FR 2024-29040

General Summary

The document under review is a notice from the Nasdaq PHLX LLC regarding planned changes to the fees related to specific data products for options trading. The proposed modifications would lead to an increase in the monthly fees charged to Internal and External Distributors for certain data products, namely the Top of PHLX Options (TOPO), PHLX Orders, and TOPO Plus Orders. Despite these fee adjustments, the costs for Non-Professional and Professional Subscribers will remain the same. Nasdaq PHLX LLC asserts that the new fee structure is aligned with similar offerings by other exchanges, suggesting an equitable distribution of financial obligations among market participants. This notice is published by the Securities and Exchange Commission (SEC) which is soliciting feedback from the public to gauge opinions before finalizing the fee changes.

Significant Issues or Concerns

There are several notable issues within the document that might raise concerns among those impacted by the proposed changes. Firstly, the document outlines a substantial fee increase, despite the fact that fees have remained static for over a decade. Such a notable increase could warrant a more transparent explanation as to the necessity and benefits of these adjustments. While comparisons with fees from other exchanges such as MIAX and Cboe are mentioned, the breadth and depth of the data provided by each competitor in comparison are not thoroughly detailed, leaving room for ambiguity in the justification provided.

Secondly, the potential impacts of these increased fees on smaller entities within the market are not clearly articulated. Smaller market players may face disproportionate challenges compared to larger firms, as they may have less capacity to absorb increased operational costs. Moreover, the potential for these changes to create an imbalance in competition needs careful consideration to prevent larger firms from gaining an unintended advantage.

Impact on the Public Broadly

The changes proposed could have various broad implications for the public. Given that options trading is integral to many investment strategies, fee changes in data distribution can indirectly affect the costs associated with these strategies for investors. If the increased distributor fees are passed down to end-users or incorporated into trading costs, this could impact the overall expenses for retail investors and financial service consumers more generally.

Impact on Specific Stakeholders

From a stakeholder perspective, the proposed fee adjustments could influence different sectors distinctly. For large data distributors and institutions, the impact may be less significant given their broader resource pool, allowing them to cushion the financial impact more easily. However, smaller brokerage firms and independent traders who rely on these data feeds might encounter increased costs, potentially reducing their competitiveness or forcing them to adjust their service offerings or pricing structures.

Furthermore, the alignment of fee structures among exchanges could be seen as a positive step towards consistency across the industry, which can simplify compliance and operational planning for firms operating on multiple exchanges. Nevertheless, without detailed insights or futher consultation, stakeholders might still view these changes as a disadvantageous shifting of costs.

Conclusion

In conclusion, the proposed fee adjustments by Nasdaq PHLX LLC present several important considerations for market participants and regulators alike. The potential for increased costs to be passed on to smaller players and investors highlights the importance of transparency and equitable treatment in regulatory adjustments. The SEC's call for public feedback is a critical opportunity for all stakeholders to voice concerns or support, which will hopefully inform a balanced approach in the final decision-making process.

This document details a proposed rule change by Nasdaq PHLX LLC, which involves increasing the fees for access to specific proprietary data feeds: Top of PHLX Options (TOPO), PHLX Orders, and TOPO Plus Orders. These fees are charged to both internal and external distributors of market data. The financial references within the document highlight both current fees and proposed increases, along with a comparison to fees charged by similar exchanges.

Current and Proposed Fees

The current monthly fees for TOPO are $2,000 for internal distributors and $2,500 for external distributors. The document proposes increasing these fees to $2,500 and $3,000, respectively. Similarly, for PHLX Orders, fees are currently $3,000 for internal and $3,500 for external distributors. The proposed increases raise these amounts to $3,500 and $4,000. For TOPO Plus Orders, the fees are $4,500 for internal distributors and $5,000 for external distributors, with proposed increases to $5,500 and $6,000.

Historical Context and Financial Justification

The document notes that these fees have not changed for over a decade, asserting this as a rationale for the proposed increases. The fees have remained the same since January 2013, indicating that the costs to customers would have been stable over a long period. However, the justification for the increases hinges on a comparison to other exchanges, suggesting that similar services may be priced higher elsewhere. This reasoning could potentially be seen as lacking transparency, as detailed comparisons and explanations are not extensively provided.

Issues Related to Fee Changes

Several issues arise from the proposed increases in fees:

1. Impact on Smaller Entities: Increasing the costs for TOPO, PHLX Orders, and TOPO Plus Orders might disproportionally affect smaller market participants who may not have the financial capacity to absorb the increased costs. This could lead to competitive imbalances.

2. Lack of Comparative Analysis: The document references comparisons to other exchanges like MIAX, MIAX Emerald, and Cboe, stating that these exchanges charge more for less information. However, without detailed comparisons and context, this argument might not appear entirely convincing to stakeholders.

3. Accessibility and Clarity: The financial terminology and the details of fee adjustments could be complex for those outside the financial services industry. This complexity might limit the understanding of the implications of these changes among the general public.

4. Absence of Solicited Feedback: Although the document mentions that no written comments were solicited or received, it doesn't clearly outline any plans to engage stakeholders for feedback before proceeding with the implementation of these fee adjustments.

Conclusion

The proposed fee increases for Nasdaq PHLX's TOPO, PHLX Orders, and TOPO Plus Orders are significant financial changes, given the decade-long stability of these charges. While the changes are positioned as aligning with industry standards, the lack of detailed comparison and proactive stakeholder engagement could pose challenges. Ensuring transparency in how these rate adjustments are determined and engaging a wider range of feedback could help address potential disparities and concerns among the market participants affected by these changes.