[Federal Register Volume 87, Number 35 (Tuesday, February 22, 2022)]
[Notices]
[Pages 9695-9711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03655]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94260; File No. SR-EMERALD-2022-05]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing of a Proposed Rule Change To Amend Its Fee Schedule To Adopt a 
Tiered-Pricing Structure for Additional Limited Service MIAX Emerald 
Express Interface Ports; Suspension of and Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove the Proposed 
Rule Change

February 15, 2022.
    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 February 1, 2022, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I and II 
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 and is, pursuant to Section 19(b)(3)(C) 
of the Act, hereby: (i) Temporarily suspending the rule change; and 
(ii) instituting proceedings to determine whether to approve or 
disapprove the proposed rule change.
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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 port fees.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings, 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 [sic] below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to adopt a tiered-
pricing structure for additional Limited Service MIAX Emerald Express 
Interface (``MEI'') Ports \3\ available to Market Makers.\4\ The 
Exchange believes a tiered-pricing structure will encourage Market 
Makers to be more efficient and economical when determining how to 
connect to the Exchange. This 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.\5\
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    \3\ The MIAX Emerald Express Interface (``MEI'') is a connection 
to the MIAX Emerald System that enables Market Makers to submit 
simple and complex electronic quotes to MIAX Emerald. See the 
Definitions Section of the Fee Schedule
    \4\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. See the Definitions Section 
of the Fee Schedule and Exchange Rule 100.
    \5\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See the Definitions 
Section of the Fee Schedule and Exchange Rule 100.
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    The Exchange initially filed the proposed fee changes on August 2, 
2021, with the changes being immediately effective.\6\ The First 
Proposed Rule Change was published for comment in the Federal Register 
on August 19, 2021.\7\ The Commission received one comment letter on 
the First Proposed Rule Change.\8\ The Exchange withdrew the First 
Proposed Rule Change on September 27, 2021 and resubmitted its proposal 
(``Second Proposed Rule Change'').\9\ On September 28, 2021, the 
Exchange withdrew the Second Proposed Rule Change and re-submitted the 
proposal on September 28, 2021, with the proposed fee changes being 
immediately effective (``Third Proposed Rule Change'').\10\ The Third 
Proposed Rule Change was published for comment in the Federal Register 
on October 5, 2021.\11\ The Third 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 Third Proposed Rule 
Change.\12\ The Commission suspended the Third Proposed Rule Change on 
November 22, 2021.\13\ The Exchange withdrew the Third Proposed Rule 
Change on December 1, 2021 and submitted a revised proposal for 
immediate effectiveness (``Fourth Proposed Rule Change'').\14\ The 
Fourth Proposed Rule Change meaningfully attempted 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

[[Page 9696]]

