[Federal Register Volume 86, Number 133 (Thursday, July 15, 2021)]
[Notices]
[Pages 37347-37356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15035]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92365; File No. SR-PEARL-2021-33]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX 
Pearl Options Fee Schedule

July 9, 2021.
    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 July 1, 2021, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') a 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Pearl Options 
Fee Schedule (the ``Fee Schedule'') to amend the fees for the 
Exchange's MIAX Express Network Full Service (``MEO'') \3\ Ports.
---------------------------------------------------------------------------

    \3\ ``MEO Interface'' or ``MEO'' means a binary order interface 
for certain order types as set forth in Rule 516 into the MIAX Pearl 
System. See the Definitions Section of the Fee Schedule and Exchange 
Rule 100.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
Pearl's principal office, 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

[[Page 37348]]

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 Exchange proposes to amend the Fee Schedule to increase the 
fees for its Full Service MEO Ports (the ``Proposed Access Fees''), 
which allow Members \4\ to submit electronic orders in all products to 
the Exchange. The Exchange currently offers different options of MEO 
Ports depending on the services required by the Member, including a 
Full Service MEO Port-Bulk,\5\ a Full Service MEO Port-Single,\6\ and a 
Limited Service MEO Port.\7\ A Member may be allocated two (2) Full-
Service MEO Ports of either type per matching engine \8\ and may 
request Limited Service MEO Ports for which MIAX Pearl will assess 
Members Limited Service MEO Port fees per Matching Engine based on the 
table above. The two (2) Full-Service MEO Ports that may be allocated 
per matching engine to a Member may consist of: (a) Two (2) Full 
Service MEO Ports--Bulk; (b) two (2) Full Service MEO Ports--Single; or 
(c) one (1) Full Service MEO Port--Bulk and one (1) Full Service MEO 
Port--Single.
---------------------------------------------------------------------------

    \4\ ``Member'' means an individual or organization that is 
registered with the Exchange pursuant to Chapter II of Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \5\ ``Full Service MEO Port--Bulk'' means an MEO port that 
supports all MEO input message types and binary bulk order entry. 
See the Definitions Section of the Fee Schedule.
    \6\ ``Full Service MEO Port--Single'' means an MEO port that 
supports all MEO input message types and binary order entry on a 
single order-by-order basis, but not bulk orders. See the 
Definitions Section of the Fee Schedule.
    \7\ ``Limited Service MEO Port'' means an MEO port that supports 
all MEO input message types, but does not support bulk order entry 
and only supports limited order types, as specified by the Exchange 
via Regulatory Circular. See the Definitions Section of the Fee 
Schedule.
    \8\ ``Matching Engine'' is a part of the MIAX Pearl electronic 
system that processes options orders and trades on a symbol-by-
symbol basis. Some Matching Engines will process option classes with 
multiple root symbols, and other Matching Engines may be dedicated 
to one single option root symbol. A particular root symbol may only 
be assigned to a single designated Matching Engine. A particular 
root symbol may not be assigned to multiple Matching Engines. See 
the Definitions Section of the Fee Schedule.
---------------------------------------------------------------------------

    Unlike other options exchanges that provide similar port 
functionality and charge fees on a per port basis,\9\ the Exchange 
offers Full Service MEO Ports as a package and provides Members with 
the option to receive up to two Full Service MEO Ports (described 
above) per matching engine to which it connects. The Exchange currently 
has twelve (12) matching engines, which means Members may receive up to 
twenty-four (24) Full Service MEO Ports for a single monthly fee, that 
can vary based on certain volume percentages, as described below. For 
illustrative purposes and as described in more detail below, the 
Exchange currently assesses Members a fee of $5,000 per month in the 
highest Full Service MEO Port--Bulk Tier, regardless of the number of 
Full Service MEO Ports allocated to the Member. For example, assuming a 
Member connects to all twelve (12) matching engines during a month, 
with two Full Service MEO Ports per matching engine, this results in a 
cost of $208.33 per Full Service MEO Port ($5,000 divided by 24) for 
the month. This fee has been unchanged since the Exchange adopted Purge 
Port fees in 2018.\10\ The Exchange now proposes to increase the Full 
Service MEO Port fees as described below, with the highest Tier fee for 
a Full Service MEO Port--Bulkof $10,000 per month. Members will 
continue to receive two (2) Full Service MEO Ports to each matching 
engine to which they are connected for the single flat monthly fee. 
Assuming a Member connects to all twelve (12) matching engines during 
the month, with two Full Service MEO Ports per matching engine, this 
would result in a cost of $416.67 per Full Service MEO Port ($10,000 
divided by 24).
---------------------------------------------------------------------------

    \9\ See Cboe Exchange, Inc. Fee Schedule, Logical Connectivity 
Fees ($750 per port per month for the first 5 BOE/FIX Logical Ports 
and $800 per port per month for each port over 5; $1,500 per port 
per month for the first 5 BOE Bulk Logical Ports, $2,500 per port 
per month for ports 6-30, and $3,000 per port per month for each 
port over 30); Cboe BXZ Exchange, Inc. (``BZX'') Options Fee 
Schedule, Options Logical Port Fees, Logical Ports ($750 per port 
per month), Ports with Bulk Quoting Capabilities ($1,500 per port 
per month for the first and second ports, $2,500 per port per month 
for three or more); Cboe EDGX Exchange, Inc. (``EDGX'') Options Fee 
Schedule, Options Logical Port Fees, Logical Ports ($500 per port 
per month), Ports with Bulk Quoting Capabilities ($600 per port per 
month). See also Nasdaq Stock Market LLC, Options 7, Pricing 
Schedule, Section 3 ($1,500 per port per month for the first 5 SQF 
ports; $1,000 per port per month for SQF ports 15-20; and $500 per 
port per month for all SQF ports over 21).
    \10\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
---------------------------------------------------------------------------

