Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Fees for Connectivity and Co-Location Services, 58453-58456 [2024-15761]

Download as PDF Federal Register / Vol. 89, No. 138 / Thursday, July 18, 2024 / Notices 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: [FR Doc. 2024–15765 Filed 7–17–24; 8:45 am] BILLING CODE 8011–01–P • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– GEMX–2024–15 on the subject line. Paper Comments • 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–GEMX–2024–15. 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 (https://www.sec.gov/ rules/sro.shtml). 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–GEMX–2024–15 and should be submitted on or before August 8, 2024. [Release No. 34–100512; File No. SR– NASDAQ–2024–032] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Fees for Connectivity and Co-Location Services July 12, 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 June 27, 2024, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 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 colocation services, as described further below. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/nasdaq/rules, 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 18 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 16:47 Jul 17, 2024 Jkt 262001 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 SECURITIES AND EXCHANGE COMMISSION Electronic Comments khammond on DSKJM1Z7X2PROD with NOTICES For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 J. Matthew DeLesDernier, Deputy Secretary. 58453 PO 00000 Frm 00127 Fmt 4703 Sfmt 4703 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, fees assessed for remote multi-cast ITCH (‘‘MITCH’’) Wave Ports in Equity 7, Section 115, and certain fees related to Nasdaq Testing Facilities in Equity 7, Section 130 by 5.5%, with certain exceptions. General 8, Section 1 includes the Exchange’s fees that relate to connectivity, including fees for cabinets, external telco/inter-cabinet connectivity fees, fees for connectivity to the Exchange, fees for connectivity to third party services, fees for market data connectivity, fees for cabinet power install, and fees for additional charges and services. General 8, Section 2 includes the Exchange’s fees for direct connectivity services, including fees for direct circuit connection to the Exchange, fees for direct circuit connection to third party services, and fees for point of presence connectivity. With the exception of the Exchange’s GPS Antenna fees 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%. In addition to increasing fees in General 8, the Exchange also proposes to increase certain fees in Equity 7. First, the Exchange proposes to increase the installation and recurring monthly fees assessed for remote MITCH Wave 3 The Exchange initially filed the proposed pricing change on March 1, 2024 (SR–NASDAQ– 2024–008). On April 29, 2024, the Exchange withdrew that filing and submitted SR–NASDAQ– 2024–020. The instant filing replaces SR– NASDAQ–2024–020, which was withdrawn on June 27, 2024. 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. 34–99126 (December 8, 2023), 88 FR 86712 (December 14, 2023) (SR–NASDAQ–2023–052). 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. 34–100196 (May 21, 2024), 89 FR 46199 (May 28, 2024) (SR–NASDAQ– 2024–022). E:\FR\FM\18JYN1.SGM 18JYN1 58454 Federal Register / Vol. 89, No. 138 / Thursday, July 18, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Ports 5 in Equity 7, Section 115(g)(1) by 5.5%. In addition, the Exchange proposes to increase certain fees in Section 130(d), which relate to the Nasdaq Testing Facility. Equity 7, Section 130(d)(1)(C) provides that subscribers to the Nasdaq Testing Facility (‘‘NTF’’) located in Carteret, New Jersey shall pay a fee of $1,000 per hand-off, per month for connection to the NTF. The hand-off fee includes either a 1Gb or 10Gb switch port and a cross connect to the NTF. In addition, Equity 7, Section 130(d)(1)(C) provides that subscribers shall also pay a onetime installation fee of $1,000 per handoff. The Exchange proposes to increase these aforementioned fees by 5.5% to require that subscribers to the NTF shall pay a fee of $1,055 per hand-off, per month for connection to the NTF and a one-time installation fee of $1,055 per hand-off. The proposed increases in fees would enable the Exchange to maintain and improve its market technology and services. With the exception of fees that were established as part of a new service in 2017 (and have remained unchanged since their adoption), the Exchange has not increased any of the fees included in the proposal since 2015, and many of the fees date back to between 2010 and 2014. However, since 2015, there has been notable inflation. Between 2015 and 2024, the dollar had an average inflation rate of 2.97% per year, producing a cumulative price increase of 30.12%.6 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 15.9% from 2015 to 2024.7 Notwithstanding such significant inflation, the Exchange has not increased its connectivity fees during this time, thereby eroding the value of the revenue it collects through such fees.8 The proposed fees represent a 5.5% increase from the current fees, which is far below the rates of inflation, as measured by either the CPI or the PPI 5 Remote MITCH Wave Ports are for clients colocated at other third-party data centers, through which NASDAQ TotalView ITCH market data is distributed after delivery to those data centers via wireless network. 