SIG Letters 1, 2, and 3, as well as the SIFMA Letter submitted on the 
First and Second [sic] Proposed Rule Changes,\15\ and feedback provided 
by Commission Staff during a telephone conversation on November 18, 
2021 relating to the Third Proposed Rule Change. The Fourth Proposed 
Rule Change was published for comment in the Federal Register on 
December 20, 2021.\16\ The Exchange receive no comment letters on the 
Fourth Proposed Rule Change. The Commission suspended the Fourth 
Proposed Rule Change on January 27, 2022.\17\ The Exchange withdrew the 
Fourth Proposed Rule Change on February 1, 2022 and now submits this 
proposal for immediate effectiveness (``Fifth Proposed Rule Change''). 
This Fifth Proposed Rule Change provides additional justification and 
explanation for the proposed fee changes.
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    \6\ See Securities Exchange Act Release No. 92662 (August 13, 
2021), 86 FR 46726 (August 19, 2021) (SR-EMERALD-2021-25).
    \7\ Id.
    \8\ See Letter from Richard J. McDonald, Susquehanna 
International Group, LLC (``SIG''), to Vanessa Countryman, 
Secretary, Commission, dated September 7, 2021 (``SIG Letter 1'').
    \9\ See SR-EMERALD-2021-30.
    \10\ See Securities Exchange Act Release No. 93188 (September 
29, 2021), 86 FR 55052 (October 5, 2021) (SR-EMERALD-2021-31).
    \11\ Id.
    \12\ 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''); 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'').
    The Exchange notes that the Healthy Markets Association 
(``HMA'') submitted a comment letter on a related filing to amend 
fees for 10Gb ULL connections, on which SIG Letters 1, 2, and 3 as 
well as the SIFMA Letter also commented. See letter from Tyler 
Gellasch, Executive Director, HMA (``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'').
    \13\ See Securities Exchange Act Release No. 93644 (November 22, 
2021), 86 FR 67745 (November 29, 2021).
    \14\ See Securities Exchange Act Release No. 93772 (December 14, 
2021), 86 FR 71965 (December 20, 2021) (SR-EMERALD-2021-43).
    \15\ The Exchange notes that while the HMA Letter applauds the 
level of disclosure the Exchange included in the First and Second 
[sic] Proposed Rule Changes, the HMA Letter does not raise specific 
issues with the First or Second [sic] 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.
    \16\ See supra note 14.
    \17\ See Securities Exchange Act Release No. 94087 (January 27, 
2022) (Suspension of and Order Instituting Proceedings to Determine 
Whether to Approve or Disapprove Proposed Rule Changes to Amend Fee 
Schedules to Adopt Tiered-Pricing Structures for Additional Limited 
Service MIAX and MIAX Emerald Express Interface Ports).
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Additional Limited Service MEI Port Tiered-Pricing Structure
    The Exchange proposes to amend the fees for additional Limited 
Service MEI Ports. Currently, the Exchange allocates two (2) Full 
Service MEI Ports \18\ and two (2) Limited Service MEI Ports \19\ per 
matching engine \20\ to which each Market Maker connects. Market Makers 
may also request additional Limited Service MEI Ports for each matching 
engine to which they connect. The Full Service MEI Ports, Limited 
Service MEI Ports and the additional Limited Service MEI Ports all 
include access to the Exchange's primary and secondary data centers and 
its disaster recovery center. Market Makers may request additional 
Limited Service MEI Ports. Prior to the First Proposed Rule Change, 
Market Makers were assessed a $100 monthly fee for each additional 
Limited Service MEI Port for each matching engine.
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    \18\ ``Full Service MEI Ports'' means a port which provides 
Market Makers with the ability to send Market Maker simple and 
complex quotes, eQuotes, and quote purge messages to the MIAX 
Emerald System. Full Service MEI Ports are also capable of receiving 
administrative information. Market Makers are limited to two Full 
Service MEI Ports per Matching Engine. See the Definitions Section 
of the Fee Schedule.
    \19\ ``Limited Service MEI Ports'' means a port which provides 
Market Makers with the ability to send simple and complex eQuotes 
and quote purge messages only, but not Market Maker Quotes, to the 
MIAX Emerald System. Limited Service MEI Ports are also capable of 
receiving administrative information. Market Makers initially 
receive two Limited Service MEI Ports per Matching Engine. See the 
Definitions Section of the Fee Schedule.
    \20\ ``Matching Engine'' means a part of the MIAX Emerald 
electronic system that processes options orders and trades on a 
symbol-by-symbol basis. Some Matching Engines will process option 
classes with multiple root symbols, and other Matching Engines may 
be dedicated to one single option root symbol (for example, options 
on SPY may be processed by one single Matching Engine that is 
dedicated only to SPY). A particular root symbol may only be 
assigned to a single designated Matching Engine. A particular root 
symbol may not be assigned to multiple Matching Engines. See the 
Definitions Section of the Fee Schedule.
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    The Exchange now proposes to move from a flat monthly fee per 
additional Limited Service MEI Port for each matching engine to a 
tiered-pricing structure for additional Limited Service MEI Ports for 
each matching engine under which the monthly fee would vary depending 
on the number of additional Limited Service MEI Ports the Market Maker 
elects to purchase. Specifically, the Exchange will continue to provide 
the first and second additional Limited Service MEI Ports for each 
matching engine free of charge, as described above, per the initial 
allocation of Limited Service MEI Ports that Market Makers receive. The 
Exchange now proposes the following tiered-pricing structure: (i) The 
third and fourth additional Limited Service MEI Ports for each matching 
engine will increase from the current flat monthly fee of $100 to $200 
per port; (ii) the fifth and sixth additional Limited Service MEI Ports 
for each matching engine will increase from the current flat monthly 
fee of $100 to $300 per port; and (iii) the seventh to the twelfth 
additional Limited Service MEI Ports will increase from the current 
monthly flat fee of $100 to $400 per port (collectively, the ``Proposed 
Access Fees'').
    The Exchange believes the other exchanges' port fees are a useful 
example of alternative approaches to providing and charging for port 
access 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 port access. As shown by the below table, 
the Exchange's proposed highest tier is still less than fees charged 
for similar port access provided by other options exchanges.
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    \21\ See NYSE American Options Fee Schedule, Section V.A., Port 
Fees.
    \22\ See NYSE Arca Options Fee Schedule, Port Fees.
    \23\ See Nasdaq Stock Market, Nasdaq Options 7 Pricing Schedule, 
Section 3, Nasdaq Options Market--Ports and Other Services.

