Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee for Remote Hands Service, 64971-64974 [2024-17508]

Download as PDF Federal Register / Vol. 89, No. 153 / Thursday, August 8, 2024 / Notices are available at www.prc.gov, Docket Nos. MC2024–472, CP2024–479. Sean C. Robinson, Attorney, Corporate and Postal Business Law. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2024–17533 Filed 8–7–24; 8:45 am] BILLING CODE 7710–12–P SECURITIES AND EXCHANGE COMMISSION 1. Purpose [Release No. 34–100646; File No. SR–Phlx– 2024–36] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee for Remote Hands Service August 2, 2024. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on July 19, 2024, Nasdaq PHLX LLC (‘‘Phlx’’ 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 fee for Remote Hands Services, as described further below. While these amendments are effective upon filing, the Exchange has designated the proposed amendments to be operative on August 19, 2024. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/phlx/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. lotter on DSK11XQN23PROD with NOTICES1 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 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 17:24 Aug 07, 2024 Jkt 262001 Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. The purpose of the proposed rule change is to amend a service fee relating to connectivity and co-location services. Specifically, the Exchange proposes to decrease its fee for Remote Hands Services, at General 8, section 1, to $151.50 per hour. General 8, section 1 includes the Exchange’s fees that relate to co-location services, including ‘‘Remote Hands Services.’’ The term ‘‘Remote Hands Services’’ refers to the use of Exchange engineers to perform on-site technical support tasks in its Data Center on behalf of its co-located customers, including the following: (1) power cycling of equipment; (2) patching and plugging in cabling and circuits; (3) observing, describing or reporting on display indicators; (4) configuration of hardware components instructed by the customer; (5) diagnosis and repairs as instructed by the customer; (6) swapping hardware components with customer-supplied spares or upgrades; (7) troubleshooting heat related issues as instructed by the Customer; and (8) returning defective equipment to the manufacturer or customer. Earlier this year, the Exchange increased its $150 per hour fee for Remote Hands Services, along with other connectivity and co-location services, by 5.5%, to partially account for the cumulative effects of inflation on the value to the Exchange of the revenues it earns through such fees.3 Now, the Exchange proposes to lower the Remote Hands Services fee from its current level, $158 per hour, to $151.50 per hour, with the net effect of providing for an overall smaller 1% increase over the original $150 hourly rate. The purpose of the proposed change in the Exchange’s Remote Hands Services fee is the same as that which the Exchange expressed when it increased the fee by 5.5% earlier this year. That is, the change would enable the Exchange to maintain and improve its market technology and services. Prior 3 The Exchange initially filed this proposed pricing change on March 1, 2024 (SR–Phlx–2024– 08). On April 29, 2024, the Exchange withdrew that filing and submitted SR–Phlx–2024–019. On June 27, 2024, the Exchange withdrew and replaced that filing with SR–Phlx–2024–27. PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 64971 to SR–Phlx–2024–27, the Exchange had not increased its Remote Hands fee since 2010.4 However, since 2010, there has been notable inflation. Between 2010 and 2024, the dollar had an average inflation rate of 2.64% per year, producing a cumulative price increase of 44.03%.5 Moreover, a more specific and pertinent gauge of inflation—the Producer Price Index (‘‘PPI’’) for data processing, hosting and related services, active services pages, and other IT infrastructure provisioning services— increased 17.8% from 2010 to 2024.6 An even more specific gauge of inflation— average hourly earnings (‘‘AHE’’) growth for Computing Infrastructure—increased 77% for non-managers and 81% for all employees from 2010 to 2024.7 Notwithstanding such significant inflation, the Exchange had not increased its Remote Hands Service fees during this time, thereby eroding the value of the revenue it collects through this fee.8 The proposed fee represents a decrease in the existing $158 per hour rate, and a net overall 1% increase from the original $150 per month fee. The 1% fee increase, resulting in a proposed amended rate of $151.50 per hour, is far below the rates of inflation, as measured by either the CPI, the PPI, or the AHE since 2010. Although the Exchange believes it would be reasonable to increase the fee by an amount equal to the full rates of inflation, however measured, to reestablish the initial value of the revenues it earns through its fees, the Exchange does not propose to do this. In fact, the Exchange now proposes to recalibrate even its initial 5.5% fee increase, because the Exchange is sensitive to the sticker shock that customers may experience when the Exchange raises rates. Instead, the Exchange proposes only a modest 1% increase over the prior $150 per month rate, an amount that the Exchange believes to be reasonable on its face as it is significantly less than various measures of inflation discussed above, and even less than the original 5.5% increase. 