FR 2024-29632

General Summary

The document discusses a proposed rule change filed by Nasdaq PHLX LLC to the Securities and Exchange Commission. This proposal seeks to adjust certain fees for Nasdaq's market data products to account for inflation. Many of these fees have not been updated for years and have decreased in real terms due to inflation. The adjustment is planned to be implemented over three years, starting in 2025, with increases phased at 45%, 30%, and 25% respectively. The Exchange argues that these changes are vital for recouping investments made in enhancing their technology and maintaining infrastructure.

Significant Issues and Concerns

One of the notable issues with the proposal is the lack of specific evidence linking the proposed inflation-based fee increases to the actual costs incurred by the Exchange. While inflation is real, the justification provided does not convincingly connect to Nasdaq's internal financial pressures. Additionally, the split of fee increases into specific percentages over three years appears arbitrary, lacking a detailed explanation for choosing these particular divisions.

Moreover, the reliance on the Data Processing Producer Price Index (PPI) as the metric for inflation adjustments raises questions. The document does not explore other indices or substantiate why this index is the most suitable choice, potentially undermining its credibility.

The document also fails to clearly articulate how past investments in data products serve the consumers who will bear the fee increases. Without explicit benefits to users, the justification for hikes appears weak. The complexity and lack of transparency in explaining these changes might obscure the true necessity and rationale behind them.

Broad Impact on the Public

The document's implications on the public are broad and varied. Fee increases, particularly those justified by inflation, might seem inevitable in today's economy but can still provoke resistance due to their financial impact. For general consumers of market data products, this could mean increased costs, which might be passed down through layers of financial services to the end consumer.

Impact on Specific Stakeholders

The proposed fee adjustments could disproportionately affect smaller financial entities or independent traders who rely heavily on market data. These stakeholders might find it difficult to absorb increased costs compared to larger institutions with more substantial financial resources. Moreover, the absence of detailed stakeholder engagement or feedback suggests an opaque decision-making process, which can lead to dissatisfaction and a feeling of exclusion among smaller stakeholders.

Conversely, for Nasdaq PHLX LLC, these changes are positioned as necessary for ongoing investment and technological advancement, potentially ensuring they stay competitive and maintain high-quality offerings. If executed correctly, these improvements could, in time, justify the fee hikes through enhanced services that benefit all users. Nonetheless, the current proposal might benefit from further clarification to more clearly articulate these potential advantages.

The document from the Federal Register mainly focuses on Nasdaq PHLX LLC's decision to adjust market data fees based on inflation. These adjustments, which will take place over a period of three years starting from 2025, aim to align the fees in accordance with inflation rates measured by a specific index.

In the document, it is noted that fees will be rounded according to specific thresholds: amounts over $999.99 are rounded to the nearest $10, amounts between $99.99 and $999.99 are rounded to the nearest dollar, fees between $9.99 and $99.99 to the nearest 50 cents, and amounts under $9.99 to the nearest 10 cents. This rounding method directly impacts the final cost to consumers, as larger fees are rounded to higher intervals.

The document outlines a plan to increase fees in three stages: 45 percent in 2025, 30 percent in 2026, and the final 25 percent in 2027. The choice of these specific percentages over three years might be seen as somewhat arbitrary, especially since the document does not offer a clear explanation or financial analysis to justify why such increments are necessary or how they were calculated. This prescribed plan can raise questions regarding the underlying rationale for these specific increments and their potential impact on stakeholders.

The Exchange bases its adjustments on the Data Processing Producer Price Index (PPI). This index reflects price changes from the perspective of producers of goods and services, rather than consumers, and is deemed suitable because it aligns with the Exchange's services operating model. However, the document does not delve into why this particular index was selected over other potential inflation measures, nor does it discuss alternatives that may have been considered. This lack of diverse justification could prompt concerns regarding the broad applicability and relevance of the chosen metric for the industry.

Some issues raised include the document's omission of detailed analysis or clear data supporting the correlation between increased data processing demands and the new fee structure. Without comprehensive financial analysis or evidence, stakeholders may find it challenging to gauge the fairness or necessity of the proposed increases. Additionally, while the intent is to support ongoing investments and improvements, there is little information on how these improvements will specifically benefit consumers who face the increased costs.

Lastly, the document does not explore the impact of these fee changes on smaller businesses or less financially robust entities. Such stakeholders might feel disproportional effects due to the fee increases, and the absence of discussion in this area could be perceived as a lack of consideration for equitable financial burden distribution among diverse market participants.