------------------------------------------------------------------------
                                                      Monthly fee (per
          Exchange                Type of port              port)
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MIAX Emerald (as proposed)..  Additional Limited    1-2 ports. FREE (not
                               Service MEI Port.     changed in this
                                                     proposal), 3-4
                                                     ports. $200, 5-6
                                                     ports. $300, 7-12
                                                     ports. $400.
NYSE American, LLC            Order/Quote Entry     $450.
 (``Amex'') \21\.              Port.
NYSE Arca, Inc. (``Arca'')    Order/Quote Entry     $450.
 \22\.                         Port.
The NASDAQ Stock Market LLC   SQF Port............  1-5 ports.
 (``NASDAQ'') \23\.                                  $1,500.00, 6-20
                                                     ports. $1,000.00,
                                                     21 or more ports.
                                                     $500.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \24\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \25\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposal 
furthers the objectives of Section 6(b)(5) of the Act \26\ in that it 
is 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

[[Page 9697]]

and the public interest and is not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers.
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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(4).
    \26\ 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'').\27\ 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.'' \28\ Based on both the 
BOX Order and the Guidance, 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.\29\
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    \27\ 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).
    \28\ 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'').
    \29\ 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 amendment 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 ports to be access fees. 
It records these fees as part of its ``Access Fees'' revenue in its 
financial statements.
    In the 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.'' 
\30\ The 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.'' \31\ 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 supracompetitive profit, 
specific information, including quantitative information, should be 
provided to support that argument.'' \32\ 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 additional Limited Service MEI 
Ports and will not result in the Exchange generating a supra-
competitive profit.
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    \30\ See Guidance, supra note 28.
    \31\ Id.
    \32\ 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.'' \33\ 
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.'' \34\ The Exchange provides 
this analysis below.
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    \33\ Id.
    \34\ 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'' \35\ 
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 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 additional Limited Service MEI Port access to the Exchange.
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    \35\ Id.
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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 port access, 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 additional Limited Service MEI Ports) to estimate such 
costs,\36\ as well as the relative costs of providing and maintaining 
additional Limited Service MEI Ports, 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 additional Limited Service MEI Ports because of the 
uncertainty of forecasting subscriber decision making with respect to 
firms' additional Limited Service MEI Port needs and the likely 
potential for increased costs to procure the third-party services 
described below.
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    \36\ For example, the Exchange only included the costs 
associated with providing and supporting additional Limited Service 
MEI Ports and excluded from its cost calculations any cost not 
directly associated with providing and maintaining such ports. Thus, 
the Exchange notes that this methodology underestimates the total 
costs of providing and maintaining additional Limited Service MEI 
Ports.
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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

[[Page 9698]]

