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[Federal Register Volume 89, Number 229 (Wednesday, November 27, 2024)]
[Notices]
[Pages 93810-93814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27757]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101688; File No. SR-GEMX-2024-40]

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Its Fees 
for Connectivity and Co-Location Services

November 21, 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 November 8, 2024, Nasdaq GEMX, LLC (``GEMX'' 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 the Exchange's fees for connectivity 
and co-location services, as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/gemx/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

[[Page 93811]]

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 
fees relating to connectivity and co-location services.\3\ 
Specifically, the Exchange proposes to raise its fees for connectivity 
and co-location services in General 8 as well as certain fees related 
to its Testing Facilities in Options 7, Section 6 by 10%, with certain 
exceptions.
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    \3\ The Exchange initially filed the proposed pricing change on 
March 1, 2024 (SR-GEMX-2024-05). On April 29, 2024, the Exchange 
withdrew that filing and submitted SR-GEMX-2024-09. On June 27, 
2024, the Exchange withdrew SR-GEMX-2024-09 and submitted SR-GEMX-
2024-15. The Exchange withdrew SR-GEMX-2024-15 and replaced it with 
SR-GEMX-2024-33 on September 10, 2024. On October 11, 2024, the 
Exchange replaced SR-GEMX-2024-33 with SR-GEMX-2024-38. The instant 
filing replaces SR-GEMX-2024-38.
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    General 8, Section 1 includes the Exchange's fees that relate to 
connectivity, including fees for cabinets, external telco/inter-cabinet 
connectivity fees, fees for connectivity to the Exchange, fees for 
connectivity to third party services, fees for market data 
connectivity, fees for cabinet power install, and fees for additional 
charges and services. General 8, Section 2 includes the Exchange's fees 
for direct connectivity services, including fees for direct circuit 
connection to the Exchange, fees for direct circuit connection to third 
party services, and fees for point of presence connectivity. With the 
exception of the Exchange's GPS Antenna fees and the Cabinet Proximity 
Option Fee for cabinets with power density >10kW,\4\ the Exchange 
proposes to increase its fees throughout General 8 by 10%.
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    \4\ The Exchange proposes to exclude the GPS Antenna fees from 
the proposed fee increase because, unlike the other fees in General 
8, the Exchange recently increased its GPS Antenna fees. See 
Securities Exchange Act Release No. 34-99129 (December 11, 2023), 88 
FR 87017 (December 15, 2023) (SR-GEMX-2023-17). The Exchange also 
proposes to exclude the Cabinet Proximity Option Fee for cabinets 
with power density >10kW from the proposed fee increase because the 
Exchange recently established such fee. See Securities Exchange Act 
Release No. 34-100210 (May 22, 2024), 89 FR 46476 (May 29, 2024) 
(SR-GEMX-2024-11). Similarly, the Exchange proposes to exclude from 
the proposed fee increase those fees that the Exchange recently 
established for services in its new NY11-4 expansion facility. See 
Securities Exchange Act Release No. 34-101262 (October 7, 2024), 89 
FR 82649 (October 11, 2024) (SR-GEMX-2024-36).
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    In addition to increasing fees in General 8, the Exchange also 
proposes to increase certain fees in Options 7, Section 6, which relate 
to the Testing Facility. Options 7, Section 6(H) provides that 
subscribers to the Testing Facility located in Carteret, New Jersey 
shall pay a fee of $1,000 per hand-off, per month for connection to the 
Testing Facility. The hand-off fee includes either a 1Gb or 10Gb switch 
port and a cross connect to the Testing Facility. In addition, Options 
7, Section 6(H) provides that subscribers shall also pay a one-time 
installation fee of $1,000 per hand-off. The Exchange proposes to 
increase these aforementioned fees by 10% to require that subscribers 
to the Testing Facility shall pay a fee of $1,100 per hand-off, per 
month for connection to the Testing Facility and a one-time 
installation fee of $1,100 per hand-off.
    The proposed increases in fees 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 more 
sophisticated, higher-throughput, lower-latency, and higher-power 
connectivity solutions has increased. The Exchange continues to invest 
in maintaining, improving, and enhancing its connectivity and co-
location products, services, and facilities--for the benefit and often 
at the behest of its customers. Such enhancements include refreshing 
hardware and expanding Nasdaq's existing co-location facility to offer 
customers additional space and power. Nevertheless, and with the 
exception of fees that were established as part of a new service in 
2017 (and have remained unchanged since their adoption), the Exchange 
has not increased any of the fees included in the proposal since prior 
to 2017, and many of the fees date back to between 2010 and 2014. For 
each of the connectivity products and services that pre-date 2017, 
inflation (as measured using the ``Data PPI'' metric described below) 
has been between roughly 15-17%, and in no instance has such inflation 
been less than 10%. Nevertheless, the Exchange proposes to increase its 
fees only with respect to the 10% inflation that has occurred since 
2017.
    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 2010-2017 levels 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://fred.stlouisfed.org/series/PCU51825182#0.
    \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 Data Processing and Related Services PPI (``Data PPI''), 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 PPI was introduced 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 softwar--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

[[Page 93812]]