    The Exchange assesses Members Full Service MEO Port Fees, either 
for a Full Service MEO Port--Bulk and/or for a Full Service MEO Port--
Single, based upon the monthly total volume executed by a Member and 
its Affiliates \11\ on the Exchange across all origin types, not 
including Excluded Contracts \12\, as compared to the Total 
Consolidated Volume (``TCV''),\13\ in all MIAX Pearl-listed options. 
The Exchange adopted a tier-based fee structure based upon the volume-
based tiers detailed in the definition of ``Non-Transaction Fees 
Volume-Based Tiers'' described in the Definitions section of the Fee 
Schedule. The Exchange assesses these and other monthly Port fees on 
Members in each month the market participant is credentialed to use a 
Port in the production environment.
---------------------------------------------------------------------------

    \11\ ``Affiliate'' means (i) an affiliate of a Member of at 
least 75% common ownership between the firms as reflected on each 
firm's Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX Pearl 
Market Maker) that has been appointed by a MIAX Pearl Market Maker, 
pursuant to the following process. A MIAX Pearl Market Maker 
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for 
the purposes of the Fee Schedule, by each completing and sending an 
executed Volume Aggregation Request Form by email to 
[email protected] no later than 2 business days prior to 
the first business day of the month in which the designation is to 
become effective. Transmittal of a validly completed and executed 
form to the Exchange along with the Exchange's acknowledgement of 
the effective designation to each of the Market Maker and EEM will 
be viewed as acceptance of the appointment. The Exchange will only 
recognize one designation per Member. A Member may make a 
designation not more than once every 12 months (from the date of its 
most recent designation), which designation shall remain in effect 
unless or until the Exchange receives written notice submitted 2 
business days prior to the first business day of the month from 
either Member indicating that the appointment has been terminated. 
Designations will become operative on the first business day of the 
effective month and may not be terminated prior to the end of the 
month. Execution data and reports will be provided to both parties. 
See the Definitions Section of the Fee Schedule.
    \12\ ``Excluded Contracts'' means any contracts routed to an 
away market for execution. See the Definitions Section of the Fee 
Schedule.
    \13\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX Pearl for the 
month for which the fees apply, excluding consolidated volume 
executed during the period of time in which the Exchange experiences 
an Exchange System Disruption (solely in the option classes of the 
affected Matching Engine). See the Definitions Section of the Fee 
Schedule.
---------------------------------------------------------------------------

    Current Full Service MEO Port--Bulk Fees. Currently, the Exchange 
assesses Members monthly Full Service MEO Port--Bulk fees as follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $3,000;

[[Page 37349]]

    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $4,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $5,000.
    Proposed Full Service MEO Port--Bulk Fees. The Exchange now 
proposes to assess Members monthly Full Service MEO Port--Bulk fees as 
follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $5,000;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $7,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $10,000.
    Current Full Service MEO Port--Single Fees. Currently, the Exchange 
assesses Members monthly Full Service MEO Port--Single fees as follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $2,000;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $3,375; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $3,750.
    Proposed Full Service MEO Port--Single Fees. The Exchange now 
proposes to assess Members monthly Full Service MEO Port--Single fees 
as follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $2,500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $3,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $4,500.
    The Exchange offers various types of ports with differing prices 
because each port accomplishes different tasks, are suited to different 
types of Members, and consume varying capacity amounts of the network. 
For instance, MEO ports allow for a higher throughput and can handle 
much higher quote/order rates than FIX ports. Members that are Market 
Makers \14\ or high frequency trading firms utilize these ports 
(typically coupled with 10Gb ULL connectivity) because they transact in 
significantly higher amounts of messages being sent to and from the 
Exchange, versus FIX port users, who are traditionally customers 
sending only orders to the Exchange (typically coupled with 1Gb 
connectivity). The different types of ports cater to the different 
types of Exchange Memberships and different capabilities of the various 
Exchange Members. Certain Members need ports and connections that can 
handle using far more of the network's capacity for message throughput, 
risk protections, and the amount of information that has to be 
assessed. Those Members may account for the vast majority of network 
capacity utilization and volume executed on the Exchange, as discussed 
throughout.
---------------------------------------------------------------------------

    \14\ ``Market Maker'' means a Member registered with the 
Exchange for the purpose of making markets in options contracts 
traded on the Exchange and that is vested with the rights and 
responsibilities specified in Chapter VI of Exchange Rules. See the 
Definitions Section of the Fee Schedule and Exchange Rule 100.
---------------------------------------------------------------------------

    The Exchange now proposes to increase its monthly Full Service MEO 
Port fees since it has not done so since the fees were first adopted in 
2018 \15\ and are designed to recover a portion of the costs associated 
with directly accessing the Exchange. The Exchange notes that its 
affiliates, Miami International Securities Exchange, LLC (``MIAX'') and 
MIAX Emerald, LLC (``MIAX Emerald''), charge fees for their high 
throughput, low latency MEI Ports in a similar fashion as the Exchange 
charges for its MEO Ports--generally, the more active user the Member 
(i.e., the greater number/greater national ADV of classes assigned to 
quote on MIAX and MIAX Emerald), the higher the MEI Port fee.\16\ This 
concept is not new or novel. The Exchange also notes that the proposed 
increased Full Service MEO Port fees are in line with, or cheaper than, 
the similar port fees or similar membership fees charged by other 
options exchanges.\17\
---------------------------------------------------------------------------

    \15\ See supra note 10.
    \16\ See MIAX Fee Schedule, Section 5)d)ii); MIAX Emerald Fee 
Schedule, Section 5)d)ii).
    \17\ See supra note 9.
---------------------------------------------------------------------------

    The Exchange has historically undercharged for Full Service MEO 
Ports as compared to other options exchanges \18\ because the Exchange 
provides Full Service MEO Ports as a package for a single monthly fee. 
As described above, this package includes two Full Service MEO Ports 
for each of the Exchange's twelve (12) matching engines. The Exchange 
understands other options exchanges charge fees on a per port basis. 
The proposed monthly fee increases for Full Service MEO Ports would 
bring the Exchange's fees more in line with that of other options 
exchanges, while maintaining a competitive fee structure for Full 
Service MEO Ports.
---------------------------------------------------------------------------