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 \37\ included discussions 
with each Exchange department head to determine the expenses that 
support access services associated with the Proposed Access Fees. This 
included numerous meetings between the Exchange's Chief Information 
Officer, Chief Financial Officer, Head of Strategic Planning and 
Operations, Chief Technology Officer, various members of the Legal 
Department, and other group leaders. The Exchange reviewed each 
individual expense to determine if such expense was related to 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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    \37\ 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 12.
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    The internal cost analysis conducted by the Exchange is a 
proprietary process that is designed to make a fair and reasonable 
assessment of costs and resources allocated to support the provision of 
access services associated with the Proposed Access Fees. The Exchange 
acknowledges that this assessment can only capture a moment in time and 
that costs and resource allocations may change. That is why the 
Exchange has historically, and on an ongoing basis, periodically 
revisits its costs and resource allocations to ensure it is 
appropriately allocating resources to properly provide services to the 
Exchange's constituents. Any requirement that an exchange should 
conduct a periodic re-evaluation on a set timeline of its cost 
justification and amend its fees accordingly should be established by 
the Commission holistically, applied to all exchanges and not just 
pending fee proposals such as this filing. In order to be fairly 
applied, such a mandate should be applied to existing access fees as 
well.
    In accordance with the Guidance, the Exchange has provided 
sufficient detail to support a finding that the proposed fees are 
consistent with the Exchange Act. The proposal includes a detailed 
description of the Exchange's costs and how the Exchange determined to 
allocate those costs related to the proposed fees. In fact, the detail 
and analysis provided in this proposed rule change far exceed the level 
of disclosure provided in other exchange fee filings that have not been 
suspended by the Commission during its 60-day suspension period. A 
finding that this proposed rule change is inconsistent with the 
Exchange Act would run contrary to the Commission Staff's treatment of 
other recent exchange fee proposals that have not been suspended and 
remain in effect today.\38\ For example, a proposed fee filing that 
closely resembles the Exchange's current filing was submitted in 2020 
by the Cboe Exchange, Inc. (``Cboe'') and increased fees for Cboe's 
10Gb connections.\39\ This filing was submitted on September 2, 2020, 
nearly 15 months after the Staff's Guidance was issued. In that filing, 
the Cboe stated that the ``proposed changes were not designed with the 
objective to generate an overall increase in access fee revenue.'' \40\ 
This filing provided no cost based data to support its assertion that 
the proposal was intended to be revenue neutral. Among other things, 
Cboe did not provide a description of the costs underlying its 
provision of 10Gb connections to show that this particular fee did not 
generate a supra-competitive profit or describe how any potential 
profit may be offset by increased costs associated with another fee 
included in its proposal. This filing, nonetheless, was not suspended 
by the Commission and remains in effect today.
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    \38\ See, e.g., Securities Exchange Act Release Nos. 91339 
(March 17, 2021), 86 FR 15524 (March 23, 2021) (SR-CboeBZX-2021-020) 
(increasing fees for a market data product while not providing a 
cost based justification for the increase); 93293 (October 21, 
2021), 86 FR 57716 (October 18, 2021) (SR-PHLX-2021-058) (increasing 
fees for historical market data while not providing a cost based 
justification for the increase); 92970 (September 14, 2021), 86 FR 
52261 (September 20, 2021) (SR-CboeBZX-2021-047) (adopting fees for 
a market data related product while not providing a cost based 
justification for the fees); and 89826 (September 10, 2021), 85 FR 
57900 (September 16, 2021) (SR-CBOE-2020-086) (increasing 
connectivity fees without including a cost based justification).
    \39\ See Securities Exchange Act Release No. 89826 (September 
10, 2020), 85 FR 57900 (September 16, 2020) (SR-CBOE-2020-086) 
(increasing connectivity fees without including a cost based 
justification).
    \40\ See id. at 57909.
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    The Exchange believes exchanges, like all businesses, should be 
provided flexibility when allocating costs and resources they deem 
necessary to operate their business, including providing market data 
and access services. The Exchange notes that costs and resource 
allocations may vary from business to business and, likewise, costs and 
resource allocations may differ from exchange to exchange when it comes 
to providing market data and access services. It is a business decision 
that must be evaluated by each exchange as to how to allocate internal 
resources and what costs to incur internally or via third parties that 
it may deem necessary to support its business and its provision of 
market data and access services to market participants. An exchange's 
costs may also vary based on fees charged by third parties and periodic 
increases to those fees that may be outside of the control of an 
exchange.
    To determine the Exchange's projected revenue associated with the 
Proposed Access Fees, the Exchange analyzed the number of Market Makers 
currently utilizing additional Limited Service MEI Ports 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.\41\ 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

[[Page 9699]]

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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    \41\ Id.
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    As outlined in more detail below, the Exchange projects that the 
final annualized expense for 2021 to provide additional Limited Service 
MEI Ports to be approximately $880,000 per annum or an average of 
$73,333.33 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 625 additional Limited Service MEI Ports for which 
the Exchange charged approximately $62,500. This resulted in a loss of 
$10,833.33 for that month (a loss margin of approximately 17.3%). For 
the month of November 2021, which includes the tiered rates for 
additional Limited Service MEI Ports for the Proposed Access Fees, 
Exchange Members and non-Members increased the number of additional 
Limited Service MEI Ports they purchased resulting in a total of 860 
additional Limited Service MEI Ports for which the Exchange charged 
approximately $216,600 for that month. This resulted in a profit of 
$143,266.67 for that month (a profit margin of approximately 66%, after 
experiencing monthly losses prior to the Proposed Access Fees. The 
Exchange believes that the Proposed Access Fees are reasonable because 
they are designed to generate a revenue per-month after experiencing 
monthly losses prior to the Proposed Access Fees. The Exchange cautions 
that this profit margin is likely to fluctuate from month to month 
based on the uncertainty of predicting how many ports may be purchased 
from month to month as Members and non-Members are able to add and drop 
ports 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 the Exchange needs to purchase to maintain the 
Exchange's technology and systems.\42\ The Exchange has been subject to 
price increases upwards of 30% during the past year 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.
---------------------------------------------------------------------------