4 See Securities Exchange Act Release No. 34– 62395 (June 28, 2010), 75 FR 38584 (July 2, 2010) (SR–Phlx–2010–18). 5 See https://www.officialdata.org/us/inflation/ 2010?amount=1 (Last updated July 8, 2024). 6 See https://data.bls.gov/timeseries/ PCU5182105182105 (Last updated July 7, 2024). 7 See https://www.bls.gov/web/empsit/ ceseeb3a.htm (Last updated July 5, 2024); https:// www.bls.gov/web/empsit/ceseeb8a.htm (Last updated July 5, 2024). 8 Unregulated competitors providing connectivity and co-location services often have annual price increases written into their agreements with customers to account for inflation and rising costs. E:\FR\FM\08AUN1.SGM 08AUN1 64972 Federal Register / Vol. 89, No. 153 / Thursday, August 8, 2024 / Notices The Exchange believes that it is reasonable to increase its fee to compensate for inflation because, over time, inflation has degraded the value of each dollar that the Exchange collects in fees, such that the real revenue collected today is considerably less than that same revenue collected in 2010. The Exchange notes that this inflationary effect is a general phenomenon that is independent of any change in the Exchange’s costs in providing its goods and services. The Exchange believes that it is reasonable for it to offset, in part, this erosion in the value of the revenues it collects. The Exchange notes that other exchanges have filed for comparable or higher increases in certain connectivity-related fees, based in part on similar rationale.9 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 the Exchange’s existing co-location facility to offer customers additional space and power. These investments, and the value they provide to customers, far exceed the amount of the proposed net price increase over the prior $150 per hour rate. It is reasonable and consistent with the Act for the Commission to allow the Exchange to recoup these investments by charging fees, lest the Commission will disincentivize the Exchange to make similar investments in the future—a result that would be detrimental to the Exchange’s competitiveness as well as the interests of market participants and investors. lotter on DSK11XQN23PROD with NOTICES1 2. Statutory Basis The Exchange believes that its proposal is consistent with section 6(b) of the Act,10 in general, and furthers the objectives of sections 6(b)(4) and 6(b)(5) of the Act,11 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. This belief is based on a couple factors. First, the current fee does not properly reflect the value of the service, as fees for the service in question has been static in nominal terms, and 9 See, e.g., Securities Exchange Act Release No. 34–100342 (June 14, 2024), 89 FR 52132 (June 21, 2024) (SR–CboeBYX–2024–021). 10 15 U.S.C. 78f(b). 11 15 U.S.C. 78f(b)(4) and (5). VerDate Sep<11>2014 17:24 Aug 07, 2024 Jkt 262001 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, prior to SR– Phlx–2024–27, the Exchange had not increased its Remote Hands Service fee since it introduced the fee in 2010. This means that this fee has fallen in real terms due to inflation, which has been notable. Between 2010 and 2024, the dollar had an average inflation rate of 2.64% per year, producing a cumulative price increase of 44.03%.12 Moreover, a more specific and pertinent gauge of inflation—the PPI for data processing, hosting and related services, active services pages, and other IT infrastructure provisioning services— increased 17.8% from 2010 to 2024.13 An even more specific gauge of inflation—AHE growth for Computing Infrastructure—increased 77% for nonmanagers and 81% for all employees from 2010 to 2024.14 Notwithstanding such significant inflation, the Exchange had not increased its connectivity fees until 2024, thereby eroding the value of the revenue it collects through such fee. The proposed fee represents a decrease from the existing $158 per hour fee and a 1% overall net increase from the original $150 per hour fee, which is far below the rates of inflation, as measured by either the CPI, the PPI, or AHE since 2010. Although the Exchange believes it would be reasonable to increase the fee by an amount equal to the full rates of inflation, however measured, to reestablish the initial value of the revenues it earns through its fees, the Exchange does not propose to do this. In fact, the Exchange now proposes to recalibrate even its initial 5.5% fee increase, because the Exchange is sensitive to the sticker shock that customers may experience when the Exchange raises rates. Instead, the Exchange proposes only a modest 1% increase over the prior $150 per month rate, an amount that the Exchange believes to be reasonable on its face as 12 See https://www.officialdata.org/us/inflation/ 2010?amount=1 (Last updated July 8, 2024). 