    \18\ See id.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \19\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \20\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees and other charges among its members and issuers and other persons 
using its facilities. The Exchange also believes the proposal furthers 
the objectives of Section 6(b)(5) of the Act in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange believes that exchanges, in setting fees of all types, 
should meet very high standards of transparency to demonstrate why each 
new fee or fee increase meets the requirements of the Act that fees be 
reasonable, equitably allocated, not unfairly discriminatory, and not 
create an undue burden on competition among market participants. The 
Exchange believes this high standard is especially important when an 
exchange imposes various access fees for market participants to access 
an exchange's marketplace. The Exchange deems the Full Service MEO Port 
fees to be access fees. It records these fees as part of its ``Access 
Fees'' revenue in its financial statements. The Exchange believes that 
it is important to demonstrate that these fees are based on its costs 
and reasonable business needs. The Exchange believes the Proposed 
Access Fees will allow the Exchange to offset expense the Exchange has 
and will incur, and that the Exchange is providing sufficient 
transparency (as described below) into how the Exchange determined to 
charge such fees. Accordingly, the Exchange is providing an analysis of 
its revenues, costs, and profitability associated with the Proposed 
Access Fees. This analysis includes information regarding its

[[Page 37350]]

methodology for determining the costs and revenues associated with the 
Proposed Access Fees.
    In order to determine the Exchange's costs to provide the access 
services associated with the Proposed Access Fees, the Exchange 
conducted an extensive cost review in which the Exchange analyzed every 
expense item in the Exchange's general expense ledger to determine 
whether each such expense relates to the Proposed Access Fees, and, if 
such expense did so relate, what portion (or percentage) of such 
expense actually supports the access services. The sum of all such 
portions of expenses represents the total cost of the Exchange to 
provide the access services associated with the Proposed Access Fees. 
For the avoidance of doubt, no expense amount was allocated twice. The 
Exchange is also providing detailed information regarding the 
Exchange's cost allocation methodology--namely, information that 
explains the Exchange's rationale for determining that it was 
reasonable to allocate certain expenses described in this filing 
towards the cost to the Exchange to provide the access services 
associated with the Proposed Access Fees.
    In order to determine the Exchange's projected revenues associated 
with the Proposed Access Fees, the Exchange analyzed the number of 
Members currently utilizing the Full Service MEO Ports, and, utilizing 
a recent monthly billing cycle representative of 2021 monthly revenue, 
extrapolated annualized revenue on a going-forward basis. The Exchange 
does not believe it is appropriate to factor into its analysis future 
revenue growth or decline into its projections for purposes of these 
calculations, given the uncertainty of such projections due to the 
continually changing access needs of market participants, discounts 
that can be achieved due to lower trading volume and vice versa, market 
participant consolidation, etc. Additionally, the Exchange similarly 
does not factor into its analysis future cost growth or decline. The 
Exchange is presenting its revenue and expense associated with the 
Proposed Access Fees in this filing in a manner that is consistent with 
how the Exchange presents its revenue and expense in its Audited 
Unconsolidated Financial Statements. The Exchange's most recent Audited 
Unconsolidated Financial Statement is for 2020. However, since the 
revenue and expense associated with the Proposed Access Fees were not 
in place in 2020 or for the first two quarters of 2021, the Exchange 
believes its 2020 Audited Unconsolidated Financial Statement is not 
useful for analyzing the reasonableness of the total annual revenue and 
costs associated with the Proposed Access Fees. Accordingly, the 
Exchange believes it is more appropriate to analyze the Proposed Access 
Fees utilizing its 2021 revenue and costs, as described herein, which 
utilize the same presentation methodology as set forth in the 
Exchange's previously-issued Audited Unconsolidated Financial 
Statements. Based on this analysis, the Exchange believes that the 
Proposed Access Fees are fair and reasonable because they will not 
result in excessive pricing or supra-competitive profit when comparing 
the Exchange's total annual expense associated with providing the 
services associated with the Proposed Access Fees versus the total 
projected annual revenue the Exchange will collect for providing those 
services.
    The Exchange notes that this is the same process utilized by the 
Exchange's affiliate, MIAX Emerald, in a filing recently noticed by the 
Commission when MIAX Emerald adopted its own MEI Port fees.\21\
---------------------------------------------------------------------------

    \21\ See Securities Exchange Act Release No. 91460 (April 2, 
2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fee Schedule To Adopt Port Fees, Increase Certain Network 
Connectivity Fees, and Increase the Number of Additional Limited 
Service MIAX Emerald Express Interface Ports Available to Market 
Makers) (adopting tiered MEI Port fee structure ranging from $5,000 
to $20,500 per month).
---------------------------------------------------------------------------

* * * * *
    On March 29, 2019, the Commission issued its Order Disapproving 
Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC 
Options Facility to Establish BOX Connectivity Fees for Participants 
and Non-Participants Who Connect to the BOX Network (the ``BOX 
Order'').\22\ On May 21, 2019, the Commission issued the Staff Guidance 
on SRO Rule Filings Relating to Fees.\23\ Accordingly, the Exchange 
believes that the Proposed Access Fees are consistent with the Act 
because they (i) are reasonable, equitably allocated, not unfairly 
discriminatory, and not an undue burden on competition; (ii) comply 
with the BOX Order and the Guidance; (iii) are supported by evidence 
(including comprehensive revenue and cost data and analysis) that they 
are fair and reasonable because they will not result in excessive 
pricing or supra-competitive profit; and (iv) utilize a cost-based 
justification framework that is substantially similar to a framework 
previously used by the Exchange, and its affiliates MIAX and MIAX 
Emerald, to establish or increase other non-transaction fees. 
Accordingly, the Exchange believes that the Commission should find that 
the Proposed Access Fees are consistent with the Act.
---------------------------------------------------------------------------