    \42\ 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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    Further, the Exchange chose to provide additional Limited Service 
MEI Ports at a discounted price to attract order flow and encourage 
market participants to experience the determinism and resiliency of the 
Exchange's trading systems. This resulted in the Exchange forgoing 
revenue it could have generated from assessing higher fees. The 
Exchange could have sought to charge higher fees at the outset, but 
that could have served to discourage participation on the Exchange. 
Instead, the Exchange chose to provide a low cost exchange alternative 
to the options industry which resulted in lower initial revenues, or in 
this case, a monthly loss. The Exchange is now trying to amend its fee 
structure to enable it to continue to maintain and improve its overall 
market and systems while also providing a highly reliable and 
deterministic trading system to the marketplace.
    As mentioned above, the Exchange projects that its annualized 
expense for 2021 to provide additional Limited Service MEI Ports to be 
approximately $880,000 per annum or an average of $73,333.33 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.\43\ 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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    \43\ 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.
---------------------------------------------------------------------------

    The Exchange only has four primary sources of revenue and cost 
recovery mechanisms to fund all of its operations: 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.\44\ 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

[[Page 9700]]

Systems. 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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    \44\ 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 at 
https://sec.report/Document/9999999997-21-004557/.
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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,\45\ the total annual expense for 
providing the access services associated with the Proposed Access Fees 
is projected to be approximately $880,000.00, or approximately 
$73,333.33 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.\46\ 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.\47\ The $880,000 
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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    \45\ The Exchange has not yet finalized its 2021 year end 
results.
    \46\ 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.
    \47\ 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.
---------------------------------------------------------------------------

    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. In performing this calculation, the Exchange considered other 
services and to which the expense may be applied and how much of the 
expense is directly and or indirectly utilized in providing those other 
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.
External Expense Allocations
    For 2021, total third-party expense, relating to fees paid by the 
Exchange to third-parties for certain products and services for the 
Exchange to be able to provide the access services associated with the 
Proposed Access Fees, is projected to be $0.05 million. This includes, 
but is not limited to, a portion of the fees paid to: (1) Equinix, for 
data center services, for the primary, secondary, and disaster recovery 
locations of the Exchange's trading system infrastructure; (2) Zayo 
Group Holdings, Inc. (``Zayo'') for network services (fiber and 
bandwidth products and services) linking the Exchange's office 
locations in Princeton, New Jersey and Miami, Florida, to all data 
center locations; (3) Secure Financial Transaction Infrastructure 
(``SFTI''),\48\ 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.). For 
clarity, only a portion of all fees paid to such third-parties is 
included in the third-party expense herein, and no expense amount is 
allocated twice. Accordingly, the Exchange does not allocate its entire 
information technology and communication costs to the access services 
associated with the Proposed Access Fees.
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    \48\ In fact, on October 22, 2019, the Exchange was notified by 
SFTI that it is again raising its fees charged to the Exchange by 
approximately 11%, without having to show that such fee change 
complies with the Act by being reasonable, equitably allocated, and 
not unfairly discriminatory. It is unfathomable to the Exchange 
that, given the critical nature of the infrastructure services 
provided by SFTI, that its fees are not required to be rule-filed 
with the Commission pursuant to Section 19(b)(1) of the Act and Rule 
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, 
respectively.
---------------------------------------------------------------------------

