[Federal Register Volume 86, Number 219 (Wednesday, November 17, 2021)]
[Notices]
[Pages 64254-64268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25019]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93555; File No. SR-PEARL-2021-54]


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 To Remove Certain Credits and Increase 
Trading Permit Fees

November 10, 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 October 29, 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.
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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 is filing a proposal to amend the MIAX Pearl Options 
Fee Schedule (the ``Fee Schedule'') to remove certain credits and amend 
the monthly Trading Permit \3\ fees for Exchange Members.\4\
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    \3\ The term ``Trading Permit'' means a permit issued by the 
Exchange that confers the ability to transact on the Exchange. See 
Exchange Rule 100.
    \4\ The term ``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 Exchange Rule 100 and the 
Definitions Section of the Fee Schedule.
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    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 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 remove certain 
credits and amend the monthly Trading Permit fees (the ``Proposed 
Access Fees'') for Exchange Members.
Removal of the ``Monthly Volume Credit''
    The Exchange proposes to amend the Definitions section of the Fee 
Schedule to delete the definition and remove the credits applicable to 
the Monthly Volume Credit for Members. The Exchange established the 
Monthly Volume Credit in 2018 \5\ to encourage Members to send 
increased Priority

[[Page 64255]]

Customer \6\ order flow to the Exchange, which the Exchange applied to 
the assessment of certain non-transaction rebates and fees for that 
Member. The Exchange applies a different Monthly Volume Credit 
depending on whether the Member connects to the Exchange via the FIX 
Interface \7\ or MEO Interface.\8\ Currently, the Exchange assesses the 
Monthly Volume Credit to each Member that has executed Priority 
Customer volume along with that of its Affiliates,\9\ not including 
Excluded Contracts,\10\ of at least 0.30% of MIAX Pearl-listed Total 
Consolidated Volume (``TCV''),\11\ as set forth in the following table:
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    \5\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
    \6\ The term ``Priority Customer'' means a person or entity that 
(i) is not a broker or dealer in securities, and (ii) does not place 
more than 390 orders in listed options per day on average during a 
calendar month for its own beneficial accounts(s). The number of 
orders shall be counted in accordance with Interpretation and Policy 
.01 of Exchange Rule 100. See the Definitions Section of the Fee 
Schedule and Exchange Rule 100, including Interpretation and Policy 
.01.
    \7\ The term ``FIX Interface'' means the Financial Information 
Exchange interface for certain order types as set forth in Exchange 
Rule 516. See the Definitions Section of the Fee Schedule and 
Exchange Rule 100.
    \8\ The term ``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.
    \9\ ``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.
    \10\ ``Excluded Contracts'' means any contracts routed to an 
away market for execution. See the Definitions Section of the Fee 
Schedule.
    \11\ ``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.

------------------------------------------------------------------------
                                                                Monthly
                  Type of member connection                      volume
                                                                 credit
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Member that connects via the FIX Interface...................       $250
Member that connects via the MEO Interface...................      1,000
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    If a Member connects via both the MEO Interface and FIX Interface 
and qualifies for the Monthly Volume Credit based upon its Priority 
Customer volume, the greater Monthly Volume Credit shall apply to such 
Member. The Monthly Volume Credit is a single, once-per-month credit 
towards the aggregate monthly total of non-transaction fees assessable 
to a Member.
    The Exchange now proposes to amend the Definitions section of the 
Fee Schedule to delete the definition and remove the Monthly Volume 
Credit. The Exchange established the Monthly Volume Credit when it 
first launched operations to attract order flow by lowering the initial 
fixed cost for Members. The Monthly Volume Credit has achieved its 
purpose and the Exchange now believes it is appropriate to remove this 
credit. The Exchange believes that the Exchange's existing Priority 
Customer rebates and fees will continue to allow the Exchange to remain 
highly competitive and continue to attract order flow and maintain 
market share.
Removal of the Trading Permit Fee Credit
    The Exchange proposes to amend Section 3)b) of the Fee Schedule to 
remove the Trading Permit fee credit that is denoted in footnote ``*'' 
below the Trading Permit fee table. The Trading Permit fee credit is 
applicable to Members that connect via both the MEO and FIX Interfaces. 
Currently, Members who connect via both the MEO and FIX Interfaces are 
assessed the rates for both types of Trading Permits, but these Members 
receive a $100 monthly credit towards the Trading Permit fees 
applicable to the MEO Interface. The Exchange now proposes to remove 
the Trading Permit fee credit and delete footnote ``*'' from Section 
3)b) of the Fee Schedule.
    The Exchange established the Trading Permit fee credit when it 
first launched operations to attract order flow and increase membership 
by lowering the costs for Members that connect via both the MEO 
Interface and FIX Interface. The Trading Permit fee credit has achieved 
its purpose and the Exchange now believes that it is appropriate to 
remove this credit in light of the current operating conditions and 
membership population on the Exchange.
Amendment of Trading Permit Fees
    The Exchange proposes to amend Section 3)b) of the Fee Schedule to 
increase the amount of the monthly Trading Permit fees. The Exchange 
issues Trading Permits to Members who are either Electronic Exchange 
Members \12\ (``EEMs'') or Market Makers.\13\ The Exchange assesses 
Trading Permit fees based upon the monthly total volume executed by the 
Member and its Affiliates on the Exchange across all origin types, not 
including Excluded Contracts, as compared to the total TCV 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'' \14\ in the Definitions section 
of the Fee Schedule. The Exchange also assesses Trading Permit fees 
based upon the type of interface used by the Member to connect to the 
Exchange--the FIX Interface and/or the MEO Interface.
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    \12\ The term ``Electronic Exchange Member'' or ``EEM'' means 
the holder of a Trading Permit who is a Member representing as agent 
Public Customer Orders or Non-Customer Orders on the Exchange and 
those non-Market Maker Members conducting proprietary trading. 
Electronic Exchange Members are deemed ``members'' under the 
Exchange Act. See the Definitions Section of the Fee Schedule.
    \13\ The term ``Market Maker'' or ``MM'' 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 these Rules. 
See the Definitions Section of the Fee Schedule.
    \14\ See the Definitions Section of the Fee Schedule for the 
monthly volume thresholds associated with each Tier.
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    Current Trading Permit Fees. Currently, each Member who connects to 
the System \15\ via the FIX Interface is assessed the following monthly 
Trading Permit fees:
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    \15\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    (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%, $250;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers,

