[Federal Register Volume 86, Number 241 (Monday, December 20, 2021)]
[Notices]
[Pages 71983-71996]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27425]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93776; File No. SR-EMERALD-2021-42]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the MIAX Emerald Fee Schedule To Adopt a Tiered-Pricing Structure for 
Certain Connectivity Fees

December 14, 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 December 1, 2021, MIAX Emerald, LLC (``MIAX Emerald'' 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 Emerald Fee 
Schedule (the ``Fee Schedule'') to amend certain connectivity fees.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX'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.

[[Page 71984]]

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 adopt a tiered-
pricing structure for the 10 gigabit (``Gb'') ultra-low latency 
(``ULL'') fiber connection available to Members \3\ and non-Members. 
The Exchange initially filed this proposal on July 30, 2021, with the 
proposed fee changes effective beginning August 1, 2021 (``First 
Proposed Rule Change'').\4\ The First Proposed Rule Change was 
published for comment in the Federal Register on August 17, 2021.\5\ 
The Commission received one comment letter on the First Proposed Rule 
Change.\6\ The Exchange withdrew the First Proposed Rule Change on 
September 24, 2021 and re-submitted the proposal on September 24, 2021, 
with the proposed fee changes being immediately effective (``Second 
Proposed Rule Change'').\7\ The Second Proposed Rule Change was 
published for comment in the Federal Register on October 4, 2021.\8\ 
The Second Proposed Rule Change provided additional justification for 
the proposed fee changes and addressed certain points raised in the 
single comment letter that was submitted on the First Proposed Rule 
Change. The Commission received four comment letters from three 
separate commenters on the Second Proposed Rule Change.\9\ The 
Commission suspended the Second Proposed Rule Change on November 22, 
2021.\10\ The Exchange withdrew the Second Proposed Rule Change on 
December 1, 2021 and now submits this proposal for immediate 
effectiveness (``Third Proposed Rule Change''). This Third Proposed 
Rule Change meaningfully attempts to address issues or questions that 
have been raised by providing additional justification and explanation 
for the proposed fee changes and directly respond to the points raised 
in SIG Letters 1, 2, and 3, as well as the SIFMA Letter submitted on 
the First and Second Proposed Rule Changes,\11\ and feedback provided 
by Commission Staff during a telephone conversation on November 18, 
2021 relating to the Second Proposed Rule Change.
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    \3\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \4\ See Securities Exchange Act Release No. 92645 (August 11, 
2021), 86 FR 46048 (August 17, 2021) (SR-EMERALD-2021-23).
    \5\ Id.
    \6\ See Letter from Richard J. McDonald, Susquehanna 
International Group, LLC (``SIG''), to Vanessa Countryman, 
Secretary, Commission, dated September 7, 2021 (``SIG Letter 1'').
    \7\ See Securities Exchange Act Release No. 93166 (September 28, 
2021), 86 FR 54760 (October 4, 2021) (SR-EMERALD-2021-29).
    \8\ Id.
    \9\ See letters from Richard J. McDonald, SIG, to Vanessa 
Countryman, Secretary, Commission, dated October 1, 2021 (``SIG 
Letter 2'') and October 26, 2021 (``SIG Letter 3''). See also letter 
from Tyler Gellasch, Executive Director, Healthy Markets Association 
(``HMA''), to Hon. Gary Gensler, Chair, Commission, dated October 
29, 2021 (commenting on SR-CboeEDGA-2021-017, SR-CboeBYX-2021-020, 
SR-Cboe-BZX-2021-047, SR-CboeEDGX-2021-030, SR-MIAX-2021-41, SR-
PEARL-2021-45, and SR-EMERALD-2021-29 and stating that ``MIAX has 
repeatedly filed to change its connectivity fees in a way that will 
materially lower costs for many users, while increasing the costs 
for some of its heaviest of users. These filings have been withdrawn 
and repeatedly refiled. Each time, however, the filings contain 
significantly greater information about who is impacted and how than 
other filings that have been permitted to take effect without 
suspension'') (emphasis added) (``HMA Letter''); and Ellen Green, 
Managing Director, Equity and Options Market Structure, Securities 
Industry and Financial Markets Association (``SIFMA''), to Vanessa 
Countryman, Secretary, Commission, dated November 26, 2021 (``SIFMA 
Letter'').
    \10\ See Securities Exchange Act Release No. 93644 (November 22, 
2021), 86 FR 67750 (November 29, 2021).
    \11\ The Exchange notes that while the HMA Letter applauds the 
level of disclosure the Exchange included in the First and Second 
Proposed Rule Changes, the HMA Letter does not raise specific issues 
with the First or Second Proposed Rule Changes. Rather, it 
references the Exchange's proposals by way of comparison to show the 
varying levels of transparency in exchange fees filings and 
recommends changes to the Commission's review process of exchange 
fee filings generally. Therefore, the Exchange does not feel it is 
necessary to address the issues raised in the HMA Letter.
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10Gb ULL Tiered-Pricing Structure
    The Exchange proposes to amend Sections (5)(a)-(b) of the Fee 
Schedule to provide for a tiered-pricing structure for 10Gb ULL 
connections for Members and non-Members. Currently, the Exchange 
assesses Members and non-Members a flat monthly fee of $10,000 per 10Gb 
ULL connection for access to the Exchange's primary and secondary 
facilities.
    The Exchange now proposes to move from a flat monthly fee per 
connection to a tiered-pricing structure under which the monthly fee 
would vary depending on the number of 10Gb ULL connections each Member 
or non-Member elects to purchase per exchange. Specifically, the 
Exchange proposes to decrease the fee for the first and second 10Gb ULL 
connections for each Member and non-Member from the current flat 
monthly fee of $10,000 to $9,000 per connection. To encourage more 
efficient connectivity usage, the Exchange proposes to increase the per 
connection fee for Members and non-Members that purchase more than two 
10Gb ULL connections. In particular, (i) the third and fourth 10Gb ULL 
connections for each Member or non-Member will increase from the 
current flat monthly fee of $10,000 to $11,000 per connection; and (ii) 
for the fifth 10Gb ULL connection, and each 10Gb ULL connection 
purchased by Members and non-Members thereafter, the fee will increase 
from the flat monthly fee of $10,000 to $13,000 per connection. The 
proposed 10Gb ULL tiered-pricing structure and fees are collectively 
referred to herein as the ``Proposed Access Fees.''
    The Exchange believes the other exchange's connectivity fees are a 
useful example of alternative approaches to providing and charging for 
connectivity and provides the below table for comparison purposes only 
to show how its proposed fees compare to fees currently charged by 
other options exchanges for similar connectivity. As shown by the below 
table, the Exchange's proposed highest tier is still less than fees 
charged for similar connectivity provided by other options exchanges.