13 See https://data.bls.gov/timeseries/ PCU5182105182105 (Last updated July 7, 2024). 14 See https://www.bls.gov/web/empsit/ ceseeb3a.htm (Last updated July 5, 2024); https:// www.bls.gov/web/empsit/ceseeb8a.htm (Last updated July 5, 2024). PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 it is significantly less than various measures of inflation discussed above, and even less than the original 5.5% increase. The Exchange believes that it is reasonable to increase its fee to compensate for inflation because, over time, inflation has degraded the value of each dollar that the Exchange collects in fees, such that the real revenue collected today is considerably less than that same revenue collected in 2010. 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 the Exchange’s existing co-location facility to offer customers additional space and power. Again, these investments, and the value they provide to customers, far exceed the amount of the proposed price increase. It is reasonable and consistent with the Act for the Commission to allow the Exchange to recoup these investments by charging fees, lest the Commission will disincentivize the Exchange to make similar investments in the future—a result that would be detrimental to the Exchange’s competitiveness as well as the interests of market participants and investors. Customers Have a Choice in Trading Venue Customers face many choices in where to trade 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 E:\FR\FM\08AUN1.SGM 08AUN1 Federal Register / Vol. 89, No. 153 / Thursday, August 8, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES1 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 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 Remote Hands Services, competitively. If not, customers may move to other venues or reduce use of the Exchange’s services. ‘‘If competitive forces are operative, the self-interest of the exchanges themselves will work powerfully to constrain unreasonable or unfair behavior.’’ 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 Remote Hands Services for Exchange connectivity would only serve to discourage participation on the Exchange. Moreover, if the Exchange charges excessive fees, it may stand to lose not only co-location and connectivity revenues but also other revenues, including revenues associated with the execution of orders. In summary, the proposal represents an equitable allocation of reasonable dues, fees and other charges because Exchange fees have fallen in real terms 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. 17 See Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74,770 (December 9, 2008) (SR–NYSEArca–2006–21). 18 Id. VerDate Sep<11>2014 17:24 Aug 07, 2024 Jkt 262001 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 change is not unfairly discriminatory because the fee is assessed uniformly across all market participants that voluntarily purchase Remote Hands Services, which are available to all customers. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. Nothing in the proposal burdens inter-market competition (the competition among self-regulatory organizations) because approval of the proposal does not impose any burden on the ability of other exchanges to compete. The Exchange operates in a highly competitive market in which market participants can determine whether or not to connect to the Exchange based on the value received compared to the cost of doing so. Indeed, market participants have numerous alternative exchanges that they may participate on and direct their order flow, as well as off-exchange venues, where competitive products are available for trading. Nothing in the proposal burdens intra-market competition (the competition among consumers) because the Exchange’s Remote Hands Services are available to any customer under the same fee schedule as any other customer, and any market participant that wishes to purchase such services can do so on a non-discriminatory basis. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to section 19(b)(3)(A)(ii) of the Act.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 19 15 PO 00000 U.S.C. 78s(b)(3)(A)(ii). Frm 00108 Fmt 4703 Sfmt 4703 64973 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 rule-comments@ sec.gov. Please include file number SR– Phlx–2024–36 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–Phlx–2024–36. 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 E:\FR\FM\08AUN1.SGM 08AUN1 64974 Federal Register / Vol. 89, No. 153 / Thursday, August 8, 2024 / Notices SR–Phlx–2024–36 and should be submitted on or before August 29, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–17508 Filed 8–7–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100643; File No. SR–NYSE– 2024–42] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Price List August 2, 2024. