[Federal Register Volume 89, Number 215 (Wednesday, November 6, 2024)]
[Notices]
[Pages 88089-88091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25734]
[[Page 88089]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101497; File No. SR-NASDAQ-2024-063]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Options 7, Section 3
October 31, 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 October 18, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend The Nasdaq Options Market LLC
(``NOM'') Rules at Options 7, Section 3.
While these amendments are effective upon filing, the Exchange has
designated the proposed amendments to be operative on January 1, 2025.
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
SQF Port Fees and SQF Purge Port Fees. Specifically, the Exchange
proposes to raise its SQF Port Fees and SQF Purge Port Fees in Options
7, Section 9, B by 10%.
Today, NOM assesses SQF Ports and SQF Purge Ports a per port, per
month fee based on a tiered fee schedule. Specifically, NOM assesses an
SQF Port and an SQF Purge Port Fee of $1,500 per port, per month for
the first 5 ports (1-5), a $1,000 per port, per month fee for the next
15 ports (6-20), and a $500 per port, per month fee for all ports over
20 ports (21 and above). With this proposal, NOM would assess Market
Makers the following SQF Port and an SQF Purge Port Fees: $1,650 per
port, per month for the first 5 ports (1-5), a $1,100 per port, per
month fee for the next 15 ports (6-20), and a $550 per port, per month
fee for all ports over 20 ports (21 and above). The fees represent a
10% increase from the current tiered fees.
The proposed SQF Port Fee and SQF Purge Port Fee increases would
enable the Exchange to maintain and improve its market technology and
services to remain competitive with its peers. Over the years, customer
demand for risk protections and capacity has increased. The Exchange
continues to invest in maintaining, improving, and enhancing its port
protocols--for the benefit and often at the behest of its customers.
Such enhancements include refreshing hardware, upgrading risk
protections and information security, and offering customers additional
capacity. The Exchange has not increased NOM's SQF Port Fee since
2016,\3\ and has not increased its SQF Purge Port Fee since 2018 \4\
where inflation has been between roughly 14%-16%, as measured using the
metric described below. Nevertheless, the Exchange proposes to increase
its SQF Port Fee by 10%, only with respect to inflation that has
occurred since 2016 and its SQF Purge Port Fee by 10%, only with
respect to inflation that has occurred since 2018.
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\3\ See Securities Exchange Act Release No. 79619 (December 20,
2016), 81 FR 95250 (December 27, 2016) (SR-NASDAQ-2016-178).
\4\ See Securities Exchange Act Release No. 83193 (May 9, 2018),
83 FR 22539 (May 15, 2018) (SR-NASDAQ-2018-036).
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As discussed below, the Exchange proposes to adjust its fees by an
industry- and product-specific inflationary measure. It is reasonable
and consistent with the Act for the Exchange to recoup its investments,
at least in part, by adjusting its fees. Continuing to operate at fees
frozen at 2016 and 2018 levels, respectively, impacts the Exchange's
ability to enhance its offerings and the interests of market
participants and investors.
The fee increases the Exchange proposes are based on an industry-
specific Producer Price Index (``PPI''), which is a tailored measure of
inflation.\5\ As a general matter, the Producer Price Index is a family
of indexes that measures the average change over time in selling prices
received by domestic producers of goods and services. PPI measures
price change from the perspective of the seller. This contrasts with
other metrics, such as the Consumer Price Index (``CPI''), that measure
price change from the purchaser's perspective.\6\ About 10,000 PPIs for
individual products and groups of products are tracked and released
each month.\7\ PPIs are available for the output of nearly all
industries in the goods-producing sectors of the U.S. economy--mining,
manufacturing, agriculture, fishing, and forestry--as well as natural
gas, electricity, and construction, among others. The PPI program
covers approximately 69 percent of the service sector's output, as
measured by revenue reported in the 2017 Economic Census.
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\5\ See https://data.bls.gov/timeseries/PCU5182105182105.
\6\ See https://www.bls.gov/ppi/overview.htm.
\7\ See Id.
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For purposes of this proposal, the relevant industry-specific PPI
is the Hosting, Activer Server Pages, and Other IT Infrastructure
Provisioning Services (``Data PPI'') within the Data Processing and
Related Services Industry, which is an industry net-output PPI that
measures the average change in selling prices received by companies
that provide data processing services.
The Data Processing and Related Services industry was introduced to
the PPI in January 2002 by the Bureau of Labor Statistics (``BLS'') as
part of an ongoing effort to expand Producer Price Index coverage of
the services sector of the U.S. economy and is identified as NAICS-
518210 in the North American Industry Classification System.\8\
According to the BLS ``[t]he primary output of NAICS 518210 is the
provision of electronic data processing services. In the broadest
sense, computer services companies help their
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customers efficiently use technology. The processing services market
consists of vendors who use their own computer systems--often utilizing
proprietary software--to process customers' transactions and data.