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               Exchange                        Type of port                         Monthly fee
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MIAX Emerald (as proposed)............  10Gb ULL.................  1-2 connection. $9,000.00.
                                                                   3-4 connections. $11,000.00.
                                                                   5 or more. $13,000.00.
The NASDAQ Stock Market LLC             10Gb Ultra fiber.........  $15,000.00.
 (``NASDAQ'') \12\.
Nasdaq ISE LLC (``ISE'') \13\.........  10Gb Ultra fiber.........  $15,000.00.
Nasdaq PHLX LLC (``PHLX'') \14\.......  10Gb Ultra Fiber.........  $15,000.00.
NYSE American LLC (``Amex'') \15\.....  10Gb LX LCN..............  $22,000.00.
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[[Page 71985]]

    The Exchange will continue to assess monthly Member and non-Member 
network connectivity fees for connectivity to the primary and secondary 
facilities in any month the Member or non-Member is credentialed to use 
any of the Exchange APIs or market data feeds in the production 
environment. The Exchange proposes to pro-rate the fees when a Member 
or non-Member makes a change to the connectivity (by adding or deleting 
connections) with such pro-rated fees based on the number of trading 
days that the Member or non-Member has been credentialed to utilize any 
of the Exchange APIs or market data feeds in the production environment 
through such connection, divided by the total number of trading days in 
such month multiplied by the applicable monthly rate. The Exchange will 
continue to assess monthly Member and non-Member network connectivity 
fees for connectivity to the disaster recovery facility in each month 
during which the Member or non-Member has established connectivity with 
the disaster recovery facility.
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    \12\ See NASDAQ Rules, General 8: Connectivity, Section 1. Co-
Location Services.
    \13\ See PHLX Rules, General 8: Connectivity.
    \14\ See ISE Rules, General 8: Connectivity.
    \15\ See NYSE American Options Fee Schedule, Section IV.
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2. Statutory Basis
    The Exchange believes that the Proposed Access Fees are consistent 
with Section 6(b) of the Act \16\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \17\ in particular, in that 
they provide for the equitable allocation of reasonable dues, fees and 
other charges among Members and other persons using any facility or 
system which the Exchange operates or controls. The Exchange also 
believes the Proposed Access Fees further the objectives of Section 
6(b)(5) of the Act \18\ in that they are designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general protect investors and the public interest and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers and dealers.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
    \18\ 15 U.S.C. 78f(b)(5).
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    On March 29, 2019, the Commission issued an Order disapproving a 
proposed fee change by the BOX Market LLC Options Facility to establish 
connectivity fees for its BOX Network (the ``BOX Order'').\19\ On May 
21, 2019, the Commission Staff issued guidance ``to assist the national 
securities exchanges and FINRA . . . in preparing Fee Filings that meet 
their burden to demonstrate that proposed fees are consistent with the 
requirements of the Securities Exchange Act.'' \20\ 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 Miami International 
Securities Exchange, LLC (``MIAX'') and MIAX PEARL, LLC (``MIAX 
Pearl''), to amend other non-transaction fees.\21\
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    \19\ 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) (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).
    \20\ 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'').
    \21\ See Securities Exchange Act Release Nos. 90981 (January 25, 
2021), 86 FR 7582 (January 29, 2021) (SR-PEARL-2021-01) (proposal to 
increase connectivity fees); 90980 (January 25, 2021), 86 FR 7602 
(January 29, 2021) (SR-MIAX-2021-02) (proposal to increase 
connectivity fees).
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The Proposed Access Fees Will Not Result in a Supra-Competitive Profit
    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 connectivity to be access 
fees. It records these fees as part of its ``Access Fees'' revenue in 
its financial statements.
    In its Guidance, the Commission Staff stated that, ``[a]s an 
initial step in assessing the reasonableness of a fee, staff considers 
whether the fee is constrained by significant competitive forces.'' 
\22\ The Commission Staff Guidance further states that, ``. . . even 
where an SRO cannot demonstrate, or does not assert, that significant 
competitive forces constrain the fee at issue, a cost-based discussion 
may be an alternative basis upon which to show consistency with the 
Exchange Act.'' \23\ In its Guidance, the Commission staff further 
states that, ``[i]f an SRO seeks to support its claims that a proposed 
fee is fair and reasonable because it will permit recovery of the SRO's 
costs, or will not result in excessive pricing or supra-competitive 
profit, specific information, including quantitative information, 
should be provided to support that argument.'' \24\ The Exchange does 
not assert that the Proposed Access Fees are constrained by competitive 
forces. Rather, the Exchange asserts that the Proposed Access Fees are 
reasonable because they will permit recovery of the Exchange's costs in 
providing access services to supply 10Gb ULL connectivity and will not 
result in the Exchange generating a supra-competitive profit.
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    \22\ See Guidance, supra note 20.
    \23\ Id.
    \24\ Id.
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    The Guidance defines ``supra-competitive profit'' as ``profits that 
exceed the profits that can be obtained in a competitive market.'' \25\ 
The Commission Staff further states in the Guidance that ``the SRO 
should provide an analysis of the SRO's baseline revenues, costs, and 
profitability (before the proposed fee change) and the SRO's expected 
revenues, costs, and profitability (following the proposed fee change) 
for the product or service in question.'' \26\ The Exchange provides 
this analysis below.
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    \25\ Id.
    \26\ Id.
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    Based on this analysis, the Exchange believes the Proposed Access 
Fees are reasonable and do not result in a ``supra-competitive'' \27\ 
profit. The Exchange believes that it is important to demonstrate that 
the Proposed Access 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 provides sufficient transparency (described below) into 
the costs and revenue underlying the Proposed Access Fees. Accordingly, 
the Exchange provides an analysis of its revenues, costs, and 
profitability associated with the

[[Page 71986]]