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that on July 26, 2024, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. lotter on DSK11XQN23PROD with NOTICES1 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Price List to (1) revise the requirements for market at-the-close (‘‘MOC’’) and limit at the close (‘‘LOC’’) orders on MOC/LOC Tier 1 and Tier 2; (2) modify the requirements and charges for D Orders at the close based on time of entry or last modification; and (3) introduce incremental per share credits for orders entered and executed by a Floor broker that add liquidity to the Exchange and for D Orders at the close. The Exchange proposes to implement the fee changes effective July 26, 2024. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 20 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 17:24 Aug 07, 2024 A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its Price List to (1) revise the requirements for MOC and LOC orders on MOC/LOC Tier 1 and Tier 2; (2) modify the requirements and charges for D Orders at the close based on time of entry or last modification; and (3) introduce incremental per share credits for orders entered and executed by a Floor broker that add liquidity to the Exchange and for D Orders at the close. The proposed change responds to the current competitive environment where order flow providers have a choice of where to direct liquidity-providing orders and closing price orders by revising the requirements and offering additional incentives for member organizations to send liquidity to the Exchange, especially during the Closing Auction. The purpose of the proposed rule change is also to encourage efficient usage of Exchange systems by member organizations by continuing to encourage all member organizations to enter or modify D Orders as early possible, which the Exchange believes is in the best interests of all member organizations and investors who access the Exchange. The Exchange proposes to implement the fee changes effective July 26, 2024.4 Background Current Market and Competitive Environment The Exchange operates in a highly competitive market. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, 4 The Exchange originally filed to amend the Price List on June 3, 2024 (SR–NYSE–2024–34). SR–NYSE–2024–34 was withdrawn on July 26, 2024 and replaced by this filing. 1 15 VerDate Sep<11>2014 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 self-regulatory organization 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 those 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 parts of such statements. Jkt 262001 PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 products, and services in the securities markets. In Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 5 While Regulation NMS has enhanced competition, it has also fostered a ‘‘fragmented’’ market structure where trading in a single stock can occur across multiple trading centers. When multiple trading centers compete for order flow in the same stock, the Commission has recognized that ‘‘such competition can lead to the fragmentation of order flow in that stock.’’ 6 Indeed, cash equity trading is currently dispersed across 16 exchanges,7 numerous alternative trading systems,8 and broker-dealer internalizers and wholesalers, all competing for order flow. Based on publicly-available information, no single exchange currently has more than 20% market share.9 Therefore, no exchange possesses significant pricing power in the execution of cash equity order flow. More specifically, the Exchange’s share of executed volume of equity trades in Tapes A, B and C securities is less than 12%.10 It should also be noted that, in the currently highly competitive national market system, numerous exchanges and other order execution venues compete for order flow at the close, and competition for closing orders is robust.11 5 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (File No. S7–10–04) (Final Rule) (‘‘Regulation NMS’’). 6 See Securities Exchange Act Release No. 61358, 75 FR 3594, 3597 (January 21, 2010) (File No. S7– 02–10) (Concept Release on Equity Market Structure). 7 See Cboe U.S Equities Market Volume Summary, available at https://markets.cboe.com/us/ equities/market_share. See generally https:// www.sec.gov/fast-answers/ divisionsmarketregmrexchangesshtml.html. 8 See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/ AtsIssueData. A list of alternative trading systems registered with the Commission is available at https://www.sec.gov/foia/docs/atslist.htm. 9 See Cboe Global Markets U.S. Equities Market Volume Summary, available at https:// markets.cboe.com/us/equities/market_share/. 10 See id. 11 There are at least seven broker-dealer sponsored products competing for volume at the close, including Credit Suisse’s CLOSEX; Instinet’s Market-onClose Cross; Morgan Stanley’s Market-onClose Aggregator (MOCHA); Bank of America’s Instinct X® and Global Conditional Cross; JP Morgan’s JPB–X; Piper Sandler’s On-Close Match Book; and Goldman Sachs’ One Delta Close Facility (ODCF). Moreover, the percentage of volume at the NYSE closing price in NYSE-listed securities E:\FR\FM\08AUN1.SGM 08AUN1

