FR 2024-29151

Overview

The Nasdaq Stock Market LLC has proposed a plan to adjust certain fees based on inflation. This adjustment, submitted to the Securities and Exchange Commission, outlines how some fees, which have remained static for many years, will increase over the next three years. The increase will be phased: 45% in 2025, 30% in 2026, and the final 25% in 2027. The goal is to align fees with inflationary pressures that have accumulated over time and to facilitate further investments in market technology by the exchange.

Key Issues and Concerns

One notable issue is the complexity of the document. It employs specialized indices, such as the Producer Price Index for Data Processing and Related Services, to justify the fee increases. This choice could be questioned as the document lacks a detailed explanation of why this index is preferable over more common measures like the Consumer Price Index.

Additionally, the document lacks clear examples of how these changes translate to actual costs for users, which could lead to confusion. Many stakeholders might find it difficult to anticipate how these changes will specifically affect their financial obligations or business models, since the document's language is heavily laden with financial and legal jargon.

Another concern is the plan to spread the inflationary adjustment over three years without a clear mechanism for adapting to ongoing changes in economic conditions. Should inflation rates shift unexpectedly during this period, the phased approach might not fully capture such variations, leading to potential misalignments with real-time economic realities.

Broad Public Impact

From a public perspective, the proposed changes may not have direct everyday implications for non-investors or the general population. However, as Nasdaq is a major financial market hub, its fee structures can indirectly influence broader financial markets and related economic activities.

Impact on Specific Stakeholders

Investors and Traders: For stakeholders directly using Nasdaq’s services, the phased fee increases could mean higher operational costs. This might affect both large market participants and smaller ones, although the document claims the changes should equitably apply to all users.

Data Users: Entities relying on Nasdaq data products, such as institutional investors, could face additional financial burdens as they adjust to the new cost structure. These costs could subsequently affect their financial planning and investment strategies.

Nasdaq: The rationale for the fee changes is to recoup investments in technology and continue delivering high-quality market data products. If executed well, this could benefit Nasdaq by sustaining or even enhancing its operational capacity and service offerings.

Competitors: Other exchanges might see these fee adjustments as an opportunity to compete more aggressively on pricing and service since Nasdaq’s increase could provide competitors a relative advantage if their fees remain unchanged.

In conclusion, while the Nasdaq’s proposed fee adjustments are strategically aimed at aligning costs with past inflation and future investments, the complexity and potential lack of clarity could pose challenges for various stakeholders. It remains critical for Nasdaq to communicate transparently and for stakeholders to engage closely to fully understand these changes' implications.

The document discusses proposed changes to fees charged by The Nasdaq Stock Market, primarily focusing on adjusting these fees based on the rate of inflation. The main financial concept in this document revolves around the method of adjusting fees using a specialized inflation metric and the rounding of these fees to maintain consistency.

Fee Calculation and Rounding

The Nasdaq Stock Market LLC plans to adjust its market data fees in line with inflation. The fee adjustments are phased over three years: 45% in 2025, 30% in 2026, and the final 25% in 2027. This gradual implementation aims to mitigate the impact of a one-time fee increase on clients. These adjustments are presented as necessary to keep up with the increasing costs of producing and delivering high-quality data services amidst rising operational costs due to inflation.

A key aspect of the proposal is the rounding of fees, which dictates how fee values are adjusted based on their starting point:

• Fees over $999.99 are rounded to the nearest $10.
• Fees between $99.99 and $999.99 are rounded to the nearest dollar.
• Fees between $9.99 and $99.99 are rounded to the nearest $0.50.
• Fees less than $9.99 are rounded to the nearest $0.10.

This structured approach to rounding ensures that the fee adjustments remain logical and standardized without excessive fluctuation or complexity.

Relationship to Identified Issues

The inflationary fee adjustment is derived from the industry-specific Producer Price Index (PPI) for Data Processing and Related Services. However, one issue highlighted is that the document lacks a clear explanation of why this particular PPI is chosen over other indices like the Consumer Price Index (CPI). This choice could influence the perceived fairness and precision of the adjustments, raising concerns about whether these adjustments effectively capture inflationary pressures specific to market data services.

Another issue centers on stakeholder understanding and engagement. The document’s heavy use of financial terminology and the technical nature of fee calculations could challenge a broader audience's comprehension. Thus, the intricacies of the financial decisions, such as why specific percentages or rounding rules are used, might not be as transparent as necessary for all stakeholders.

Future Adjustments

The strategy to implement these fee adjustments over several years raises questions about how future inflationary changes will be addressed. The document does not specify methods for incorporating subsequent inflation data beyond August 2024, which may lead to adjustments that do not fully reflect contemporary economic conditions. Stakeholders might find the lack of clarity on this point concerning, as they expect adjustments that remain relevant over time.

In summary, while the document outlines a structured approach to adjusting fees using inflation data, it may benefit from enhanced explanations and transparency, ensuring all stakeholders have a clear understanding of the financial impacts and methodologies applied.