Proposed Access Fees. This analysis includes information regarding its 
methodology for determining the costs and revenues associated with the 
Proposed Access Fees. As a result of this analysis, the Exchange 
believes the Proposed Access Fees are fair and reasonable as a form of 
cost recovery plus present the possibility of a reasonable return for 
the Exchange's aggregate costs of offering connectivity to the 
Exchange.
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    \27\ See Guidance, supra note 20.
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    The Proposed Access Fees are based on a cost-plus model. In 
determining the appropriate fees to charge, the Exchange considered its 
costs to provide connectivity, using what it believes to be a 
conservative methodology (i.e., that strictly considers only those 
costs that are most clearly directly related to the provision and 
maintenance of 10Gb ULL connectivity) to estimate such costs,\28\ as 
well as the relative costs of providing and maintaining 10Gb ULL 
connectivity, and set fees that are designed to cover its costs with a 
limited return in excess of such costs. However, as discussed more 
fully below, such fees may also result in the Exchange recouping less 
than all of its costs of providing and maintaining 10Gb ULL 
connectivity because of the uncertainty of forecasting subscriber 
decision making with respect to firms' connectivity needs and the 
likely potential for increased costs to procure the third-party 
services described below.
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    \28\ For example, the Exchange only included the costs 
associated with providing and supporting connectivity and excluded 
from its connectivity cost calculations any cost not directly 
associated with providing and maintaining such connectivity. Thus, 
the Exchange notes that this methodology underestimates the total 
costs of providing and maintaining connectivity.
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    To determine the Exchange's costs to provide 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 access services associated with the Proposed 
Access Fees.
    The Exchange also provides 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. The Exchange conducted a 
thorough internal analysis to determine the portion (or percentage) of 
each expense to allocate to the support of access services associated 
with the Proposed Access Fees. This analysis \29\ included discussions 
with each Exchange department head to determine the expenses that 
support access services associated with the Proposed Access Fees. Once 
the expenses were identified, the Exchange department heads, with the 
assistance of our internal finance department, reviewed such expenses 
holistically on an Exchange-wide level to determine what portion of 
that expense supports providing access services for the Proposed Access 
Fees. The sum of all such portions of expenses represents the total 
cost to the Exchange to provide access services associated with the 
Proposed Access Fees. For the avoidance of doubt, no expense amount was 
allocated twice.
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    \29\ A description of the Exchange's methodology for determining 
the portion (or percentage) of each expense to allocate to the 
Proposed Access Fee is being provide in response to comments from 
SIG and SIFMA. See SIG Letter 3 and SIFMA Letter, supra note 9.
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    To determine the Exchange's projected revenue associated with the 
Proposed Access Fees, the Exchange analyzed the number of Members and 
non-Members currently utilizing the 10Gb ULL fiber connection and used 
a recent monthly billing cycle representative of 2021 monthly revenue. 
The Exchange also provided its baseline by analyzing July 2021, the 
monthly billing cycle prior to the Proposed Access Fees going into 
effect, and compared it to its expenses for that month.\30\ As 
discussed below, 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 and potential increase in internal and third party 
expenses. The Exchange is presenting its revenue and expense associated 
with the Proposed Access Fees in this filing in a manner that is 
consistent with how the Exchange presents its revenue and expense in 
its Audited Unconsolidated Financial Statements. The Exchange's most 
recent Audited Unconsolidated Financial Statement is for 2020. However, 
since the revenue and expense associated with the Proposed Access Fees 
were not in place in 2020 or for the first seven months of 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 reasonable because they will allow the 
Exchange to recover its costs associated with providing access services 
related to the Proposed Access Fees and not result in excessive pricing 
or supra-competitive profit.
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    \30\ Id.
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    As outlined in more detail below, the Exchange projects that its 
annualized expense for 2021 to provide network connectivity services 
(all connectivity alternatives) to be approximately $7.2 million per 
annum or an average of $600,000 per month. The Exchange implemented the 
Proposed Access Fees on August 1, 2021 in the First Proposed Rule 
Change. For July 2021, prior to the Proposed Access Fees, the Exchange 
Members and non-Members purchased a total of 98 10Gb ULL connections 
for which the Exchange charged approximately $971,905 (this includes 
Members and non-Members dropping or adding connections mid-month, 
resulting a pro-rated charge at times). This resulted in a profit of 
$371,905 for that month (a profit margin of 38%). For the month of 
October 2021, which includes the varying rates for 10Gb ULL 
connectivity for the Proposed Access Fees, Exchange Members and non-
Members purchased a total of 100 10Gb ULL connections for which the 
Exchange charged approximately $1,146,714 for that month (also 
including pro-rated connection charges). This resulted in a profit of 
$546,714 for that month (a modest 9% profit margin increase from July 
2021 to October 2021 from 38% to 47%). The Exchange believes that the 
Proposed Access Fees are reasonable because they are designed to 
generate an additional 9% of profit margin per-month (reflecting a 47% 
profit margin). The Exchange cautions that this profit margin may 
fluctuate from month to month based on the uncertainty of predicting 
how many connections may be purchased from month to month as Members 
and non-Members are able to add and drop connections at any time based 
on their own business decisions, which they frequently do. This profit 
margin may also decrease due to the significant

[[Page 71987]]

inflationary pressure on capital items that the Exchange needs to 
purchase to maintain the Exchange's technology and systems.\31\ The 
Exchange has been subject to price 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.
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    \31\ 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).
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    As mentioned above, the Exchange projects that its annualized 
expense for 2021 to provide network connectivity services (all 
connectivity alternatives) to be approximately $7.2 million per annum 
or an average of $600,000 per month and that these costs are expected 
to increase not only due to anticipated significant inflationary 
pressure, but also periodic fee increases by third parties.\32\ 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 the cost to the Exchange to provide access services 
associated with the Proposed Access Fees. For example, new Members to 
the Exchange may require the purchase of additional hardware to support 
those Members as well as enhanced monitoring and reporting of customer 
performance that the Exchange and its affiliates provide. Further, as 
the total number Members increases, the Exchange and its affiliates may 
need to increase their data center footprint and consume more power, 
resulting in increased costs charged by their third-party data center 
provider. Accordingly, the cost to the Exchange and its affiliates to 
provide access to its Members is not fixed. The Exchange believes the 
Proposed Access Fees are a reasonable attempt to offset a portion of 
the costs to the Exchange associated with providing access to its 
network infrastructure.
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    \32\ For example, 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. The Exchange 
further 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.
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    The Exchange only has four primary sources of revenue and cost 
recovery mechanisms: 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 and cost recovery mechanisms. Until 
recently, the Exchange has operated at a cumulative net annual loss 
since it launched operations in 2019.\33\ This is a result of providing 
a low cost alternative to attract order flow and encourage market 
participants to experience the high determinism and resiliency of the 
Exchange's trading Systems.\34\ To do so, the Exchange chose to waive 
the fees for some non-transaction related services or provide them at a 
very marginal cost, which was not profitable to the Exchange. This 
resulted in the Exchange forgoing revenue it could have generated from 
assessing higher fees.
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    \33\ The Exchange has incurred a cumulative loss of $22 million 
since its inception in 2019 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 28, 2021, available 
athttps://sec.report/Document/9999999997-21-004557/.
    \34\ 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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    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. As mentioned above, for 2021,\35\ the total annual expense for 
providing the access services associated with the Proposed Access Fees 
is projected to be approximately $7.2 million, or approximately 
$600,000 per month. This 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 $7.2 million 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 
engines and other trading technology. No expense amount was allocated 
twice.
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    \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. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020) 
(SR-EMERALD-2019-39). 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.
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    As discussed above, 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.

[[Page 71988]]

External Expense Allocations
    For 2021, expenses relating to fees paid by the Exchange to third-
parties for products and services necessary to provide the access 
services associated with the Proposed Access Fees is projected to be 
$1.7 million. This includes, but is not limited to, a portion of the 
fees paid to: (1) Equinix for data center services, including 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 and its affiliates' 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\ See supra note 32.
---------------------------------------------------------------------------

    For clarity, the Exchange took a conservative approach in 
determining the expense and the percentage of that expense to be 
allocated to the providing access services in connection with the 
Proposed Access Fees. Only a portion of all fees paid to such third-
parties is included in the third-party expenses described 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. This 
may result in the Exchange under allocating an expense to the provision 
of access services in connection with the Proposed Access Fees and such 
expenses may actually be higher or increase above what the Exchange 
utilizes within this proposal. Further, the Exchange notes that 
expenses associated with its affiliates, MIAX and MIAX Pearl (the 
options and equities markets), are accounted for separately and are not 
included within the scope of this filing. Further, as part its ongoing 
assessment of costs and expenses (described above), 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. Therefore, 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. The Exchange notes that the expense 
allocations differ from the Exchange's filing earlier this year, SR-
EMERALD-2021-11, because that prior filing pertained to several 
different access fees, which the Exchange had not been charging for 
since the Exchange launched operations in March 2019.\39\ In SR-
EMERALD-2021-11, the Exchange sought to adopt fees for FIX Ports, MEI 
Ports, Purge Ports, Clearing Trade Drop Ports, and FIX Drop Copy Ports, 
all of which had been free for market participants for over two years.
---------------------------------------------------------------------------