[[Page 64256]]

or volume above 0.30% up to 0.60%, $350; 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%, $450.
    Each Member who connects to the System via the MEO Interface is 
assessed the following monthly Trading Permit fees:
    (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%, $300;
    (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%, $400; 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%, $500.
    Proposed Trading Permit Fees. The Exchange now proposes to amend 
its Trading Permit fees as follows. Each Member who connects to the 
System via the FIX Interface will be assessed the following monthly 
Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, $1,000; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, $1,500.
    Each Member who connects to the System via the MEO Interface will 
be assessed the following monthly Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $2,500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, $4,000; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, $6,000.
    Members who use the MEO Interface may also connect to the System 
through the FIX Interface as well, and vice versa. The Exchange notes 
that the Trading Permit fees for Members who connect through the MEO 
Interface are higher than the Trading Permit fees for Members who 
connect through the FIX Interface, since the FIX Interface utilizes 
less capacity and resources of the Exchange. The MEO Interface offers 
lower latency and higher throughput, which utilizes greater capacity 
and resources of the Exchange. The FIX Interface offers lower bandwidth 
requirements and an industry-wide uniform message format. Both EEMs and 
Market Makers may connect to the Exchange using either interface.
    Trading Permits grant access to the Exchange, thus providing the 
ability to submit orders and trade on the Exchange, in the manner 
defined in the relevant Trading Permit. Without a Trading Permit, a 
Member cannot directly trade on the Exchange. Therefore, a Trading 
Permit is a means to directly access the Exchange (which offers 
meaningful value), and the Exchange now proposes to increase its 
monthly fees since it has not done so since the fees were first adopted 
in 2018 \16\ and are designed to recover a portion of the costs 
associated with directly accessing the Exchange. The Exchange notes 
that the its affiliates, Miami International Securities Exchange, LLC 
(``MIAX'') and MIAX Emerald, LLC (``MIAX Emerald''), charge a similar, 
fixed trading permit fee to certain users, and a similar, varying 
trading permit fee to other users, based upon the number of assignments 
of option classes or the percentage of volume in option classes.\17\ 
The Exchange notes that other options exchanges assess certain of their 
membership fees at different rates, based upon a member's participation 
on that exchange,\18\ and, as such, this concept is not new or novel. 
The Exchange also notes that the proposed increased Trading Permit fees 
are in line with, or cheaper than, the trading permit fees or similar 
membership fees charged by other options exchanges.\19\
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    \16\ See supra note 5.
    \17\ See the MIAX Fee Schedule, Section 3)b); MIAX Emerald Fee 
Schedule, Section 3)b).
    \18\ See e.g., NYSE Arca Options Fees and Charges, OTP Trading 
Participant Rights, p.1 (assessing market makers an options trading 
permit (``OTP'') monthly fee of $6,000 for up to 175 option issues, 
an additional $5,000 for up to 350 option issues, an additional 
$4,000 for up to 1,000 option issues, an additional $3,000 for all 
option issues on the exchange, and an additional $1,000 for the 
fifth OTP and for each OTP thereafter); NYSE American Options Fee 
Schedule, Section III, Monthly Trading Permit, Rights, Floor Access 
and Premium Product Fees, p. 23 (assessing market makers an ATP 
monthly fee of $8,000 for up to 60 plus the bottom 45% of option 
issues, an additional $6,000 for up to 150 plus the bottom 45% of 
option issues, an additional $5,000 for up to 500 plus the bottom 
45% of option issues, and additional $4,000 for up to 1,100 plus the 
bottom 45% of option issues, an additional $3,000 for all issues 
traded on the exchange, and an additional $2,000 for 6th to 9th 
ATPs; plus an addition fee for premium products). See also Cboe BZX 
Options Exchange (``BZX Options''), which assesses the Participant 
Fee, a type of membership fee, according to a member's average daily 
volume (``ADV''). See Cboe BZX Options Exchange Fee Schedule, 
Membership Fees. The monthly Participant Fee for BZX Options is $500 
if the member's ADV is less than 5,000 contracts and $1,000 if the 
member's ADV is equal to or greater than 5,000 contracts. Id.
    \19\ See id.
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Implementation
    The proposed rule change will be effective beginning November 1, 
2021.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \20\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \21\ 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.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(4) and (5).
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    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 Trading Permit 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 expenses 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 methodology for 
determining the costs

[[Page 64257]]

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 
nearly 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 to 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 Trading Permits, 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 majority of 2021 (other than July and 
August 2021), the Exchange believes its 2020 Audited Unconsolidated 
Financial Statement is not representative of its current total 
annualized 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 justification 
process utilized by the Exchange's affiliate, MIAX Emerald, in a filing 
recently noticed by the Commission when MIAX Emerald adopted its own 
trading permit fees.\22\
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    \22\ See Securities Exchange Act Release No. 91033 (February 1, 
2021), 86 FR 8455 (February 5, 2021) (SR-EMERALD-2021-03) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fee Schedule To Adopt Monthly Trading Permit Fees).
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* * * * *
    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'').\23\ On May 21, 2019, the Commission issued the Staff Guidance 
on SRO Rule Filings Relating to Fees.\24\ 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.
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    \23\ 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).
    \24\ 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'').
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* * * * *
    Over the course of 2021, the Exchange's market share has fluctuated 
between approximately 3-6% of the U.S. equity options industry.\25\ The 
Exchange is not aware of any evidence that a market share of 
approximately 3-6% 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.
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    \25\ See ``The market at a glance'', available at 
www.miaxoptions.com (last visited October 29, 2021).
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Removal of Monthly Volume Credit and Trading Permit Fee Credit
    The Exchange believes its proposal to remove the Monthly Volume 
Credit is reasonable, equitable and not unfairly discriminatory because 
all market participants will no longer be offered the ability to 
achieve the extra credits associated with the Monthly Volume Credit for 
submitting Priority Customer volume to the Exchange and access to the 
Exchange is offered on terms that are not unfairly discriminatory. The 
Exchange believes it is equitable and not unfairly discriminatory to 
remove the Monthly Volume Credit from the Fee Schedule for business and 
competitive reasons because, in order to attract order flow when the 
Exchange first launched operations, the Exchange established the 
Monthly Volume Credit to lower the initial fixed cost for Members. The 
Exchange now believes that it is appropriate to remove this credit in 
light of the current operating conditions and the current type and 
amount of Priority Customer volume executed on the Exchange. The 
Exchange believes that the Exchange's Priority Customer rebates and 
fees will still allow the Exchange to remain highly competitive such 
that the Exchange should continue to attract order flow and maintain 
market share.
    The Exchange believes its proposal to remove the Trading Permit fee 
credit for Members that connect via both the MEO Interface and FIX 
Interface is reasonable, equitable and not unfairly discriminatory 
because all market participants will no longer be offered the ability 
to receive the credit and access to the Exchange is offered on terms 
that are not unfairly

[[Page 64258]]

