Overview
Title
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule Regarding Dedicated Cores
Agencies
ELI5 AI
In this document, the Cboe EDGX Exchange says that companies can pay extra money to use special computer parts called Dedicated Cores to make their trading faster. The first two are free, but if they want more, they have to pay more.
Summary AI
The Cboe EDGX Exchange, Inc. is proposing a new fee structure for users wishing to purchase Dedicated Cores instead of sharing CPU resources. These Dedicated Cores can enhance trading performance by reducing latency and improving throughput. They are optional, and users can choose to stick to shared resources. The first two Dedicated Cores are free, while additional cores incur progressive fees. The proposal aims to manage the finite CPU resources fairly and is part of the exchange's efforts to keep up with growing user demand.
Keywords AI
Sources
AnalysisAI
Overview of the Document
The document is a notice issued by the Cboe EDGX Exchange, Inc., detailing a proposed rule change related to their fee structure. The proposal focuses on implementing fees for "Dedicated Cores," which are a part of the exchange's computing resources. These Dedicated Cores are intended to provide benefits such as reduced latency and improved trading performance compared to the shared resources most users currently employ. This change is designed to cater to growing demands from users for dedicated resources. The document outlines the specifics of the fee structure, allowing the first two Dedicated Cores free, with progressive charges for additional cores.
Key Issues and Concerns
The primary concern revolves around the technical jargon used throughout the document, such as "Dedicated Cores" and "BOE logical order entry port," which might not be easily comprehensible to individuals without a technical or trading background. This complexity can pose a barrier for the general public to fully understand the implications of the rule change.
Another issue is the lack of transparency in the pricing structure. The document lists fees of $650, $850, and $1,050 for different quantities of Dedicated Cores but does not provide a clear rationale for these specific amounts. This opacity could be perceived as arbitrary, leading to questions about fairness and the basis of these fees.
The proposal discusses an increase in the cap on the number of Dedicated Cores, yet it lacks details on how the additional space and computing power have been acquired. This omission leaves stakeholders unclear on whether the expansion is sustainable or likely to meet future demand.
Impact on the Public and Stakeholders
Broadly, the document's propositions might not significantly impact the public, unless they are active participants or stakeholders in the trading markets that Cboe EDGX serves. For these stakeholders, particularly smaller firms or new entrants, the document could imply competitive pressure to adopt Dedicated Cores to benefit from enhanced trading performance, despite their optional nature.
For larger firms or those with more capital, the progressive fee structure might not pose a significant burden, but for smaller firms, the fees may result in competitive disadvantages. If these firms feel compelled to utilize Dedicated Cores to remain competitive, it might increase their operational costs.
The proposal might be seen positively by firms that benefit the most from high-frequency trading practices, as they could gain a further edge due to decreased latency in order execution. Conversely, it might enforce a division between firms that can afford such dedicated resources and those that cannot, thereby impacting market dynamics.
Conclusion
Overall, while the proposal aims to address user demand and improve service offerings, it raises several questions about accessibility, fairness, and the broader impact on market competition. Adequate explanation and transparent communication regarding the fee structure and anticipated adjustments to Dedicated Core limits would support more informed decisions by stakeholders and perhaps alleviate concerns related to market fairness and competitive practices. The document does invite comments, which offers an avenue for stakeholders to express their views, though it lacks detail on how such feedback will impact final decisions.
Financial Assessment
The Federal Register document in question details a proposed rule change by the Cboe EDGX Exchange, specifically concerning adopting fees related to the use of Dedicated Cores. The financial implications of this change are significant as they outline specific monetary charges for the use of more than two Dedicated Cores by users.
Summary of Financial References
The document stipulates that users who require more than two Dedicated Cores will incur charges in a tiered pricing structure. For 3 to 15 Dedicated Cores, the fee is $650 per core; for 16 to 30, the charge increases to $850 per core; and for 31 or more, it is $1,050 per core. Additionally, the document provides an example calculation: A user purchasing 16 Dedicated Cores will pay a total of $9,300 per month, factoring in the two free cores provided with no additional cost, and applying the appropriate tiered pricing.
Furthermore, the document compares these fees with similar services, such as the Nasdaq's Dedicated Ouch Port Infrastructure, which costs $5,000 per month plus a $5,000 one-time installation fee. While this is insightful for providing context on industry standards, the lack of detailed comparative metrics leaves room for questions on the fairness and competitiveness of the Cboe EDGX pricing model.
Relation to Identified Issues
The absence of a clear rationale for the specific fee tiers ($650, $850, and $1,050) leaves it unclear why these amounts were chosen. This could lead to perceptions that the pricing is arbitrary and not necessarily reflective of cost recovery or market value, potentially raising concerns about transparency.
Moreover, while Dedicated Cores are noted as optional, the document acknowledges they offer performance benefits, potentially creating an implicit pressure on firms to adopt them to maintain competitive parity. This places emphasis on the financial burden these fees could impose, especially on smaller market participants who may not afford to keep up with the associated costs.
There is also an observed absence of detailed procedures on how public commentary on this pricing structure will be incorporated into decision-making processes. Such a procedure could ensure a more equitable consideration of diverse financial capabilities among market participants.
Lastly, the structure of these financial allocations could favor firms with greater resources due to the tiered pricing model. Larger firms are more likely to afford higher-tier costs, potentially granting them a performance edge over smaller firms. Without a detailed discussion on preventing conflicts of interest, this could further entrench existing disparities within the exchange market.
In conclusion, while the financial details provided in the document offer a necessary perspective on the proposed rule change's economic impact, they also highlight areas where clarity and transparency would benefit broader stakeholder understanding and participation.
Issues
• The document uses technical jargon such as 'Dedicated Cores', 'BOE logical order entry port', 'CPU Core', and 'Sponsoring Member' without layman explanations, which may not be easily understood by a general audience.
• There is no clear rationale provided for the specific pricing tiers of $650, $850, and $1,050 per Dedicated Core at different quantities, which could be perceived as arbitrary.
• The justification for the increased cap on Dedicated Cores from previous limits is mentioned but lacks detailed explanation on how additional space and CPU Cores were procured.
• The paper mentions that notice is given to solicit comments from interested persons, but there is no detailed procedure on how the comments will impact the final decision.
• There is no discussion on potential conflicts of interest or how the allocation of Dedicated Cores might favor certain firms, particularly larger members due to the tiered pricing model.
• While the document states that Dedicated Cores are optional and not necessary for trading, it implies that firms with them receive performance benefits, which may pressure firms to adopt them.
• A comparison with a similar offering by Nasdaq is made, but it lacks detailed comparison metrics, which could provide clarity on how they differ or are alike.
• The document contains many references and footnotes to other documents and filings, which may make it difficult for someone unfamiliar with those documents to fully comprehend the context.
• It mentions the exchange's intent to monitor dedicated core interest and allotment availability without committing to concrete steps or timelines for future adjustments.