    \39\ See Securities Exchange Act Release No. 91460 (April 2, 
2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11).
---------------------------------------------------------------------------

    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 62% 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.\40\
---------------------------------------------------------------------------

    \40\ 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 Pearl and MIAX, 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 62% 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.\41\
---------------------------------------------------------------------------

    \41\ 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

[[Page 71989]]

specifically mapped to providing the access services associated with 
the Proposed Access Fees, approximately 89% 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.\42\
---------------------------------------------------------------------------

    \42\ Id. See also supra note 32 (regarding SFTI's announced fee 
increases).
---------------------------------------------------------------------------

    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 51% 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.\43\
---------------------------------------------------------------------------

    \43\ See supra note 40.
---------------------------------------------------------------------------

Internal Expense Allocations
    For 2021, total projected internal expenses 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. This includes, but is not limited to, costs 
associated with: (1) Employee compensation and benefits for full-time 
employees that support the access services associated with the Proposed 
Access Fees, including staff in network operations, trading operations, 
development, system operations, business, as well as staff in general 
corporate departments (such as legal, regulatory, and finance) that 
support those employees and functions (including an increase as a 
result of the higher determinism project); (2) depreciation and 
amortization of hardware and software used to provide the access 
services associated with the Proposed Access Fees, including equipment, 
servers, cabling, purchased software and internally developed software 
used in the production environment to support the network for trading; 
and (3) occupancy costs for leased office space for staff that provide 
the access services associated with the Proposed Access Fees. The 
breakdown of these costs is more fully-described below.
    For clarity, and as stated above, the Exchange took a conservative 
approach in determining the expense and the percentage of that expense 
to be allocated to the providing access services in connection with the 
Proposed Access Fees. 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. This may result in the Exchange under 
allocating an expense to the provision of access services in connection 
with the Proposed Access Fees and such expenses may actually be higher 
or increase above what the Exchange utilizes within this proposal. 
Further, as part its ongoing assessment of costs and expenses 
(described above), 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 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 approximately $3.2 million, 
which is only a portion of the approximately $9.7 million 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 employees 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 33% 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.\44\
---------------------------------------------------------------------------

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

    The Exchange's depreciation and amortization expense relating to 
providing the services associated with the Proposed Access Fees is 
projected to be $2 million, which is only a portion of the $3.1 million 
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 63% of the total applicable depreciation and amortization 
expense, as these access services would not be possible without relying 
on such. The Exchange

[[Page 71990]]

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

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

    The Exchange's occupancy expense relating to providing the services 
associated with the Proposed Access Fees is projected to be 
approximately $0.3 million, which is only a portion of the $0.5 million 
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 200 employees. 
Approximately two-thirds of the Exchange's staff are in the Technology 
department, and the majority of those staff have some role in the 
operation and performance of the access services associated with the 
Proposed Access Fees. 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 53% 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.\46\
---------------------------------------------------------------------------

    \46\ 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 
more deterministic and resilient 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 their costs; thus, the Exchange believes it is reasonable to 
allocate a material portion of its total overall expense towards access 
fees.
    Based on the above, the Exchange believes that its provision of 
access services associated with the Proposed Access Fees will not 
result in excessive pricing or supra-competitive profit. As discussed 
above, the Exchange projects that its annualized expense for 2021 to 
provide network connectivity services (all connectivity alternatives) 
to be approximately $7.2 million per annum or an average of $600,000 
per month. The Exchange implemented the Proposed Access Fees on August 
1, 2021. For July 2021, prior to the Proposed Access Fees, Exchange 
Members and non-Members purchased a total of 98 10Gb ULL connections 
for which the Exchange charged approximately $971,905. This resulted in 
a profit of $371,905 (a profit margin of 38%) for that month (including 
pro-rated charges). For the month of October 2021, which includes the 
varying 10Gb ULL connectivity fees pursuant to the Proposed Access 
Fees, the Exchange had Members and non-Members purchasing a total of 
100 10Gb ULL connections for which the Exchange charged approximately 
$1,146,714 (including pro-rated charges). This resulted in a profit of 
$546,714 for that month (a modest 9% profit margin increase from July 
2021 to October 2021 from 38% to 47%). The Exchange believes that the 
Proposed Access Fees are reasonable because they are designed to 
generate an additional 9% of profit margin per month (reflecting a 47% 
profit margin). The Exchange believes this modest increase in profit 
margin will allow it to continue to recoup its expenses and continue to 
invest in its technology infrastructure. Therefore, the Exchange also 
believes that this proposed profit margin increase is reasonable 
because it represents a reasonable rate of return.
    Again, the Exchange cautions that this profit margin may fluctuate 
from month to month based in the uncertainty of predicting how many 
connections may be purchased from month to month as Members and non-
Members are free to add and drop connections at any time based on their 
own business decisions. This profit margin may also decrease due to the 
significant inflationary pressure on capital items that it needs to 
purchase to maintain the Exchange's technology and systems.\47\ 
Accordingly, the Exchange believes its total projected revenue for the 
providing the access services associated with the Proposed Access Fees 
will not result in excessive pricing or supra-competitive profit.
---------------------------------------------------------------------------

    \47\ See supra note 31.
---------------------------------------------------------------------------

    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 expense 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 costs of 
providing access to the Exchange's System. 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 Proposed Tiered-Pricing Structure Is Not Unfairly Discriminatory 
and Provides for the Equitable Allocation of Fees, Dues, and Other 
Charges
    The Exchange believes the proposed tiered-pricing structure is 
reasonable, fair, equitable, and not unfairly

[[Page 71991]]

discriminatory because it will apply to all Members and non-Members in 
the same manner based on the amount of 10Gb ULL connectivity they 
require based on their own business decisions and its usage of Exchange 
resources. All similarly situated Members and non-Members would be 
subject to the same fees. The fees do not depend on any distinction 
between Members and non-Members because they are solely determined by 
the individual Members' or non-Members' business needs and its impact 
on Exchange resources.
    The proposed tiered-pricing structure is not unfairly 
discriminatory and provides for the equitable allocation of fees, dues, 
and other charges because it is designed to encourage Members and non-
Members to be more efficient and economical when determining how to 
connect to the Exchange and the amount of the fees are based on the 
number of connections a Member or non-Member utilizes. Charging a 
higher fee to a Member or non-Member that utilizes numerous connections 
is directly related to the increased costs the Exchange incurs in 
providing and maintaining those additional connections. The proposed 
tiered pricing structure should also enable the Exchange to better 
monitor and provide access to the Exchange's network to ensure 
sufficient capacity and headroom in the System.
    The Exchange believes that the proposal to move to a tiered-pricing 
structure for its 10Gb ULL connections is reasonable, equitably 
allocated and not unfairly discriminatory because 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. After the effective date of the First Proposed Rule Change 
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 only 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. To illustrate, firms that purchase only one 10Gb ULL 
connection per month used to pay the flat rate of $10,000 per month for 
that one 10Gb ULL connection. Pursuant to the proposed tiered-pricing 
structure, these firms now pay $9,000 per month for that same one 10Gb 
ULL connection, saving $1,000 per month or $12,000 annually. Further, 
firms that purchase two 10Gb ULL connections per month previously paid 
a flat rate of $20,000 per month ($10,000 x 2) for those two 10Gb ULL 
connections. Pursuant to the proposed tiered-pricing structure, these 
firms now pay $18,000 per month ($9,000 x 2) for those two 10Gb ULL 
connections, saving $2,000 per month or $24,000 annually.
    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 connectivity resources, network consumers, and 
purchasers of 10Gb ULL connectivity. 10Gb ULL connectivity is not an 
unlimited resource as the Exchange needs to purchase additional 
equipment to satisfy requests for additional connections. The Exchange 
also needs to provide personnel to set up new connections, service 
requests related to adding new and/or deleting existing connections, 
respond to performance queries from, and to maintain those connections 
on behalf of Members and non-Members. Also, those firms that utilize 
10Gb ULL connectivity typically generate a disproportionate amount of 
messages and order traffic, usually billions per day across the 
Exchange. These billions of messages per day consume the Exchange's 
resources and significantly contribute to the overall network 
connectivity expense for storage and network transport capabilities. 
The Exchange also has to purchase additional storage capacity on an 
ongoing basis to ensure it has sufficient capacity to store these 
messages as part of it surveillance program and to satisfy its record 
keeping requirements under the Exchange Act.\48\
---------------------------------------------------------------------------