discriminatory. The Exchange believes it is equitable and not unfairly 
discriminatory to remove the Trading Permit fee credit for business and 
competitive reasons because, in order to attract order flow and 
membership after the Exchange first launched operations, the Exchange 
established the Trading Permit fee credit to lower the costs for 
Members that connect via both the MEO Interface and FIX Interface. The 
Exchange now believes that it is appropriate to remove this credit in 
light of the current operating conditions and membership on the 
Exchange.
Trading Permit Fee Increase
    The Exchange believes the proposed Trading Permit fees are 
equitable and reasonable because the proposed highest tiered fee is 
less than or equal to similar fees charged for access on other options 
exchanges with comparable market shares. For example, Nasdaq ISE, LLC 
(``ISE'') (equity options market share of approximately 5-7% throughout 
2021) charges the following access fees: $500 per month for Electronic 
Access Members; $5,000 per month for Primary Market Makers; and $2,500 
per month for Competitive Market Makers.\26\ Additionally, Cboe C2 
Exchange, Inc. (``C2'') (equity options market share of approximately 
3-4% throughout 2021), charges the following access permit fees: $5,000 
per month for market makers; and $1,000 per month for electronic access 
permits.\27\ NYSE American LLC (``NYSE American'') (equity options 
market share of approximately 7-8% throughout 2021), charges the 
following range of trading permit and access fees, which are dependent 
upon the number of issues permitted in market makers' quoting 
assignments: $8,000 per month for the first ATP; \28\ $6,000 per month 
for the second ATP; $5,000 per month for the third ATP; $4,000 per 
month for the fourth ATP; $3,000 per month for the sixth ATP; $2,000 
per month for the seventh to the ninth ATP; and $500 per month for the 
tenth ATP and each one thereafter.\29\
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    \26\ See Nasdaq ISE LLC Options 7 Pricing Schedule, Section 8.A. 
Access Services, at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207.
    \27\ See C2 Fee Schedule, Access Fees, at https://www.cboe.com/us/options/membership/fee_schedule/ctwo/.
    \28\ An ``ATP'' or ``ATP Holder'' is a registered Broker-Dealer 
who is a permit holder on Amex, per Amex Rule 900.2NY(4),(5). See 
Amex Fee Schedule, Section III, Monthly Trading Permit, Rights, 
Floor Access and Premium Product Fees, at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf.
    \29\ See id.
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    In the each of the above cases, the Exchange's highest tiered fee, 
as proposed, is similar to or less than the similar access/membership 
fees of competing options exchanges with like market share. Further, as 
described in more detail below, many of those exchanges generate higher 
overall operating profit margins and higher ``access fees'' than the 
Exchange, inclusive of the projected revenues associated with the 
proposed fees. The Exchange believes that it provides a premium network 
experience to its Members and non-Members via a highly deterministic 
system, enhanced network monitoring and customer reporting, and a 
superior network infrastructure than markets with higher market shares 
and more expensive access fees. Each of the access fee rates in place 
at competing options exchanges were filed with the Commission for 
immediate effectiveness and remain in place today.
    The Exchange also notes that the higher (or similar) trading permit 
fees described above for competing exchanges have been in place for 
years (over 8 years in some cases), allowing those exchanges to derive 
significantly more revenue from their access or membership fees. For 
example, in 2012, NYSE American adopted the sliding scale pricing that 
ranges from $8,000 to $3,000 per month for NYSE American trading 
permits.\30\ In that filing, NYSE American also noted that prior to 
introducing the sliding scale pricing, each NYSE American market maker 
was charged $5,000 per month per trading permit (similar to the 
Exchange's proposed highest tier for MEO interface users, nearly a 
decade later).\31\ NYSE American received no comment letters on their 
proposal to institute trading permit fees that were higher 8 years ago 
as compared to the Exchange's current proposal. Similarly, C2 adopted 
the pricing for its access permits in 2010 of $5,000 per month for 
market makers and $1,000 per month for electronic access members.\32\
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    \30\ See Securities Exchange Act Release No. 67634 (August 9, 
2012), 77 FR 49038 (August 15, 2012) (SR-NYSEMKT-2012-33).
    \31\ See id.
    \32\ See Securities Exchange Act Release No. 63175 (October 25, 
2010), 75 FR 66813 (October 29, 2010) (SR-C2-2010-006).
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    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 Trading Permit fees, 
among other non-transaction fees, one Member dropped its access to the 
Exchange as a result of those fees.\33\ Accordingly, these examples 
show that if a market participant believes, based on its business 
model, that an exchange charges too high of a fee for connectivity and/
or other non-transaction fees for its relevant marketplace, market 
participants can choose to drop their access to such exchange.
---------------------------------------------------------------------------

    \33\ See supra note 22.
---------------------------------------------------------------------------

    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act because the Proposed Access Fees will not result in 
excessive pricing or supra-competitive profit. The Proposed Access Fees 
are also reasonable and equitable because they are in line with, or 
cheaper than, the trading permit fees or similar membership fees 
charged by other options exchanges.\34\ The costs associated with 
providing access to Exchange Members and non-Members, as well as the 
general expansion of a state-of-the-art infrastructure, are extensive, 
have increased year-over-year, and are projected to increase year-over-
year in the future.
---------------------------------------------------------------------------

    \34\ See supra notes 26, 27 and 28.
---------------------------------------------------------------------------

    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

[[Page 64259]]

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 of 
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,\35\ the total annual expense for providing the access 
services associated with the Proposed Access Fees for the Exchange is 
projected to be approximately $844,741. The $844,741 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.\36\ 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.\37\ The 
$844,741 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.
---------------------------------------------------------------------------

    \35\ The Exchange has not yet finalized its 2021 year end 
results.
    \36\ 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.
    \37\ 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 nearly 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 $188,815. 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''),\38\ 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.).
---------------------------------------------------------------------------

    \38\ In fact, on October 20, 2021, ICE Data Services announced a 
3.5% price increase effective January 1, 2022 for most services. The 
price increase by ICE Data Services includes their SFTI network, 
which is relied on by a majority of market participants, including 
the Exchange. See email from ICE Data Services to the Exchange, 
dated October 20, 2021. This fee increase by ICE data services, 
while not subject to Commission review, has a material impact on 
costs to exchanges and other market participants that provide 
downstream access to other market participants. The Exchange notes 
that on October 22, 2019, the Exchange was notified by ICE Data 
Services that it was raising its fees charged to the Exchange by 
approximately 11% for the SFTI network, 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 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

[[Page 64260]]

filing. As noted above, 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. Further, as part its ongoing assessment of costs and 
expenses, the Exchange recently conducted a periodic thorough review of 
its expenses and resource allocations which, in turn, resulted in a 
revised percentage allocations in 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 8% 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.\39\
---------------------------------------------------------------------------

    \39\ As noted above, 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. Again, as part its ongoing assessment of 
costs and expenses, the Exchange recently conducted a periodic 
thorough review of its expenses and resource allocations which, in 
turn, resulted in a revised percentage allocations in this filing.
---------------------------------------------------------------------------

    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 4% 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.\40\
---------------------------------------------------------------------------

    \40\ Id.
---------------------------------------------------------------------------

    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 3% 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.\41\
---------------------------------------------------------------------------

    \41\ Id.
---------------------------------------------------------------------------

    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 5% 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.\42\
---------------------------------------------------------------------------

    \42\ Id.
---------------------------------------------------------------------------

    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 $655,925. 
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; (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.

[[Page 64261]]

    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 $549,834, 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 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 6% 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.\43\
---------------------------------------------------------------------------

    \43\ Id.
---------------------------------------------------------------------------

    The Exchange's depreciation and amortization expense relating to 
providing the access services associated with the Proposed Access Fees 
is projected to be $66,316, which is only a portion of the $1,326,325 
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 5% 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.\44\
---------------------------------------------------------------------------

    \44\ Id.
---------------------------------------------------------------------------

    The Exchange's occupancy expense relating to providing the access 
services associated with the Proposed Access Fees is projected to be 
$39,775, 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, New Jersey 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 Trading 
Permit 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 8% 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.\45\
---------------------------------------------------------------------------

    \45\ Id.
---------------------------------------------------------------------------

    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 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

[[Page 64262]]

be approximately $1,170,000 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 $844,741 per annum. Accordingly, on a fully-annualized 
basis, the Exchange believes its total projected revenue for 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 28% profit margin on the Proposed Access Fees 
($1,170,000 in revenue minus $844,741 in expense = $325,259 profit per 
annum). The Exchange notes that the fees charged for Trading Permits 
can vary from month to month depending on the type of interface used 
and the Non-Transaction Fees Volume-Based Tier that is achieved for 
that month. As such, the revenue projection is not a static number, 
with monthly Trading Permit 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 Equities, 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 nearly every expense 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'' \46\ profit. Of note, the Guidance defines 
``supra-competitive profit'' as profits that exceed the profits that 
can be obtained in a competitive market.\47\ With the proposed changes, 
the Exchange anticipates that its profit margin will be approximately 
28%, inclusive of the Proposed Access Fees. In order to achieve a 
consistent, premium network performance, the Exchange must build out 
and continue to maintain a network that has the capacity to handle the 
message rate requirements of not only firms that consume minimal 
Exchange connectivity resources, but also those firms that most heavily 
consume Exchange resources, network consumers, and Members that use the 
MEO and FIX interfaces, which generate billions of messages per day 
across the Exchange.\48\ Such profit margin should enable the Exchange 
to continue to invest in its network and systems, maintain its current 
infrastructure, support future enhancements to network access, and 
continue to offer enhanced customer reporting and monitoring services.
---------------------------------------------------------------------------

