[Federal Register Volume 89, Number 215 (Wednesday, November 6, 2024)]
[Notices]
[Pages 88097-88100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25733]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101496; File No. SR-BX-2024-044]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend BX Options 
7, Section 3

October 31, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 18, 2024, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 7, Section 3.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on January 1, 2025.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
SQF Port Fee and SQF Purge Port Fee. Specifically, the Exchange 
proposes to raise its SQF Port Fee and SQF Purge Port Fee in Options 7, 
Section 3 by 10%.
    Today, BX assesses an SQF Port and an SQF Purge Port a $500 per 
port, per month fee. With this proposal, BX would assess Market Makers 
an SQF Port Fee and an SQF Purge Port Fee of $550 per port, per month 
(a 10% increase from $500).
    The proposed SQF Port Fee and SQF Purge Port Fee increases would 
enable the Exchange to maintain and improve its market technology and 
services to remain competitive with its peers. Over the years, customer 
demand for risk protections and capacity has increased. The Exchange 
continues to invest in maintaining, improving, and enhancing its port 
protocols--for the benefit and often at the behest of its customers. 
Such enhancements include refreshing hardware, upgrading risk 
protections and information security, and offering customers additional 
capacity. The Exchange has not increased BX's SQF Port Fee since 
2016,\3\ and has not increased its SQF Purge Port Fee since 2017 \4\ 
where inflation has been between roughly 14%-17%, as measured using the 
metric described below. Nevertheless, the Exchange proposes to increase 
its SQF Port Fee by 10%, only

[[Page 88098]]

