[Federal Register Volume 89, Number 138 (Thursday, July 18, 2024)]
[Notices]
[Pages 58439-58441]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15763]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100514; File No. SR-MRX-2024-18]
Self-Regulatory Organizations; Nasdaq MRX, 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, Nasdaq MRX, LLC (``MRX'' 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/mrx/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 as well as certain fees related
to its Testing Facilities in Options 7, Section 7 by 5.5%, with certain
exceptions.
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\3\ The Exchange initially filed the proposed pricing change on
March 1, 2024 (SR-MRX-2024-04). On April 29, 2024, the Exchange
withdrew that filing and submitted SR-MRX-2024-10. The instant
filing replaces SR-MRX-2024-10, 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. 34-99130 (December 11, 2023), 88
FR 87009 (December 15, 2023) (SR-MRX-2023-24). 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. 34-100200 (May 21, 2024), 89 FR 46183 (May 28, 2024)
(SR-MRX-2024-12).
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In addition to increasing fees in General 8, the Exchange also
proposes to increase certain fees in Options 7, Section 7, which relate
to the Testing Facility. Options 7, Section 7 provides that subscribers
to the Testing Facility located in Carteret, New Jersey shall pay a fee
of $1,000 per hand-off, per month for connection to the Testing
Facility. The hand-off fee includes either a 1Gb or 10Gb switch port
and a cross connect to the Testing Facility. In addition, Options 7,
Section 7 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 Testing Facility shall pay a fee of $1,055 per hand-off, per
month for connection to the Testing Facility 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. The Exchange
has not increased any of the fees included in the proposal since
2017.\5\ However, since 2017, there has been notable inflation. Between
2017 and 2024, the dollar had an average inflation rate of 3.34% per
year, producing a cumulative price increase of 25.82%.\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 16.1% from 2017 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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\5\ See Securities Exchange Act Release No. 34-81907 (October
19, 2017), 82 FR 49447 (October 25, 2017) (SRMRX-2017-21).
\6\ See https://www.officialdata.org/us/inflation/2017?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 2017. 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 25%. 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
[[Page 58440]]
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 2017. 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\
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\9\ 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 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 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,\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.
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\10\ 15 U.S.C. 78f(b).
\11\ 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 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, the Exchange has not increased any of the fees
included in the proposal since 2017. This means that such fees have
fallen in real terms due to inflation, which has been notable. Between
2017 and 2024, the dollar had an average inflation rate of 3.34% per
year, producing a cumulative price increase of 25.82%.\12\ Moreover,
the PPI for data processing, hosting and related services, active
services pages, and other IT infrastructure provisioning services--
increased 16.1% from 2017 to 2024.\13\ 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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\12\ See https://www.officialdata.org/us/inflation/2017?amount=1
(Last updated February 27, 2024).
\13\ 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 6 years. 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 2017. 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 25%. 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 2017. 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 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 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 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 options
products within markets which do not require connectivity to the
Exchange, such as the Over-the-Counter (OTC) markets.
There are currently 17 exchanges offering options trading services.
No single options exchange trades more than 14% of the options market
by volume and only one of the 17 options
[[Page 58441]]
exchanges has a market share over 10 percent.\14\ 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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\14\ 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.'' \15\ 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.'' \16\ 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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\15\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
\16\ 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.
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.\17\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is: (i) necessary or appropriate in the public
interest; (ii) for the protection of investors; or (iii) otherwise in
furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
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\17\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
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-MRX-2024-18 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-MRX-2024-18. 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-MRX-2024-18 and should be
submitted on or before August 8, 2024].
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15763 Filed 7-17-24; 8:45 am]
BILLING CODE 8011-01-P