Companies that offer processing services collect, organize, and store a
customer's transactions and other data for record-keeping purposes.
Price movements for the NAICS 518210 index are based on changes in the
revenue received by companies that provide data processing services.
Each month, companies provide net transaction prices for a specified
service. The transaction is an actual contract selected by probability,
where the price-determining characteristics are held constant while the
service is repriced. The prices used in index calculation are the
actual prices billed for the selected service contract.'' \9\
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\8\ See https://data.bls.gov/timeseries/PCU5182105182105.
\9\ See https://www.bls.gov/ppi/factsheets/producer-price-index-for-the-data-processing-and-related-servicesindustry-naics-518210.htm.
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The Exchange believes the Data PPI is the most appropriate subset
of the Data Processing and Related services industry to be considered
in the context of the proposed rule change to modify the SQF Port Fee
and the SQF Purge Port Fee because the Exchange uses its ``proprietary
software,'' i.e., its own proprietary matching engine software,
respectively, to receive options quotes on the Exchange's proprietary
trading platform.
For purposes of this proposed rule change, with respect to the SQF
Port Fee, the Exchange examined the Data PPI value for the period from
December 2016 to August 2024. The Data PPI had a starting value of
100.8 in December 2016 and an ending value of 116.445 in August 2024, a
15.52% increase. For purposes of this proposed rule change, with
respect to the SQF Purge Port Fee, the Exchange examined the Data PPI
value for the period from May 2018 to August 2024. The Data PPI had a
starting value of 102.1 in May 2018 and an ending value of 116.445 in
August 2024, a 14.04% increase. This data indicates that companies who
are also in the data storage and processing business have generally
increased prices for a specified service covered under NAICS 518210 by
an average of 15.52% and 14.04%, respectively, during this period.
Based on that percentage change, the Exchange proposes to make a one-
time fee increase of only 10%, which reflects an increase covering
roughly the entire period since the last price adjustment to the SQF
Port Fee and the SQF Purge Port Fee was made.
The Exchange further believes the Data PPI is an appropriate
measure for purposes of the proposed rule change on the basis that it
is a stable metric with limited volatility, unlike other consumer-side
inflation metrics. In fact, the Data PPI has not experienced a greater
than 2.16% increase for any one calendar year period since Data PPI was
introduced into the PPI in January 2002. The average calendar year
change from January 2002 to December 2023 was .62%, with a cumulative
increase of 15.67% over this 21-year period. The Exchange believes the
Data PPI is considerably less volatile than other inflation metrics
such as CPI, which has had individual calendar-year increases of more
than 6.5%, and a cumulative increase of over 73% over the same
period.\10\
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\10\ See https://www.usinflationcalculator.com/.
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The Exchange believes the Data PPI, and significant investments
into, and enhanced performance of, the Exchange support the
reasonableness of the proposed fee increases.\11\
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\11\ See supra discussion of SQF Port and SQF Purge Port
enhancements. Additionally, other exchanges have filed for increases
in certain fees, based in part on comparisons to inflation. See,
e.g., Securities Exchange Act Release Nos. 34-100004 (April 22,
2024), 89 FR 32465 (April 26, 2024) (SR-CboeBYX-2024-012); and 34-
100398 (June 21, 2024), 89 FR 53676 (June 27, 2024) (SR-BOX-2024-
16)l; Securities Exchange Act Release No. 34-100994 (September 10,
2024), 89 FR 75612 (September 16, 2024) (SR-NYSEARCA-2024-79).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\12\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4) and (5).
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This belief is based on two factors. First, the current fees do not
properly reflect the quality of the SQF Ports and SQF Purge Ports, as
the SQF Port Fee and SQF Purge Port Fee has been static in nominal
terms, and therefore falling in real terms due to inflation. Second,
the Exchange believes that investments made in enhancing the risk
protections and capacity of SQF Ports and SQF Purge Ports has increased
the performance of these ports.
