FR 2024-30526

Nasdaq PHLX LLC's Proposed Fee Increase

The document discussed pertains to a proposal by Nasdaq PHLX LLC to increase the fees for its Specialized Quote Feed Ports and SQF Purge Ports. These fees are essential for Market Makers, entities responsible for providing liquidity on the Exchange. The proposed increase is 10%, slated to be effective from January 1, 2025. The Exchange aims to justify this move by citing the need to sustain and improve its technological infrastructure, an area where they've purportedly made substantial investments. Notably, this is the first time these particular fees have been proposed for an increase since the mid-2010s. Interested parties are encouraged to submit comments to the Securities and Exchange Commission.

Significant Concerns and Issues

One of the document's critical focuses is the justification of the fee increases based on the Producer Price Index (PPI) related to data processing and related services. Questions may arise regarding the appropriateness of using this metric to determine fee adjustments, given that it might allow fees to rise due to general inflation in the data processing industry rather than specific factors impacting the Exchange's services.

The document is also quite complex, utilizing detailed financial and regulatory jargon, making it potentially challenging for a general audience to comprehend. While it highlights the significant investments Nasdaq PHLX has made, it lacks detailed explanations or evidence supporting these expenditures. This lack of detailed transparency may lead stakeholders to question whether the investments were necessary or potentially extravagant.

Furthermore, although the Exchange claims that the fee increases are equitably allocated among Market Makers, it does not elaborate specifically on why this is deemed equitable, especially considering these fees affect only a particular group of market participants.

Impact on the General Public and Stakeholders

For the general public, the proposed fee change may seem remote; however, any changes in the cost structures of financial exchanges can potentially affect broader market dynamics that impact savings, investments, and retirement accounts indirectly.

Market Makers, the primary stakeholders affected by this proposal, may see both positive and negative impacts. On the negative side, increased operational costs due to higher fees could pressure their margins, potentially leading to higher costs passed on to retail investors. However, if Nasdaq PHLX’s claims about significant service improvements due to past and future investments are accurate, these stakeholders could benefit from better reliability and service efficiency, which might justify the fee increases.

Ultimately, while the Exchange purports that the fee increase aligns with inflation and past investments have improved service levels, the absence of clear rationales and detailed evidence leaves room for skepticism among those impacted by the change.

In the Federal Register document, the financial references primarily revolve around proposed fee increases by Nasdaq PHLX LLC regarding the costs associated with certain port services for Market Makers. The financial allocations discussed are critical as they directly impact the fees Market Makers will incur when interacting with the exchange.

Summary of Proposed Fee Increases

The document highlights the current fees that are being adjusted. Nasdaq PHLX currently charges $1,250 per port, per month for the Specialized Quote Feed (SQF) Ports, with a maximum fee, or "cap," of $42,000 per month for ports that handle inbound quotes. For SQF Purge Ports, the current assessment is $500 per port, per month for the first five ports, and $100 per port, per month for additional ones.

The proposed changes describe a 10% increase in these fees to adapt to what the exchange cites as inflationary measurements. The new fee for SQF Ports will be $1,375 per port, per month, with the cap increasing to $46,200 per month. Similarly, for the first five SQF Purge Ports, the fee will rise to $550 per port, per month, and to $110 per port, per month for any subsequent ports.

Relation to Identified Issues

One of the core issues involves the rationale behind these financial adjustments, which are tied to an industry-specific Producer Price Index (PPI). The PPI is used here to justify the increases by measuring price changes over time from a seller's perspective, particularly within the data processing services industry. This index might not fully align with the specific services provided by Nasdaq PHLX, raising questions about whether these costs accurately reflect the expenses genuinely attributable to enhancements directly benefiting customers.

Moreover, although the exchange justifies the fee increase due to historical investments in technology upgrades, the document does not provide exhaustive details on these expenditures. This lack of transparency makes it challenging to assess whether the spending directly correlates with improved services or whether the increase merely addresses generalized industry inflation. This issue could leave stakeholders questioning whether their increased costs are yielding proportional benefits.

The document claims that the fee adjustments equitably allocate charges among users, suggesting that all Market Makers are affected based on uniform criteria. However, critiques emerge regarding the justification for these claims, as only Market Makers, who are a specific group of users, are impacted. The document does not sufficiently address whether these charges offer competitive fairness compared to other potential exchanges or broker-dealers not subject to these fees.

These financial references underscore the tension between the need for exchanges to cover increased operational costs and the corresponding need to justify these costs with tangible, stakeholder-conducive benefits. This balance is particularly important in highly competitive financial markets, where every cost factor can significantly impact overall market dynamics.