    \22\ See Securities Exchange Act Release No. 85459 (March 29, 
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37, 
and SR-BOX-2019-04).
    \23\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
---------------------------------------------------------------------------

* * * * *
    As of June 30, 2021, the Exchange had only a 5.31% market share of 
the U.S. equity options industry for the month of June 2021.\24\ The 
Exchange is not aware of any evidence that a market share of 
approximately 5-6% provides the Exchange with anti-competitive pricing 
power. If the Exchange were to attempt to establish unreasonable 
pricing, then no market participant would join or connect, and existing 
market participants would disconnect.
---------------------------------------------------------------------------

    \24\ See ``The market at a glance'', available at 
www.miaxoptions.com (last visited June 30, 2021).
---------------------------------------------------------------------------

    Separately, the Exchange is not aware of any reason why market 
participants could not simply drop their access to an exchange (or not 
initially access an exchange) if an exchange were to establish prices 
for its non-transaction fees that, in the determination of such market 
participant, did not make business or economic sense for such market 
participant to access such exchange. No options market participant is 
required by rule, regulation, or competitive forces to be a Member of 
the Exchange. As evidence of the fact that market participants can and 
do drop their access to exchanges based on non-transaction fee pricing, 
R2G Services LLC (``R2G'') filed a comment letter after BOX's proposed 
rule changes to increase its connectivity fees (SR-BOX-2018-24, SR-BOX-
2018-37, and SR-BOX-2019-04). The R2G Letter stated, ``[w]hen BOX 
instituted a $10,000/month price increase for connectivity; we had no 
choice but to terminate connectivity into them as well as terminate our 
market data relationship. The cost benefit analysis just didn't make 
any sense for us at those new levels.'' Similarly, the Exchange's 
affiliate, MIAX Emerald, noted in a recent filing that once MIAX 
Emerald issued a notice that it was instituting MEI Port fees, among 
other non-transaction fees, one Member dropped its access to the 
Exchange as a result of those fees.\25\ Accordingly, these examples 
show that if an exchange sets too high of a fee for connectivity and/or 
other non-transaction fees for its relevant marketplace, market

[[Page 37351]]

participants can choose to drop their access to such exchange.
---------------------------------------------------------------------------

    \25\ See supra note 21.
---------------------------------------------------------------------------

    The Exchange's high performance network solutions and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput and the capacity to handle approximately 10.7 million 
order messages per second. On an average day, the Exchange handles over 
approximately 2.7 billion total messages. However, in order to achieve 
a consistent, premium network performance, the Exchange must build out 
and maintain a network that has the capacity to handle the message rate 
requirements of its most heavy network consumers. These billions of 
messages per day consume the Exchange's resources and significantly 
contribute to the overall expense for storage and network transport 
capabilities.
    In order to provide more detail and to quantify the Exchange's 
costs associated with providing access to the Exchange in general, the 
Exchange notes that there are material costs associated with providing 
the infrastructure and headcount to fully-support access to the 
Exchange. The Exchange incurs technology expense related to 
establishing and maintaining Information Security services, enhanced 
network monitoring and customer reporting, as well as Regulation SCI 
mandated processes, associated with its network technology. While some 
of the expense is fixed, much of the expense is not fixed, and thus 
increases as the services associated with the Proposed Access Fees 
increase. For example, new Members to the Exchange may require the 
purchase of additional hardware to support those Members as well as 
enhanced monitoring and reporting of customer performance that the 
Exchange and its affiliates provide. Further, as the total number 
Members increases, the Exchange and its affiliates may need to increase 
their data center footprint and consume more power, resulting in 
increased costs charged by their third-party data center provider. 
Accordingly, the cost to the Exchange and its affiliates to provide 
access to its Members is not fixed. The Exchange believes the Proposed 
Access Fees are reasonable in order to offset a portion of the costs to 
the Exchange associated with providing access to its network 
infrastructure.
    The Exchange only has four primary sources of revenue: Transaction 
fees, access fees (which includes the Proposed Access Fees), regulatory 
fees, and market data fees. Accordingly, the Exchange must cover all of 
its expenses from these four primary sources of revenue.
    The Exchange believes that the Proposed Access Fees are fair and 
reasonable because they will not result in excessive pricing or supra-
competitive profit, when comparing the total annual expense that the 
Exchange projects to incur in connection with providing these access 
services versus the total annual revenue that the Exchange projects to 
collect in connection with services associated with the Proposed Access 
Fees. For 2021 \26\, the total annual expense for providing the access 
services associated with the Proposed Access Fees for the Exchange is 
projected to be approximately $897,084. The $897,084 in projected total 
annual expense is comprised of the following, all of which are directly 
related to the access services associated with the Proposed Access 
Fees: (1) Third-party expense, relating to fees paid by the Exchange to 
third-parties for certain products and services; and (2) internal 
expense, relating to the internal costs of the Exchange to provide the 
services associated with the Proposed Access Fees.\27\ As noted above, 
the Exchange believes it is more appropriate to analyze the Proposed 
Access Fees utilizing its 2021 revenue and costs, which utilize the 
same presentation methodology as set forth in the Exchange's 
previously-issued Audited Unconsolidated Financial Statements.\28\ The 
$897,084 in projected total annual expense is directly related to the 
access services associated with the Proposed Access Fees, and not any 
other product or service offered by the Exchange. It does not include 
general costs of operating matching systems and other trading 
technology, and no expense amount was allocated twice.
---------------------------------------------------------------------------

    \26\ The Exchange has not yet finalized its 2021 year end 
results.
    \27\ The percentage allocations used in this proposed rule 
change may differ from past filings from the Exchange or its 
affiliates due to, among other things, changes in expenses charged 
by third-parties, adjustments to internal resource allocations, and 
different system architecture of the Exchange as compared to its 
affiliates.
    \28\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the 
information technology and communication costs line item under the 
section titled ``Operating Expenses Incurred Directly or Allocated 
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing 
its financial statements for 2018. See Securities Exchange Act 
Release No. 87876 (December 31, 2019), 85 FR 757 (January 7, 2020) 
(SR-PEARL-2019-36). Accordingly, the third-party expense described 
in this filing is attributed to the same line item for the 
Exchange's 2021 Form 1 Amendment, which will be filed in 2022.
---------------------------------------------------------------------------