    \48\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    The Exchange sought to design the proposed tiered-pricing structure 
to set the amount of the fees to relate to the number of connections a 
firm purchases. The more connections purchased by a firm likely results 
in greater expenditure of Exchange resources and increased cost to the 
Exchange. With this in mind, the Exchange proposes to decrease the 
monthly fees for those firms who connect to the Exchange as part of 
their best execution obligations and generally tend to send the least 
amount of orders and messages over those connections. The Exchange 
notes that firms that primarily route orders seeking best-execution 
generally only purchase a limited number of connections. Those firms 
also generally send less orders and messages over those connections, 
resulting in less strain on Exchange resources. Therefore, the 
connectivity costs will likely be lower for these firms based on the 
proposed tiered-pricing structure.
    On a similar note, the Exchange proposes to increase the fee for 
those firms that purchase more connections resulting in greater 
expenditure of Exchange resources and increased cost to the Exchange. 
The Exchange notes that these firms that purchase more than two to four 
10Gb ULL connections essentially do so for competitive reasons amongst 
themselves and choose to utilize numerous connections based on their 
business needs and desire to attempt to access the market quicker by 
using the connection with the least amount of latency. These firms are 
generally engaged in sending liquidity removing orders to the Exchange 
and seek to add more connections so they can access resting liquidity 
ahead of their competitors. For instance, a Member may have just sent 
numerous messages and/or orders over one of their 10Gb ULL connections 
that are in queue to be processed. That same Member then seeks to enter 
an order to remove liquidity from the Exchange's Book. That Member may 
choose to send that order over one or more of their other 10Gb ULL 
connections with less message and/or order traffic to ensure that their 
liquidity taking order accesses the Exchange quicker because that 
connection's queue is shorter. These firms also tend to frequently add 
and drop connections mid-month to determine which connections have the 
least latency, which results in increased costs to the Exchange to 
constantly make changes in the data center.
    The firms that engage in the above-described liquidity removing and 
advanced trading strategies typically require multiple connections and, 
therefore, generate higher costs by utilizing more of the Exchange's 
resources. Those firms may also conduct other latency measurements over 
their connections and drop and simultaneously add connections mid-month 
based on their own assessment of their performance. This results in 
Exchange staff processing such requests, potentially purchasing 
additional equipment, and performing the necessary network engineering 
to replace those connections in the data center. Therefore, the 
Exchange believes it is equitable for these firms to experience 
increased connectivity costs based on their disproportionate pull on

[[Page 71992]]

Exchange resources to provide the additional connectivity.
    In addition, the proposed tiered-pricing structure is equitable 
because it is designed to encourage Members and non-Members to be more 
efficient and economical when determining how to connect to the 
Exchange. Section 6(b)(5) of the Exchange Act requires the Exchange to 
provide access on terms that are not unfairly discriminatory.\49\ As 
stated above, 10Gb ULL connectivity is not an unlimited resource and 
the Exchange's network is limited in the amount of connections it can 
provide. However, the Exchange must accommodate requests for additional 
connectivity and access to the Exchange's System to ensure that the 
Exchange is able to provide access on non-discriminatory terms and 
ensure sufficient capacity and headroom in the System. To accommodate 
requests for additional connectivity on top of current network capacity 
constraints, requires that the Exchange purchase additional equipment 
to satisfy these requests. The Exchange also needs to provide personnel 
to set up new connections and to maintain those connections on behalf 
of Members and non-Members. The proposed tiered-pricing structure is 
equitable because it is designed to encourage Members and non-Members 
to be more efficient and economical in selecting the amount of 
connectivity they request while balancing that against the Exchange's 
increased expenses when expanding its network to accommodate additional 
connectivity.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Proposed Fees Are Reasonable When Compared to the Fees of Other 
Options Exchanges With Similar Market Share
    The Exchange does not have visibility into other equities 
exchanges' costs to provide connectivity or their fee markup over those 
costs, and therefore cannot use other exchange's connectivity fees as a 
benchmark to determine a reasonable markup over the costs of providing 
connectivity. Nevertheless, the Exchange believes the other exchange's 
connectivity fees are a useful example of alternative approaches to 
providing and charging for connectivity. To that end, the Exchange 
believes the proposed tiered-pricing structure for 10Gb ULL connections 
is reasonable because the proposed highest tier is still less than fees 
charged for similar connectivity provided by other options exchanges 
with comparable market shares. For example, NASDAQ (equity options 
market share of 8.88% as of November 26, 2021 for the month of 
November) \50\ charges a monthly fee of $10,000 per 10Gb fiber 
connection and $15,000 per 10Gb Ultra fiber connection.\51\ The highest 
tier of the Exchange's proposed fee structure for a 10Gb ULL connection 
is $2,000 per month less than NASDAQ and, unlike NASDAQ, the Exchange 
does not charge installation fees. The Exchange notes that the same 
connectivity fees described above for NASDAQ also apply to its 
affiliates, ISE \52\ (equity options market share of 7.96% as of 
November 26, 2021 for the month of November) \53\ and PHLX (equity 
options market share of 9.31% as of November 26, 2021 for the month of 
November).\54\ Amex (equity options market share of 5.05% as of 
November 26, 2021 for the month of November) \55\ charges $15,000 per 
connection initially plus $22,000 monthly per 10Gb LX LCN circuit 
connection.\56\ Again, the highest tier of the Exchange's proposed fee 
structure for a 10Gb ULL connection is $9,000 per month lower than the 
Amex connectivity fee after the first month.
---------------------------------------------------------------------------

    \50\ See ``The market at a glance,'' available at https://www.miaxoptions.com/ (last visited November 26, 2021).
    \51\ See NASDAQ Rules, General 8: Connectivity, Section 1. Co-
Location Services.
    \52\ See ISE Rules, General 8: Connectivity.
    \53\ See supra note 50.
    \54\ See id. See also PHLX Rules, General 8: Connectivity.
    \55\ See supra note 50.
    \56\ See Amex Fee Schedule, Section IV.
---------------------------------------------------------------------------