    \46\ See supra note 24.
    \47\ See id.
    \48\ Over the period from April 2021 until September 2021, the 
Exchange processed 3.15 billion messages via the FIX interface 
(0.43% of total messages received). Over that same time period, the 
Exchange processed 731.4 billion messages (99.57% of total messages 
received) over the MEO interface. This marked difference between the 
number of FIX and MEO messages processed, when mapped to servers, 
software, storage, and networking results in a much higher 
allocation of total capital and operational expense to support the 
MEO interface. For one, the Exchange incurs greater expense in 
maintaining the resilience of the MEO interface to ensure its 
ongoing operation in accordance with Regulation SCI. Another, the 
Exchange must purchase and expand its storage capacity to retain 
these increased messages in compliance with its record keeping 
obligations. The Exchange has also seen significant inflationary 
pressure on capital items that it needs to purchase to maintain its 
technology. The Exchange has seen pricing increases upwards of 30% 
on network equipment due to supply chain shortages.
---------------------------------------------------------------------------

    While the proposed fees are similar to or less than that of other 
options exchanges,\49\ as discussed above, the incremental increase in 
revenue generated from the 28% profit margin for trading permits will 
allow the Exchange to further invest in its system architecture and 
matching engine functionality to the benefit of all market 
participants. The revenue generated under the proposed rule change 
would also provide the Exchange with the resources necessary to further 
innovate and enhance its systems and seek additional improvements or 
functionality to offer market participants generally. The Exchange 
believes that these investments, in turn, will benefit all investors by 
encouraging other exchanges to further invest, innovate, and improve 
their own systems in response.
---------------------------------------------------------------------------

    \49\ See supra notes 26, 27 and 28.
---------------------------------------------------------------------------

    Based on the 2020 Audited Financial Statements of competing options 
exchanges (since the 2021 Audited Financial Statements will likely not 
become publicly available until early July 2022, after the Exchange has 
submitted this filing), the Exchange's revenue that is derived from its 
access fees is in line with the revenue that is derived from access 
fees of competing exchanges. For example, the total revenue from 
``access fees'' \50\ for 2020 for MIAX Pearl was $11,422,000. MIAX 
Pearl projects that the total revenue from ``access fees'' for will be 
$20,001,243, inclusive of the Proposed Access Fees described herein.
---------------------------------------------------------------------------

    \50\ As described in MIAX Pearl's Audited Financial Statements, 
fees for ``access services'' are assessed to exchange members for 
the opportunity to trade and use other related functions of the 
exchanges. See Form 1 Amendment, at https://www.sec.gov/Archives/edgar/vprr/2100/21000460.pdf.
---------------------------------------------------------------------------

    The Exchange's projected revenue from access fees is still less 
than, or similar to, the access fee revenues generated by access fees 
charged by other U.S. options exchanges. For example, the Cboe 
Exchange, Inc. (``Cboe'') reported $70,893,000 in ``access and capacity 
fee'' \51\ revenue for 2020. Cboe C2 Exchange, Inc. (``C2'') reported 
$19,016,000 in ``access and capacity fee'' revenue for 2020.\52\ Cboe 
BZX Exchange, Inc. (``BZX'') reported $38,387,000 in ``access and 
capacity

[[Page 64263]]

fee'' revenue for 2020.\53\ Cboe EDGX Exchange, Inc. (``EDGX'') 
reported $26,126,000 in ``access and capacity fee'' revenue for 
2020.\54\ Nasdaq PHLX LLC (``PHLX'') reported $20,817,000 in ``Trade 
Management Services'' revenue for 2019.\55\ The Exchange notes it is 
unable to compare ``access fee'' revenues with PHLX (or other 
affiliated NASDAQ exchanges) because after 2019, the ``Trade Management 
Services'' line item was bundled into a much larger line item in PHLX's 
Form 1, simply titled ``Market services.'' \56\
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    \51\ According to Cboe, access and capacity fees represent fees 
assessed for the opportunity to trade, including fees for trading-
related functionality. See Form 1 Amendment, at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \52\ See id.
    \53\ See id.
    \54\ See id.
    \55\ According to PHLX, ``Trade Management Services'' includes 
``a wide variety of alternatives for connectivity to and accessing 
[the PHLX] markets for a fee. These participants are charged monthly 
fees for connectivity and support in accordance with [PHLX's] 
published fee schedules.'' See Form 1 Amendment, at https://www.sec.gov/Archives/edgar/vprr/2001/20012246.pdf.
    \56\ See Form 1 Amendment, at https://www.sec.gov/Archives/edgar/vprr/2100/21000475.pdf.
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    The Exchange also believes that, based on the 2020 Audited 
Financial Statements of competing options exchanges, the Exchange's 
overall operating margin is in line with or less than the operating 
margins of competing options exchanges, including the revenue and 
expense associated with the Proposed Access Fees. For example, the 2020 
operating margin for MIAX Pearl was -18%. Based on competing exchanges' 
Form 1 Amendments, ISE's operating profit margin for 2020 was 
approximately 85%; PHLX's operating profit margin for 2020 was 
approximately 49%; NASDAQ's operating profit margin for 2020 was 
approximately 62%; Arca's operating profit margin for 2020 was 
approximately 55%; NYSE American's operating profit margin for 2020 was 
approximately 59%; Cboe's operating profit margin for 2020 was 
approximately 74%; and BZX's operating profit margin for 2020 was 
approximately 52%. ISE's operating profit margin, for all of 2019, was 
83%.\57\ ISE's equity options market share for all of 2019 was 8.99% 
\58\ while its access fees are as follows: $500 per month for 
Electronic Access Members; $5,000 per month for Primary Market Makers; 
and $2,500 per month for Competitive Market Makers.\59\ PHLX's 
operating profit margin, for all of 2019, was 67%.\60\ PHLX's equity 
options market share for all of 2019 was 15.85% \61\ while its permit 
fees are as follows: $4,000 per month for Floor Brokers; $6,000 per 
month for Floor Lead Market Makers and Floor Market Makers; and $4,000 
per month for Remote Lead Market Makers and Remote Market Makers.\62\
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    \57\ See PHLX Form 1, Exhibit D, filed June 30, 2020 available 
at https://sec.report/Document/9999999997-20-003902/.
    \58\ See https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Volume-by-Exchange.
    \59\ See Nasdaq ISE LLC Options 7 Pricing Schedule, Section 8.A. 
Access Services, at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207.
    \60\ See ISE Form 1, filed June 29, 2020 available at Form 1 - 
ISE - Final (1).pdf (sec.gov).
    \61\ See supra note 58.
    \62\ See Nasdaq PHLX Options 7 Pricing Schedule, Section 8.A. 
Permit and Registration Fees, at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207.
---------------------------------------------------------------------------