6 See https://www.officialdata.org/us/inflation/ 2015?amount=1 (Last updated February 27, 2024). 7 See https://data.bls.gov/timeseries/ PCU5182105182105 (Last updated June 24, 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. VerDate Sep<11>2014 16:47 Jul 17, 2024 Jkt 262001 since 2015.9 Although the Exchange believes it would be reasonable to increase fees 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, as the Exchange is sensitive to the sticker shock that would occur if the Exchange raised its fees by more than 30%. Instead, the Exchange proposes a modest 5.5% increase, an amount that the Exchange believes to be reasonable on its face as it is significantly less than various measures of inflation discussed above. 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 2015. 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.10 In addition, the Exchange continues to invest in maintaining, improving, and enhancing its connectivity and colocation 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. 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 9 Between 2017 and 2024, CPI inflation exceeded 25%. See https://www.officialdata.org/us/inflation/ 2017?amount=1 (Last updated February 27, 2024). Between 2017 and 2024, the PPI for data processing, hosting and related services, active services pages, and other IT infrastructure provisioning services increased 16.1%. See https://data.bls.gov/ timeseries/PCU5182105182105 (Last updated June 24, 2024). 10 See, e.g., Securities Exchange Act Release No. 34–100004 (April 22, 2024), 89 FR 32465 (April 26, 2024) (SR–CboeBYX–2024–012). PO 00000 Frm 00128 Fmt 4703 Sfmt 4703 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,11 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,12 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. This belief is based on a couple factors. First, the current fees do not properly reflect the value of the services and products, as fees for the services and products in question have been static in nominal terms, and therefore falling in real terms due to inflation. Second, exchange fees are constrained by the fact that market participants can choose among 16 different venues for equities trading and 17 different venues for options trading, and therefore no single venue can charge excessive fees for its products without losing customers and market share. Real Exchange Fees Have Fallen As explained above, with the exception of fees that were established as part of a new service in 2017 (and have remained unchanged since their adoption), the Exchange has not increased any of the fees included in the proposal since 2015, and many of the fees date back to between 2010 and 2014. This means that such fees have fallen in real terms due to inflation, which has been notable. Between 2015 and 2024, the dollar had an average inflation rate of 2.97% per year, producing a cumulative price increase of 30.12%.13 Moreover, the PPI for data processing, hosting and related services, active services pages, and other IT infrastructure provisioning services— increased 15.9% from 2015 to 2024.14 Notwithstanding such significant inflation, the Exchange has not increased its connectivity fees during this time, thereby eroding the value of the revenue it collects through such fees. As noted above, the Exchange has not increased the fees in this proposal for over 8 years (or in the case of services introduced in 2017, for over 6 years since the services were introduced). The 11 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 13 See https://www.officialdata.org/us/inflation/ 2015?amount=1 (Last updated February 27, 2024). 14 See https://data.bls.gov/timeseries/ PCU5182105182105 (Last updated June 24, 2024). 12 15 E:\FR\FM\18JYN1.SGM 18JYN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 89, No. 138 / Thursday, July 18, 2024 / Notices proposed fees represent a 5.5% increase from the current fees, which is far below the rates of inflation, as measured by either the CPI or the PPI since 2015. Although the Exchange believes it would be reasonable to increase fees 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, as the Exchange is sensitive to the sticker shock that would occur if the Exchange raised its fees by more than 30%. Instead, the Exchange proposes a modest 5.5% increase, an amount that the Exchange believes to be reasonable on its face as it is significantly less than various measures of inflation discussed above. 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 2015. 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 colocation 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. 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. 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 equities and options exchanges that a market participant may connect to in lieu of the Exchange, indirect connectivity to the Exchange via a third-party reseller of connectivity, and/or trading of equities or options products within markets which do not require connectivity to the Exchange, such as the Over-the-Counter (OTC) markets. There are currently 16 registered equities exchanges that trade equities and 17 exchanges offering options trading services. No single equities exchange has more than 15% of the market share.15 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.16 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. 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.’’ 