SIFMA Challenges Exchange Connectivity Fee Increases

SIFMA urged the SEC to suspend and disapprove recent rule changes filed by national securities exchanges to increase connectivity fees.

In a letter to the SEC, SIFMA lists a series of notices of proposed rules for immediate effectiveness by national securities exchanges filed between November 25th and December 29th, seeking to increase exchange connectivity and other fees. One notice, for example, seeks to increase fees for physical port connections to its Primary Data Center, add a fee for physical port connections to its Disaster Recovery Data Center, and add a fee for Drop Copy logical port fees.

SIFMA contended that the filings rely on "canned" boilerplate language and general assertions of competition without providing supporting data. The association argued that the exchange filings violated the 2019 Staff Guidance on SRO Rule Filings by merely referencing competitor pricing rather than providing specific cost and revenue data. SIFMA noted that this approach ignores regulatory obligations—such as Rule 611 ("Order protection rule") of Regulation NMS—that compel market participants to maintain connections to multiple exchanges regardless of price, thereby undermining claims that these fees are subject to competitive market forces.

SIFMA also emphasized that the filings lack concrete information on the actual costs to provide or maintain the connectivity services. The association also asserted that if the Commission has tacitly adopted new, lower standards for evaluating fee filings, it must publicly announce the change to ensure transparency and consistency with the "substantive factors" considered during review.

The association recommended that the SEC take action by: (i) suspending the fee filings; (ii) instituting proceedings to determine whether to disapprove them; and (iii) ultimately disapproving the filings for failing to meet the statutory requirements.