[Federal Register Volume 86, Number 226 (Monday, November 29, 2021)]
[Notices]
[Pages 67750-67755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25883]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93644; File No. SR-EMERALD-2021-29]


Self-Regulatory Organizations; MIAX Emerald, LLC; Suspension of 
and Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove Proposed Rule Change To Amend the Exchange's Fee Schedule To 
Adopt a Tiered-Pricing Structure for Certain Connectivity Fees

November 22, 2021.

I. Introduction

    On September 24, 2021, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change (File Number SR-EMERALD-2021-29) 
to amend the Exchange's Fee Schedule (``Fee Schedule'') to adopt a 
tiered pricing structure for certain connectivity fees. The proposed 
rule change was immediately effective upon filing with the Commission 
pursuant to Section 19(b)(3)(A) of the Act.\3\ The proposed rule change 
was published for comment in the Federal Register on October 4, 
2021.\4\ Under Section 19(b)(3)(C) of the Act,\5\ the Commission is 
hereby: (i) Temporarily suspending File Number SR-EMERALD-2021-29; and 
(ii) instituting proceedings to determine whether to approve or 
disapprove File Number SR-EMERALD-2021-29.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take 
effect upon filing with the Commission if it is designated by the 
exchange as ``establishing or changing a due, fee, or other charge 
imposed by the self-regulatory organization on any person, whether 
or not the person is a member of the self-regulatory organization.'' 
15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ See Securities Exchange Act Release No. 93166 (September 28, 
2021), 86 FR 54760 (``Notice''). Comments received on the proposed 
rule change are available on the Commission's website at: https://www.sec.gov/comments/sr-emerald-2021-29/sremerald202129.htm.
    \5\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change

    MIAX Emerald proposes to modify the Exchange's Fee Schedule to 
adopt a tiered-pricing structure for 10 gigabit (``Gb'') ultra-low 
latency (``ULL'') fiber connections to the Exchange's primary and 
secondary facilities available to both Members \6\ and non-Members. 
Specifically, the Exchange proposes to modify the pricing structure for 
10Gb ULL connections from a flat monthly fee of $10,000 per 10Gb ULL 
connection to the following fees (collectively, the ``Proposed Access 
Fees''): \7\
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    \6\ 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 the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \7\ The Exchange initially filed the proposed fee change on July 
30, 2021. See Securities Exchange Act Release No. 92645 (August 11, 
2021), 86 FR 46048 (August 17, 2021) (SR-EMERALD-2021-23). That 
filing was withdrawn by the Exchange and replaced with the instant 
filing, with additional information.
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     $9,000 each for the 1st and 2nd connections;
     $11,000 each for the 3rd and 4th connections; and
     $13,000 for each additional connection after the 4th 
connection.
    These fees are assessed in any month the Member or non-Member is 
credentialed to use any of the Exchange's APIs or market data feeds in 
the Exchange's production environment, pro-rated when a Member or non-
Member makes a change to connectivity by adding or deleting 
connections, and assessed in any month during which the Member or non-
Member has established connectivity with the Exchange's disaster 
recovery facility.\8\
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    \8\ See Notice, supra note 4, at 54761.
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III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\9\ at any time within 
60 days of the date of filing of an immediately effective proposed rule 
change pursuant to Section 19(b)(1) of the Act,\10\ the Commission 
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. As discussed below, the Commission believes a temporary 
suspension of the proposed rule change is necessary and appropriate to 
allow for additional analysis of the proposed rule change's consistency 
with the Act and the rules thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(C).
    \10\ 15 U.S.C. 78s(b)(1).
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    The Exchange states that the tiered-pricing structure is 
reasonable, equitably allocated, and not unfairly discriminatory 
because it will encourage Members and non-Members to be more efficient 
and economical when determining how to connect to the Exchange, and 
also enable the Exchange to better monitor and provide access to the 
Exchange's network to ensure sufficient capacity and headroom in the 
System.\11\ The Exchange also states that the majority of Members and 
non-Members that purchase 10Gb ULL connections will either save money 
or pay the same amount after the tiered-pricing structure is 
implemented.\12\ The Exchange further states that firms that primarily 
route orders for best executions generally only need a limited number 
of connections to fulfill that obligation and connectivity costs will