    As discussed, the Exchange conducted an extensive cost review in 
which the Exchange analyzed every expense item in the Exchange's 
general expense ledger (this includes over 150 separate and distinct 
expense items) to determine whether each such expense relates to the 
access services associated with the Proposed Access Fees, and, if such 
expense did so relate, what portion (or percentage) of such expense 
actually supports those services, and thus bears a relationship that 
is, ``in nature and closeness,'' directly related to those services. 
The sum of all such portions of expenses represents the total cost of 
the Exchange to provide access services associated with the Proposed 
Access Fees.
    For 2021, total third-party expense, relating to fees paid by the 
Exchange to third-parties for certain products and services for the 
Exchange to be able to provide the access services associated with the 
Proposed Access Fees, is projected to be $40,166. This includes, but is 
not limited to, a portion of the fees paid to: (1) Equinix, for data 
center services, for the primary, secondary, and disaster recovery 
locations of the Exchange's trading system infrastructure; (2) Zayo 
Group Holdings, Inc. (``Zayo'') for network services (fiber and 
bandwidth products and services) linking the Exchange's office 
locations in Princeton, New Jersey and Miami, Florida, to all data 
center locations; (3) Secure Financial Transaction Infrastructure 
(``SFTI'') \29\, which supports connectivity and feeds for the entire 
U.S. options industry; (4) various other services providers (including 
Thompson Reuters, NYSE, Nasdaq, and Internap), which provide content, 
connectivity services, and infrastructure services for critical 
components of options connectivity and network services; and (5) 
various other hardware and software providers (including Dell and 
Cisco, which support the production environment in which Members 
connect to the network to trade, receive market data, etc.).
---------------------------------------------------------------------------

    \29\ In fact, on October 22, 2019, the Exchange was notified by 
SFTI that it is again raising its fees charged to the Exchange by 
approximately 11%, without having to show that such fee change 
complies with the Act by being reasonable, equitably allocated, and 
not unfairly discriminatory. It is unfathomable to the Exchange 
that, given the critical nature of the infrastructure services 
provided by SFTI, that its fees are not required to be rule-filed 
with the Commission pursuant to Section 19(b)(1) of the Act and Rule 
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, 
respectively.
---------------------------------------------------------------------------

    For clarity, only a portion of all fees paid to such third-parties 
is included in the third-party expense herein, and no expense amount is 
allocated twice. Accordingly, the Exchange does not allocate its entire 
information technology and communication costs to the access services 
associated with the Proposed Access Fees. Further, the

[[Page 37352]]

Exchange notes that, with respect to the MIAX Pearl expenses included 
herein, those expenses only cover the MIAX Pearl options market; 
expenses associated with the MIAX Pearl equities market are accounted 
for separately and are not included within the scope of this filing.
    The Exchange believes it is reasonable to allocate such third-party 
expense described above towards the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
In particular, the Exchange believes it is reasonable to allocate the 
identified portion of the Equinix expense because Equinix operates the 
data centers (primary, secondary, and disaster recovery) that host the 
Exchange's network infrastructure. This includes, among other things, 
the necessary storage space, which continues to expand and increase in 
cost, power to operate the network infrastructure, and cooling 
apparatuses to ensure the Exchange's network infrastructure maintains 
stability. Without these services from Equinix, the Exchange would not 
be able to operate and support the network and provide the access 
services associated with the Proposed Access Fees to its Members and 
their customers. The Exchange did not allocate all of the Equinix 
expense toward the cost of providing the access services associated 
with the Proposed Access Fees, only that portion which the Exchange 
identified as being specifically mapped to providing the access 
services associated with the Proposed Access Fees, approximately 1.80% 
of the total applicable Equinix expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees, and not any other service, as supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portion of the Zayo expense because Zayo provides the internet, fiber 
and bandwidth connections with respect to the network, linking the 
Exchange with its affiliates, MIAX and MIAX Emerald, as well as the 
data center and disaster recovery locations. As such, all of the trade 
data, including the billions of messages each day per exchange, flow 
through Zayo's infrastructure over the Exchange's network. Without 
these services from Zayo, the Exchange would not be able to operate and 
support the network and provide the access services associated with the 
Proposed Access Fees. The Exchange did not allocate all of the Zayo 
expense toward the cost of providing the access services associated 
with the Proposed Access Fees, only the portion which the Exchange 
identified as being specifically mapped to providing the Proposed 
Access Fees, approximately 0.90% of the total applicable Zayo expense. 
The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the access services 
associated with the Proposed Access Fees, and not any other service, as 
supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portions of the SFTI expense and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense 
because those entities provide connectivity and feeds for the entire 
U.S. options industry, as well as the content, connectivity services, 
and infrastructure services for critical components of the network. 
Without these services from SFTI and various other service providers, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and their customers. The Exchange did not 
allocate all of the SFTI and other service providers' expense toward 
the cost of providing the access services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the access services associated with 
the Proposed Access Fees, approximately 0.90% of the total applicable 
SFTI and other service providers' expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees.
    The Exchange believes it is reasonable to allocate the identified 
portion of the other hardware and software provider expense because 
this includes costs for dedicated hardware licenses for switches and 
servers, as well as dedicated software licenses for security monitoring 
and reporting across the network. Without this hardware and software, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and their customers. The Exchange did not 
allocate all of the hardware and software provider expense toward the 
cost of providing the access services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the access services associated with 
the Proposed Access Fees, approximately 0.90% of the total applicable 
hardware and software provider expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees.
    For 2021, total projected internal expense, relating to the 
internal costs of the Exchange to provide the access services 
associated with the Proposed Access Fees, is projected to be $856,918. 
This includes, but is not limited to, costs associated with: (1) 
Employee compensation and benefits for full-time employees that support 
the access services associated with the Proposed Access Fees, including 
staff in network operations, trading operations, development, system 
operations, business, as well as staff in general corporate departments 
(such as legal, regulatory, and finance) that support those employees 
and functions (including an increase as a result of the higher 
determinism project); (2) depreciation and amortization of hardware and 
software used to provide the access services associated with the 
Proposed Access Fees, including equipment, servers, cabling, purchased 
software and internally developed software used in the production 
environment to support the network for trading; and (3) occupancy costs 
for leased office space for staff that provide the access services 
associated with the Proposed Access Fees. The breakdown of these costs 
is more fully-described below. For clarity, only a portion of all such 
internal expenses are included in the internal expense herein, and no 
expense amount is allocated twice. Accordingly, the Exchange does not 
allocate its entire costs contained in those items to the access 
services associated with the Proposed Access Fees.
    The Exchange believes it is reasonable to allocate such internal 
expense described above towards the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
In particular, the Exchange's employee compensation and benefits 
expense relating to providing the access services associated with the 
Proposed Access Fees is projected to be $783,513, which is only a 
portion of the $9,163,894 total projected expense for employee 
compensation and benefits. The Exchange believes it is reasonable to 
allocate the identified portion of such expense because this includes 
the time spent by employees of several departments, including 
Technology, Back Office, Systems Operations, Networking, Business 
Strategy Development (who create the business requirement documents 
that the Technology staff use to develop network