    In the each of the above cases, the Exchange's highest tier in the 
proposed tiered-pricing structure is significantly lower than that of 
competing options exchanges with similar market share. Despite 
proposing lower or similar fees to that of competing options exchanges 
with similar market share, 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 connectivity alternatives. Each 
of the connectivity rates in place at competing options exchanges were 
filed with the Commission for immediate effectiveness and remain in 
place today.
    The Exchange further believes that the Proposed Access Fees are 
reasonable, equitably allocated and not unfairly discriminatory 
because, for one 10Gb ULL connection, the Exchange provides each Member 
or non-Member access to all twelve (12) matching engines on MIAX 
Emerald and a vast majority choose to connect to all twelve (12) 
matching engines. The Exchange believes that other exchanges require 
firms to connect to multiple matching engines.\57\
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    \57\ See Specialized Quote Interface Specification, Nasdaq PHLX, 
Nasdaq Options Market, Nasdaq BX Options, Version 6.5a, Section 2, 
Architecture (revised August 16, 2019), available at http://www.nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/SQF6.5a-2019-Aug.pdf. The Exchange notes that it is 
unclear whether the NASDAQ exchanges include connectivity to each 
matching engine for the single fee or charge per connection, per 
matching engine. See also NYSE Technology FAQ and Best Practices: 
Options, Section 5.1 (How many matching engines are used by each 
exchange?) (September 2020). The Exchange notes that NYSE provides a 
link to an Excel file detailing the number of matching engines per 
options exchange, with Arca and Amex having 19 and 17 matching 
engines, respectively.
---------------------------------------------------------------------------

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    With respect to intra-market competition, the Exchange does not 
believe that the proposed rule change would place certain market 
participants at the Exchange at a relative disadvantage compared to 
other market participants or affect the ability of such market 
participants to compete. As stated above, the Exchange does not believe 
its proposed pricing will impose a barrier to entry to smaller 
participants and notes that its proposed connectivity pricing structure 
for its 10Gb ULL connections is associated with relative usage of the 
various market participants. Further, the majority of firms that 
purchase 10Gb ULL connections may either save money or pay the same 
amount after the tiered-pricing structure is implemented. While total 
cost may be increased for market participants with larger capacity 
needs or for business/technical preferences, such options provide far 
more capacity and are purchased by those that consume more resources 
from the network. Accordingly, the proposed tiered-pricing structure 
does not favor certain categories of market participants in a manner 
that would impose an undue burden on competition; rather, the 
allocation reflects the network resources consumed by the various usage 
of market participants--lowest bandwidth consuming members pay the 
least, and highest bandwidth consuming members pays the most, 
particularly since higher bandwidth consumption translates to higher 
costs to the Exchange.
    The Exchange also does not believe that the proposed rule change 
will result in any burden on inter-market

[[Page 71993]]

competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. As discussed above, options market participants 
are not forced to connect to all options exchanges. The Exchange 
operates in a highly competitive environment, and as discussed above, 
its ability to price access and connectivity is constrained by 
competition among exchanges and third parties. There are other options 
markets of which market participants may connect to trade options. 
There is also a possible range of alternative strategies, including 
routing to the exchange through another participant or market center or 
accessing the Exchange indirectly. For example, there are 15 other U.S. 
options exchanges, which the Exchange must consider in its pricing 
discipline in order to compete for market participants. In this 
competitive environment, market participants are free to choose which 
competing exchange or reseller to use to satisfy their business needs. 
As a result, the Exchange believes this proposed rule change permits 
fair competition among national securities exchanges. Accordingly, the 
Exchange does not believe its proposed fee changes impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.

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

    As described above, the Exchange received one comment letter on the 
First Proposed Rule Change and four comment letters on the Second 
Proposed Rule Change.\58\ The Exchange now responds to the comment 
letters in this filing.
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    \58\ See supra note 9.
---------------------------------------------------------------------------

HMA Letter
    The HMA Letter does not raise specific issues with the First or 
Second Proposed Rule Changes. Instead the HMA Letter is generally 
critical of the exchange fee filing process contained in Section 
19(b)(3)(A)(ii) of the Act,\59\ and Rule 19b-4(f)(2) thereunder,\60\ 
and other exchanges' fee filings in recent years. The HMA Letter, 
however, applauds the level of disclosure the Exchange included in the 
First and Second Proposed Rule Changes and was supportive of the 
efforts made by the Exchange and its affiliates to provide transparency 
and justify their proposed fees. The HMA Letter specifically notes 
that:
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \60\ 17 CFR 240.19b-4.

    MIAX has repeatedly filed to change its connectivity fees in a 
way that will materially lower costs for many users, while 
increasing the costs for some of its heaviest of users. These 
filings have been withdrawn and repeatedly refiled. Each time, 
however, the filings contain significantly greater information about 
who is impacted and how than other filings that have been permitted 
to take effect without suspension. For example, MIAX detailed the 
associated projected revenues generated from the connectivity fees 
by user class, again in a clear attempt to comply with the SRO Fee 
Filing Guidance.\61\
---------------------------------------------------------------------------

    \61\ See HMA Letter, supra note 9.

    As the HMA Letter notes, the Exchange refiled its same fee 
proposals to include significantly greater information about who is 
impacted and how, primarily at the request of the Commission Staff and 
in response to comments. The Exchange is again refiling its proposal to 
include more information surrounding the proposed fees and to respond 
to commenters.
SIG Letter 2
    SIG Letter 2 argues that the Exchange, in withdrawing the First 
Proposed Rule Change and refiling the Second Proposed Rule Change, 
``improperly circumvent[ed] the procedural protections embedded in 
Exchange Act Section 19(b)(3)(C), and subvert[ed] the balance of 
interests upheld therein.'' \62\ SIG's assertion that the Exchange's 
entire reason for withdrawing and refiling was to subvert the 
protections of the Exchange Act are entirely without merit. The 
Exchange withdrew the First Proposed Rule Change and replaced it with 
the Second Proposed Rule Change in good faith to provide additional 
justification and explanation for the proposed fee changes and did so 
in compliance with the Exchange Act. The same is true in this filing, 
where the Exchange withdrew the Second Proposed Rule Change and 
submitted this filing to provide additional justification and 
explanation for the proposed fee changes and directly responds to 
certain points raised in SIG Letters 1, 2, and 3, as well as the SIFMA 
Letter submitted on the First and Second Proposed Rule Changes.
---------------------------------------------------------------------------

    \62\ See SIG Letter 2, supra note 9.
---------------------------------------------------------------------------

    As SIG well knows, exchanges are able withdraw and refile various 
proposals (including fee changes and other rule changes) with the 
Commission for a multitude of reasons, not the least of which is to 
address feedback and comments from market participants and Commission 
Staff. The Exchange is well within the bounds of the Act and the rules 
and regulations thereunder to withdraw a proposed rule change and 
replace it with a new proposed rule change in good faith and to enhance 
the filing to ensure it complies with the requirements of the Act.
SIG Letters 1 and 3
    As an initial matter, SIG Letter 1 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.'' \63\ SIG 
Letter 1'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 First and 
Second Proposed Rule Changes and this filing.
---------------------------------------------------------------------------