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\ NAICS appears in table 5 of the PPI Detailed Report and is 
available at https://data.bls.gov/timeseries/PCU518210518210.
    \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 an appropriate measure to be 
considered in the context of the proposed rule change to modify the fee 
for its connectivity products because the Exchange uses its ``own 
computer systems'' and ``proprietary software,'' i.e., its own data 
center and proprietary matching engine software, respectively, to 
collect, organize, store and report customers' transactions in U.S. 
equity securities on the Exchange's proprietary trading platform. In 
other words, the Exchange is in the business of data processing and 
related services.
    For purposes of this proposed rule change, the Exchange examined 
the Data PPI value for the period from January 2017 to August 2024. The 
Data PPI had a starting value of 105.6 in January 2017 and an ending 
value of 116.022 in August 2024, a 10.422% increase. This 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 10.422% 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 adjustments to these fees were 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/inflation/consumer-price-index-and-annual-percent-changesfrom-1913-to-2008/.
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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 connectivity product and facility 
improvements. 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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    These proposed fee increases will be immediately effective upon 
filing. However, going forward and until December 1, 2024, the Exchange 
will waive all fees set forth herein to the extent that such fees 
exceed the levels that would have been charged for the same products 
and services purchased during that time period, had such fees been 
calculated at the rates set forth in SR-GEMX-2024-33 (i.e., pricing 
reflective of a 5.5% increase from prior fee levels). This waiver is 
reasonable, equitable, and not unfairly discriminatory because it will 
afford all customers in excess of the 30-day prior notice period for 
fee changes set forth in the Exchange's service terms.
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 services and products, as fees for 
the services and products in question have been static in nominal 
terms, and therefore falling in real terms due to inflation. Second, 
the Exchange believes that investments made in enhancing the capacity 
and speed of Exchange systems increase the performance of the services 
and products.
The Proposed Rule Change Is Reasonable
    As noted above, the Exchange has not increased any of the fees 
included in the proposal since 2017 or earlier. However, in the years 
following the last fee increases, the Exchange has made significant 
investments in upgrades to its connectivity products, services, and 
facilities, enhancing the quality of its services. In other words, 
Exchange customers have greatly benefitted, while the Exchange's 
ability to recoup its investments has been hampered. Between 2017 and 
2024, the inflation rate is 3.64% per year, on average, producing a 
cumulative inflation rate of 28.43%.\14\ Using the more targeted 
inflation number of Data PPI, the cumulative inflation rate was 
10.422%. 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.
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    \14\ See https://www.officialdata.org/us/inflation/2017?amount=1.
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    Notwithstanding inflation, as noted above, the Exchange has not 
increased its fees at all for over seven years for the subject 
services. The proposed fee changes represent a modest increase from the 
current fees. The Exchange believes the proposed fee increase is 
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 connectivity 
products--for the benefit and often at the behest of its customers and 
global investors. Such enhancements include refreshing all aspects of 
the technology ecosystem including software, hardware, and network 
while introducing new and innovative products and expanded and 
modernized facilities.\15\ The goal of the enhancements discussed 
above, among other things, is to provide faster, higher-capacity, and 
more modern connectivity products and services. Accordingly, the 
Exchange continues to expend resources to innovate and modernize 
technology so that it may benefit its members in offering its 
connectivity products and services.
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    \15\ See, e.g., Securities Exchange Act Release No.34-101074 
(September 18, 2024), 89 FR 77920 (September 24, 2024) (SR-GEMX-
2024-34 (Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Expand [the Exchange's] Co-Location Services).
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The Proposed Fees Are Equitably Allocated and Not Unfairly 
Discriminatory
    The Exchange believes that the proposed fee increases are equitably

[[Page 93813]]

allocated and not unfairly discriminatory because they would apply to 
all market participants that choose to purchase connectivity products 
and services from the Exchange. Any participant that chooses to 
purchase the Exchange's connectivity products and services would be 
subject to the same Fee Schedule, regardless of what type of business 
they operate or the use they plan to make use of the products and 
services. Additionally, the fee increase would be applied uniformly to 
market participants without regard to Exchange membership status or the 
extent of any other business with the Exchange or affiliated entities. 
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. Finally, the 
Exchange believes that the proposed fee changes are not unfairly 
discriminatory because the fees would be assessed uniformly across all 
market participants, in the same manner they are today, that 
voluntarily purchase the Exchange's connectivity products and services, 
which would remain available for purchase by all market participants.
    These proposed fee increases will be immediately effective upon 
filing. However, going forward and until December 1, 2024, the Exchange 
will waive all fees set forth herein to the extent that such fees 
exceed the levels that would have been charged for the same products 
and services purchased during that time period, had such fees been 
calculated at the rates set forth in SR-GEMX-2024-33 (i.e., pricing 
reflective of a 5.5% increase from prior fee levels). This waiver is 
reasonable, equitable, and not unfairly discriminatory because it will 
afford all customers in excess of the 30-day prior notice period for 
fee changes set forth in the Exchange's service terms.

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 put any market 
participants at a relative disadvantage compared to other market 
participants. As noted above, the fee schedule would continue to apply 
to all purchasers of the Exchange's connectivity products and services 
in the same manner as it does today albeit at inflation-adjusted rates 
for certain fees, and customers may choose whether to purchase these 
products and services at all. The Exchange also believes that the level 
of the proposed fees neither favor nor penalize one or more categories 
of market participants in a manner that would impose an undue burden on 
competition. Likewise, the proposed fee waiver described above will 
apply to all purchasers of the Exchange's connectivity products and 
services in the same manner and therefore will not burden competition 
among them.
Intermarket Competition
    The Exchange believes that the proposed fees do not impose a burden 
on 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 maintaining and enhancing its connectivity 
products, services, and facilities. The Exchange believes utilizing 
Data PPI, a tailored measure of inflation, to increase certain fees for 
connectivity products and services to recoup the Exchange's investment 
in maintaining and enhancing such products, services, and its 
facilities would 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.\16\ 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.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-GEMX-2024-40 on the subject line.

Paper Comments

     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-GEMX-2024-40. 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-GEMX-2024-40 and should be 
submitted on or before December 18, 2024.

[[Page 93814]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-27757 Filed 11-26-24; 8:45 am]
BILLING CODE 8011-01-P
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