Nasdaq GEMX, LLC, an options exchange operated by Nasdaq, filed a proposed rule change with the Securities and Exchange Commission on November 13, 2025, to increase the monthly fee for its 10Gb Ultra fiber connection from $16,500 to $18,500. The filing, published in the Federal Register on December 1, 2025, became effective immediately under Section 19(b)(3)(A)(ii) of the Securities Exchange Act of 1934. This adjustment, set to take effect on January 2, 2026, maintains the existing $1,650 installation fee. The move reflects efforts to align pricing with the operational costs and value of providing high-speed, low-latency connectivity to market participants. It occurs amid broader industry discussions on the competitiveness of exchange fees and their impact on market access, potentially influencing how traders and firms allocate resources for electronic trading infrastructure.
Background on Exchange Connectivity and Fees
Exchange connectivity fees fund the technological infrastructure that enables market participants to access trading platforms. Nasdaq GEMX offers various connection options, including copper and fiber links with capacities ranging from 1Gb to 40Gb. The 10Gb Ultra fiber connection is designed for users seeking ultra-low latency, supporting activities across GEMX and its affiliated exchanges, such as the Nasdaq Stock Market and Nasdaq ISE. This proposal follows a pattern of periodic fee adjustments by self-regulatory organizations to cover rising costs in data center operations, network maintenance, and technological enhancements.
Historically, such fees have been scrutinized under the Securities Exchange Act, which requires them to be reasonable, equitably allocated, and not unfairly discriminatory. For instance, in 2010, the D.C. Circuit Court in NetCoalition v. SEC upheld the SEC's market-based approach to evaluating exchange fees, emphasizing competition over strict cost-based regulation. This precedent supports GEMX's rationale, as the exchange cites market forces and comparisons to competitors like the New York Stock Exchange in justifying the increase.
Key Details of the Proposed Rule Change
The filing specifies that the fee hike applies solely to the ongoing monthly charge for 10Gb Ultra fiber connections, leaving other connectivity options unchanged. As noted in the proposal, 'The Exchange proposes to increase this monthly fee to $18,500 per month, while maintaining the existing installation fee.' This connection allows access to GEMX and 10 affiliated platforms, including Nasdaq BX and Nasdaq PHLX Options, with a single fee covering all. The exchange argues this structure provides substantial value, particularly for latency-sensitive users who benefit from consolidated access without per-exchange charges.
GEMX's statement of purpose highlights that the adjustment will 'better enable it to continue to maintain and improve its market technology and services.' It compares the new rate favorably to NYSE's 10Gb LX LCN Circuit, which charges $22,000 monthly plus a $15,000 installation fee, as referenced in NYSE's October 21, 2025, fee schedule. This positioning underscores GEMX's intent to remain competitive while recouping costs associated with high-capacity infrastructure.
Statutory Basis and Regulatory Compliance
GEMX asserts compliance with Sections 6(b)(4) and 6(b)(5) of the Securities Exchange Act, which mandate equitable fee allocation and prohibit unfair discrimination. The exchange describes the fee as reasonable because it aligns with the connection's value, supports infrastructure improvements, and remains lower than NYSE's equivalent. On competition, GEMX argues the change imposes no undue burden, as participants can opt for cheaper alternatives like 1Gb connections or third-party vendors.
The filing invokes Regulation NMS, where the SEC has emphasized market competition in determining fees. As quoted in the proposal, 'market forces, rather than regulatory requirements' should influence pricing, drawing from the 2005 Regulation NMS Adopting Release. This market-based justification reflects a long-standing regulatory preference, seen in cases like the 2008 SR-NYSEArca-2006-21 filing, where competition for order flow was deemed 'fierce.' GEMX extends this to options markets, noting that no exchange holds a monopoly on execution.
Perspectives from Market Participants and Implications
Industry stakeholders may view the fee increase differently. Latency-sensitive firms, such as high-frequency traders, could see it as a necessary cost for premium access, given the connection's efficiency in handling high-volume data across multiple exchanges. However, smaller participants or those with lower capacity needs might perceive it as burdensome, potentially exacerbating barriers to entry in a market where technology costs already favor larger players.
Short-term implications include possible shifts in connectivity choices, with some users migrating to lower-cost options or vendors to avoid the hike. Over the longer term, this could influence overall market liquidity and competition among exchanges, as firms reassess their infrastructure budgets. Broader debates, including those from groups like the Securities Industry and Financial Markets Association, often critique such fees for lacking transparency in cost justification, though GEMX's filing emphasizes value over granular cost breakdowns.
From a regulatory perspective, the immediate effectiveness allows swift implementation but opens a 60-day window for SEC suspension if public comments warrant it. This process balances efficiency with oversight, as seen in prior filings where the SEC has intervened on fee disputes.
In summary, Nasdaq GEMX's proposed fee increase for 10Gb Ultra fiber connections seeks to balance operational needs with market competitiveness. Key takeaways include the alignment with statutory requirements, comparisons to peers, and the optional nature of the product. Looking ahead, potential next steps involve monitoring public comments due by December 22, 2025, which could shape SEC actions. Ongoing challenges include ensuring fee transparency amid technological advancements, while debates persist on whether market-based pricing adequately protects smaller participants. Possible trajectories include further fee adjustments across exchanges or regulatory guidance on connectivity costs, fostering a more equitable trading environment.
