FR 2024-31091

Commentary on the Proposed Fee Change by Cboe C2 Exchange, Inc.

General Summary

The Cboe C2 Exchange, Inc. has proposed an increase in the monthly fee for 10 gigabit (Gb) physical ports used for connectivity purposes from $7,500 to $8,500. This change aims to support the ongoing maintenance and enhancement of the Exchange's market technology and services. Such physical ports enable members and non-members to connect to the Exchange's data centers, facilitating trading activities. The Exchange asserts that this fee adjustment is necessary due to inflationary factors and the investments made to enhance service quality.

Significant Issues and Concerns

One core issue with this document is the lack of a detailed cost breakdown or specific guidance on how the additional revenue from the increased fee will be used. Such vagueness might raise questions about whether the funds will be allocated efficiently or if there's a risk of wasteful spending.

Furthermore, the justification for the fee increase largely relies on comparisons with other exchanges and inflation metrics like the Producer Price Index (PPI). This approach may be perceived as aligning with a trend among exchanges in raising fees, which could contribute to a lack of competition and disfavor market dynamics that benefit consumers.

The text contains complex language and numerous references to statistics and economic indices. This complexity might be challenging for some readers, particularly those without expertise in financial economics, making it difficult to fully grasp the implications of the proposed changes.

Another area of concern is the document's lack of mention of any public comments or feedback that might have been considered in the decision-making process. This absence of stakeholder engagement could suggest limited transparency and reduced inclusivity in regulatory processes.

The repeated withdrawals and resubmissions of the fee proposal might also raise eyebrows. Such actions could indicate instability or inconsistency in the regulatory approach, potentially causing apprehension among stakeholders who wish for predictability in such decisions.

Potential Public Impact

Broadly, the increase in fees may lead to higher costs for those utilizing these 10Gb ports, which could indirectly impact retail investors or smaller trading firms that rely on certain market services. There might be concerns that increased operational costs could trickle down to end consumers, influencing market participation and investor behavior.

Impact on Specific Stakeholders

For stakeholders, particularly larger trading firms and financial institutions heavily dependent on the Cboe Exchange's infrastructure, the fee increase represents an added operational cost. However, these entities might also derive considerable value from the enhanced services and investments made possible by the fee adjustment, such as improved performance and increased trading speeds.

In contrast, smaller trading firms or newer market entrants who rely on less expensive options might not feel as significant an impact, given they can continue to opt for the unchanged 1 Gb physical port fees or access the network through third-party resellers. Nonetheless, these smaller participants might still face competitive pressures as larger firms reap the benefits of enhanced connectivity and services.

Overall, while the proposal seeks to bolster the Exchange's capabilities and offerings, it also prompts discussion on transparency, market competition, and stakeholder inclusivity in financial regulatory decisions.

The document from the Federal Register contains several financial references concerning changes to fees charged by Cboe C2 Exchange, Inc. for physical ports used to access the exchange's services. The changes primarily impact Trading Permit Holders (TPHs) and non-TPHs regarding their connectivity costs to the exchange.

Summary of Financial Allocations

Currently, $2,500 is charged monthly for a 1 gigabit (Gb) physical connection and $7,500 for a 10 Gb physical connection. The document details a proposal to increase the monthly fee for the 10 Gb connection from $7,500 to $8,500. This is aimed at enabling the exchange to maintain and improve its market technology and services. The proposed increase is positioned as a moderate change, justified by comparing it with the fees charged by other exchanges and accounting for inflation.

Financial References and Related Issues

The rationale for this fee increase is heavily reliant on comparing Cboe C2's proposed fees to those of other exchanges. For instance, Nasdaq charges a monthly fee of $15,000 for similar connections, while exchanges under the New York Stock Exchange Group charge $22,000. This comparison suggests that Cboe C2’s fees, even after the proposed increase, remain competitive. However, this may be seen as aligning with industry trends where similar organizations have also raised their fees, rather than a detailed financial analysis unique to the C2 Exchange's operational costs.

Critics might point out a lack of transparency regarding how the additional funds from the fee increase will be specifically allocated or spent. There's also a reliance on statistical data and economic indices like the Producer Price Index (PPI) to justify these financial changes, which can be complex for a general audience to grasp without additional context or simplified explanations.

Additionally, no public comments or stakeholder feedback have been mentioned as influencing the decision to increase fees. This absence may suggest a lack of engagement with the affected parties, potentially leading to concerns over transparency and inclusivity in decision-making.

Finally, the history of repeated withdrawals and resubmissions of the proposed changes could reflect instability in the decision-making process, impacting stakeholders' trust and confidence in these financial adjustments. This inconsistency may raise further questions about the reliability of these financial plans and their execution by the exchange.