[[Page 67751]]

likely to be lower for these firms, while for firms that engaged in 
advanced trading strategies that typically require multiple connections 
will generate higher costs by utilizing more of the Exchange's 
resources.\13\
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    \11\ See Notice, supra note 4, at 54761. The term ``System'' 
means the automated trading system used by the Exchange for the 
trading of securities. See Exchange Rule 100.
    \12\ See Notice, supra note 4, at 54761, 54769. The Exchange 
states that it initially filed this proposed fee change on July 30, 
2021 (SR-EMERALD-2021-23) and, after the effective date of SR-
EMERALD-2021-23 on August 1, 2021, approximately 60% of the firms 
that purchased at least one 10Gb ULL connection experienced a 
decrease in their monthly connectivity fees, while approximately 40% 
of firms experienced an increase in their monthly connectivity fees 
as a result of the proposed tiered-pricing structure when compared 
to the flat monthly fee structure. See id. at 54761. The Exchange 
also states that no Member or non-Member has altered its use of 10Gb 
ULL connectivity since the proposed fees went into effect on August 
1, 2021. See id. at 54768.
    \13\ See id. at 54762.
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    In further support of the proposed fee changes, the Exchange argues 
principally that the fees for 10Gb ULL connections are constrained by 
competitive forces, and that this is supported by its revenue and cost 
analysis. The Exchange states 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 and the 
Exchange must continually adjust its fees for services and products, 
and in addition to order flow, to remain competitive with other 
exchanges.\14\ The Exchange states that it is not aware of any evidence 
that a market share of approximately 5-6% provides the Exchange with 
anti-competitive pricing power, and that market participants may look 
to connect to the Exchange via cheaper alternatives or choose to 
disconnect from the Exchange or reduce the number of connections to the 
Exchange as a means to reduce costs.\15\ The Exchange states that 
market participants can and do drop their access to exchanges based on 
non-transaction fee pricing.\16\ The Exchange also states that there is 
no regulatory requirement that any market participant connect to any 
one options exchange, or connect at a particular connection speed or 
act in a particular capacity on the Exchange, and that the Exchange is 
unaware of any one options exchange whose membership includes all 
registered broker-dealers.\17\
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    \14\ See id. at 54761.
    \15\ See id. at 54763. The Exchange also notes that non-Member 
third-parties, such as service bureaus and extranets, resell the 
Exchange's connectivity, which is another viable alternative for 
market participants to trade on the Exchange. The Exchange notes 
that it receives no connectivity revenue when connectivity is 
resold, which the Exchange believes creates and fosters a 
competitive environment and subjects the Exchange to competitive 
forces in pricing its connectivity and access fees. See id. at 
54769.
    \16\ See id. at 54763.
    \17\ See id. at 54768.
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    The Exchange also states that the proposed fees are reasonable and 
appropriate to allow the Exchange to offset expenses the Exchange has 
and will incur in relation to providing the Proposed Access Fees and 
provides an analysis of its revenues, costs, and profitability 
associated with these fees.\18\ The Exchange states that this analysis 
reflects an extensive cost review in which the Exchange analyzed every 
expense item in the Exchange's general expense ledger to determine 
whether each such expense relates to the Proposed Access Fees, and, if 
such expense did so relate, what portion (or percentage) of such 
expense actually supports the access services.\19\ The Exchange states 
that this analysis shows the fee increase will not result in excessive 
pricing or supra-competitive profits when compared to the Exchange's 
annual expense associated with providing the 10Gb ULL connections 
versus the annual revenue for the 10Gb ULL connections.\20\
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    \18\ See id. at 54764-67.
