.\10\ 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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\8\ See <a href="https://fred.stlouisfed.org/seriesBeta/PCU51825182#0">https://fred.stlouisfed.org/seriesBeta/PCU51825182#0</a>.
\9\ See <a href="https://www.bls.gov/ppi/overview.htm">https://www.bls.gov/ppi/overview.htm</a>.
\10\ 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.\11\ 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.'' \12\
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\11\ 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>.
\12\ 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 pricing changes 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. options securities on the Exchange's
proprietary trading platform. In other words, the Exchange is in the
business of data processing and related services via its data center
and proprietary matching engine software.
For purposes of this proposed rule change, with respect to the SQF
Port Fee, the Exchange examined the Data
[[Page 104586]]
PPI value for the period from December 2016 to October 2024 (when the
subject pricing was adopted). The Data PPI had a starting value of
105.600 in December 2016 and an ending value of 115.902 in October
2024, a 10.30% increase. For purposes of this proposed rule change,
with respect to the SQF Purge Port Fee, the Exchange examined the Data
PPI value for the period from May 2018 to October 2024 when the subject
pricing was adopted). The Data PPI had a starting value of 107.000 in
May 2018 and an ending value of 115.902 in October 2024, a 8.90%
increase. This data 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 10.30%
and 8.90%, respectively, during the periods noted above. The Exchange
notes that averaging the 10.30% and 8.90% yields a percentage of 9.60%.
The pricing for SQF Ports and SQF Purge Ports are intertwined so the
Exchange is averaging the percentage to arrive at 10%. Based on that
percentage change, the Exchange proposes to make a one-time fee
increase of 10% for the SQF Ports and the SQF Purge Ports, which
reflects an increase covering the entire period since the last price
adjustments to the SQF Port Fee and the SQF Purge Port Fee 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.\13\
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\13\ See <a href="https://www.usinflationcalculator.com/">https://www.usinflationcalculator.com/</a>.
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The Exchange believes the Data PPI, and significant investments
into, and enhanced performance of, the Exchange support the
reasonableness of the proposed pricing increases.\14\
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\14\ See supra discussion of SQF Port and SQF Purge Port
enhancements. 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. 34-100994 (September 10,
2024), 89 FR 75612 (September 16, 2024) (SR-NYSEARCA-2024-79); and
34-101519 (November 5, 2024), 89 FR 89071 (November 12, 2024) (SR-
CboeBYX-2024-039).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\15\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4) and (5).
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This belief is based on two factors. First, the current pricing
does not properly reflect the quality of the SQF Ports and SQF Purge
Ports, as the pricing for these port offerings 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
risk protections and capacity of SQF Ports and SQF Purge Ports has
increased the performance of these port offerings.
The Proposed Rule Change Is Reasonable
As noted above, the Exchange has not increased any of the fees
included in the proposal since 2016 and 2018, respectively. However, in
the years following the last fee increases, the Exchange has made
significant investments in upgrades to its SQF Ports and SQF Purge
Ports, enhancing the quality of its services, as measured by, among
other things, increased capacity. In other words, Exchange customers
have greatly benefitted, while the Exchange's ability to recoup its
investments has been hampered. Between 2016 and 2024, the inflation
rate is 3.48% per year, on average, producing a cumulative inflation
rate of 31.52%.\17\ Also, between 2018 and 2024, the inflation rate is
3.88% per year, on average, producing a cumulative inflation rate of
25.65%.\18\ Using the more targeted inflation number of Data PPI, the
cumulative inflation rate was 10.30% between 2016 and 2024, and 8.90%
between 2018 and 2024. 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.
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\17\ See <a href="https://www.officialdata.org/us/inflation/2015?amount-1">https://www.officialdata.org/us/inflation/2015?amount-1</a>.
\18\ See <a href="https://www.officialdata.org/us/inflation/2015?amount-1">https://www.officialdata.org/us/inflation/2015?amount-1</a>.
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Notwithstanding inflation, as noted above, the Exchange has not
increased its pricing of these port fees for over eight and six years,
respectively, for the subject services. The proposed SQF Port Fee and
SQF Purge Port Fee represent a modest increase from the current SQF
Port Fee and SQF Purge Port Fee. The Exchange believes the proposed SQF
Port Fee and SQF Purge Port Fee increases are 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 port products--for the benefit and often at the
behest of its customers and global investors. Such enhancements include
refreshing several aspects of the technology ecosystem including
software, hardware, and network while introducing new and innovative
products. The goal of the enhancements discussed above, among other
things, is to provide more modern connectivity to the match engine.
Accordingly, the Exchange continues to expend resources to innovate and
modernize its technology so that it may benefit its Participants in
offering SQF Ports and SQF Purge Ports.
The Proposed Fees Are Equitably Allocated and Not Unfairly
Discriminatory
The Exchange believes that the proposal represents an equitable
allocation of reasonable dues, fees and other charges because the
Exchange pricing has fallen in real terms during the relevant period.
The Exchange also believes that the proposed pricing increases are
equitably allocated and not unfairly discriminatory because they would
apply uniformly to all Market Makers that subscribe to the SQF Ports
and SQF Purge Ports to quote on the Exchange. Market Makers are the
only market participants that are assessed the SQF Port Fee and SQF
Purge Port Fee because they are the only market participants that are
permitted to quote on the Exchange.\19\ These liquidity providers are
critical market participants in that they are the only market
participants that provide liquidity to the Exchange on a continuous
basis. SQF Ports and SQF Purge Ports are only utilized in a Market
Maker's assigned options series.
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\19\ Unlike other market participants, Market Makers are subject
to market making and quoting obligations. See Options 2, Sections 4
and 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed pricing changes
will impose any burden on competition not
[[Page 104587]]
necessary or appropriate in furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange believes that the proposed pricing does not put any
market participants at a relative disadvantage compared to other market
participants. As noted above, the Exchange would apply the proposed 10%
increase to the SQF Port and the SQF Purge Port fee to all Market
Makers uniformly. Market Makers are the only market participants that
are assessed an SQF Port Fee and an SQF Purge Port Fee because they are
the only market participants that are permitted to quote on the
Exchange.\20\ These liquidity providers are critical market
participants in that they are the only market participants that provide
liquidity to the Exchange on a continuous basis. SQF Ports and SQF
Purge Ports are only utilized in a Market Maker's assigned options
series.
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\20\ Unlike other market participants, Market Makers are subject
to market making and quoting obligations. See Options 2, Sections 4
and 5.
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Intermarket Competition
The Exchange believes that the proposed pricing does not impose an
undue burden on intermarket competition or on other SROs that is not
necessary or appropriate. In determining the proposed pricing, 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 port offerings such as the SQF Ports and SQF Purge
Ports. The Exchange believes utilizing Data PPI, a tailored measure of
inflation, to increase the fees for the SQF Port and SQF Purge Port to
recoup the Exchange's investment in maintaining and enhancing such
offerings does not impose a burden on intermarket 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.\21\
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\21\ 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#bbc9ced7de96d8d4d6d6ded5cfc8fbc8ded895dcd4cd"><span class="__cf_email__" data-cfemail="750700191058161a1818101b0106350610165b121a03">[email protected]</span></a>. Please include
file number SR-NASDAQ-2024-081 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-2024-081. 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-NASDAQ-2024-081 and should
be submitted on or before January 13, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-30521 Filed 12-20-24; 8:45 am]
BILLING CODE 8011-01-P
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