FR 2024-30912

The recent document filed by the Cboe BYX Exchange, Inc. indicates a proposed rule change that aims to increase the fees associated with physical port connections. The primary adjustment is a hike in the monthly fee for 10 gigabit (Gb) ports from $7,500 to $8,500. The Exchange justifies this increase by pointing out the need to support and improve its technological infrastructure, with the claim that such improvements are crucial for maintaining market operations. It highlights that the last fee adjustment occurred in 2018, suggesting that inflation and increased investments in the technology platform necessitate a revised fee structure.

Summary of the Document

The document outlines the procedural and substantive details of the fee increase, including its proposed implementation and the opportunity for public comment. The Exchange states that despite the fee increase, their pricing remains competitive relative to other exchanges. They also provide a comprehensive explanation of why economic indicators, such as the Producer Price Index, support the fee change.

Significant Issues and Concerns

A few notable concerns emerge from the document. First, there is a potential burden on smaller market participants due to the fee increase, which might not be fully justified by the generalized benefits cited by the Exchange. Moreover, the document does not provide a detailed breakdown of the investments made or how they benefit all users equally, which could help in understanding the rationale behind the increase.

Second, while asserting that the fees remain competitive, the document does not effectively compare the proposed fees with those of competitor exchanges in a straightforward manner. Such context is crucial to comprehend the fee's competitiveness.

Third, the document's discussion on inflation and the use of Producer Price Index is technically dense, potentially limiting the audience's understanding. Simplifying or clarifying these points with practical examples could enhance accessibility.

Fourth, the document does not explicitly address how smaller market participants or overall market competition might be negatively impacted by the fee increase. Proactive strategies or mitigations might have been helpful in alleviating potential concerns.

Impact on the Public

The broader public impact of this proposal might seem minimal to those not directly involved in securities trading. However, any changes to market infrastructure costs can indirectly affect various stakeholders, including investors and brokers. Enhanced fees might trickle down to increase transaction costs, influencing trading volumes and market participation.

Impacts on Specific Stakeholders

For large market participants, the proposal might represent an adjustment process with negligible impact. These entities generally have the capacity to adapt to fee changes without issue. However, smaller market players could find this increase burdensome. This fee hike could potentially serve as a barrier to entry or continuation for these smaller entities, impacting the competitive landscape within the financial markets.

The Exchange notes that multiple filings and withdrawals have occurred before arriving at the current document, but the reasons for these procedural actions aren't clarified. This lack of transparency might be a concern, suggesting either procedural intricacies or adjustments behind the scenes that stakeholders might want to understand more clearly.

In conclusion, while the fee increase is described as part of efforts to maintain technology and infrastructure, clearer communication of the specifics around investment benefits, fee strategy, and stakeholder impact would be advantageous. Addressing these facets openly could foster better understanding and acceptance among stakeholders, including smaller participants wary of increased operational costs.

The document discusses a proposed amendment to the fee schedule of the Cboe BYX Exchange, Inc., which affects the monthly charges associated with physical connectivity to the exchange's data centers. The primary financial reference in the document is the proposed increase in fees for using 10 gigabit (Gb) physical ports.

One of the major financial points is that the current monthly fee for a 10 Gb physical port is $7,500, and the Exchange proposes raising this fee to $8,500. This represents a $1,000 increase per port each month. This fee adjustment is positioned within the context of maintaining and improving market technology and services while keeping fees competitive.

The Exchange compares its proposed fees to those of other exchanges, noting that similar connections might cost more at competitor platforms. For instance, The Nasdaq Stock Market LLC charges $15,000 for each 10Gb Ultra fiber connection, and the New York Stock Exchange LLC assesses $22,000 per month for analogous services. This suggests that even with the proposed increase, the fees at Cboe BYX Exchange remain comparatively lower.

The document also addresses the rationale behind the fee increase, linking it to the erosion of real revenue over time due to inflation. The Exchange claims that inflation has reduced the purchasing power of the revenue collected over the years, thus justifying the fee adjustment. Here, the Producer Price Index (PPI) is used as a measure to explain the inflationary pressures affecting services in the data processing and IT infrastructure domain. Though the document uses technical economic indicators to support the fee increase, a more straightforward explanation could enhance understanding.

One concern highlighted in the Issues section is the potentially burdensome impact of the fee increase on smaller market participants. The Exchange argues that smaller participants could opt for the less expensive 1 Gb physical port, which remains unchanged at $2,500 per month, or use third-party services to manage costs. However, the document might benefit from further detailing the mitigations and supports available to smaller entities.

Furthermore, the Exchange emphasizes that the 10 Gb port fees cover connections to all its Affiliate Exchanges with just a single charge, unlike separate fees for each port at competitor exchanges. This approach potentially offers cost savings for entities connecting to multiple affiliate platforms.

The document's financial references underline complexities in regulatory pricing, competition, and market access. Simplifying the language around specialized financial terms and incorporating a broader discussion on the impact across different market entities might improve comprehension for all stakeholders.