Agencies

[Federal Register Volume 89, Number 153 (Thursday, August 8, 2024)]
[Notices]
[Pages 64971-64974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17508]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100646; File No. SR-Phlx-2024-36]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee 
for Remote Hands Service

August 2, 2024.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 19, 2024, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's fee for Remote Hands 
Services, as described further below.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on August 19, 2024.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/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 a service fee 
relating to connectivity and co-location services. Specifically, the 
Exchange proposes to decrease its fee for Remote Hands Services, at 
General 8, section 1, to $151.50 per hour.
    General 8, section 1 includes the Exchange's fees that relate to 
co-location services, including ``Remote Hands Services.'' The term 
``Remote Hands Services'' refers to the use of Exchange engineers to 
perform on-site technical support tasks in its Data Center on behalf of 
its co-located customers, including the following: (1) power cycling of 
equipment; (2) patching and plugging in cabling and circuits; (3) 
observing, describing or reporting on display indicators; (4) 
configuration of hardware components instructed by the customer; (5) 
diagnosis and repairs as instructed by the customer; (6) swapping 
hardware components with customer-supplied spares or upgrades; (7) 
troubleshooting heat related issues as instructed by the Customer; and 
(8) returning defective equipment to the manufacturer or customer.
    Earlier this year, the Exchange increased its $150 per hour fee for 
Remote Hands Services, along with other connectivity and co-location 
services, by 5.5%, to partially account for the cumulative effects of 
inflation on the value to the Exchange of the revenues it earns through 
such fees.\3\ Now, the Exchange proposes to lower the Remote Hands 
Services fee from its current level, $158 per hour, to $151.50 per 
hour, with the net effect of providing for an overall smaller 1% 
increase over the original $150 hourly rate.
---------------------------------------------------------------------------

    \3\ The Exchange initially filed this proposed pricing change on 
March 1, 2024 (SR-Phlx-2024-08). On April 29, 2024, the Exchange 
withdrew that filing and submitted SR-Phlx-2024-019. On June 27, 
2024, the Exchange withdrew and replaced that filing with SR-Phlx-
2024-27.
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    The purpose of the proposed change in the Exchange's Remote Hands 
Services fee is the same as that which the Exchange expressed when it 
increased the fee by 5.5% earlier this year. That is, the change would 
enable the Exchange to maintain and improve its market technology and 
services. Prior to SR-Phlx-2024-27, the Exchange had not increased its 
Remote Hands fee since 2010.\4\ However, since 2010, there has been 
notable inflation. Between 2010 and 2024, the dollar had an average 
inflation rate of 2.64% per year, producing a cumulative price increase 
of 44.03%.\5\ Moreover, a more specific and pertinent gauge of 
inflation--the Producer Price Index (``PPI'') for data processing, 
hosting and related services, active services pages, and other IT 
infrastructure provisioning services--increased 17.8% from 2010 to 
2024.\6\ An even more specific gauge of inflation--average hourly 
earnings (``AHE'') growth for Computing Infrastructure--increased 77% 
for non-managers and 81% for all employees from 2010 to 2024.\7\ 
Notwithstanding such significant inflation, the Exchange had not 
increased its Remote Hands Service fees during this time, thereby 
eroding the value of the revenue it collects through this fee.\8\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 34-62395 (June 28, 
2010), 75 FR 38584 (July 2, 2010) (SR-Phlx-2010-18).
    \5\ See https://www.officialdata.org/us/inflation/2010?amount=1 
(Last updated July 8, 2024).
    \6\ See https://data.bls.gov/timeseries/PCU5182105182105 (Last 
updated July 7, 2024).
    \7\ See https://www.bls.gov/web/empsit/ceseeb3a.htm (Last 
updated July 5, 2024); https://www.bls.gov/web/empsit/ceseeb8a.htm 
(Last updated July 5, 2024).
    \8\ Unregulated competitors providing connectivity and co-
location services often have annual price increases written into 
their agreements with customers to account for inflation and rising 
costs.
---------------------------------------------------------------------------