    For clarity, the Exchange took a conservative approach in 
determining the expense and the percentage of that expense to be 
allocated to 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. Further, the 
Exchange notes that, with respect to the expenses included herein, 
those expenses only cover the MIAX Emerald market; expenses associated 
with MIAX Pearl for its options and equities markets and MIAX, are 
accounted for separately and are not included within the scope of this 
filing. As noted above, the percentage allocations used in this 
proposed rule change may differ from past filings from the Exchange or 
its affiliates due to, among other things, changes in expenses charged 
by third-parties, adjustments to internal resource allocations, and 
different system architecture of the Exchange as compared to its 
affiliates. Further, as part its ongoing assessment of costs and 
expenses, the Exchange recently conducted a periodic thorough review of 
its expenses and resource allocations which, in turn, resulted in a 
revised percentage allocations in this filing.
    The Exchange believes it is reasonable to allocate such third-party 
expense described above towards the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
In particular, the Exchange believes it is reasonable to allocate the 
identified portion of the Equinix expense because Equinix operates the 
data centers (primary, secondary, and disaster recovery) that host the 
Exchange's network infrastructure. This includes, among other things, 
the necessary storage space, which

[[Page 9701]]

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. 
According to the Exchange's calculations, it allocated approximately 
2.05% of the total applicable Equinix expense to providing the access 
services associated with the Proposed Access Fees. 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.\49\
---------------------------------------------------------------------------

    \49\ 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. According to the Exchange's calculations, it allocated 
approximately 1.64% of the total applicable Zayo expense to providing 
the access services associated with the Proposed Access Fees. 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.\50\
---------------------------------------------------------------------------

    \50\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified 
portions of the SFTI expense and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense 
because those entities provide connectivity and feeds for the entire 
U.S. options industry, as well as the content, connectivity services, 
and infrastructure services for critical components of the network. 
Without these services from SFTI and various other service providers, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and their customers. The Exchange did not 
allocate all of the SFTI and other service providers' expense toward 
the cost of providing the access services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the access services associated with 
the Proposed Access Fees. According to the Exchange's calculations, it 
allocated approximately 2.05% of the total applicable SFTI and other 
service providers' expense to providing the access services associated 
with the Proposed Access Fees. 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.\51\
---------------------------------------------------------------------------

    \51\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified 
portion of the other hardware and software provider expense because 
this includes costs for dedicated hardware licenses for switches and 
servers, as well as dedicated software licenses for security monitoring 
and reporting across the network. Without this hardware and software, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and their customers. The Exchange did not 
allocate all of the hardware and software provider expense toward the 
cost of providing the access services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the access services associated with 
the Proposed Access Fees. According to the Exchange's calculations, it 
allocated approximately 1.23% of the total applicable hardware and 
software provider expense to providing the access services associated 
with the Proposed Access Fees. 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.\52\
---------------------------------------------------------------------------

    \52\ Id.
---------------------------------------------------------------------------

Internal Expense Allocations
    For 2021, total projected internal expense, relating to the 
Exchange providing the access services associated with the Proposed 
Access Fees, is projected to be $0.83 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, and 
business 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 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

[[Page 9702]]

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 $0.76 million, 
which is only a portion of the $9.74 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), and Trade Operations. As part of the extensive cost 
review conducted by the Exchange, the Exchange reviewed the amount of 
time spent by each employee on matters relating to the provision of 
access services associated with the Proposed Access Fees. Without these 
employees, the Exchange would not be able to provide the access 
services associated with the Proposed Access Fees to its Members and 
their customers. The Exchange did not allocate all of the employee 
compensation and benefits expense toward the cost of the access 
services associated with the Proposed Access Fees, only the portion 
which the Exchange identified as being specifically mapped to providing 
the access services associated with the Proposed Access Fees. According 
to the Exchange's calculations, it allocated approximately 7.81% of the 
total applicable employee compensation and benefits expense to 
providing the access services associated with the Proposed Access Fees. 
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.\53\
---------------------------------------------------------------------------

    \53\ Id.
---------------------------------------------------------------------------

    The Exchange's depreciation and amortization expense relating to 
providing the services associated with the Proposed Access Fees is 
projected to be $0.06 million, which is only a portion of the $3.13 
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. 
According to the Exchange's calculations, it allocated approximately 
1.92% of the total applicable depreciation and amortization expense to 
providing the access services associated with the Proposed Access Fees, 
as these access services would not be possible without relying on such. 
The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the access services 
associated with the Proposed Access Fees, and not any other service, as 
supported by its cost review.\54\
---------------------------------------------------------------------------

    \54\ Id.
---------------------------------------------------------------------------

