FR 2024-28545

Nasdaq ISE, LLC has submitted a notice detailing proposed changes to its co-location service fees, which are now under review by the Securities and Exchange Commission. These proposed changes include the introduction of a new fee structure associated with Nasdaq's data center expansion in Carteret, New Jersey, specifically the section referred to as NY11-4. Among the new fee proposals, the Exchange suggests a monthly charge of $7,230 for what is termed an Ultra High Density Cabinet and a $5,940 installation fee for setting up cabinets in the updated facility. Additionally, power installation fees are set at $3,600 and $4,560, along with an option for Power Distribution Units (PDUs), which clients may also choose to source themselves.

General Summary

The document essentially outlines Nasdaq ISE’s introduction of new pricing for its enhanced co-location services—physical spaces where customers can place their hardware near Nasdaq's electronic trading systems to speed up trade execution. The new proposed fees seek to align with the cost increases associated with upgraded infrastructure at the NY11-4 data center, and aim to keep consistency with existing pricing models for similar services.

Significant Issues and Concerns

The document raises several issues and ambiguities that may need further clarification. Firstly, the justification for the specific amounts charged is somewhat vague, lacking transparency on how figures were precisely determined. Descriptions such as "small mark-up" and reasons like "anticipated operational efficiencies" are subjective and inadequately quantified, making it difficult to assess whether customers are receiving competitive pricing. Secondly, the document claims that fees reflect direct costs passed on from vendors like Equinix but doesn't detail whether Nasdaq ensured these costs were minimized through competitive bidding or negotiation. Thirdly, while comparisons are made with NYSE’s pricing, there is insufficient analysis to determine if these comparisons are entirely valid or represent fair value. Lastly, the technical nature of the language used, particularly when discussing power options and distribution, may lead to confusion among less technologically savvy stakeholders trying to evaluate cost-effectiveness.

Impact on the Public

For the public, and especially smaller traders or investors who may utilize these services, the new fee structures could introduce higher costs associated with Nasdaq's improved facilities, impacting where and how efficiently they decide to trade. This could result in higher operational costs being passed down to end users in some capacity, potentially impacting trade fees or the financial products offered by brokerage services.

Impact on Specific Stakeholders

These developments are more relevant for specific stakeholders such as large financial institutions, trading firms, and the companies directly using Nasdaq’s co-location services. For these stakeholders, the increased fees might be justifiable if the enhanced infrastructure results in better performance or other competitive advantages. However, smaller firms and entrants in the trading space may find these costs burdensome, possibly affecting market competition.

Additionally, the document could have implications for Nasdaq's vendors and competitors. Vendors might benefit from the mark-up aligning with service costs, while competitors might seize the opportunity to offer alternative or supplementary trading platforms at lower rates or with different value propositions.

Overall, while the proposal aims to enhance Nasdaq's service offerings through improved infrastructure, the stakeholders must carefully weigh the associated costs against expected benefits. The overarching theme remains that while advancements in technology and infrastructure are necessary, they should balance with transparency and competitiveness in pricing to ensure fair access and marketplace sustainability.

In the reviewed Federal Register document detailing the proposed rule change by Nasdaq ISE, LLC, there is a notable emphasis on financial elements concerning expanded co-location services. The document outlines several fees introduced for these services, each itemized with specific pricing.

The Nasdaq ISE proposes establishing a consistent $7,230 ongoing monthly fee for the newly offered Ultra High Density Cabinets. It is indicated that this pricing falls between the existing costs for High Density Cabinets, pegged at $4,748, and Super High Density Cabinets, priced at $8,440. The proposed fee adjustment appears to align with current cabinet fees on a per kilowatt basis, ranging from about $482 per kW to $723 per kW for the Ultra High Density Cabinets. However, there are concerns regarding the transparency of these fee determinations. No detailed justification is provided for why this specific amount was chosen, raising questions about the clarity and fairness in setting fees.

Additionally, there is the introduction of a $5,940 installation fee for cabinets in the NY11-4 data center. This fee is seemingly justified as reasonable when compared to existing installation fees in the NY11 data halls, which range from $3,693 to $4,748. The document refers to this installation fee as including a "small mark-up" to cover administrative costs. The use of the term "small" is subjective and lacks precise definition, which casts uncertainty on whether this add-on is reasonable or potentially excessive.

Moreover, the document lists a $3,600 installation fee for Phase 1 cabinet power options and a $4,560 fee for Phase 3 power options in the expanded center. The differentiation in power option fees, attributed to the higher voltage and resulting operational efficiencies, also lacks specific data or metrics to substantiate how these efficiencies justify higher costs.

The proposal to charge $4,100 for a Phase 1 Power Distribution Unit (PDU) and $5,260 for a Phase 3 PDU is presented as an optional convenience for customers. Additionally, a $2,000 fee is suggested for adding a switch monitored PDU option, allowing remote power management. The document claims these fees align with market rates, yet it does not provide detailed comparison data to validate this assertion.

The document claims that fees largely reflect vendor costs, particularly from Equinix and Wise Components, suggesting a pass-through strategy. Nonetheless, the absence of discussion regarding competitive bidding or negotiations to minimize these vendor costs implies a potential lack of diligence in ensuring financial efficiency. Although there are references to fees at other exchanges, like the NYSE's $5,000 fee for similar offerings, the document could benefit from a more robust comparative analysis to justify its pricing structures.

Overall, while the proposal describes pricing structures extensively, the document could improve its transparency by expanding on the rationale and ensuring the proposed fees are grounded in more comprehensive market comparisons and cost analyses.