    The proposed fee represents a decrease in the existing $158 per 
hour rate, and a net overall 1% increase from the original $150 per 
month fee. The 1% fee increase, resulting in a proposed amended rate of 
$151.50 per hour, is far below the rates of inflation, as measured by 
either the CPI, the PPI, or the AHE since 2010. Although the Exchange 
believes it would be reasonable to increase the fee by an amount equal 
to the full rates of inflation, however measured, to reestablish the 
initial value of the revenues it earns through its fees, the Exchange 
does not propose to do this. In fact, the Exchange now proposes to 
recalibrate even its initial 5.5% fee increase, because the Exchange is 
sensitive to the sticker shock that customers may experience when the 
Exchange raises rates. Instead, the Exchange proposes only a modest 1% 
increase over the prior $150 per month rate, an amount that the 
Exchange believes to be reasonable on its face as it is significantly 
less than various measures of inflation discussed above, and even less 
than the original 5.5% increase.

[[Page 64972]]

    The Exchange believes that it is reasonable to increase its fee to 
compensate for inflation because, over time, inflation has degraded the 
value of each dollar that the Exchange collects in fees, such that the 
real revenue collected today is considerably less than that same 
revenue collected in 2010. The Exchange notes that this inflationary 
effect is a general phenomenon that is independent of any change in the 
Exchange's costs in providing its goods and services. The Exchange 
believes that it is reasonable for it to offset, in part, this erosion 
in the value of the revenues it collects. The Exchange notes that other 
exchanges have filed for comparable or higher increases in certain 
connectivity-related fees, based in part on similar rationale.\9\
---------------------------------------------------------------------------

    \9\ See, e.g., Securities Exchange Act Release No. 34-100342 
(June 14, 2024), 89 FR 52132 (June 21, 2024) (SR-CboeBYX-2024-021).
---------------------------------------------------------------------------

    In addition, the Exchange continues to invest in maintaining, 
improving, and enhancing its connectivity and co-location products, 
services, and facilities--for the benefit and often at the behest of 
its customers. Such enhancements include refreshing hardware and 
expanding the Exchange's existing co-location facility to offer 
customers additional space and power. These investments, and the value 
they provide to customers, far exceed the amount of the proposed net 
price increase over the prior $150 per hour rate. It is reasonable and 
consistent with the Act for the Commission to allow the Exchange to 
recoup these investments by charging fees, lest the Commission will 
disincentivize the Exchange to make similar investments in the future--
a result that would be detrimental to the Exchange's competitiveness as 
well as the interests of market participants and investors.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\10\ in general, and furthers the objectives of 
sections 6(b)(4) and 6(b)(5) of the Act,\11\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

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

    This belief is based on a couple factors. First, the current fee 
does not properly reflect the value of the service, as fees for the 
service in question has been static in nominal terms, and therefore 
falling in real terms due to inflation. Second, exchange fees are 
constrained by the fact that market participants can choose among 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, prior to SR-Phlx-2024-27, the Exchange had not 
increased its Remote Hands Service fee since it introduced the fee in 
2010. This means that this fee has fallen in real terms due to 
inflation, which has been notable. Between 2010 and 2024, the dollar 
had an average inflation rate of 2.64% per year, producing a cumulative 
price increase of 44.03%.\12\ Moreover, a more specific and pertinent 
gauge of inflation--the PPI for data processing, hosting and related 
services, active services pages, and other IT infrastructure 
provisioning services--increased 17.8% from 2010 to 2024.\13\ An even 
more specific gauge of inflation--AHE growth for Computing 
Infrastructure--increased 77% for non-managers and 81% for all 
employees from 2010 to 2024.\14\ Notwithstanding such significant 
inflation, the Exchange had not increased its connectivity fees until 
2024, thereby eroding the value of the revenue it collects through such 
fee.
---------------------------------------------------------------------------

    \12\ See https://www.officialdata.org/us/inflation/2010?amount=1 
(Last updated July 8, 2024).
    \13\ See https://data.bls.gov/timeseries/PCU5182105182105 (Last 
updated July 7, 2024).
    \14\ See https://www.bls.gov/web/empsit/ceseeb3a.htm (Last 
updated July 5, 2024); https://www.bls.gov/web/empsit/ceseeb8a.htm 
(Last updated July 5, 2024).
---------------------------------------------------------------------------

