FR 2024-30521

The document at hand pertains to a notice issued by the Securities and Exchange Commission (SEC) regarding a proposed rule change filed by The Nasdaq Stock Market LLC. Nasdaq seeks to increase its fee structure for Specialized Quote Feed (SQF) Ports and SQF Purge Ports by 10%, starting January 1, 2025. These ports are crucial for Market Makers who utilize them to send quotes to the exchange. The primary rationale behind this proposal is to adjust for inflation since the last fee adjustment in 2016 and 2018 and to maintain and enhance the quality and security of the exchange's technology.

Summary of the Document

Nasdaq has identified a need to raise the fees associated with certain technological services it offers, specifically the use of its SQF Ports and SQF Purge Ports. The exchange argues that such an increase is necessary to offset inflation and reflect the investments made in upgrading its technology infrastructure. The proposal indicates that the fees have remained static, while costs and performance enhancements continue to evolve. To justify the fee change, Nasdaq references the industry's Producer Price Index (PPI), which measures price changes in the data processing sector. The SEC is soliciting public comments on this rule change, allowing stakeholders to voice their perspectives before it potentially takes effect.

Significant Issues or Concerns

Several issues and concerns arise from the contents of this document. Firstly, there appears to be a lack of detailed justification as to how the 10% fee increase directly aligns with the enhancements Nasdaq claims to have made. The document broadly references improvements in technology, risk protection, and capacity but does not specify what those improvements entail or how they benefit the participants concretely. Moreover, while inflation is cited as a primary factor, the approach of using the Data PPI as a justification might not fully account for other market dynamics or technological advances that might influence costs differently.

Furthermore, there appears to be no mention of alternatives to a price increase that Nasdaq might have considered. For instance, methodologies to manage costs internally or through different means could provide a more holistic approach to maintaining high-quality services without shifting the financial burden entirely onto the users.

Additionally, the lack of clarity around how the effectiveness of the fee increase will be gauged post-implementation poses another concern. There isn't an outlined process for evaluating whether the increase achieves the purported benefits in technology and market responsiveness.

Potential Impact on the Public

Broadly, this proposal might impact the financial services sector by possibly increasing the operating costs for Market Makers who rely on these ports. Market Makers play a crucial role in maintaining liquidity within financial markets, and an increase in their costs could have downstream effects on the pricing and availability of securities for everyday investors. If Market Makers face higher costs, they may reduce their market making activities or pass on costs to clients, potentially impacting market efficiency and investor costs.

Impact on Specific Stakeholders

For Market Makers, the fee increase represents a direct financial impact. They will need to assess whether the enhanced technologies and services justify the higher costs they would incur. If the improvements do not yield significant efficiency or competitive advantages, Market Makers may view the fee increase negatively.

Nasdaq, on the other hand, could enhance its competitive standing by using these funds to ensure its technological offerings remain top-tier. If successful, this could help Nasdaq retain and attract more participants, bolstering its market position.

In conclusion, while this document outlines a proposal with rationale tied to inflation and technological investment, its lack of detailed justifications and potential oversights regarding market competition and alternative solutions are noteworthy. Stakeholders are encouraged to express their views during the comments solicitation period to ensure a balanced approach to this proposed rule change.

The document submitted by The Nasdaq Stock Market LLC proposes changes to the fees charged for certain technological services related to trading. The money-related aspects of this proposal primarily revolve around the planned increase in fees for the Specialized Quote Feed (SQF) and SQF Purge Ports used by market makers.

The current fee structure is outlined as follows: Market makers are charged $1,500 per port, per month for the first 5 ports, $1,000 per port, per month for the next 15 ports, and $500 per port, per month for any ports over 20. The proposed fee changes would increase these fees to $1,650, $1,100, and $550 respectively. This reflects a 10% increase across all tiers of port usage.

Financial Impact and Justification

The document mentions that these fee increases are justified by the need to cover rising costs associated with maintaining and improving Nasdaq's technological infrastructure. The proposed increase is said to align with inflationary changes as measured by the Producer Price Index specific to the data processing industry, which recorded a 10.30% increase from 2016 to 2024 for the general data processing sector. However, the document lacks specific details on how these funds will be allocated beyond general intentions of enhancing technology and service quality. Therefore, the alignment of this increase with actual market needs and the capabilities of market participants remains unclear.

Issues with the Financial Proposal

Several issues arise from the proposed fee increase:

1. Vague Benefits: The document suggests that the fee increase will maintain and improve market technology but does not specify how this will tangibly benefit the market participants. No detailed measures or benchmarks are discussed to evaluate the effectiveness and efficiency of these improvements post-implementation.

2. Competitiveness and Equity Concerns: There is no competitive analysis presented to explain how these fee changes compare to similar fees charged by other exchanges. This raises potential concerns about whether Nasdaq maintains fair competition practices.

3. Lack of Cost Transparency: The proposal does not offer a detailed breakdown of specific costs that have increased, which the fee hike is intended to cover. Without this transparency, it remains difficult to assess whether such a fee increase is fully warranted or if alternative solutions were explored.

4. Complex Economic Terms: The use of complex economic metrics like the Producer Price Index may not be readily understood by all stakeholders, potentially leading to confusion or misinterpretation of the reasons behind these financial changes.

Conclusion

Overall, while the proposed increase in fees reflects broader economic inflationary trends in the data processing industry, the financial documentation might benefit from further clarity and detail. Explicitly linking fee changes directly to specific service enhancements or improvements could help justify the increase and build trust among market participants. Additionally, ensuring that these changes are competitive and fair within the industry's context would reassure stakeholders regarding the proposal's fairness and necessity.