Nasdaq GEMX Proposes Shift to Power-Based Pricing for Co-Location Services
Introduction
Nasdaq GEMX, LLC, a self-regulatory organization operating an options exchange, filed a proposed rule change with the Securities and Exchange Commission on January 15, 2026. The filing, effective immediately under Section 19(b)(3)(A) of the Securities Exchange Act of 1934, restructures fees for co-location services at its Carteret, New Jersey data center. This involves shifting from a model based on cabinet power density to one centered on power delivered, measured in kilovolt-amperes (kVA). The change eliminates density-based cabinet distinctions and their associated ongoing fees, replacing them with a uniform $550 per kVA monthly charge applied to various power circuit options. Published in the Federal Register on February 2, 2026, the notice invites public comments and reflects GEMX's effort to align pricing with modern data center practices, potentially affecting costs for market participants using co-location for low-latency access to trading systems.
Background and Current Framework
Co-location services allow exchange members and other market participants to place their servers in close proximity to trading engines, reducing latency in order execution. GEMX's data center, comprising areas like NY11 and NY11-4, currently offers cabinets categorized by power density ranges, such as low density (up to 2.88 kW) or super high density (up to 17.3 kW). Fees include one-time installation charges and ongoing monthly rates, varying by density and location. For instance, a high-density cabinet in NY11 carries a $3,850 installation fee and $4,950 monthly, as outlined in GEMX Rule General 8, Section 1(a). This structure has evolved amid growing demand for higher power capacities, driven by advancements in trading technology and data processing needs. The SEC oversees such filings to ensure compliance with the Exchange Act, which requires fees to be reasonable, equitably allocated, and not unfairly discriminatory.
Key Elements of the Proposed Changes
The proposal eliminates all density-based cabinet categories under Rule General 8, Section 1(a), retaining only basic cabinet and half-cabinet options with unchanged installation fees of $3,850 in NY11 and $5,940 in NY11-4. Ongoing monthly cabinet fees are removed entirely. Instead, GEMX introduces fees under Section 1(c) based on power circuits, charging $550 per kVA uniformly across options like 2x20 amp 120-volt circuits (now $1,320 monthly) or Phase 3 32 amp 415-volt circuits ($12,650.53 monthly). Installation fees for power circuits remain the same, such as $2,200 for a 2x20 amp 120-volt circuit. This per-kVA model calculates fees by multiplying circuit capacity by $550, using standard electrical formulas for single-phase and three-phase circuits. GEMX argues this better reflects actual power usage and infrastructure costs, moving away from fixed rates that may overcharge low-usage clients or undercharge high-usage ones.
Statutory Basis and Rationale
GEMX justifies the change under Section 6(b) of the Exchange Act, emphasizing equitable allocation of reasonable fees and prevention of unfair discrimination. The exchange notes that the $550 per kVA rate falls within its current effective range of $482-$763 per kW and compares favorably to competitors like the New York Stock Exchange, which charges $900-$1,200 per kW based on total allocated power. By tying fees to delivered power, the proposal addresses misalignments in the density model, where users at the lower end of a density range paid the same as those at the higher end. GEMX highlights investments in data center expansions to meet demand, stating that fee adjustments help recoup costs without burdening competition. No prior comments are mentioned in the filing, but the SEC's notice solicits input, potentially influencing any suspension or proceedings.
Implications and Perspectives
Short-term, the shift could reduce fees for low-density users, such as those transitioning from a $2,200 monthly low-density cabinet to a $1,320 2x20 amp 120-volt circuit, a 40% decrease. High-density users might see increases, like super high-density cabinets rising from $8,800 to up to $12,650.53 monthly. Long-term, this may encourage efficient power use and attract participants valuing transparency, aligning with industry trends toward usage-based billing. Market participants, including high-frequency traders, may view it as a fairer system, while smaller firms could benefit from cost predictability. Regulators might scrutinize whether it truly promotes competition, given GEMX's affiliation with Nasdaq. Critics could argue it favors larger users able to optimize circuits, though GEMX asserts uniform application. No direct legal precedents are cited, but similar SEC-approved changes at other exchanges, like NYSE's tiered fees, provide context.
Conclusion
GEMX's proposal represents a significant update to co-location pricing, prioritizing power delivery over cabinet density to foster transparency and equity. Key takeaways include the elimination of density tiers and the adoption of a $550 per kVA fee, which could reshape cost structures for users. Looking ahead, potential next steps involve SEC review of public comments, with possible temporary suspension if concerns arise about investor protection or public interest. Ongoing debates may center on balancing exchange revenues with fair access, especially as data center demands evolve with technological advancements. Challenges include ensuring the model adapts to future expansions like NY11-5, while maintaining compliance with Exchange Act standards.