    The Exchange's occupancy expense relating to providing the services 
associated with the Proposed Access Fees is projected to be $0.01 
million, which is only a portion of the $0.52 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, NJ office, as well as various related costs, such 
as physical security, property management fees, property taxes, and 
utilities. The Exchange operates its Network Operations Center 
(``NOC'') and Security Operations Center (``SOC'') from its Princeton, 
New Jersey office location. A centralized office space is required to 
house the staff that operates and supports the network. The Exchange 
currently has approximately 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. According to the Exchange's 
calculations, it allocated approximately 1.93% of the total applicable 
occupancy expense to providing the access services associated with the 
Proposed Access Fees. 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.\55\
---------------------------------------------------------------------------

    \55\ 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

[[Page 9703]]

that its annualized expense for 2021 to provide the access services 
associated with the Proposed Access Fees to be approximately $880,000 
per annum or an average of $73,333.33 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 625 
additional Limited Service MEI Ports for which the Exchange charged 
approximately $62,500. This resulted in a loss of $10,833.33 for that 
month (a loss margin of approximately 17.3%). For the month of November 
2021, which includes the tiered rates for additional Limited Service 
MEI Ports for the Proposed Access Fees, Exchange Members and non-
Members increased the number of additional Limited Service MEI Ports 
they purchased resulting in a total of 860 additional Limited Service 
MEI Ports for which the Exchange charged approximately $216,600 for 
that month. This resulted in a profit of $143,266.67 for that month (a 
profit margin of approximately 66%), after experiencing monthly losses 
prior to the Proposed Access Fees. The Exchange believes that the 
Proposed Access Fees are reasonable because they are designed to 
generate a revenue per-month after experiencing monthly losses prior to 
the Proposed Access Fees. The Exchange believes this profit margin will 
allow it to begin 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 
ports may be purchased from month to month as Members and non-Members 
are free to add and drop ports at any time based on their own business 
decisions. Notwithstanding that the revenue (and profit margin) may 
vary from month to month due to changes in ports and to changes to the 
Exchange's expenses, the number of ports has not materially changed 
over the previous months. Consequently, the Exchange believes that the 
months it has used as a baseline to perform its assessment are 
representative of reasonably anticipated costs and expenses. 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.\56\ 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.
---------------------------------------------------------------------------

    \56\ See supra note 42.
---------------------------------------------------------------------------

    The Exchange believes that conducting the above analysis on a per 
month basis is reasonable as the revenue generated from access services 
subject to the proposed fee generally remains static from month to 
month. The Exchange also conducted the above analysis on a per month 
basis to comply with the Commission Staff's Guidance, which requires a 
baseline analysis to assist in determining whether the proposal 
generates a supra-competitive profit. This monthly analysis was also 
provided in response to comment received on prior submissions of this 
proposed rule change.
    The Exchange reiterates that it 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. As a result, each of these fees cannot be ``flat'' and 
cover only the expenses directly related to the fee that is charged. 
The above revenue and associated profit margin therefore are not solely 
intended to cover the costs associated with providing access services 
subject to the Proposed Access Fees.
    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 discriminatory because it 
will apply to all Members and non-Members in the same manner based on 
the amount of Limited Service MEI Ports they require based on their own 
business decisions and 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 ports a Market Maker utilizes. Charging an incrementally 
higher fee to a Market Maker that utilizes numerous ports is directly 
related to the increased costs the Exchange incurs in providing and 
maintaining those additional ports. 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 while still providing the first and second 
additional Limited Service MEI Ports for each matching engine free of 
charge.
    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 access resources, but also those firms that most 
heavily consume Exchange access resources, network consumers, and 
purchasers of Limited Service MEI Ports. Limited Service MEI Ports is 
not an unlimited resource as the Exchange needs to purchase additional

[[Page 9704]]

equipment to satisfy requests for additional ports. The Exchange also 
needs to provide personnel to set up new ports, service requests 
related to adding new and/or deleting existing ports, respond to 
performance queries, and to maintain those ports on behalf of Members 
and non-Members. Also, those firms that utilize additional Limited 
Service MEI Ports 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 access 
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.\57\ Thus, as the number of ports an entity has 
increases, certain other costs incurred by the Exchange that are 
correlated to, though not directly affected by, port costs (e.g., 
storage costs, surveillance costs, service expenses) also increase.
---------------------------------------------------------------------------