17 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, Customers Have a Choice in Trading Venue Customers face many choices in where to trade both equities and options. Market participants will continue to choose trading venues and the method of connectivity based on their specific needs. No broker-dealer is required to become a Member of the 15 See Cboe Global Markets, U.S. Equities Market Volume Summary, Month-to-Date (Last updated January 11, 2024), available at https:// www.cboe.com/us/equities/market_statistics/. 16 See Nasdaq, Options Market Statistics (Last updated January 11, 2024), available at https:// www.nasdaqtrader.com/Trader.aspx?id=Options VolumeSummary. 17 See Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74,770 (December 9, 2008) (SR–NYSEArca–2006–21). VerDate Sep<11>2014 16:47 Jul 17, 2024 Jkt 262001 PO 00000 Frm 00129 Fmt 4703 Sfmt 4703 58455 and not unreasonably or unfairly discriminatory.’’ 18 Disincentivizing market participants from purchasing Exchange connectivity would only serve to discourage participation on the Exchange, which ultimately does not benefit the Exchange. Moreover, if the Exchange charges excessive fees, it may stand to lose not only connectivity revenues but also other revenues, including revenues associated with the execution of orders. 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 colocation 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 colocation 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 nondiscriminatory basis. 18 Id. E:\FR\FM\18JYN1.SGM 18JYN1 58456 Federal Register / Vol. 89, No. 138 / Thursday, July 18, 2024 / Notices 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.19 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: khammond on DSKJM1Z7X2PROD with NOTICES Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– NASDAQ–2024–032 on the subject line. Paper Comments • 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–2024–032. 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 (https://www.sec.gov/ rules/sro.shtml). 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 19 15 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–2024–032 and should be submitted on or before August 8, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 J. Matthew DeLesDernier, Deputy Secretary. [FR Doc. 2024–15761 Filed 7–17–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–172, OMB Control No. 3235–0169] Proposed Collection; Comment Request; Extension: Form N–5 Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (the ‘‘Commission’’) is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget (‘‘OMB’’) for extension and approval. Form N–5 (17 CFR 239.24 and 274.5) is the form used by small business investment companies (‘‘SBICs’’) to register their securities under the Securities Act of 1933 (15 U.S.C. 77a et seq.) (‘‘Securities Act’’) and the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) (‘‘Investment Company Act’’). Form N–5 is the registration statement form adopted by the Commission for use by an SBIC that U.S.C. 78s(b)(3)(A)(ii). VerDate Sep<11>2014 16:47 Jul 17, 2024 20 17 Jkt 262001 PO 00000 CFR 200.30–3(a)(12). Frm 00130 Fmt 4703 Sfmt 4703 has been licensed as such under the Small Business Investment Act of 1958 or which has received the preliminary approval of the Small Business Administration (‘‘SBA’’) and has been notified by the SBA that the company may submit a license application Form N–5 is an integrated registration form and may be used as the registration statement under both the Securities Act and the Investment Company Act. The purpose of Form N–5 is to meet the filing and disclosure requirements of both the Securities Act and Investment Company Act, and to provide investors with information sufficient to evaluate an investment in an SBIC. The information that is required to be filed with the Commission permits verification of compliance with securities law requirements and assures the public availability and dissemination of the information. The Commission did not receive any filings on Form N–5 in the last three years (or in the three years before that). Nevertheless, for purposes of this PRA, we conservatively estimate that at least one Form N–5 will be filed in the next three years, which translates to about 0.333 filings on Form N–5 per year. The currently approved internal burden of Form N–5 is 352 hours per response. We continue to believe this estimate for Form N–5’s internal hour burden is appropriate. Therefore, the number of currently approved aggregate burden hours, when calculated using the current estimate for number of filings, is about 117 internal hours per year. The currently approved external cost burden of Form N–5 is $12,524per filing. The requested external cost burden for filing one Form N–5 would be $14,746 per year. This estimated burden is based on the estimated wage rate of $584/hour, for 25.25 hours, for outside legal services to complete the form and provide the required hyperlinks. Estimates of average burden hours and costs are made solely for the purposes of the Paperwork Reduction Act, and are not derived from a comprehensive or even representative survey or study of the costs of Commission rules and forms. Compliance with the collection of information requirements of Form N–5 is mandatory. Responses to the collection of information will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. Written comments are invited on: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the E:\FR\FM\18JYN1.SGM 18JYN1