    \19\ See id. at 54762. The Exchange also states that no expense 
amount is allocated twice and the expenses only cover the Exchange 
and not its affiliates. Id. at 54762, 54764. 54766.
    \20\ See id. at 54767.
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    The Exchange states that, for 2021, the total annual expense for 
providing the access services associated with the Proposed Access Fees 
for the Exchange is projected to be approximately $7.2 million.\21\ The 
$7.2 million in projected total annual expense is comprised of the 
following, all of which the Exchange states 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. The Exchange states that the 
$7.2 million 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.
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    \21\ See id. at 54764.
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    The Exchange states that the 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 $1.7 
million for 2021.\22\ The Exchange represents that it determined 
whether third-party expenses related to the access services associated 
with the Proposed Access Fees, and, if such expense did so relate, 
determined what portion (or percentage) of such expense represents the 
cost to the Exchange to provide access services associated with the 
Proposed Access Fees. This includes allocating a portion of fees paid 
to: (1) Equinix, for data center services (approximately 62% of the 
Exchange's total applicable Equinix expense); (2) Zayo Group Holdings, 
Inc. for network services (approximately 62%); (3) Secure Financial 
Transaction Infrastructure and various other services providers 
(approximately 89%); \23\ and (4) various other hardware and software 
providers (approximately 51%).
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    \22\ See id. at 54764-65.
    \23\ The Exchange states that on October 22, 2019, the Exchange 
was notified by Secure Financial Transaction Infrastructure that it 
was raising its fees charged to the Exchange by approximately 11%, 
without being required to make a rule filing with the Commission 
pursuant to Section 19(b)(1) of the Act and Rule 19b-4 thereunder. 
See id. at 54764 n.29; see also 15 U.S.C. 78s(b)(1) and 17 CFR 
240.19b-4.
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    In addition, the Exchange states that the total 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 
approximately $5.5 million for 2021.\24\ The Exchange represents that: 
(1) The Exchange's employee compensation and benefits expense relating 
to providing the access services associated with the Proposed Access 
Fees is projected to be approximately $3.2 million, which is a portion 
of the Exchange's total projected expense of approximately $9.7 million 
for employee compensation and benefits; (2) the Exchange's depreciation 
and amortization expense relating to providing the access services 
associated with the Proposed Access Fees is projected to be $2 million, 
which is a portion of the Exchange's total projected expense of $3.1 
million for depreciation and amortization; and (3) the Exchange's 
occupancy expense relating to providing the access services associated 
with the Proposed Access Fees is projected to be $0.3 million, which is 
a portion of the Exchange's total projected expense of $0.5 million for 
occupancy.
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    \24\ See Notice, supra note 4, at 54765-66.
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    The Exchange states that this cost and revenue analysis shows that 
the proposed rule change will not result in excessive pricing or supra-
competitive profit.\25\ The Exchange projects that, on a fully-
annualized basis, the Proposed Access Fees will have an expense of 
approximately $7.2 million per annum and a projected revenue of $14.6 
million per year, and including projected revenue for providing network 
connectivity for all connectivity alternatives to be approximately 
$14.63 million per annum, resulting in a projected profit margin of 51% 
inclusive of the Proposed Access Fees and all other connectivity 
alternatives ($14.63 million in total projected connectivity revenue 
minus $7.2 million in projected expense = $7.43 million profit per 
year). The Exchange states that this profit margin does not take into 
account the cost of capital expenditures that the