    The proposed fee represents a decrease from the existing $158 per 
hour fee and a 1% overall net increase from the original $150 per hour 
fee, which is far below the rates of inflation, as measured by either 
the CPI, the PPI, or AHE since 2010. Although the Exchange believes it 
would be reasonable to increase the fee by an amount equal to the full 
rates of inflation, however measured, to reestablish the initial value 
of the revenues it earns through its fees, the Exchange does not 
propose to do this. In fact, the Exchange now proposes to recalibrate 
even its initial 5.5% fee increase, because the Exchange is sensitive 
to the sticker shock that customers may experience when the Exchange 
raises rates. Instead, the Exchange proposes only a modest 1% increase 
over the prior $150 per month rate, an amount that the Exchange 
believes to be reasonable on its face as it is significantly less than 
various measures of inflation discussed above, and even less than the 
original 5.5% increase.
    The Exchange believes that it is reasonable to increase its fee to 
compensate for inflation because, over time, inflation has degraded the 
value of each dollar that the Exchange collects in fees, such that the 
real revenue collected today is considerably less than that same 
revenue collected in 2010. The Exchange notes that this inflationary 
effect is a general phenomenon that is independent of any change in the 
Exchange's costs in providing its goods and services. The Exchange 
believes that it is reasonable for it to offset, in part, this erosion 
in the value of the revenues it collects.
    In addition, the Exchange continues to invest in maintaining, 
improving, and enhancing its connectivity and co-location products, 
services, and facilities--for the benefit and often at the behest of 
its customers. Such enhancements include refreshing hardware and 
expanding the Exchange's existing co-location facility to offer 
customers additional space and power. Again, these investments, and the 
value they provide to customers, far exceed the amount of the proposed 
price increase. It is reasonable and consistent with the Act for the 
Commission to allow the Exchange to recoup these investments by 
charging fees, lest the Commission will disincentivize the Exchange to 
make similar investments in the future--a result that would be 
detrimental to the Exchange's competitiveness as well as the interests 
of market participants and investors.
Customers Have a Choice in Trading Venue
    Customers face many choices in where to trade 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

[[Page 64973]]

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 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 
Remote Hands Services, competitively. If not, customers may move to 
other venues or reduce use of the Exchange's services. ``If competitive 
forces are operative, the self-interest of the exchanges themselves 
will work powerfully to constrain unreasonable or unfair behavior.'' 
\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 Remote Hands Services for Exchange connectivity would 
only serve to discourage participation on the Exchange. Moreover, if 
the Exchange charges excessive fees, it may stand to lose not only co-
location and connectivity revenues but also other revenues, including 
revenues associated with the execution of orders.
---------------------------------------------------------------------------

    \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 change is not unfairly 
discriminatory because the fee is assessed uniformly across all market 
participants that voluntarily purchase Remote Hands Services, which are 
available to all customers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
    Nothing in the proposal burdens inter-market competition (the 
competition among self-regulatory organizations) because approval of 
the proposal does not impose any burden on the ability of other 
exchanges to compete. The Exchange operates in a highly competitive 
market in which market participants can determine whether or not to 
connect to the Exchange based on the value received compared to the 
cost of doing so. Indeed, market participants have numerous alternative 
exchanges that they may participate on and direct their order flow, as 
well as off-exchange venues, where competitive products are available 
for trading.
    Nothing in the proposal burdens intra-market competition (the 
competition among consumers) because the Exchange's Remote Hands 
Services are available to any customer under the same fee schedule as 
any other customer, and any market participant that wishes to purchase 
such services can do so on a non-discriminatory basis.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act.\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-Phlx-2024-36 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-Phlx-2024-36. 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

[[Page 64974]]

SR-Phlx-2024-36 and should be submitted on or before August 29, 2024.

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

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

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-17508 Filed 8-7-24; 8:45 am]
BILLING CODE 8011-01-P
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