    In the Initial Proposed Fee Change,\63\ the Exchange compared 
projected profit margins to the 2019 operating profit margin of ISE and 
PHLX, which were 83% and 67% respectively. The SIG Letter \64\ 
contained the opinion that a using the overall operating profit margins 
of ISE and PHLX was an ``apple to oranges'' comparison because 2019 was 
a ``record setting year.'' \65\ The SIG Letter's argument assumes that 
because 2019 was a record setting year for options volumes, that each 
options exchange generated above average profits without provided any 
evidence to support this assumption. The Exchange sought to provide 
additional data to support a 28% profit margin based on the best, most 
recent data available. The Exchange did not provide this data to do an 
``apple-to-apples'' comparison, but rather to provide insight into the 
profit margins of other exchanges to put the projected profit margin, 
inclusive of the proposed fees, into perspective. While the Exchange 
provided a detailed analysis and disclosure of its projected profit 
margins in this proposed fee change and the Initial Proposed Fee 
Change, other exchanges are generally not required to disclose profit 
margins on a more granular, per-product/non-transaction fee basis 
within their annual Form 1 filings. The Exchange, therefore, used the 
best, most recent data available to generate percentages of other 
exchange's profit margins.
---------------------------------------------------------------------------

    \63\ See Securities Exchange Act Release No. 92366 (July 9, 
2021), 86 FR 37379 (SR-PEARL-2021-32) (``Initial Proposed Fee 
Change'').
    \64\ See letter from Richard J. McDonald, Susquehanna 
International Group, LLP (``SIG'') to Vanessa Countryman, Secretary, 
Commission, dated September 28, 2021 (``SIG Letter'').
    \65\ See id.
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    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 Access Fees are reasonable, 
equitable and not unfairly discriminatory because they are in line 
with, or cheaper than, the trading permit fees or similar membership 
fees charged by other options exchanges.\66\
---------------------------------------------------------------------------

    \66\ See supra notes 26, 27 and 28.
---------------------------------------------------------------------------

    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.
    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.\67\ Indeed, the Exchange 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.\68\ 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.\69\
---------------------------------------------------------------------------

    \67\ 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.
    \68\ 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.
    \69\ Id.

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[[Page 64264]]

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
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 fee rates are designed in order to 
provide objective criteria for users that connect via the MEO Interface 
of different sizes and business models that best matches their activity 
on the Exchange.
    The Exchange believes the removal of the Monthly Volume Credit and 
Trading Permit fee credit will not place certain market participants at 
a relative disadvantage to other market participants because, in order 
to attract order flow when the Exchange first launched operations, the 
Exchange established these credits to lower the initial fixed cost for 
Members. The Exchange now believes that it is appropriate to remove 
this credit in light of the current operating conditions, including the 
Exchange's overall membership and the current type and amount of volume 
executed on the Exchange. The Exchange believes that the Exchange's 
rebates and fees will still allow the Exchange to remain highly 
competitive such that the Exchange should continue to attract order 
flow and maintain market share.
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 become members of all options exchanges. The Exchange 
notes that it has far less Members as compared to the much greater 
number of members at other options exchanges. There are a number of 
large users that connect via the MEO Interface and broker-dealers that 
are members of other options exchange but not Members of the Exchange. 
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 
discontinue their membership with the Exchange.
    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 approximately 16% market 
share. Therefore, no exchange possesses significant pricing power in 
the execution of multiply-listed equity and ETF options order flow. 
Over the course of 2021, the Exchange's market share has fluctuated 
between approximately 3-6% of the U.S. equity options industry.\70\ The 
Exchange is not aware of any evidence that a market share of 
approximately 3-6% provides the Exchange with anti-competitive pricing 
power. 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 to remain competitive with 
other exchanges and to attract order flow to the Exchange.
---------------------------------------------------------------------------

    \70\ See ``The market at a glance'', available at 
www.miaxoptions.com (last visited October 19, 2021).
---------------------------------------------------------------------------

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

    The Exchange initially filed this proposed fee change on July 1, 
2021 and that proposal was published in the Federal Register on July 
15, 2021.\71\ The Commission received one comment letter on the Initial 
Proposed Fee Change.\72\ The Exchange withdrew Initial Proposed Fee 
Change on October 12, 2021.\73\ The Exchange now responds to the SIG 
Letter in this filing.
---------------------------------------------------------------------------

    \71\ See supra note 63.
    \72\ See supra note 64.
    \73\ See Securities Exchange Act Release No. 93346 (October 15, 
2021), 86 FR 58367 (October 21, 2021) (SR-PEARL-2021-32) (Notice of 
Withdrawal of a Proposed Rule Change to Amend the MIAX Pearl Options 
Fee Schedule to Remove Certain Credits and Increase Trading Permit 
Fees).
---------------------------------------------------------------------------

    The SIG letter cites Rule 700(b)(3) of the Commission's Rules of 
Fair Practice which places ``the burden to demonstrate that a proposed 
rule change is consistent with the Act on the self-regulatory 
organization that proposed the rule change'' and states that a ``mere 
assertion that the proposed rule change is consistent with those 
requirements . . . is not sufficient.'' \74\ The SIG Letter's assertion 
that the Exchange has not met this burden is without merit, especially 
considering the overwhelming amounts of revenue and cost information 
the Exchange included in the Initial Proposed Fee Change and this 
filing.
---------------------------------------------------------------------------

    \74\ 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

    Until recently, the Exchange has operated at a net annual loss 
since it launched operations in 2017.\75\ As stated above, 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 believes it has achieved this 
standard in this filing and also in the Initial Proposed Fee Change. A 
similar justification for the proposed fee change included in the 
Initial Proposed Fee Change, but also in this filing, was previously 
included in a similar proposed fee change filed by the Exchange's 
affiliate, MIAX Emerald, and SIG did not submit a comment letter on 
that filing.\76\ Nor was that filing suspended by the Commission and 
continues to remain in effect. The Exchange and its affiliates have 
worked diligently with Commission Staff on ensuring the justification 
included in past fee filings fully supported an assertion that those 
proposed fee changes were consistent with the Act.\77\

[[Page 64265]]

The Exchange leveraged its past work with Commission Staff to ensure 
the justification provided herein and in the Initial Proposed Fee 
Change included the same level of detail (or more) as those past 
proposed fee changes that previously survived Commission scrutiny. 
Further, as stated above, the Exchange notes that the justification and 
process included in this filing and the Initial Proposed Fee Change was 
utilized by the Exchange's affiliate, MIAX Emerald, in a filing to 
adopt Trading Permit fees for MIAX Emerald, which filing was recently 
noticed by the Commission and remains in effect.\78\ Therefore, a 
finding by the Commission that the Exchange has not met its burden to 
show that the proposed fee change is consistent with the Act would be 
different than the Commission's treatment of similar past filings, 
would create further ambiguity regarding the standards exchange fee 
changes should satisfy, and is not warranted here.
---------------------------------------------------------------------------