[[Page 67752]]

Exchange historically spent or are projected to spend each year going 
forward.
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    \25\ See id. at 54767.
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    The Exchange states that the proposed fees for 10Gb ULL connections 
is equitable and reasonable because the proposed highest tier is still 
less than fees charged for similar connectivity provided by other 
options exchanges.\26\ The Exchange also states that its projected 
revenue from access fees is less than, or similar to, the access fee 
revenues generated by access fees charged by other U.S. options 
exchanges based on the 2020 audited financial statements within their 
Form 1 filings.\27\ The Exchange also believes that its 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.\28\ The Exchange states that 
this incremental increase in revenue generated from the 30% profit 
margin on connectivity will allow the Exchange to further invest in its 
system architecture and matching engine functionality to the benefit of 
all market participants.\29\
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    \26\ See id. at 54763. The Exchange notes that higher 
connectivity fees for competing exchanges have been in place for 
years (over 8 years in some cases), which allowed these exchanges to 
derive significantly more revenue from their access fees. See id. 
The Exchange states that the Exchange and its affiliates have 
historically set their fees purposefully low in order to attract 
business and market share, and that it benefits overall competition 
in the marketplace to allow relatively new entrants like the 
Exchange and its affiliates to proposed fees that may help these new 
entrants recoup their substantial investment in building out costly 
infrastructure. See id. at 54768.
    \27\ See id. at 54767-68.
    \28\ See id. at 54768.
    \29\ See id. at 54767.
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    The Exchange states that the proposed fees are equitably allocated, 
not unfairly discriminatory, and do not impose an unnecessary or 
inappropriate burden on competition because the Proposed Access Fees do 
not favor certain categories of market participants in a manner that 
would impose a burden on competition because the allocation reflects 
the network resources consumed by the various usage of market 
participants, with the lowest bandwidth consuming members paying the 
least, and highest bandwidth consuming members paying the most, 
particularly since higher bandwidth consumption translates to higher 
costs to the Exchange; \30\ options market participants are not forced 
to connect to all options exchanges; \31\ and options market 
participants may choose alternative methods of connecting to the 
Exchange, including routing through another participant or market 
center accessing the Exchange indirectly.\32\
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    \30\ See id. at 54769.
    \31\ See id.
    \32\ See id.
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    The Commission received two comment letters from one commenter that 
opposes the proposed rule change.\33\ This commenter states that the 
Exchange has not sufficiently demonstrated its proposed fees' 
consistency with the Act or addressed previous concerns with the 
proposed fees raised by the same commenter.\34\ Specifically, this 
commenter argues that there are no reasonable substitutes for the 
Exchange's 10Gb ULL connectivity lines, particularly for market makers 
whose business models require them to subscribe to direct connectivity 
to the Exchange in the highest proposed pricing tier.\35\ The commenter 
further argues that the fact that no member or non-member has altered 
its use of 10Gb ULL connectivity since the fee changes went into effect 
serves as further support of its claim that there are no reasonable 
alternatives to the service.\36\ This commenter also argues that the 
ability for a member to withdraw from an exchange should not support 
the reasonableness of any individual proposed fee, as a member would 
incur significant costs in withdrawing from an exchange in the form of 
lost infrastructure investments, the cost of withdrawal itself, and 
other opportunity costs.\37\ This commenter further objects that the 
Exchange has not provided sufficient quantitative support for its 
revenues, costs, and profitability under the current and proposed fees 
to support an analysis that the proposed fees and the Exchange's 
profitability are reasonable.\38\ Moreover, the commenter argues that 
the Exchange's comparison of its projected access fee profit margins to 
the overall profit margins of competing exchanges is insufficient as it 
does not appropriately compare the individual components of these other 
exchange fees to those of the Exchange.\39\ The commenter also suggests 
that any comparisons made by the Exchange to the revenues and margins 
of other exchanges are inapt because they do not account for the 
circumstances under which other exchanges established their fees, 
including, for example, whether the services are equivalent or the 
costs to provide them are similar.\40\ Finally, this commenter claims 
that the proposed tiers in the new fee structure are unfairly 
discriminatory because the Exchange has not provided any cost breakdown 
to support the claim that the use of multiple connections creates 
higher costs for the Exchange.\41\ Instead, the commenter argues that 
market participants who purchase more units of 10Gb ULL connections use 
more exchange bandwidth simply due to the fact that they have purchased 
more units, and that this does not justify the proposal to charge a 
higher rate per unit, which the commenter claims is unfairly 
discriminatory towards market maker subscribers.\42\
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    \33\ See letters from Richard J. McDonald, Susquehanna 
International Group, LLP, to Vanessa Countryman, Secretary, 
Commission, dated October 1, 2021 (``First SIG Letter'') and October 
26, 2021 (``Second SIG Letter'').
    \34\ See Second SIG Letter, supra note 33, at 2. In the First 
SIG Letter the commenter requested that the Commission suspend the 
proposal and institute proceedings to determine whether to approve 
or disapprove the proposal on the basis that the proposal represents 
the same fee changes previously proposed by the Exchange for which 
the commenter expressed concerns. See also letter from Richard J. 
McDonald, Susquehanna International Group, LLP, to Vanessa 
Countryman, Secretary, Commission, dated September 7, 2021, 
available at https://www.sec.gov/comments/sr-miax-2021-35/srmiax202135-9208444-249989.pdf (comment letter submitted to File 
Nos. SR-MIAX-2021-35, SR-MIAX-2021-37, SR-PEARL-2021-33, SR-PEARL-
2021-36, SR-EMERALD-2021-23, and SR-EMERALD-2021-25, and expressing 
similar concerns to those described herein).
    \35\ See Second SIG Letter, supra note 33, at 2-3.
    \36\ See id. at 3.
    \37\ See id.
    \38\ See id. at 4. The commenter further argues that the 
Exchange has not sufficiently justified the profit margins they 
would be accruing with the proposed fees by, for example, explaining 
specific technological undertakings the Exchange expects to fund 
with the revenue from the new fees. See id.
    \39\ See id. at 4-5.
    \40\ See id.
    \41\ See id. at 5.
    \42\ See id. at 6.
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    Another commenter opposing the proposed rule change states that the 
Exchange has not met its burden of demonstrating that the proposed fees 
are consistent with the standards under the Act.\43\ This commenter 
states that the Exchange's argument that competition for order flow 
constrains pricing for products and services exclusively offered by the 
Exchange does not demonstrate that the fees are reasonable.\44\ This 
commenter also disagrees with the Exchange's statement that it must 
continually adjust the fees for these services as a result of 
competition from other markets, arguing that this does not reflect 
marketplace reality.\45\ This commenter also states