[[Page 37353]]

features and enhancements), Trade Operations, Finance (who provide 
billing and accounting services relating to the network), and Legal 
(who provide legal services relating to the network, such as rule 
filings and various license agreements and other contracts). As part of 
the extensive cost review conducted by the Exchange, the Exchange 
reviewed the amount of time spent by each employee on matters relating 
to the provision of access services associated with the Proposed Access 
Fees. Without these employees, the Exchange would not be able to 
provide the access services associated with the Proposed Access Fees to 
its Members and their customers. The Exchange did not allocate all of 
the employee compensation and benefits expense toward the cost of the 
access services associated with the Proposed Access Fees, only the 
portions which the Exchange identified as being specifically mapped to 
providing the access services associated with the Proposed Access Fees, 
approximately 8.55% of the total applicable employee compensation and 
benefits expense. The Exchange believes this allocation is reasonable 
because it represents the Exchange's actual cost to provide the access 
services associated with the Proposed Access Fees, and not any other 
service, as supported by its cost review.
    The Exchange's depreciation and amortization expense relating to 
providing the access services associated with the Proposed Access Fees 
is projected to be $64,456, which is only a portion of the $2,864,716 
\30\ total projected expense for depreciation and amortization. The 
Exchange believes it is reasonable to allocate the identified portion 
of such expense because such expense includes the actual cost of the 
computer equipment, such as dedicated servers, computers, laptops, 
monitors, information security appliances and storage, and network 
switching infrastructure equipment, including switches and taps that 
were purchased to operate and support the network and provide the 
access services associated with the Proposed Access Fees. Without this 
equipment, the Exchange would not be able to operate the network and 
provide the access services associated with the Proposed Access Fees to 
its Members and their customers. The Exchange did not allocate all of 
the depreciation and amortization expense toward the cost of providing 
the access services associated with the Proposed Access Fees, only the 
portion which the Exchange identified as being specifically mapped to 
providing the access services associated with the Proposed Access Fees, 
approximately 2.25% of the total applicable depreciation and 
amortization expense, as these access services would not be possible 
without relying on such. The Exchange believes this allocation is 
reasonable because it represents the Exchange's actual cost to provide 
the access services associated with the Proposed Access Fees, and not 
any other service, as supported by its cost review.
---------------------------------------------------------------------------

    \30\ The Exchange notes that the total depreciation expense is 
different from the total for the Exchange's recent Trading Permit 
filing (SR-PEARL-2021-32) because the Exchange factors in the 
depreciation of its own internally developed software when assessing 
costs for Full Service MEO Ports, resulting in a higher depreciation 
expense number in this filing.
---------------------------------------------------------------------------

    The Exchange's occupancy expense relating to providing the access 
services associated with the Proposed Access Fees is projected to be 
$8,949, which is only a portion of the $497,180 total projected expense 
for occupancy. The Exchange believes it is reasonable to allocate the 
identified portion of such expense because such expense represents the 
portion of the Exchange's cost to rent and maintain a physical location 
for the Exchange's staff who operate and support the network, including 
providing the access services associated with the Proposed Access Fees. 
This amount consists primarily of rent for the Exchange's Princeton, NJ 
office, as well as various related costs, such as physical security, 
property management fees, property taxes, and utilities. The Exchange 
operates its Network Operations Center (``NOC'') and Security 
Operations Center (``SOC'') from its Princeton, New Jersey office 
location. A centralized office space is required to house the staff 
that operates and supports the network. The Exchange currently has 
approximately 150 employees. Approximately two-thirds of the Exchange's 
staff are in the Technology department, and the majority of those staff 
have some role in the operation and performance of the access services 
associated with the Proposed Access Fees. Without this office space, 
the Exchange would not be able to operate and support the network and 
provide the access services associated with the Proposed Access Fees to 
its Members and their customers. Accordingly, the Exchange believes it 
is reasonable to allocate the identified portion of its occupancy 
expense because such amount represents the Exchange's actual cost to 
house the equipment and personnel who operate and support the 
Exchange's network infrastructure and the access services associated 
with the Proposed Access Fees. The Exchange did not allocate all of the 
occupancy expense toward the cost of providing the access services 
associated with the Proposed Access Fees, only the portion which the 
Exchange identified as being specifically mapped to operating and 
supporting the network, approximately 1.80% of the total applicable 
occupancy expense. The Exchange believes this allocation is reasonable 
because it represents the Exchange's cost to provide the access 
services associated with the Proposed Access Fees, and not any other 
service, as supported by its cost review.
    The Exchange notes that a material portion of its total overall 
expense is allocated to the provision of access services (including 
connectivity, ports, and trading permits). The Exchange believes this 
is reasonable and in line, as the Exchange operates a technology-based 
business that differentiates itself from its competitors based on its 
trading systems that rely on access to a high performance network, 
resulting in significant technology expense. Over two-thirds of 
Exchange staff are technology-related employees. The majority of the 
Exchange's expense is technology-based. As described above, the 
Exchange has only four primary sources of fees in to recover its costs, 
thus the Exchange believes it is reasonable to allocate a material 
portion of its total overall expense towards access fees.
    Accordingly, based on the facts and circumstances presented, the 
Exchange believes that its provision of the access services associated 
with the Proposed Access Fees will not result in excessive pricing or 
supra-competitive profit. To illustrate, on a going-forward, fully-
annualized basis, the Exchange projects that its annualized revenue for 
providing the access services associated with the Proposed Access Fees 
would be approximately $1,476,000 per annum, based on a recent billing 
cycle. The Exchange projects that its annualized expense for providing 
the access services associated with the Proposed Access Fees would be 
approximately $897,084 per annum. Accordingly, on a fully-annualized 
basis, the Exchange believes its total projected revenue for the 
providing the access services associated with the Proposed Access Fees 
will not result in excessive pricing or supra-competitive profit, as 
the Exchange will make only a 39% profit margin on the Proposed Access 
Fees ($1,476,000 in revenue minus $897,084 in expense = $578,916 profit 
per annum). The Exchange notes that the fees charged to each Member for