The Proposed Rule Change Is Reasonable
As noted above, the Exchange has not increased any of the fees
included in the proposal since 2016 and 2018, respectively. However, in
the years following the last fee increases, the Exchange has made
significant investments in upgrades to its SQF Ports and SQF Purge
Ports, enhancing the quality of its services, as measured by, among
other things, increased capacity. In other words, Exchange customers
have greatly benefitted, while the Exchange's ability to recoup its
investments has been hampered. Between 2016 and 2024, the inflation
rate is 3.47% per year, on average, producing a cumulative inflation
rate of 31.37%.\14\ Also, between 2018 and 2024, the inflation rate is
3.86% per year, on average, producing a cumulative inflation rate of
25.50%.\15\ Using the more targeted inflation number of Data PPI, the
cumulative inflation rate was 15.52% between 2016 and 2024, and 14.04%
between 2018 and 2024. The Exchange believes the Data PPI is a
reasonable metric to base this fee increase on because it is targeted
to producer-side increases in the data processing industry, which based
on the definition adopted by BLS would include the Exchange's port
protocols.
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\14\ See https://www.officialdata.org/us/inflation/2015?amount=1.
\15\ See https://www.officialdata.org/us/inflation/2015?amount=1.
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Notwithstanding inflation, as noted above, the Exchange has not
increased its fees at all for over eight and six years, respectively,
for the subject services. The proposed SQF Port Fee and SQF Purge Port
Fee represent a modest increase from the current SQF Port Fee and SQF
Purge Port Fee. The Exchange believes the proposed SQF Port Fee and SQF
Purge Port Fee increases are reasonable in light of the Exchange's
continued expenditure in maintaining a robust technology ecosystem.
Furthermore, the Exchange continues to invest in maintaining and
enhancing its port products--for the benefit and often at the behest of
its customers and global investors. Such enhancements include
refreshing several aspects of the technology ecosystem including
software, hardware, and network while introducing new and innovative
products. The goal of the enhancements discussed above, among other
things, is to provide more modern connectivity to the match engine.
Accordingly, the Exchange continues to expend resources to innovate and
modernize its technology so that it may benefit its
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Participants in offering SQF Ports and SQF Purge Ports.
The Proposed Fees Are Equitably Allocated and Not Unfairly
Discriminatory
The Exchange also believes that the proposed fee increases are
equitably allocated and not unfairly discriminatory because they would
apply to all Market Makers uniformly. Market Makers are the only market
participants that are assessed the SQF Port Fee and SQF Purge Port Fee
because they are the only market participants that are permitted to
quote on the Exchange.\16\ These liquidity providers are critical
market participants in that they are the only market participants that
provide liquidity to the Exchange on a continuous basis. SQF Ports and
SQF Purge Ports are only utilized in a Market Maker's assigned options
series. The Exchange believes that the proposed fee increases are
equitably allocated and not unfairly discriminatory because they would
apply uniformly to all Market Makers that subscribe to SQF Ports and
SQF Purge Ports to quote on the Exchange. The Exchange also believes
that the proposal represents an equitable allocation of reasonable
dues, fees and other charges because Exchange fees have fallen in real
terms during the relevant period.
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\16\ Unlike other market participants, Market Makers are subject
to market making and quoting obligations. See Options 2, Sections 4
and 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed fees will impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Intramarket Competition
The Exchange believes that the proposed fees do not impose an undue
burden on intramarket competition because they would apply to all
Market Makers uniformly. Market Makers are the only market participants
that are assessed an SQF Port Fee and an SQF Purge Port Fee because
they are the only market participants that are permitted to quote on
the Exchange.\17\ These liquidity providers are critical market
participants in that they are the only market participants that provide
liquidity to the Exchange on a continuous basis. SQF Ports and SQF
Purge Ports are only utilized in a Market Maker's assigned options
series. The Exchange believes that the proposed fee increases are
equitably allocated and not unfairly discriminatory because they would
apply uniformly to all Market Makers that subscribe to SQF Ports and
SQF Purge Ports to quote on the Exchange.
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\17\ Unlike other market participants, Market Makers are subject
to market making and quoting obligations. See Options 2, Sections 4
and 5.
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Intermarket Competition
The Exchange believes that the proposed fees do not impose an undue
burden on intermarket competition or on other SROs that is not
necessary or appropriate. In determining the proposed fees, the
Exchange utilized an objective and stable metric with limited
volatility. Utilizing Data PPI over a specified period of time is a
reasonable means of recouping the Exchange's investment in SQF Ports
and SQF Purge Ports. The Exchange believes utilizing Data PPI, a
tailored measure of inflation, to increase the SQF Port Fee and SQF
Purge Port Fee to recoup the Exchange's investment in maintaining and
enhancing SQF Ports and SQF Purge Ports does not impose a burden on
competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\18\
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\18\ 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-2024-063 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-2024-063. 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-2024-063 and should
be submitted on or before November 27, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-25734 Filed 11-5-24; 8:45 am]
BILLING CODE 8011-01-P