[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\
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    \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.
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    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.
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    \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).
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    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\
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    \10\ See, e.g., Securities Exchange Act Release No. 34-100004 
(April 22, 2024), 89 FR 32465 (April 26, 2024) (SR-CboeBYX-2024-
012).
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    In addition, the Exchange continues to invest in maintaining, 
improving, and enhancing its connectivity and co-location products, 
services, and facilities--for the benefit and often at the behest of 
its customers. Such enhancements include refreshing hardware and 
expanding 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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    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.
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    \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).
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    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.
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    \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.
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    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.
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    \17\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \18\ Id.
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    In summary, the proposal represents an equitable allocation of 
reasonable dues, fees and other charges because Exchange fees have 
fallen in real terms and customers have a choice in trading venue and 
will exercise that choice and 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\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     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\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15761 Filed 7-17-24; 8:45 am]
BILLING CODE 8011-01-P