[[Page 37354]]

Full Service MEO Ports can vary from month to month depending on the 
type used and the Non-Transaction Fees Volume-Based Tier that the 
Member achieves for that month. As such, the revenue projection is not 
a static number, with monthly Full Service MEO Port fees likely to 
fluctuate month to month.
    For the avoidance of doubt, none of the expenses included herein 
relating to the access services associated with the Proposed Access 
Fees relate to the provision of any other services offered by the 
Exchange. Stated differently, no expense amount of the Exchange is 
allocated twice. The Exchange notes that, with respect to the MIAX 
Pearl expenses included herein, those expenses only cover the MIAX 
Pearl options market; expenses associated with the MIAX Pearl equities 
market and the Exchange's affiliate exchanges, MIAX and MIAX Emerald, 
are accounted for separately and are not included within the scope of 
this filing. Stated differently, no expense amount of the Exchange is 
also allocated to MIAX Pearl Equites, MIAX or MIAX Emerald.
    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to allocate the respective percentages of each expense 
category described above towards the total cost to the Exchange of 
operating and supporting the network, including providing the access 
services associated with the Proposed Access Fees because the Exchange 
performed a line-by-line item analysis of all the expenses of the 
Exchange, and has determined the expenses that directly relate to 
providing access to the Exchange. Further, the Exchange notes that, 
without the specific third-party and internal items listed above, the 
Exchange would not be able to provide the access services associated 
with the Proposed Access Fees to its Members and their customers. Each 
of these expense items, including physical hardware, software, employee 
compensation and benefits, occupancy costs, and the depreciation and 
amortization of equipment, have been identified through a line-by-line 
item analysis to be integral to providing access services. The Proposed 
Access Fees are intended to recover the Exchange's costs of providing 
access to Exchange Systems. Accordingly, the Exchange believes that the 
Proposed Access Fees are fair and reasonable because they do not result 
in excessive pricing or supra-competitive profit, when comparing the 
actual costs to the Exchange versus the projected annual revenue from 
the Proposed Access Fees.
    The Exchange believes the proposed changes are reasonable, 
equitably allocated and not unfairly discriminatory, and do not result 
in a ``supra-competitive'' \31\ profit. Of note, the Guidance defines 
``supra-competitive profit'' as profits that exceed the profits that 
can be obtained in a competitive market.\32\ With the proposed changes, 
the Exchange anticipates it will have a profit margin of 39% for its 
Full Service MEO Ports. Based on the 2019 Audited Financial Statements 
of the competing options exchanges (since the 2020 Audited Financial 
Statements will likely not become publicly available until early July 
2021, after the Exchange has submitted this filing), the Exchange's 
profit margin is well below the operating profit margins of other 
competing exchanges. For example, Nasdaq ISE, LLC's (``ISE'') operating 
profit margin, for all of 2019, was 83%. Nasdaq PHLX LLC's (``PHLX'') 
operating profit margin, for all of 2019, was 67%.
---------------------------------------------------------------------------

    \31\ See supra note 23.
    \32\ See id.
---------------------------------------------------------------------------

    The Exchange further believes its proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory because the 
Exchange, and its affiliates, are still recouping the initial 
expenditures from building out their systems while the legacy exchanges 
have already paid for and built their systems.
    The Exchange believes that the proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory because, for the 
flat fee, the Exchange provides each Member two (2) Full Service MEO 
Ports for each matching engine to which that Member is connected. 
Unlike other options exchanges that provide similar port functionality 
and charge fees on a per port basis,\33\ the Exchange offers Full 
Service MEO Ports as a package and provides Members with the option to 
receive up to two Full Service MEO Ports per matching engine to which 
it connects. The Exchange currently has twelve (12) matching engines, 
which means Members may receive up to twenty-four (24) Full Service MEO 
Ports for a single monthly fee, that can vary based on certain volume 
percentages. The Exchange currently assesses Members a fee of $5,000 
per month in the highest Full Service MEO Port--Bulk Tier, regardless 
of the number of Full Service MEO Ports allocated to the Member. 
Assuming a Member connects to all twelve (12) matching engines during a 
month, with two Full Service MEO Ports per matching engine, this 
results in a cost of $208.33 per Full Service MEO Port--Bulk ($5,000 
divided by 24) for the month. This fee has been unchanged since the 
Exchange adopted Purge Port fees in 2018.\34\ The Exchange now proposes 
to increase the Full Service MEO Port fees, with the highest Tier fee 
for a Full Service MEO Port--Bulk of $10,000 per month. Members will 
continue to receive two (2) Full Service MEO Ports to each matching 
engine to which they are connected for the single flat monthly fee. 
Assuming a Member connects to all twelve (12) matching engines during 
the month, and achieves the highest Tier for that month, with two Full 
Service MEO Ports--Bulk per matching engine, this would result in a 
cost of $416.67 per Full Service MEO Port ($10,000 divided by 24).
---------------------------------------------------------------------------