Agencies

[Federal Register Volume 89, Number 138 (Thursday, July 18, 2024)]
[Notices]
[Pages 58453-58456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15761]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100512; File No. SR-NASDAQ-2024-032]


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

July 12, 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 June 27, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's fees for connectivity 
and co-location services, as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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, fees assessed for remote multi-
cast ITCH (``MITCH'') Wave Ports in Equity 7, Section 115, and certain 
fees related to Nasdaq Testing Facilities in Equity 7, Section 130 by 
5.5%, with certain exceptions.
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    \3\ The Exchange initially filed the proposed pricing change on 
March 1, 2024 (SR-NASDAQ-2024-008). On April 29, 2024, the Exchange 
withdrew that filing and submitted SR-NASDAQ-2024-020. The instant 
filing replaces SR-NASDAQ-2024-020, which was withdrawn on June 27, 
2024.
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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 5.5%.
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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. 34-99126 (December 8, 2023), 88 
FR 86712 (December 14, 2023) (SR-NASDAQ-2023-052). 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. 34-100196 (May 21, 2024), 89 FR 46199 (May 28, 2024) 
(SR-NASDAQ-2024-022).
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    In addition to increasing fees in General 8, the Exchange also 
proposes to increase certain fees in Equity 7. First, the Exchange 
proposes to increase the installation and recurring monthly fees 
assessed for remote MITCH Wave

[[Page 58454]]

Ports \5\ in Equity 7, Section 115(g)(1) by 5.5%. In addition, the 
Exchange proposes to increase certain fees in Section 130(d), which 
relate to the Nasdaq Testing Facility. Equity 7, Section 130(d)(1)(C) 
provides that subscribers to the Nasdaq Testing Facility (``NTF'') 
located in Carteret, New Jersey shall pay a fee of $1,000 per hand-off, 
per month for connection to the NTF. The hand-off fee includes either a 
1Gb or 10Gb switch port and a cross connect to the NTF. In addition, 
Equity 7, Section 130(d)(1)(C) provides that subscribers shall also pay 
a one-time installation fee of $1,000 per hand-off. The Exchange 
proposes to increase these aforementioned fees by 5.5% to require that 
subscribers to the NTF shall pay a fee of $1,055 per hand-off, per 
month for connection to the NTF and a one-time installation fee of 
$1,055 per hand-off.
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    \5\ Remote MITCH Wave Ports are for clients co-located at other 
third-party data centers, through which NASDAQ TotalView ITCH market 
data is distributed after delivery to those data centers via 
wireless network.
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    The proposed increases in fees would enable the Exchange to 
maintain and improve its market technology and services. With the 
exception of fees that were established as part of a new service in 
2017 (and have remained unchanged since their adoption), the Exchange 
has not increased any of the fees included in the proposal since 2015, 
and many of the fees date back to between 2010 and 2014. However, since 
2015, there has been notable inflation. Between 2015 and 2024, the 
dollar had an average inflation rate of 2.97% per year, producing a 
cumulative price increase of 30.12%.\6\ 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 15.9% from 
2015 to 2024.\7\ Notwithstanding such significant inflation, the 
Exchange has not increased its connectivity fees during this time, 
thereby eroding the value of the revenue it collects through such 
fees.\8\
---------------------------------------------------------------------------

    \6\ See https://www.officialdata.org/us/inflation/2015?amount=1 
(Last updated February 27, 2024).
    \7\ See https://data.bls.gov/timeseries/PCU5182105182105 (Last 
updated June 24, 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.
---------------------------------------------------------------------------

    The proposed fees represent a 5.5% increase from the current fees, 
which is far below the rates of inflation, as measured by either the 
CPI or the PPI since 2015.\9\ Although the Exchange believes it would 
be reasonable to increase fees 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, as the Exchange is sensitive to the sticker shock that would 
occur if the Exchange raised its fees by more than 30%. Instead, the 
Exchange proposes a modest 5.5% increase, an amount that the Exchange 
believes to be reasonable on its face as it is significantly less than 
various measures of inflation discussed above.
---------------------------------------------------------------------------

    \9\ Between 2017 and 2024, CPI inflation exceeded 25%. See 
https://www.officialdata.org/us/inflation/2017?amount=1 (Last 
updated February 27, 2024). Between 2017 and 2024, the PPI for data 
processing, hosting and related services, active services pages, and 
other IT infrastructure provisioning services increased 16.1%. See 
https://data.bls.gov/timeseries/PCU5182105182105 (Last updated June 
24, 2024).
---------------------------------------------------------------------------

