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[Federal Register Volume 89, Number 246 (Monday, December 23, 2024)]
[Notices]
[Pages 104584-104587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30521]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101943; File No. SR-NASDAQ-2024-081]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Options 7, Section 3

December 17, 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 December 3, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' 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 increase the Exchange's port pricing in 
The Nasdaq Options Market LLC (``NOM'') Rules at Options 7, Section 3 
for the Specialized Quote Feed (``SQF'') \3\ Ports and SQF Purge Ports.
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    \3\ ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Market Makers to connect, send, and receive messages related 
to quotes and Immediate-or-Cancel Orders into and from the Exchange. 
Features include the following: (1) options symbol directory 
messages (e.g., underlying instruments); (2) system event messages 
(e.g., start of trading hours messages and start of opening); (3) 
trading action messages (e.g., halts and resumes); (4) execution 
messages; (5) quote messages; (6) Immediate-or-Cancel Order 
messages; (7) risk protection triggers and purge notifications; and 
(8) opening imbalance messages. The SQF Purge Interface only 
receives and notifies of purge requests from the Market Maker. 
Market Makers may only enter interest into SQF in their assigned 
options series. Immediate-or-Cancel Orders entered into SQF are not 
subject to the Order Price Protection, Market Order Spread 
Protection, or Size Limitation in Options 3, Section 15(a)(1) and 
(a)(2), and (b)(2), respectively. See Options 3, Section 7(e)(1)(B).
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    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on January 1, 
2025.\4\
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    \4\ The Exchange initially filed this fee proposal as SR-NASDAQ-
2024-063 on October 18, 2024. On December 3, 2024, the Exchange 
withdrew SR-NASDAQ-2024-063 and replaced it with this fee change.
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    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal

[[Page 104585]]

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 Options 7, 
Section 9, B to increase the Exchange's SQF Port Fee and SQF Purge Port 
Fees by 10%.
    Options 7, Section 9, B includes the Exchange's fees that relate to 
SQF Ports and SQF Purge Ports that Market Makers \5\ use to connect to 
the Exchange to send quotes. Today, NOM assesses SQF Ports and SQF 
Purge Ports a per port, per month fee based on a tiered fee schedule. 
Specifically, NOM assesses an SQF Port and an SQF Purge Port Fee of 
$1,500 per port, per month for the first 5 ports (1-5), a $1,000 per 
port, per month fee for the next 15 ports (6-20), and a $500 per port, 
per month fee for all ports over 20 ports (21 and above). With this 
proposal, NOM would assess Market Makers the following SQF Port and an 
SQF Purge Port Fees: $1,650 per port, per month for the first 5 ports 
(1-5), a $1,100 per port, per month fee for the next 15 ports (6-20), 
and a $550 per port, per month fee for all ports over 20 ports (21 and 
above). The fees represent a 10% increase from the current tiered fees.
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    \5\ The term ``NOM Market Maker'' or (``M'') is a Participant 
that has registered as a Market Maker on NOM pursuant to Options 2, 
Section 1, and must also remain in good standing pursuant to Options 
2, Section 9. In order to receive NOM Market Maker pricing in all 
securities, the Participant must be registered as a NOM Market Maker 
in at least one security. See Options 7, Section 1(a).
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    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 like SQF Ports and SQF Purge Ports-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. Nevertheless, the Exchange has 
not increased NOM's SQF Port Fee since 2016,\6\ and has not increased 
its SQF Purge Port Fee since 2018 \7\ where inflation has been roughly 
10% since 1016 and 9% since 2018 as measured using the metric described 
below. As such, the Exchange proposes to increase its SQF Port Fee and 
SQF Purge Port Fees by 10% with respect to inflation that has occurred 
since 2016 and since 2018 to align with the foregoing fee increases.
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    \6\ See Securities Exchange Act Release No. 79619 (December 20, 
2016), 81 FR 95250 (December 27, 2016) (SR-NASDAQ-2016-178).
    \7\ See Securities Exchange Act Release No. 83193 (May 9, 2018), 
83 FR 22539 (May 15, 2018) (SR-NASDAQ-2018-036).
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    As discussed below, the Exchange proposes to adjust its pricing 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 pricing. Continuing to 
operate at pricing frozen at 2016 and 2018 levels, respectively, 
impacts the Exchange's ability to enhance its offerings and the 
interests of market participants and investors.
    The pricing increases the Exchange proposes are based on an 
industry-specific Producer Price Index (``PPI''), which is a tailored 
measure of inflation.\8\ 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.\9\ About 10,000 PPIs for individual products and groups of 
products are tracked and released each month.\10\ 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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    \8\ See https://fred.stlouisfed.org/seriesBeta/PCU51825182#0.
    \9\ See https://www.bls.gov/ppi/overview.htm.
    \10\ 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.\11\ 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.'' \12\
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    \11\ NAICS appears in table 5 of the PPI Detailed Report and is 
available at https://data.bls.gov/timeseries/PCU518210518210.
    \12\ 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 pricing changes 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. options securities on the Exchange's 
proprietary trading platform. In other words, the Exchange is in the 
business of data processing and related services via its data center 
and proprietary matching engine software.
    For purposes of this proposed rule change, with respect to the SQF 
Port Fee, the Exchange examined the Data