    \33\ See supra note 9.
    \34\ See supra note 10.
---------------------------------------------------------------------------

    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. In such an environment, the Exchange must continually adjust 
its fees for services and products, in addition to order flow, to 
remain competitive with other exchanges. The Exchange believes that the 
proposed changes reflect this competitive environment.
    The Guidance provides that in determining whether a proposed fee is 
constrained by significant competitive forces, the Commission will 
consider whether there are reasonable substitutes for the product or 
service that is the subject of a proposed fee. As described below, the 
Exchange believes substitute products and services are available to 
market participants, including, among other things, other options 
exchanges that market participants may connect to in lieu of the 
Exchange, indirect connectivity to the Exchange via a third-party 
reseller and/or trading of any options products, including proprietary 
products, in the Over-the-Counter (``OTC'') markets.
    There is also no regulatory requirement that any market participant 
connect to any one options exchange, that any market participant 
connect at a particular connection speed or act in a particular 
capacity on the Exchange, or trade any particular product offered on an 
exchange. Moreover, membership is not a requirement to participate on 
the Exchange. A market participant may submit orders to the Exchange 
via a Sponsored User.\35\ Indeed, the Exchange

[[Page 37355]]

is unaware of any one options exchange whose membership includes every 
registered broker-dealer. Based on a recent analysis conducted by the 
Cboe Exchange, Inc. (``Cboe''), as of October 21, 2020, only three (3) 
of the broker-dealers, out of approximately 250 broker-dealers, were 
members of at least one exchange that lists options for trading and 
were members of all 16 options exchanges.\36\ Additionally, the Cboe 
Fee Filing found that several broker-dealers were members of only a 
single exchange that lists options for trading and that the number of 
members at each exchange that trades options varies greatly.\37\
---------------------------------------------------------------------------

    \35\ See Exchange Rule 210. The Sponsored User is subject to the 
fees, if any, of the Sponsoring Member. The Exchange notes that the 
Sponsoring Member is not required to publicize, let alone justify or 
file with the Commission its fees, and as such could charge the 
Sponsored User any fees it deems appropriate, even if such fees 
would otherwise be considered supra-competitive, or otherwise 
potentially unreasonable or uncompetitive.
    \36\ See Securities Exchange Act Release No. 90333 (November 4, 
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105) (the 
``Cboe Fee Filing''). The Cboe Fee Filing cited to the October 2020 
Active Broker Dealer Report, provided by the Commission's Office of 
Managing Executive, on October 8, 2020.
    \37\ Id.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete.
Intra-Market Competition
    The Exchange believes that the Proposed Access Fees do not place 
certain market participants at a relative disadvantage to other market 
participants because the Proposed Access Fees do not favor certain 
categories of market participants in a manner that would impose a 
burden on competition; rather, the allocation of the Proposed Access 
Fees reflects the network resources consumed by the various size of 
market participants--lowest bandwidth consuming members pay the least, 
and highest bandwidth consuming members pays the most, particularly 
since higher bandwidth consumption translates to higher costs to the 
Exchange.
Inter-Market Competition
    The Exchange believes the Proposed Access Fees do not place an 
undue burden on competition on other options exchanges that is not 
necessary or appropriate. In particular, options market participants 
are not forced to connect to (and purchase MEO Ports from) all options 
exchanges. The Exchange also notes that it has far less Members as 
compared to the much greater number of members at other options 
exchanges. Not only does MIAX Pearl have less than half the number of 
members as certain other options exchanges, but there are also a number 
of the Exchange's Members that do not connect directly to MIAX Pearl. 
There are a number of large users of the MEO Interface and broker-
dealers that are members of other options exchange but not Members of 
MIAX Pearl. The Exchange is also unaware of any assertion that its 
existing fee levels or the Proposed Access Fees would somehow unduly 
impair its competition with other options exchanges. To the contrary, 
if the fees charged are deemed too high by market participants, they 
can simply disconnect.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 15 competing options 
venues if they deem fee levels at a particular venue to be excessive. 
Based on publicly-available information, and excluding index-based 
options, no single exchange has more than 16% market share. Therefore, 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. As of June 30, 2021, 
the Exchange had only a 5.31% market share of the U.S. equity options 
industry for the month of June 2021.\38\ The Exchange is not aware of 
any evidence that a market share of approximately 5-6% provides the 
Exchange with anti-competitive pricing power. If the Exchange were to 
attempt to establish unreasonable pricing, then no market participant 
would join or connect, and existing market participants would 
disconnect. The Exchange believes that the ever-shifting market share 
among exchanges from month to month demonstrates that market 
participants can discontinue or reduce use of certain categories of 
products, or shift order flow, in response to fee changes. In such an 
environment, the Exchange must continually adjust its fees and fee 
waivers to remain competitive with other exchanges and to attract order 
flow to the Exchange.
---------------------------------------------------------------------------

    \38\ See ``The market at a glance'', available at 
www.miaxoptions.com (last visited June 30, 2021).
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor 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,\39\ and Rule 19b-4(f)(2) \40\ thereunder. 
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 necessary or appropriate 
in the public interest, for the protection of investors, or 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.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \40\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-PEARL-2021-33 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-PEARL-2021-33. 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 (http://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

[[Page 37356]]

Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
PEARL-2021-33 and should be submitted on or before August 5, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
---------------------------------------------------------------------------

    \41\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15035 Filed 7-14-21; 8:45 am]
BILLING CODE 8011-01-P