    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 2015. 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.\10\
---------------------------------------------------------------------------

    \10\ 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 enhancements include refreshing hardware and 
expanding Nasdaq'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,\11\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 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 16 different venues for equities trading and 17 different 
venues for options trading, and therefore no single venue can charge 
excessive fees for its products without losing customers and market 
share.
Real Exchange Fees Have Fallen
    As explained above, with the exception of fees that were 
established as part of a new service in 2017 (and have remained 
unchanged since their adoption), the Exchange has not increased any of 
the fees included in the proposal since 2015, and many of the fees date 
back to between 2010 and 2014. This means that such fees have fallen in 
real terms due to inflation, which has been notable. Between 2015 and 
2024, the dollar had an average inflation rate of 2.97% per year, 
producing a cumulative price increase of 30.12%.\13\ Moreover, the PPI 
for data processing, hosting and related services, active services 
pages, and other IT infrastructure provisioning services--increased 
15.9% from 2015 to 2024.\14\ Notwithstanding such significant 
inflation, the Exchange has not increased its connectivity fees during 
this time, thereby eroding the value of the revenue it collects through 
such fees.
---------------------------------------------------------------------------

    \13\ See https://www.officialdata.org/us/inflation/2015?amount=1 
(Last updated February 27, 2024).
    \14\ See https://data.bls.gov/timeseries/PCU5182105182105 (Last 
updated June 24, 2024).
---------------------------------------------------------------------------

    As noted above, the Exchange has not increased the fees in this 
proposal for over 8 years (or in the case of services introduced in 
2017, for over 6 years since the services were introduced). The

[[Page 58455]]

proposed fees represent a 5.5% increase from the current fees, which is 
far below the rates of inflation, as measured by either the CPI or the 
PPI since 2015. Although the Exchange believes it would be reasonable 
to increase fees 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, as 
the Exchange is sensitive to the sticker shock that would occur if the 
Exchange raised its fees by more than 30%. Instead, the Exchange 
proposes a modest 5.5% increase, an amount that the Exchange believes 
to be reasonable on its face as it is significantly less than various 
measures of inflation discussed above.
    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 2015. 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 Nasdaq'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 both equities and 
options. Market participants will continue to choose trading venues and 
the method of connectivity based on their specific needs. No broker-
dealer is required to become a Member of the Exchange. There is no 
regulatory requirement that any market participant connect to any one 
exchange, nor that any market participant connect at a particular 
connection speed or act in a particular capacity on the Exchange, or 
trade any particular product offered on an exchange. Moreover, 
membership is not a requirement to participate on the Exchange. Indeed, 
the Exchange is unaware of any one exchange whose membership includes 
every registered broker-dealer. The Exchange also believes 
substitutable products and services are available to market 
participants, including, among other things, other equities and options 
exchanges that a market participant may connect to in lieu of the 
Exchange, indirect connectivity to the Exchange via a third-party 
reseller of connectivity, and/or trading of equities or options 
products within markets which do not require connectivity to the 
Exchange, such as the Over-the-Counter (OTC) markets.
    There are currently 16 registered equities exchanges that trade 
equities and 17 exchanges offering options trading services. No single 
equities exchange has more than 15% of the market share.\15\ 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.\16\ 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 Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (Last updated January 11, 2024), available at 
https://www.cboe.com/us/equities/market_statistics/.
    \16\ See Nasdaq, Options Market Statistics (Last updated January 
11, 2024), available at https://www.nasdaqtrader.com/Trader.aspx?id=OptionsVolumeSummary.
---------------------------------------------------------------------------

    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.'' \17\ 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.'' \18\ Disincentivizing market 
participants from purchasing Exchange connectivity would only serve to 
discourage participation on the Exchange, which ultimately does not 
benefit the Exchange. Moreover, if the Exchange charges excessive fees, 
it may stand to lose not only connectivity revenues but also other 
revenues, including revenues associated with the execution of orders.
---------------------------------------------------------------------------

    \17\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \18\ 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.

[[Page 58456]]

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.\19\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2024-032 on the subject line.

Paper Comments

     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-2024-032. 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 (https://www.sec.gov/rules/sro.shtml). 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-2024-032 and should 
be submitted on or before August 8, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15761 Filed 7-17-24; 8:45 am]
BILLING CODE 8011-01-P
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