FR 2025-05209

Commentary on the Proposed Fee Increase by Cboe BYX Exchange, Inc.

General Summary

The Cboe BYX Exchange, Inc. has put forward a proposal to increase the monthly fees for its 10 gigabit (Gb) physical connections used by customers to interact with the exchange's systems. Originally priced at $7,500 per month, the proposed new fee is $8,500. The exchange justifies this increase as a necessary step to continue improving and maintaining its technological infrastructure, especially as other exchanges charge even higher rates for similar services.

Significant Issues and Concerns

This document presents several points that may raise concerns or warrant further discussion:

• Technical Complexity: The document is laden with technical jargon and industry-specific references such as "PPI," "NAICS-5182105," and "10 Gb physical ports." These terms may not be easily understood by those not closely tied to the financial or technological sectors.

• Economic Justifications: The proposed fee increase is largely explained using specific economic indices, like the Producer Price Index (PPI). While these are used to justify cost adjustments due to inflation, such justifications may not be clear to all customers or stakeholders without detailed economic knowledge.

• Comparative Basis: The document compares the proposed fee with those charged by other exchanges. While this suggests that the fee is competitive, it might also imply that the decision is an alignment with industry standards rather than a result of a direct assessment of costs and market conditions.

Public Impact

Broadly, this proposed fee increase could have various implications. For average investors or the general public, there might be indirect impacts as increased operational costs for exchanges could potentially trickle down in the form of higher trading costs. However, the document primarily focuses on technical users at a higher level, meaning that direct impacts to everyday traders may be minimal.

Impact on Specific Stakeholders

• Market Participants and Users: Firms using the 10 Gb ports for swift, large-scale trading operations are directly affected as they face higher costs. Given these entities typically utilize more resources, they may need to evaluate the cost efficiency relative to the increased fee.

• Smaller Firms: Businesses that do not require such high-speed connections can opt for smaller, less expensive ports, which are not experiencing a price change. This could help maintain a competitive environment where smaller businesses are not disproportionately impacted.

• Technological Improvement and Innovation: The fee increase is proposed to support ongoing technical enhancements, which play a crucial role in the overall health and competitiveness of financial markets. While market participants may incur higher costs, resulting improvements in speed and capacity could offset these through enhanced trading efficiencies.

Ultimately, while the fee increase might pose additional cost burdens on direct users of these services, the broader goal of maintaining a robust and competitive exchange infrastructure aligns with long-term market sustainability and efficiency objectives. Interested parties, including both current users and potential customers, are invited to submit comments and feedback on this proposal to help inform the Securities and Exchange Commission's review.

The document involves a proposed rule change by the Cboe BYX Exchange, Inc., which entails an increase in fees associated with certain types of physical connectivity known as 10 Gb physical ports. These ports are used by members or non-members to access the exchange's data centers. This proposal is designed to address inflationary pressures and bring fees more in line with those charged by other exchanges. Below is a detailed examination of the financial aspects of the proposal.

Summary of Financial Changes and Allocations

The current fees for physical connectivity at the exchange are $2,500 per month for a 1 gigabit (Gb) circuit and $7,500 per month for a 10 Gb circuit. The proposed change involves increasing the monthly fee for 10 Gb physical ports from $7,500 to $8,500 per port. No changes are proposed for the 1 Gb connections.

The principal financial argument in favor of this fee increase is to account for inflation, which is said to have reduced the real value of revenue collected from these fees. The exchange also argues that the increment reflects a modest increase when compared to other exchanges, which reportedly charge higher fees for similar connectivity services—$15,000 per month by Nasdaq and $22,000 per month by the New York Stock Exchange for equivalent port services.

Relations to Identified Issues

Complexity and Ambiguity

The financial references in the document are intricately linked to the usage of economic indices which may not be straightforward for all readers. The use of the Producer Price Index (PPI) as a benchmark for justifying fee increases is technical, and while it provides a rationale based on inflation, it might not be immediately relatable to every stakeholder. The proposal could have benefited from additional explanations that clarify how these indices directly impact operational costs.

Potential Bias and Clarity

The proposal justifies the fee increase by comparing it with charges imposed by other exchanges. This could suggest a degree of alignment with competitor pricing rather than a comprehensive analysis of intrinsic costs and market needs. While the alignment might seem like a reasonable business strategy, it may not fully consider independent validation of whether the financial environment necessitates such an increase. Moreover, the document lacks a detailed explanation of why the fees for the 1 Gb ports remain unchanged, which could enhance transparency and better address stakeholder concerns.

Complexity and Justification

The statistical and economic rationale involves complex comparisons between the PPI and Consumer Price Index (CPI), which might obscure the core financial narrative. Simplifying these economic principles into more understandable terms for a broader audience would alleviate this issue and ensure a clearer understanding of the financial implications.

In conclusion, while the proposed fee increase for 10 Gb physical ports at Cboe BYX Exchange is primarily justified by inflation and competitive pricing alignment, a greater emphasis on clarity, rationale transparency, and simplification of economic indicators could provide stakeholders with a more comprehensive financial outlook.