    \75\ The Exchange has incurred a cumulative loss of $86 million 
since its inception in 2017 to 2020, the last year for which the 
Exchange's Form 1 data is available. See Exchange's Form 1/A, 
Application for Registration or Exemption from Registration as a 
National Securities Exchange, filed July 29, 2021, available at 
https://sec.report/Document/9999999997-21-004367/.
    \76\ See Securities Exchange Act Release No. 91033 (February 1, 
2021), 86 FR 8455 (February 5, 2021) (SR-EMERALD-2021-03) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Amend Its Fee Schedule To Adopt Monthly Trading Permit Fees).
    \77\ See, e.g., Securities Exchange Act Release No. 90196 
(October 15, 2020), 85 FR 67064 (October 21, 2020) (SR-EMERALD-2020-
11) (Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend Its Fee Schedule To Adopt One-Time Membership 
Application Fees and Monthly Trading Permit Fees). See Securities 
Exchange Act Release Nos. 90601 (December 8, 2020), 85 FR 80864 
(December 14, 2020) (SR-EMERALD-2020-18) (re-filing with more detail 
added in response to Commission Staff's feedback and after 
withdrawing SR-EMERALD-2020-11); and 91033 (February 1, 2021), 86 FR 
8455 (February 5, 2021) (SR-EMERALD-2021-03) (re-filing with more 
detail added in response to Commission Staff's feedback and after 
withdrawing SR-EMERALD-2020-18). The Exchange initially filed a 
proposal to remove the cap on the number of additional Limited 
Service MEO Ports available to Members on April 9, 2021. See SR-
PEARL-2021-17 (the ``First Proposed Rule Change''). On April 22, 
2021, the Exchange withdrew the First Proposed Rule Change and 
refiled that proposal (without increasing the actual fee amounts) to 
provide further clarification regarding the Exchange's revenues, 
costs, and profitability any time more Limited Service MEO Ports 
become available, in general, (including information regarding the 
Exchange's methodology for determining the costs and revenues for 
additional Limited Service MEO Ports). See SR-PEARL-2021-20 (the 
``Second Proposed Rule Change''). On May 3, 2021, the Exchange 
withdrew the Second Proposed Rule Change and refiled that proposal 
to further clarify its cost methodology. See SR-PEARL-2021-22 (the 
``Third Proposed Rule Change''). On May 10, 2021, the Exchange 
withdrew the Third Proposed Rule Change and refiled SR-PEARL-2021-
23. See Securities Exchange Act Release No. 91858 (May 12, 2021), 86 
FR 26967 (May 18, 2021).
    \78\ See supra note 76.
---------------------------------------------------------------------------

    In addition, the arguments in the SIG Letter do not support their 
claim that the Exchange has not met its burden to show the proposed 
rule change is consistent with the Act. Prior to and after submitting 
the Initial Proposed Fee Change, the Exchange solicited feedback from 
its Members, including SIG. SIG relayed their concerns regarding the 
proposed change. The Exchange then sought to work with SIG to address 
their concerns and gain a better understanding of the access/
connectivity/quoting infrastructure of other exchanges. In response, 
SIG provided no substantive suggestions on how to amend the Initial 
Proposed to address their concerns and instead chose to submit a 
comment letter. One could argue that SIG is using the comment letter 
process not to raise legitimate regulatory concerns regarding the 
proposal, but to inhibit or delay proposed fee changes by the Exchange. 
Nonetheless, the Exchange submits the below response to the SIG Letter.
MIAX Pearl Provided More Than Sufficient Justification for the Proposed 
Fees
    The SIG Letter asserts that the Exchange provided ``no affirmative 
justifiable reason that its legacy fees are no longer sufficient.'' 
\79\ This statement assumes that the previous fees were ``sufficient'' 
and does not state how the legacy fees might have been sufficient to 
cover the Exchange's expenses. To clarify, the previous fees were not 
sufficient to cover the costs the Exchange incurred in providing access 
to the Exchange. However, the previous fees were sufficient to attract 
order flow as the pricing was set to not discourage participation on 
the Exchange. The Exchange is relatively new as it only began 
operations in 2017.\80\ Like other new exchange entrants, the Exchange 
chose to charge lower fees than other more established exchanges to 
attract order flow and increase membership.\81\ The Exchange chose that 
approach by setting the price of its Trading Permits (as well as other 
access-type fees) below market rates. SIG's statement assumes that 
exchanges should charge at market rates that are sufficient to cover 
its costs. This statement ignores pricing incentives exchanges may 
offer to attract order flow and that exchanges, like many businesses 
including SIG, may make a business decision to price certain offerings 
at a loss or ``on sale'' as they build their business. Further, a vast 
majority of the Exchange's Members, if not all, benefited from these 
lower fees.
---------------------------------------------------------------------------

    \79\ See SIG Letter at page 3, supra note 64.
    \80\ See ``Miami International Holdings Receives Approval from 
SEC to Launch MIAX PEARL; Targets February 6, 2017 Launch'' 
(December 14, 2016) available at https://www.miaxoptions.com/sites/default/files/press_release-files/MIAX_Press_Release_12142016.pdf 
(last visited October 18, 2021) (stating that the Exchange ``plans 
to launch with an initial moratorium on most non-transaction 
fees.'')
    \81\ See, e.g., ``Members Exchange Unveils Transaction Pricing'' 
(September 10, 2020), available at https://www.businesswire.com/news/home/20200910005183/en/Members-Exchange-Unveils-Transaction-Pricing (last visited October 18, 2021) (quoting Jonathan Kellner, 
CEO of Members Exchange, ``[t]o further incentivize participants to 
connect to a new destination, we are implementing initial pricing 
that generates a net loss for the exchange on each transaction. We 
are confident that as participants experience the benefits of our 
platform, they will continue to incorporate MEMX in their routing 
strategies.''); and ``Miami International Holdings Announces Fully 
Subscribed Strategic Equity Rights Transaction with Leading Equities 
Firms to Trade on MIAX PEARL Equities Trading to Begin September 25, 
2020'' available at https://www.miaxoptions.com/sites/default/files/press_release-files/Press_Release_09142020.pdf (last visited October 
18, 2021) (quoting Douglas M. Schafer, Jr., Executive Vice President 
and Chief Information Officer of MIH, MIAX PEARL Equities, ``[w]e 
are excited to be offering a simpler, transparent, low cost venue to 
market participants and have no doubt that MIAX PEARL Equities will 
become a competitive alternative venue following our launch on 
September 25th.'')
---------------------------------------------------------------------------

    As a new entrant in the market, the Exchange chose to forgo any 
potential additional revenue that may have been generated by higher 
Trading Permit fees to encourage participation on the new platform. 
This served to attract participation on the Exchange so market 
participants could evaluate the Exchange's quality, technology and the 
quality of their overall customer/user experience. Setting higher rates 
for non-transaction fees could have served to dissuade market 
participants from trading on the Exchange and not experiencing the high 
quality technological system the Exchange built.
    Nonetheless, the Exchange provided significant cost based 
justification for the proposed fees not only in this filing, but also 
in the Initial Proposed Fee Change. The SIG Letter conveniently ignores 
this fact. In fact, the level of disclosure by the Exchange provided in 
this filing and the Initial Proposed Fee Change has been worked on with 
Commission Staff over numerous past filings that have been published 
for comment and remain effect.\82\ The Exchange's detailed disclosures 
in fee filings have also been applauded by one industry group which 
noted, ``[the Exchange's] filings contain significantly greater 
information about who is impacted and how than other filings that have 
been permitted to take effect without suspension.'' \83\ That same 
commenter also noted their ``worry that the Commission's process for 
reviewing and evaluating exchange filings may be inconsistently 
applied.'' \84\
---------------------------------------------------------------------------