with respect to inflation that has occurred since 2016, and its SQF 
Purge Port Fee by 10%, only with respect to inflation that has occurred 
since 2017.
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    \3\ See Securities Exchange Act Release No. 76952 (January 21, 
2016), 81 FR 4721 (January 27, 2016) (SR-BX-2016-003).
    \4\ See Securities Exchange Act Release No. 83192 (May 9, 2018), 
83 FR 22563 (May 15, 2018) (SR-BX-2018-017).
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    As discussed below, the Exchange proposes to adjust its fees by an 
industry- and product-specific inflationary measure. It is reasonable 
and consistent with the Act for the Exchange to recoup its investments, 
at least in part, by adjusting its fees. Continuing to operate at fees 
frozen at 2016 and 2017 levels, respectively, impacts the Exchange's 
ability to enhance its offerings and the interests of market 
participants and investors.
    The fee increases the Exchange proposes are based on an industry-
specific Producer Price Index (``PPI''), which is a tailored measure of 
inflation.\5\ As a general matter, the Producer Price Index is a family 
of indexes that measures the average change over time in selling prices 
received by domestic producers of goods and services. PPI measures 
price change from the perspective of the seller. This contrasts with 
other metrics, such as the Consumer Price Index (``CPI''), that measure 
price change from the purchaser's perspective.\6\ About 10,000 PPIs for 
individual products and groups of products are tracked and released 
each month.\7\ PPIs are available for the output of nearly all 
industries in the goods-producing sectors of the U.S. economy--mining, 
manufacturing, agriculture, fishing, and forestry--as well as natural 
gas, electricity, and construction, among others. The PPI program 
covers approximately 69 percent of the service sector's output, as 
measured by revenue reported in the 2017 Economic Census.
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    \5\ See https://data.bls.gov/timeseries/PCU5182105182105.
    \6\ See https://www.bls.gov/ppi/overview.htm.
    \7\ See Id.
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    For purposes of this proposal, the relevant industry-specific PPI 
is the Hosting, Activer Server Pages, and Other IT Infrastructure 
Provisioning Services (``Data PPI'') within the Data Processing and 
Related Services Industry, which is an industry net-output PPI that 
measures the average change in selling prices received by companies 
that provide data processing services.
    The Data Processing and Related Services industry was introduced to 
the PPI in January 2002 by the Bureau of Labor Statistics (``BLS'') as 
part of an ongoing effort to expand Producer Price Index coverage of 
the services sector of the U.S. economy and is identified as NAICS-
518210 in the North American Industry Classification System.\8\ 
According to the BLS ``[t]he primary output of NAICS 518210 is the 
provision of electronic data processing services. In the broadest 
sense, computer services companies help their customers efficiently use 
technology. The processing services market consists of vendors who use 
their own computer systems--often utilizing proprietary software--to 
process customers' transactions and data. Companies that offer 
processing services collect, organize, and store a customer's 
transactions and other data for record-keeping purposes. Price 
movements for the NAICS 518210 index are based on changes in the 
revenue received by companies that provide data processing services. 
Each month, companies provide net transaction prices for a specified 
service. The transaction is an actual contract selected by probability, 
where the price-determining characteristics are held constant while the 
service is repriced. The prices used in index calculation are the 
actual prices billed for the selected service contract.'' \9\
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    \8\ See https://data.bls.gov/timeseries/PCU5182105182105.
    \9\ See https://www.bls.gov/ppi/factsheets/producer-price-index-for-the-data-processing-and-related-servicesindustry-naics-518210.htm.
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    The Exchange believes the Data PPI is the most appropriate subset 
of the Data Processing and Related services industry to be considered 
in the context of the proposed rule change to modify the SQF Port Fee 
and the SQF Purge Port Fee because the Exchange uses its ``proprietary 
software,'' i.e., its own proprietary matching engine software, 
respectively, to receive options quotes on the Exchange's proprietary 
trading platform.
    For purposes of this proposed rule change, with respect to the SQF 
Port Fee, the Exchange examined the Data PPI value for the period from 
January 2016 to August 2024. The Data PPI had a starting value of 100.2 
in January 2016 and an ending value of 116.445 in August 2024, a 16.21% 
increase. For purposes of this proposed rule change, with respect to 
the SQF Purge Port Fee, the Exchange examined the Data PPI value for 
the period from May 2018 to August 2024. The Data PPI had a starting 
value of 102.1 in May 2018 and an ending value of 116.445 in August 
2024, a 14.04% increase. This data indicates that companies who are 
also in the data storage and processing business have generally 
increased prices for a specified service covered under NAICS 518210 by 
an average of 16.21% and 14.04%, respectively, during this period. 
Based on that percentage change, the Exchange proposes to make a one-
time fee increase of only 10%, which reflects an increase covering 
roughly the entire period since the last price adjustment to the SQF 
Port Fee and the SQF Purge Port Fee was made.
    The Exchange further believes the Data PPI is an appropriate 
measure for purposes of the proposed rule change on the basis that it 
is a stable metric with limited volatility, unlike other consumer-side 
inflation metrics. In fact, the Data PPI has not experienced a greater 
than 2.16% increase for any one calendar year period since Data PPI was 
introduced into the PPI in January 2002. The average calendar year 
change from January 2002 to December 2023 was .62%, with a cumulative 
increase of 15.67% over this 21-year period. The Exchange believes the 
Data PPI is considerably less volatile than other inflation metrics 
such as CPI, which has had individual calendar-year increases of more 
than 6.5%, and a cumulative increase of over 73% over the same 
period.\10\
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    \10\ See https://www.usinflationcalculator.com/.
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    The Exchange believes the Data PPI, and significant investments 
into, and enhanced performance of, the Exchange support the 
reasonableness of the proposed fee increases.\11\
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    \11\ See supra discussion of SQF Port and SQF Purge Port 
enhancements. Additionally, other exchanges have filed for increases 
in certain fees, based in part on comparisons to inflation. See, 
e.g., Securities Exchange Act Release Nos. 34-100004 (April 22, 
2024), 89 FR 32465 (April 26, 2024) (SR-CboeBYX-2024-012); and 34-
100398 (June 21, 2024), 89 FR 53676 (June 27, 2024) (SR-BOX-2024-
16)l; Securities Exchange Act Release No. 34-100994 (September 10, 
2024), 89 FR 75612 (September 16, 2024) (SR-NYSEARCA-2024-79).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    This belief is based on two factors. First, the current fees do not 
properly reflect the quality of the SQF Ports and SQF Purge Ports, as 
the SQF Port Fee and SQF Purge Port Fee has been static in nominal 
terms, and therefore falling in real terms due to inflation. Second, 
the Exchange believes that investments made in enhancing the risk 
protections

[[Page 88099]]