[[Page 104586]]

PPI value for the period from December 2016 to October 2024 (when the 
subject pricing was adopted). The Data PPI had a starting value of 
105.600 in December 2016 and an ending value of 115.902 in October 
2024, a 10.30% 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 October 2024 when the subject 
pricing was adopted). The Data PPI had a starting value of 107.000 in 
May 2018 and an ending value of 115.902 in October 2024, a 8.90% 
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 10.30% 
and 8.90%, respectively, during the periods noted above. The Exchange 
notes that averaging the 10.30% and 8.90% yields a percentage of 9.60%. 
The pricing for SQF Ports and SQF Purge Ports are intertwined so the 
Exchange is averaging the percentage to arrive at 10%. Based on that 
percentage change, the Exchange proposes to make a one-time fee 
increase of 10% for the SQF Ports and the SQF Purge Ports, which 
reflects an increase covering the entire period since the last price 
adjustments to the SQF Port Fee and the SQF Purge Port Fee 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.\13\
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    \13\ 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 pricing increases.\14\
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    \14\ 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. 34-100994 (September 10, 
2024), 89 FR 75612 (September 16, 2024) (SR-NYSEARCA-2024-79); and 
34-101519 (November 5, 2024), 89 FR 89071 (November 12, 2024) (SR-
CboeBYX-2024-039).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\15\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4) and (5).
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    This belief is based on two factors. First, the current pricing 
does not properly reflect the quality of the SQF Ports and SQF Purge 
Ports, as the pricing for these port offerings 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 
risk protections and capacity of SQF Ports and SQF Purge Ports has 
increased the performance of these port offerings.
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 3.48% per year, on average, producing a cumulative inflation 
rate of 31.52%.\17\ Also, between 2018 and 2024, the inflation rate is 
3.88% per year, on average, producing a cumulative inflation rate of 
25.65%.\18\ Using the more targeted inflation number of Data PPI, the 
cumulative inflation rate was 10.30% between 2016 and 2024, and 8.90% 
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.
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    \17\ See https://www.officialdata.org/us/inflation/2015?amount-1.
    \18\ 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 pricing of these port fees 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 believes that the proposal represents an equitable 
allocation of reasonable dues, fees and other charges because the 
Exchange pricing has fallen in real terms during the relevant period. 
The Exchange also believes that the proposed pricing increases are 
equitably allocated and not unfairly discriminatory because they would 
apply uniformly to all Market Makers that subscribe to the SQF Ports 
and SQF Purge Ports to quote on the Exchange. 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.\19\ 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.
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    \19\ 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 pricing changes 
will impose any burden on competition not

[[Page 104587]]

necessary or appropriate in furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes that the proposed pricing does not put any 
market participants at a relative disadvantage compared to other market 
participants. As noted above, the Exchange would apply the proposed 10% 
increase to the SQF Port and the SQF Purge Port fee 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.\20\ 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.
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    \20\ 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 pricing does not impose an 
undue burden on intermarket competition or on other SROs that is not 
necessary or appropriate. In determining the proposed pricing, 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 port offerings such as the SQF Ports and SQF Purge 
Ports. The Exchange believes utilizing Data PPI, a tailored measure of 
inflation, to increase the fees for the SQF Port and SQF Purge Port to 
recoup the Exchange's investment in maintaining and enhancing such 
offerings does not impose a burden on intermarket 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.\21\
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    \21\ 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:

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-NASDAQ-2024-081 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-NASDAQ-2024-081. 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-NASDAQ-2024-081 and should 
be submitted on or before January 13, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-30521 Filed 12-20-24; 8:45 am]
BILLING CODE 8011-01-P
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