    \63\ 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

    Until recently, the Exchange operated at a net annual loss since it 
launched operations in 2019.\64\ 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 in the First Proposed Rule Change, Second 
Proposed Rule Change. Similar justifications for the proposed fee 
change included in the First and Second Proposed Rule Changes, but also 
in this filing, were previously included in similar fee changes filed 
by the Exchange and its affiliates, MIAX and MIAX Pearl, and SIG did 
not submit a comment letter on those filings.\65\ Those filings were 
not

[[Page 71994]]

suspended by the Commission and continue to remain in effect. The 
justification included in each of the prior filings was the result of 
numerous withdrawals and re-filings of the proposals to address 
comments received from Commission Staff over many months. The Exchange 
and its affiliates have worked diligently with Commission Staff on 
ensuring the justification included in past fee filings fully support 
an assertion that those fee changes are consistent with the Act.\66\ 
The Exchange leveraged its past work with Commission Staff to ensure 
the justification provided herein and in the First and Second Proposed 
Rule Changes include the same level of detail (or more) as the prior 
fee changes that survived Commission scrutiny. 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.'' \67\ That 
same commenter also noted their ``worry that the Commission's process 
for reviewing and evaluating exchange filings may be inconsistently 
applied.'' \68\
---------------------------------------------------------------------------

    \64\ See supra note 33.
    \65\ See Securities Exchange Act Release Nos. 91858 (May 12, 
2021), 86 FR 26967 (May 18, 2021) (SR-PEARL-2021-23) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Amend the MIAX Pearl Fee Schedule to Remove the Cap on the Number of 
Additional Limited Service Ports Available to Market Makers); 91460 
(April 2, 2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11) 
(Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend Its Fee Schedule To Adopt Port Fees, Increase 
Certain Network Connectivity Fees, and Increase the Number of 
Additional Limited Service MIAX Emerald Express Interface Ports 
Available to Market Makers); and 91857 (May 12, 2021), 86 FR 26973 
(May 18, 2021) (SR-MIAX-2021-19) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To 
Remove the Cap on the Number of Additional Limited Service Ports 
Available to Market Makers).
    \66\ 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. On April 22, 2021, the Exchange withdrew SR-PEARL-
2021-17 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. On 
May 3, 2021, the Exchange withdrew SR-PEARL-2021-20 and refiled that 
proposal to further clarify its cost methodology. See SR-PEARL-2021-
22. On May 10, 2021, the Exchange withdrew SR-PEARL-2021-22 and 
refiled SR-PEARL-2021-23. See Securities Exchange Act Release No. 
91858 (May 12, 2021), 86 FR 26967 (May 18, 2021) (SR-PEARL-2021-23).
    \67\ See HMA Letter, supra note 9.
    \68\ 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).
---------------------------------------------------------------------------

    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 filings should satisfy, and is not warranted here.
    In addition, the arguments in SIG Letter 1 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 First Proposed Rule 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 First 
Proposed Rule Change to address their concerns and instead chose to 
submit three comment letters. 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 has enhanced its cost and revenue 
analysis and data in this Third Proposed Rule Change to further justify 
that the Proposed Access Fees are reasonable in accordance with the 
Commission Staff's Guidance. Among other things, these enhancements 
include providing baseline information in the form of data from the 
month before the Proposed Access Fees became effective.
    The Exchange now responds to SIG remaining claims below. SIG Letter 
3 first summarizes its arguments made in SIG Letters 1 and 2 and 
incorporates those arguments by reference. The Exchange responded to 
the arguments in SIG Letter 2 above. SIG Letter 3 incorporates the 
following arguments from SIG Letter 1, which the Exchange will first 
respond to in turn, below:

(1) The prospect that a member may withdraw from the Exchanges if a 
fee is too costly is not a basis for asserting that the fee is 
reasonable; (2) profit margin comparisons do not support the 
Exchanges' claims that they will not realize a supracompetitive 
profit, the Exchanges' respective profit margins of 30% (for MIAX 
and Pearl) and 51% (for Emerald) in relation to connectivity fees 
are high in any event, and comparisons to competing exchanges' 
overall operating profit margins are an inapt ``apples-to-oranges'' 
comparison; (3) the Exchanges provide no support for their claim 
that their proposed tiered pricing structure is needed to encourage 
efficiency in connectivity usage; (4) the Exchanges provided no 
support for their claim that the tiered pricing structure allows 
them to better monitor connectivity usage, nor that this is an 
appropriate basis for the pricing structure in any event; (5) the 
Exchanges' claim that firms who purchase more 10Gb ULL lines 
generate ``higher'' costs is misleading, and they offered no support 
for this claim in any event; (6) no other exchange has tiered 
connectivity pricing; (7) the recoupment of investment for exchange 
infrastructure has no supporting nexus with the claim that the 
proposed fees are reasonable, equitably allocated, and not unfairly 
discriminatory; and (8) the recoupment of investment claim belies 
the Exchanges' claim of encouraging efficiency in connectivity 
usage.'' \69\
---------------------------------------------------------------------------

    \69\ See SIG Letter 3, supra note 9.
---------------------------------------------------------------------------

The Exchange's Examples of Members Terminating Their Exchange Access 
Shows That Members Have Choice Whether To Connect to an Exchange Based 
on Fees
    SIG asserts that ``the prospect that a member may withdraw from the 
Exchanges if a fee is too costly is not a basis for asserting that the 
fee is reasonable.'' \70\ SIG misinterprets the Exchange's argument 
here. The Exchange provided the examples of firms terminating access to 
certain markets due to fees to support its assertion that firms, 
including market makers, are not required to connect to all markets and 
may drop access if fees become too costly for their business models and 
alternative or substitute forms of connectivity are available to those 
firms who choose to terminate access. The Commission Staff Guidance 
also provides that ``[a] statement that substitute products or services 
are available to market participants in the relevant market (e.g., 
equities or options) can demonstrate competitive forces if supported by 
evidence that substitute products or services exist.'' \71\ 
Nonetheless, the Third Proposed Rule Change no longer makes this 
assertion as a basis for the proposed fee change and, therefore, the 
Exchange believes it is not necessary to respond to this portion of SIG 
Letters 1 and 3.
---------------------------------------------------------------------------

    \70\ Id.
    \71\ See Guidance, supra note 20.