and capacity of SQF Ports and SQF Purge Ports has increased the 
performance of these ports.
The Proposed Rule Change Is Reasonable
    As noted above, the Exchange has not increased any of the fees 
included in the proposal since 2016 and 2018, respectively. However, in 
the years following the last fee increases, the Exchange has made 
significant investments in upgrades to its SQF Ports and SQF Purge 
Ports, enhancing the quality of its services, as measured by, among 
other things, increased capacity. In other words, Exchange customers 
have greatly benefitted, while the Exchange's ability to recoup its 
investments has been hampered. Between 2016 and 2024, the inflation 
rate is 3.47% per year, on average, producing a cumulative inflation 
rate of 31.37%.\14\ Also, between 2018 and 2024, the inflation rate is 
3.86% per year, on average, producing a cumulative inflation rate of 
25.50%.\15\ Using the more targeted inflation number of Data PPI, the 
cumulative inflation rate was 16.21% between 2016 and 2024, and 14.04%, 
between 2018 and 2024. The Exchange believes the Data PPI is a 
reasonable metric to base this fee increase on because it is targeted 
to producer-side increases in the data processing industry, which based 
on the definition adopted by BLS would include the Exchange's port 
protocols.
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    \14\ See https://www.officialdata.org/us/inflation/2015?amount=1.
    \15\ See https://www.officialdata.org/us/inflation/2015?amount=1.
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    Notwithstanding inflation, as noted above, the Exchange has not 
increased its fees at all for over eight and six years, respectively, 
for the subject services. The proposed SQF Port Fee and SQF Purge Port 
Fee represent a modest increase from the current SQF Port Fee and SQF 
Purge Port Fee. The Exchange believes the proposed SQF Port Fee and SQF 
Purge Port Fee increases are reasonable in light of the Exchange's 
continued expenditure in maintaining a robust technology ecosystem. 
Furthermore, the Exchange continues to invest in maintaining and 
enhancing its port products--for the benefit and often at the behest of 
its customers and global investors. Such enhancements include 
refreshing several aspects of the technology ecosystem including 
software, hardware, and network while introducing new and innovative 
products. The goal of the enhancements discussed above, among other 
things, is to provide more modern connectivity to the match engine. 
Accordingly, the Exchange continues to expend resources to innovate and 
modernize its technology so that it may benefit its Participants in 
offering SQF Ports and SQF Purge Ports.
The Proposed Fees Are Equitably Allocated and Not Unfairly 
Discriminatory
    The Exchange also believes that the proposed fee increases are 
equitably allocated and not unfairly discriminatory because they would 
apply to all Market Makers uniformly. Market Makers are the only market 
participants that are assessed the SQF Port Fee and SQF Purge Port Fee 
because they are the only market participants that are permitted to 
quote on the Exchange.\16\ These liquidity providers are critical 
market participants in that they are the only market participants that 
provide liquidity to the Exchange on a continuous basis. SQF Ports and 
SQF Purge Ports are only utilized in a Market Maker's assigned options 
series. The Exchange believes that the proposed fee increases are 
equitably allocated and not unfairly discriminatory because they would 
apply uniformly to all Market Makers that subscribe to SQF Ports and 
SQF Purge Ports to quote on the Exchange. The Exchange also believes 
that the proposal represents an equitable allocation of reasonable 
dues, fees and other charges because Exchange fees have fallen in real 
terms during the relevant period.
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    \16\ Unlike other market participants, Market Makers are subject 
to market making and quoting obligations. See Options 2, Sections 4 
and 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed fees will impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Intramarket Competition
    The Exchange believes that the proposed fees do not impose an undue 
burden on intramarket competition because they would apply to all 
Market Makers uniformly. Market Makers are the only market participants 
that are assessed an SQF Port Fee and an SQF Purge Port Fee because 
they are the only market participants that are permitted to quote on 
the Exchange.\17\ These liquidity providers are critical market 
participants in that they are the only market participants that provide 
liquidity to the Exchange on a continuous basis. SQF Ports and SQF 
Purge Ports are only utilized in a Market Maker's assigned options 
series. The Exchange believes that the proposed fee increases are 
equitably allocated and not unfairly discriminatory because they would 
apply uniformly to all Market Makers that subscribe to SQF Ports and 
SQF Purge Ports to quote on the Exchange.
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    \17\ Unlike other market participants, Market Makers are subject 
to market making and quoting obligations. See Options 2, Sections 4 
and 5.
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Intermarket Competition
    The Exchange believes that the proposed fees do not impose an undue 
burden on intermarket competition or on other SROs that is not 
necessary or appropriate. In determining the proposed fees, the 
Exchange utilized an objective and stable metric with limited 
volatility. Utilizing Data PPI over a specified period of time is a 
reasonable means of recouping the Exchange's investment in SQF Ports 
and SQF Purge Ports. The Exchange believes utilizing Data PPI, a 
tailored measure of inflation, to increase the SQF Port Fee and SQF 
Purge Port Fee to recoup the Exchange's investment in maintaining and 
enhancing SQF Ports and SQF Purge Ports does not impose a burden on 
competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\18\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 88100]]

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1062657c753d737f7d7d757e6463506375733e777f66"><span class="__cf_email__" data-cfemail="1260677e773f717d7f7f777c6661526177713c757d64">[email protected]</span></a>. Please include 
file number SR-BX-2024-044 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-BX-2024-044. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-BX-2024-044 and should be 
submitted on or before November 27, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-25733 Filed 11-5-24; 8:45 am]
BILLING CODE 8011-01-P


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