FR 2024-31093

Summary of the Document

This document is a notice from the Cboe EDGX Exchange, Inc. regarding a proposed rule change to their fees schedule, particularly concerning physical port fees. The Exchange has proposed increasing the monthly fee for 10 gigabit (Gb) physical ports, which are used by members and non-members to connect to its data centers, from $7,500 to $8,500. The Exchange justifies this increase as necessary to maintain and improve their market technology and services, and as noted, the new fee would still be competitive when compared to what other exchanges charge. Additionally, the proposed fee adjustment is meant to compensate for inflation and substantial investments that the Exchange has made over the years.

Significant Issues or Concerns

One major issue noted in the document is the delayed adjustment of the 10 Gb physical port fee, which remained unchanged since 2018 despite inflation. This situation might impact revenue sustainability for the Exchange by not reflecting the costs that have risen due to inflation over the years.

Another point of concern is a potential bias arising from the different fee structures for large organizations versus smaller participants. Although the Exchange explains this differentiation by highlighting the higher resource consumption by large organizations, it could pose fairness concerns for smaller market participants.

The document also uses technical language, particularly related to the Producer Price Index (PPI), which may not be easily understandable by those unfamiliar with financial metrics, thus limiting the accessibility of the argument for the fee increase.

The concurrent adjustment of fees similar to Affiliate Exchanges might potentially suggest an industry-wide fee alignment. This could call for additional scrutiny to ensure it doesn't hinder competition within the market.

Moreover, the document does not seem to mention specific stakeholder consultations, which raises questions about the inclusivity of perspectives from all market participants in the decision-making process.

Lastly, there are references to multiple filing withdrawals and resubmissions before the final proposal. This could evoke doubts regarding the preparedness or consistency of the Exchange's proposal.

Impact on the Public

For the broader public, especially those involved in trading and access to the Exchange's data centers, the fee increase might impact operational costs. While larger institutions with extensive bandwidth consumption may absorb this cost due to their resource usage, smaller entities might find the increased cost burdensome.

Impact on Specific Stakeholders

For market participants using the Exchange, particularly entities requiring substantial data bandwidth, the fee increase reflects a necessary operational cost aligned with service improvements and inflation adjustments. These stakeholders could benefit from enhanced technology and improved infrastructure performance as a result of the investments funded by these increased fees.

Conversely, smaller participants, or those with limited bandwidth needs, may view this change negatively as it increases their costs without a corresponding increase in their level of service usage. However, they may opt for less expensive options like the 1 Gb ports or third-party solutions to mitigate the financial impact.

Overall, while the proposal intends to maintain the competitiveness and technological advancement of the Exchange, it underscores the delicate balance between operational cost alignments and the impact on market entry and participation for diverse groups within the trading community.

The document outlines a proposal from the Cboe EDGX Exchange, Inc. to amend its fees related to physical ports, specifically focusing on the change in pricing for connectivity. Key financial references and their implications are discussed below.

The current fees for physical connectivity are $2,500 per port for a 1 gigabit (Gb) circuit and $7,500 per port for a 10 Gb circuit. The proposal seeks to increase the monthly fee for 10 Gb physical ports from $7,500 to $8,500 per port. This proposed change is key to the Exchange's ability to sustain and improve its services.

Financial Allocation and Market Considerations

The proposed fee increase is argued to be in line with charges by similar exchanges, with references to Nasdaq and its affiliated exchanges charging $15,000 per 10Gb connection and the New York Stock Exchange fees set at $22,000 per month for comparable services. The stated rationale for the increase stems from the need to address inflationary pressures that have reduced the real value of the fees over time. This financial adjustment aims at recouping investments, enhancing services, and maintaining competitive positioning.

Inflation and Revenue Impact

The document underscores that the 10 Gb port fee has been static since 2018, ignoring inflationary impacts that have decreased purchasing power, leading to reduced real revenue. This gap is highlighted as a motivator for the fee increase, aligning the pricing more closely with the Producer Price Index (PPI) related to data processing and IT services. The lack of annual fee increases exacerbates the effect of inflation, as noted by the Exchange.

Resource Consumption and Equity in Fees

The fee structure also reflects resource consumption by participants. Larger consumers who utilize more bandwidth through 10 Gb ports are subject to higher fees compared to those using 1 Gb ports. While this could suggest a potential bias, the fee differentiation is justified by the Exchange as aligning costs with resource use, purportedly avoiding unfair financial burdens on smaller participants. Market participants with lower capacity needs can opt for less expensive options or third-party resellers, hypothetically enhancing accessibility and competition.

Industry-Wide Fee Adjustments

The document mentions that the proposed fee adjustments are consistent among the Exchange's affiliate platforms, which may suggest uniformity in fee structures across the industry. Such alignment could streamline connectivity costing, but it may also raise questions about the potential for reduced competition, an issue that is not elaborated on.

Overall, the financial references in the document highlight how the Exchange aims to align its fee structure with both market standards and economic realities, balancing the need for sustainability against potential impacts on competition and equity among users.