[[Page 67753]]

that the Exchange has failed to demonstrate that the proposed fees are 
equitably allocated and not unfairly discriminatory, claiming that the 
proposed fee changes directly impact market makers and the burden of 
the fee increases fall predominantly on market makers operating on the 
Exchange because 10Gb ULL connections are an essential technology tool 
for market makers.\46\ The commenter states that the Exchange offers no 
concrete support for its arguments that the tiered pricing structure 
would encourage firms to be more economical and efficient in the number 
of connections they purchase, allowing the Exchange to better monitor 
and provide access to its network to ensure that it has sufficient 
capacity and headroom in its system.\47\ This commenter also states 
that the Exchange provides no support for its position that the use of 
multiple 10Gb ULL connections generates higher costs for the Exchange, 
positing that it is likely the Exchange has fixed costs associated with 
providing connections and any additional connections purchased by users 
will result in greater Exchange profits.\48\ The commenter also states 
that the Exchange has provided no public information on how it derived 
the cost amounts it determined to allocate to the products and services 
subject to the proposed fee changes nor any meaningful baseline 
information regarding the Exchange's overall costs.\49\ This commenter 
believes that the Exchange has withdrawn and refiled an essentially 
identical proposal,\50\ subverting proper consideration of the proposed 
fee changes under the process set forth in the Act.\51\
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    \43\ See letter from Ellen Green, Managing Director, Equity and 
Options Market Structure, Securities Industry and Financial Markets 
Association, to Vanessa Countryman, Secretary, Commission, dated 
November 16, 2021 (``SIFMA Letter'').
    \44\ See id. at 3. This commenter asserts that the proposals are 
similar to proprietary market data products offered by the Exchange, 
which the commenter states are unique to the Exchange and market 
participants cannot obtain anywhere else. Id.
    \45\ See id. at 4.
    \46\ See id. at 4-5. The commenter asserts that without high 
speed access provided through 10Gb ULL connections, market makers 
could be exposed to tremendous risk if their quotes become ``stale'' 
due to price movements in underlying securities. See id. at 4.
    \47\ See id. at 4. The commenter also states that the Exchange 
fails to provide any discussion of why its current capacity needs 
are constrained under the current pricing structure.
    \48\ See id. at 5.
    \49\ See id. The commenter believes that such information is 
needed to allow commenters to judge whether the allocations are 
supportable. Id. This commenter also believes that the Exchange's 
discussion of profit margins are ``high-level and conclusory,'' and 
fail to provide sufficient detail to understand whether or not the 
fees are reasonable. Id.
    \50\ See supra note 7.
    \51\ See SIFMA Letter, supra note 43, at 5-6.
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    A different commenter, while not expressing support or opposition 
for the specific proposed fee changes, applauds the Exchange for the 
enhanced disclosure it has provided with respect to its proposed fee 
changes as compared to the information in prior rule filings by other 
exchanges proposing similar types of market data or connectivity 
fees.\52\ This commenter states that the proposed fee changes would 
``materially lower costs for many users, while increasing the costs for 
some of [the Exchange's] heaviest of users,'' noting that when these 
fee filing proposals were withdrawn and refiled, they contained 
``significantly greater information about who is impacted and how than 
other filings that have been permitted to take effect without 
suspension.'' \53\
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    \52\ See letter from Tyler Gellasch, Executive Director, Healthy 
Markets Association, to Gary Gensler, Chair, Commission, dated 
October 29, 2021, at 17. This commenter also petitioned the 
Commission for rulemaking regarding the process for reviewing self-
regulatory organization fee filings.
    \53\ See id. The commenter highlights that the Exchange's 
proposal details both the projected revenues generated from the 
proposed fees by user class as well as the percentage of subscribers 
whose fees increased or decreased as a result of the proposed 
changes. See id.
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    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\54\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \55\
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    \54\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \55\ Id.
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    Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
require the rules of an exchange to (1) provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \56\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \57\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\58\
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    \56\ 15 U.S.C. 78f(b)(4).
    \57\ 15 U.S.C. 78f(b)(5).
    \58\ 15 U.S.C. 78f(b)(8).
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    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether the proposal to modify fees for 
certain connectivity options and implement a tiered pricing fee 
structure is consistent with the statutory requirements applicable to a 
national securities exchange under the Act. In particular, the 
Commission will consider whether the proposed rule change satisfies the 
standards under the Act and the rules thereunder requiring, among other 
things, that an exchange's rules provide for the equitable allocation 
of reasonable fees among members, issuers, and other persons using its 
facilities; not permit unfair discrimination between customers, 
issuers, brokers or dealers; and do not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.\59\
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    \59\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\60\
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    \60\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\61\ and 19(b)(2)(B) of the Act \62\ to determine whether the proposed 
rule change should be approved or disapproved. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
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    \61\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \62\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\63\ the Commission is 
providing