    \82\ See supra note 77.
    \83\ See letter from Tyler Gellasch, Executive Director, Healthy 
Markets Association, to Hon. Gary Gensler, Chair, Commission, dated 
October 29, 2021.
    \84\ Id. (providing examples where non-transaction fee filings 
by other exchanges have been permitted to remain effective and not 
suspended by the Commission despite less disclosure and 
justification).
---------------------------------------------------------------------------

    The Exchange believes the proposed fees will allow the Exchange to 
offset expenses the Exchange has and will incur, and that the Exchange 
provided sufficient transparency into how the Exchange determined to 
charge such fees. Accordingly, the Exchange provided an analysis of its 
revenues, costs, and profitability associated with

[[Page 64266]]

the proposed fees. This analysis included information regarding its 
methodology for determining the costs and revenues associated with the 
proposal.
    To determine the Exchange's costs to provide the access services 
associated with the proposed fees, the Exchange conducted an extensive 
cost review in which the Exchange analyzed nearly every expense item in 
the Exchange's general expense ledger to determine whether each such 
expense relates to the proposed 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 fees.
    Furthermore, the Exchange is beginning to see significant 
inflationary pressure on capital items that it needs to purchase to 
maintain the Exchange's technology and systems.\85\ The Exchange has 
seen pricing increases upwards of 30% on network equipment due to 
supply chain shortages. This, in turn, results in higher overall costs 
for ongoing system maintenance, but also to purchase the items 
necessary to ensure ongoing system resiliency, performance, and 
determinism. These costs are expected to continue to go up as the U.S. 
economy continues to struggle with supply chain and inflation related 
issues.
---------------------------------------------------------------------------

    \85\ See ``Supply chain chaos is already hitting global growth. 
And it's about to get worse'', by Holly Ellyatt, CNBC, available at 
https://www.cnbc.com/2021/10/18/supply-chain-chaos-is-hitting-global-growth-and-could-get-worse.html (October 18, 2021); and 
``There will be things that people can't get, at Christmas, White 
House warns'' by Jarrett Renshaw and Trevor Hunnicutt, Reuters, 
available at https://www.reuters.com/world/us/americans-may-not-get-some-christmas-treats-white-house-officials-warn-2021-10-12/ 
(October 12, 2021).
---------------------------------------------------------------------------

The Proposed Fee Increases Are Not Part of a Discriminatory Fee 
Structure and Tiered Fee Structures Are Commonplace Amongst Exchanges
    The SIG Letter correctly notes that the proposed Trading Permit 
fees are higher for Members who connect through the MEO Interface than 
for Members who connect through the FIX Interface. Members who use the 
MEO Interface may also connect to the System through the FIX Interface 
as well, and vice versa. The Exchange notes that the Trading Permit 
fees for Members who connect through the MEO Interface are higher than 
the Trading Permit fees for Members who connect through the FIX 
Interface, since the FIX Interface utilizes less capacity and resources 
of the Exchange. The MEO Interface offers lower latency and higher 
throughput, which utilizes greater capacity and resources of the 
Exchange. The FIX Interface offers lower bandwidth requirements and an 
industry-wide uniform message format. Both EEMs and Market Makers may 
connect to the Exchange using either interface.
    The SIG Letter asserts that the Exchange ``provides no description 
of the `capacity and resources' being utilized, and no information on 
the nature or extent of the disparity in such utilization between the 
two Interface types.'' As a MEO user, SIG is uniquely positioned to 
understand and appreciate the differences between the MEO and FIX 
interfaces and why rates for the MEO interface are justifiably higher. 
Nonetheless, the Exchange is providing the below additional data to 
address the statements made in the SIG Letter.
    Orders on the Exchange are supplied by Members via two different 
interfaces, FIX and MEO. MEO is the Exchange's proprietary binary order 
interface. Over the period from April 2021 until September 2021, 3.15 
billion messages were processed via the FIX interface (0.43% of total 
messages received). Over that same time period, 731.4 billion messages 
(99.57% of total messages received) were processed over the MEO 
interface. Also, the MEO interface allows for mass purging of orders 
which has a significant impact on the number of messages processed. 
This marked difference between the number of FIX and MEO messages 
processed, when mapped to servers, software, storage, and networking 
results in a much higher allocation of total capital and operational 
expense to support the MEO interface. For one, the Exchange incurs 
greater expense in maintaining the resilience of the MEO interface to 
ensure its ongoing operation in accordance with Regulation SCI. 
Another, the Exchange must purchase and expand its storage capacity to 
retain these increased messages in compliance with its record keeping 
obligations. As noted above, the Exchange has seen significant 
inflationary pressure on capital items that it needs to purchase to 
maintain its technology.\86\ The Exchange has seen pricing increases 
upwards of 30% on network equipment due to supply chain shortages.
---------------------------------------------------------------------------

    \86\ See id.
---------------------------------------------------------------------------

    SIG is also uniquely positioned to know that the fee structure 
utilized by the Exchange, which charges different Trading Permit fees 
for MEO interface users than FIX interface users is not a new proposal. 
In fact, it was first adopted by the Exchange over 3\1/2\ years ago in 
March 2018, published by the Commission and received no comment 
letters, not even by SIG.\87\ SIG claims a fee structure that they have 
been subject to for years as an MEO interface user is just now unfairly 
discriminatory.
---------------------------------------------------------------------------

    \87\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
---------------------------------------------------------------------------

The Proposed Fees Are in Line With, or Cheaper Than, the Trading Permit 
Fees or Similar Membership/Access Fees Charged by Other Options 
Exchanges
    The Exchange correctly asserts herein and in the Initial Proposed 
Fee Change that it's proposed Trading Permit fees ``are in line with, 
or cheaper than, the trading permit fees or similar membership fees 
charged by other options exchanges.'' The SIG letter challenges this 
assertion is an ``apples to oranges'' comparison because NYSE American 
and NYSE Arca based their rates on the number of options issued to the 
member and not trading volume, like the exchange does. In fact, the 
number of options traded by a member of NYSE American or NYSE Arca is 
an appropriate proxy for trading volume as the more options issued to 
the member would result in higher volumes traded by that member. Firms 
that trade more liquid options generate increased message traffic and 
greater pull on exchange resources. Therefore, comparing options traded 
to trading volume is an ``apples to apples'' comparison.
    The Exchange proposes a range of fees from $500 to $6,000 per month 
depending on trading volume and the type of interface that is utilized 
by the Member. These rates are undoubtedly similar to or lower than the 
rates charged by NYSE Arca and NYSE American. As of October 14, 2021, 
the Exchange maintained a market share of approximately 3.95%.\88\ 
Among Exchanges with similar market share, the Exchange's proposed 
Trading Permit Fees remain similar to or lower than fees charged by 
other options exchanges with comparable market share for access/
membership fees.\89\ The

[[Page 64267]]

proposed rates are also lower than those of its affiliates, MIAX and 
Emerald, which remain in effect today.\90\
---------------------------------------------------------------------------