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[[Page 71995]]

The Proposed Fees Will Not Result in Excessive Pricing or Supra-
Competitive Profit
    Next, SIG asserts that the Exchange's ``profit margin comparisons 
do not support the Exchange's claims that they will not realize a 
supracompetitive profit,'' that ``the Exchanges' respective profit 
margins of 30% (for MIAX and Pearl) and 51% (for Emerald) in relation 
to connectivity fees are high in any event,'' and ``comparisons to 
competing exchanges' overall operating profit margins are an inapt 
`apples-to-oranges' comparison.''
    The Exchange has provided ample data that the proposed fees would 
not result in excessive pricing or a supra-competitive profit. In this 
Third Proposed Rule Change, the Exchange no longer utilizes a 
comparison of its profit margin to that of other options exchanges as a 
basis that the Proposed Access Fees are reasonable. Rather, the 
Exchange has enhanced its cost and revenue analysis and data in this 
Third Proposed Rule Change to further justify that the Proposed Access 
Fees are reasonable in accordance with the Commission Staff's Guidance. 
Therefore, the Exchange believes it is no longer necessary to respond 
to this portion of SIG Letters 1 and 3.
The Proposed Tiered Pricing Structure Is Not Unfairly Discriminatory
    SIG challenges the proposed fees by arguing that ``the Exchange[ ] 
provide[s] no support for [its] claim that [the] proposed tiered 
pricing structure is needed to encourage efficiency in connectivity 
usage and the Exchange[ ] provided no support for [the] claim that the 
tiered pricing structure allows them to better monitor connectivity 
usage, nor that this is an appropriate basis for the pricing structure 
in any event.'' The Exchange provided additional justification to 
support that the Proposed Access Fees are equitable and not unfairly 
discriminatory above in response to SIG's assertions.
Firms That Purchase More 10Gb ULL Generate Higher Exchange Costs
    SIG argues that ``the Exchanges' claim that firms who purchase more 
10Gb ULL lines generate `higher' costs is misleading,'' and that the 
Exchange has ``offered no support for this claim in any event.'' As 
described above, the Exchange sought to design the proposed tiered-
pricing structure to set the amount of the fees to relate to the number 
of connections a firm purchases and the Exchange believes it provided 
ample justification for the proposed tiered-pricing structure in the 
First and Second Proposed Rule Changes. Nonetheless, the Exchange 
provides additional justification to support that the Proposed Access 
Fees are equitable and not unfairly discriminatory above in response to 
SIG's assertions.
The Proposed Tiered-Pricing Structure for 10Gb ULL Connectivity Will 
Provide Cost Savings for the Majority of Exchange Members
    The SIG Letter incorrectly asserts that no other exchange has 
tiered connectivity pricing. Numerous other exchanges provide tiered 
fee structures for various other types of access to their platforms, 
including trading permits and ports.\72\ The Exchange provided adequate 
evidence that most firms would incur cost savings under the Proposed 
Access Fees in the First and Second Proposed Rule Changes and this 
filing. Nonetheless, the Exchange believes it provided additional 
justification to support that the Proposed Access Fees are equitable 
and not unfairly discriminatory above in response to SIG's assertions.
---------------------------------------------------------------------------

    \72\ See Cboe Exchange, Inc. Fee Schedule, Logical Connectivity 
Fees ($750 per port per month for the first 5 BOE/FIX Logical Ports 
and $800 per port per month for each port over 5; $1,500 per port 
per month for the first 5 BOE Bulk Logical Ports, $2,500 per port 
per month for ports 6-30, and $3,000 per port per month for each 
port over 30); Cboe BXZ Exchange, Inc. Options Fee Schedule, Options 
Logical Port Fees, Ports with Bulk Quoting Capabilities ($1,500 per 
port per month for the first and second ports, $2,500 per port per 
month for three or more); Nasdaq Stock Market LLC, Options 7, 
Pricing Schedule, Section 3 ($1,500 per port per month for the first 
5 SQF ports; $1,000 per port per month for SQF ports 15-20; and $500 
per port per month for all SQF ports over 21); NYSE American Options 
Fee Schedule, Section V.A., Port Fees and NYSE Arca Options Fee 
Schedule, Port Fees (both charging $450 per port for order/quote 
entry ports 1-40 and $150 per port for ports 41 and greater).
---------------------------------------------------------------------------

Recoupment of Exchange Infrastructure Costs
    Nowhere in this proposal or in the First Proposed Fee change did 
the Exchange assert that it benefits competition to allow a new 
exchange entrant to recoup their infrastructure costs. Rather, 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 Exchange no longer 
makes this assertion in this filing and, therefore, does not believe is 
it necessary to respond to SIG's assertion here.
SIFMA Letter
    In sum, the SIFMA Letter asserts that the Exchange has failed to 
demonstrate that the Proposed Access Fees are reasonable for three 
reasons:

    (i) ``The Exchanges' ``platform competition'' argument that 
competition for order flow constrains pricing for market data or 
other products and services exclusively offered by an exchange does 
not demonstrate that the fees are reasonable.''
    (ii) ``. . .order flow competition alone between exchanges does 
not demonstrate that the fees for the products and services subject 
to the Proposal are reasonable.''
    (iii) ``the Exchanges' argument that the products and services 
subject to the Proposals are optional does not reflect marketplace 
reality, nor does it demonstrate that the proposed fees are 
reasonable.''

    The Exchange responds to each of SIFMA's challenges in turn below.
The Exchange Never Set Forth a ``Platform Competition'' Argument
    The SIFMA Letter asserts that the Exchange's ``platform 
competition'' argument that competition for order flow constrains 
pricing for market data or other products and services exclusively 
offered by an exchange does not demonstrate that the fees are 
reasonable.'' \73\ The Exchange does not believe it is necessary to 
respond to this assertion because it has never set forth a ``platform 
competition'' \74\ argument to justify the Proposed Access Fees in the 
First or Second Proposed Rule Change nor does it do so in this filing.
---------------------------------------------------------------------------

    \73\ See SIFMA Letter, supra note 9.
    \74\ Pursuant to the Guidance, ``platform theory generally 
asserts that when a business offers facilities that bring together 
two or more distinct types of customers, it is the overall return of 
the platform, rather than the return of any particular fees charged 
to a type of customer, that should be used to assess the 
competitiveness of the platform's market.'' See Guidance, supra note 
20.
---------------------------------------------------------------------------

The Exchange Is Not Arguing That Order Flow Competition Alone 
Demonstrates That the Proposed Fees Are Reasonable
    The SIFMA Letter asserts that ``order flow competition alone 
between exchanges does not demonstrate that the fees for the products 
and services subject to the Proposal are reasonable.'' \75\ The 
Exchange never directly asserted in the First or Second Proposed Rule 
Changes, nor does it do so in this filing, that order flow competition, 
alone, demonstrated that the Proposed Access Fees are reasonable and 
has removed any language that could imply this argument from this 
filing.
---------------------------------------------------------------------------

    \75\ See SIFMA Letter, supra note 9.

---------------------------------------------------------------------------

[[Page 71996]]

Other SIFMA Assertions
    SIFMA's also challenges or asserts: (i) The substitutability or 
optionality of 10Gb ULL connections, (ii) whether the Exchange has 
shown that the fees are equitable and non-discriminatory; (iii) that a 
tiered pricing structure will impose higher cost on all market 
participants; (iv) that a tiered pricing structure will encourage 
market participants to be more economical with the usage; (v) greater 
number of connections use greater Exchange resources; and (vi) that the 
Exchange has not provided extensive information regarding its cost data 
and how it determined it cost analysis. The Exchange believes that 
these assertions by SIFMA basically echo assertions made in SIG Letters 
1 and 3 and that it provided a response to these assertions under its 
response to SIG above or in provided enhanced transparency and 
justification in this filing.

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,\76\ and Rule 19b-4(f)(2) \77\ 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.
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \77\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-EMERALD-2021-42 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-2021-42. 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-2021-42 and should be submitted 
on or before January 10, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\78\
---------------------------------------------------------------------------

    \78\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27425 Filed 12-17-21; 8:45 am]
BILLING CODE 8011-01-P