[[Page 67754]]

notice of the grounds for possible disapproval under consideration:
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    \63\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding, or if the 
exchange consents to the longer period. See id.
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     Whether the Exchange has demonstrated how the proposal is 
consistent with Section 6(b)(4) of the Act, which requires that the 
rules of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities;'' \64\
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    \64\ 15 U.S.C. 78f(b)(4).
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     Whether the Exchange has demonstrated how the proposal is 
consistent with Section 6(b)(5) of the Act, which requires, among other 
things, that the rules of a national securities exchange be ``designed 
to perfect the operation of a free and open market and a national 
market system'' and ``protect investors and the public interest,'' and 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers;'' \65\ and
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    \65\ 15 U.S.C. 78f(b)(5).
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     Whether the Exchange has demonstrated how the proposal is 
consistent with Section 6(b)(8) of the Act, which requires that the 
rules of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Act].'' \66\
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    \66\ 15 U.S.C. 78f(b)(8).
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    As discussed in Section III above, the Exchange makes various 
arguments in support of the proposal, and the Commission received 
comment letters disputing the Exchange's arguments and expressing 
concerns regarding the proposal.\67\ In particular, two commenters 
argue that the Exchange did not provide sufficient information to 
establish that the proposed fees are consistent with the Act and the 
rules thereunder.\68\ The Commission believes that there are questions 
as to whether the Exchange has provided sufficient information to 
demonstrate that the proposed 10Gb ULL connectivity fees is consistent 
with the Act and the rules thereunder.
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    \67\ See First SIG Letter and Second SIG Letter, supra note 33; 
SIFMA Letter, supra note 43.
    \68\ See supra note 67.
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
[SRO] that proposed the rule change.'' \69\ The description of a 
proposed rule change, its purpose and operation, its effect, and a 
legal analysis of its consistency with applicable requirements must all 
be sufficiently detailed and specific to support an affirmative 
Commission finding,\70\ and any failure of an SRO to provide this 
information may result in the Commission not having a sufficient basis 
to make an affirmative finding that a proposed rule change is 
consistent with the Act and the applicable rules and regulations.\71\
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    \69\ 17 CFR 201.700(b)(3).
    \70\ See id.
    \71\ See id.
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    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposal is consistent with the Act, specifically, with its 
requirements that the rules of a national securities exchange provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its members, issuers, and other persons using its 
facilities; are designed to perfect the operation of a free and open 
market and a national market system, and to protect investors and the 
public interest; are not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers; and do not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act; \72\ as well as any other 
provision of the Act, or the rules and regulations thereunder.
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    \72\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by December 20, 2021. 
Rebuttal comments should be submitted by January 3, 2022. Although 
there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral presentation.\73\
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    \73\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule change, including whether the 
proposal is consistent with the Act. Comments may be submitted by any 
of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-EMERALD-2021-29 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-EMERALD-2021-29. 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-EMERALD-2021-29 and should be submitted 
on or before December 20, 2021. Rebuttal comments should be submitted 
by January 3, 2022.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\74\ that File

[[Page 67755]]

Number SR-EMERALD-2021-29 be, and hereby is, temporarily suspended. In 
addition, the Commission is instituting proceedings to determine 
whether the proposed rule change should be approved or disapproved.
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    \74\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\75\
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    \75\ 17 CFR 200.30-3(a)(57) and (58).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25883 Filed 11-26-21; 8:45 am]
BILLING CODE 8011-01-P