    \88\ See ``The Market at a Glance'' available at https://www.miaxoptions.com/ (last visited October 4, 2021).
    \89\ See supra notes 26, 27 and 28 and accompanying text. The 
below market share numbers are as of October 14, 2021. Id. C2 had a 
market share of 4.44% and charges a monthly Access Fee of $5,000 for 
market makers and $1,000 per month for an additional Electronic 
Access Permit regardless of trading volume or options traded. See 
the C2 fee schedule available at https://www.cboe.com/us/options/membership/fee_schedule/ctwo/ (last visited October 14, 2021). ISE 
had a market share of 6.74% and charges a monthly Access Fee to 
Primary Market Makers of $5,000 and Competitive Market Maker of 
$2,500 regardless of trading volume or options traded. See Section 
8.A. of the ISE fee schedule available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207 (last 
visited October 14, 2021).
    \90\ See Section 3)b) of the MIAX fee schedule available at 
https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_10142021.pdf, and Section 3)b) of the 
Emerald fee schedule available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_10142021.pdf (both charging monthly 
trading permit fees ranging from $7,000 to $22,000).
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    The SIG Letter states that ``[the Exchange] offers no information 
about the capacity and resource costs of access to the other exchanges 
or any other basis to support the reasonability of those fees, let 
alone compare such costs to those of MIAX Pearl.'' \91\ This statement 
is misleading as SIG should be aware that the Exchange does not have 
access to this information and when it asked SIG to assist the Exchange 
in better understanding the access structure of other exchanges, SIG 
refused.
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    \91\ See SIG Letter at page 5, supra note 64.
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    The SIG Letter further asserts that the Exchange ``has not 
established that the other exchange fees are reasonable, nor that this 
would mean that the MIAX Pearl fees are reasonable as well.\92\ SIG 
should be aware that it is not the Exchange's obligation to justify why 
another exchange's fees are reasonable and it is presumed that such 
fees were deemed reasonable by the Commission when filed by the 
exchange that proposed said fee. If SIG felt another exchange's fees 
were or are unreasonable, they are free to share that concern with the 
Commission and were provided an opportunity to submit comment letter on 
those earlier proposals from other exchanges. It is the Exchange's 
responsibility to show that its own proposed fee change is reasonable 
and consistent with the Act, and that assertion is amply supported by 
the statements made in this Item 5 and elsewhere herein.
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    \92\ See id.
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The Proposed Fees Are Consistent With Section 6(b)(4) of the Act 
Because the Proposed Fees Will Not Result in Excessive Pricing or 
Supra-Competitive Profit
    In the Initial Proposed Fee Change, the Exchange provided data that 
the proposed fee change would not result in excessive pricing or a 
supra-competitive profit. The Exchange outlined its projected revenues 
and expense related to the proposed fee change and estimated it would 
generate a 28% profit margin. The Exchange then compared its projected 
profit margin to the 2019 operating profit margin of ISE and PHLX, 
which were 83% and 67% respectively. SIG opined that a using the 
overall operating profit margins of ISE and PHLX is an ``apple-to-
oranges'' comparison because 2019 was ``record setting year.'' \93\ SIG 
assumes that because 2019 was a record setting year for options 
volumes, that each options exchange generated above average profits 
without provided any evidence to support this assumption. Data for 2019 
was the most recent data available at the time the Exchange filed the 
Initial Proposed Fee Change on July 1, 2021. Since that time, data for 
2020 became available and the Exchange discusses that data for numerous 
other options exchanges under Section 3.b. above in this proposed fee 
change.\94\
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    \93\ See SIG Letter at page 6, supra note 64.
    \94\ See supra notes 50 to 62 and accompanying text.
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    The Exchange sought to provide additional data to support a 28% 
profit margin based on the best, most recent data available. It did not 
provide this data to do an ``apple-to-apples'' comparison, but rather 
to provide insight into the profit margins of other exchanges to put 
the projected profit margin here into perspective. While the Exchange 
provided a detailed analysis and disclosure of its projected profit 
margins in this proposed fee change and the Initial Proposed Fee 
Change, other exchanges are generally not required to disclose profit 
margins on a more granular, per-product/non-transaction fee basis 
within their annual Form 1 filings. The Exchange, therefore, used the 
best, most recent data available to generate percentages of other 
exchange's profit margins. SIG has access to the same public data as 
the Exchange used in making the above projections regarding ISE and 
PHLX and is free to generate its own assumptions on that data if it 
believes the Exchange's calculations are wrong or misguided.
    SIG also challenges the Exchange's methodology in determining its 
projected revenues and allocation of internal and third party expenses 
related to the proposed fee change. As stated above, the Exchange and 
its affiliates have worked diligently with Commission Staff on ensuring 
the justification included in past fee filings fully supported an 
assertion that those proposed fee changes were consistent with the 
Act.\95\ This work with Commission Staff included thorough reviews of 
the Exchange's projected revenues and assignment of internal and third 
party expenses. The SIG Letter simply seeks to ignore the vast amount 
of disclosure the Exchange provided and kick up some sand in the hopes 
that raising questions about the analysis with no support on whether 
the answers to those questions would cause the proposed fee change to 
be excessive or result in supra-competitive pricing.
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    \95\ See supra note 77.
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The Proposed Fee Change Is Reasonable, Equitably Allocated and Not 
Unfairly Discriminatory Because the Exchange, and Its Affiliates, Are 
Still Recouping Their Initial Expenditures
    The Exchange asserts above that 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 SIG Letter states 
that ``[t]he Exchange, however, draws no link between the recoupment of 
capital outlays with the reasonability, equitable allocation, and lack 
of unfair discriminatory nature of the proposed fees.'' \96\ As stated 
above, the Exchange and its affiliates have worked diligently with 
Commission Staff on ensuring the justification included in past fee 
filings fully supported an assertion that those proposed fee changes 
were consistent with the Act.\97\ The Exchange leveraged its past work 
with Commission Staff to ensure the justification provided herein and 
in the Initial Proposed Fee Change included the same level of detail as 
those past proposed fee changes that previously survived Commission 
scrutiny. Asserting that the 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 is one of many justifications for the proposed fees 
and not a cornerstone of the Exchange's proposal.
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    \96\ See SIG Letter at page 6, supra note 64.
    \97\ See supra note 77.
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    As stated above, until recently, the Exchange has operated at a net 
annual loss since it launched operations in 2017.\98\ This is a result 
of providing a low cost alternative to attract order flow and encourage 
market participants to experience the determinism and resiliency of the 
Exchange's trading systems. To do so, the Exchange chose to offer some 
non-transaction related services for no or little cost. This resulted 
in the Exchange forgoing revenue it could have generated from assessing 
higher fees and then use that revenue to more quickly recover its

[[Page 64268]]

initial capital expenditures. Further, a vast majority of the 
Exchange's Members, if not all, benefited from these lower fees. The 
Exchange could have sought to charge higher fees at the outset, but 
that could have served to discourage participation on the Exchange. 
Instead, the Exchange chose to provide a low cost exchange alternative 
to the options industry which resulted in lower initial revenues and 
extending the duration during which it would recoup its initial capital 
expenditures. The SIG Letter choses to ignore this reality and instead 
criticize the Exchange for initially charging lower fees or providing a 
moratorium on certain non-transaction fees to the benefit of all market 
participants. The Exchange is now trying to amend its fee structure to 
enable it to continue to maintain and improve its overall market and 
systems while also providing a highly reliable and deterministic 
trading system to the marketplace.
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    \98\ See supra note 75.
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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,\99\ and Rule 19b-4(f)(2) \100\ 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.
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    \99\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \100\ 17 CFR 240.19b-4(f)(2).
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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 sec.gov">rule-comments@sec.gov. Please include 
File Number SR-PEARL-2021-54 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-2021-54. 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 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-2021-54 and should be submitted on 
or before December 8, 2021.
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    \101\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\101\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25019 Filed 11-16-21; 8:45 am]
BILLING CODE 8011-01-P