    \57\ 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 fee to relate to the number of ports a firm 
purchases. The Exchange notes that Limited Service MEI Ports are 
primarily utilized by firms that engage in advanced trading strategies 
and typically request multiple Limited Service MEI Ports, beyond the 
two per matching engine that are currently provided free of charge. 
Accordingly, the firms engaged in advanced trading strategies generate 
higher costs by utilizing more of the Exchange's resources. Those firms 
purchase higher amounts of Limited Service MEI Ports tend to have 
specific business oriented market making and trading strategies, as 
opposed to firms engaging solely in order routing as part of their 
best-execution obligations.
    The use of such additional Limited Service MEI Ports is a voluntary 
business decision of each Market Maker. Additional Limited Service MEI 
Ports are primarily used by Market Makers seeking to remove liquidity 
and, for competitive reasons, a Market Maker may choose to utilize 
numerous ports in an attempt to access the market quicker by using one 
port that may have less latency. The more ports purchased by a Market 
Maker likely results in greater expenditure of Exchange resources and 
increased cost to the Exchange. With this in mind, the Exchange will 
continue to provide the first and second additional Limited Service MEI 
Ports free of charge. The Exchange notes that firms that primarily 
route orders seeking best-execution generally do not utilize additional 
Limited Service MEI Ports. Those firms also generally send less orders 
and messages over those connections, resulting in less strain on 
Exchange resources.
    On a similar note, the Exchange proposes to increase the fee for 
those firms that purchase more ports resulting in greater expenditure 
of Exchange resources and increased cost to the Exchange. The Exchange 
notes that these firms that purchase numerous additional Limited 
Service MEI Ports essentially do so for competitive reasons amongst 
themselves and choose to utilize numerous ports 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 ports 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 or more of their additional Limited 
Service MEI Ports 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 additional Limited Service MEI Ports 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 ports mid-month to determine 
which ports 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 ports and, 
therefore, generate higher costs by utilizing more of the Exchange's 
resources. Those firms may also conduct other latency measurements over 
their ports and drop and simultaneously add ports 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 ports in the data center. Therefore, the Exchange believes it is 
equitable for these firms to experience increased port costs based on 
their disproportionate pull on Exchange resources to provide the 
additional port access.
    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.\58\ As 
stated above, Additional Limited Service MEI Ports are not an unlimited 
resource and the Exchange's network is limited in the amount of ports 
it can provide. However, the Exchange must accommodate requests for 
additional Limited Service MEI Ports 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 Limited Service MEI 
Ports on top of current network capacity constraints, requires that the 
Exchange to purchase additional equipment to satisfy these requests. 
The Exchange also needs to provide personnel to set up new ports and to 
maintain those ports on behalf of Members and non-Members. The proposed 
tiered-pricing structure is equitable because it is designed to 
encourage Market Makers to be more efficient and economical in 
selecting the amount of additional Limited Service MEI Ports they 
request while balancing that against the Exchange's increased expenses 
when expanding its network to accommodate additional Limited Service 
MEI Ports.
---------------------------------------------------------------------------

    \58\ 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 port access or their fee markup over those 
costs, and therefore cannot use other exchange's port fees as a 
benchmark to determine a reasonable markup over the costs of providing 
port access. Nevertheless, the Exchange believes the other exchange's 
port fees are a useful example of alternative approaches to providing 
and charging for port access. To that end, the Exchange believes the 
proposed tiered-pricing structure for Limited Service MEI Ports is 
reasonable because the proposed highest tier is still less than fees 
charged for similar port access provided by other options exchanges

[[Page 9705]]

with comparable market shares. For example, Amex (equity options market 
share of 5.05% as of November 26, 2021 for the month of November) \59\ 
and Arca (equity options market share of 14.88% as of November 26, 2021 
for the month of November) \60\ both charge $450 per port for order/
quote entry ports 1-40 and $150 per port for ports 41 and greater,\61\ 
all on a per matching engine basis, with Amex and Arca having 17 match 
engines and 19 match engines, respectively.\62\ Similarly, NASDAQ 
(equity options market share of 8.88% as of November 23, 2021 for the 
month of November) \63\ charges $1,500 per port for SQF ports 1-5, 
$1,000 per SQF port for ports 6-20, and $500 per SQF port for ports 21 
and greater,\64\ all on a per matching engine basis, with NASDAQ having 
multiple matching engines.\65\ The NASDAQ SQF Interface Specification 
provides that PHLX/NOM/BX Options trading infrastructures may consist 
of multiple matching engines with each matching engine trading only a 
range of option underlyings. Further, the SQF infrastructure is such 
that the firms connect to one or more servers residing directly on the 
matching engine infrastructure. Since there may be multiple matching 
engines, firms will need to connect to each engine's infrastructure in 
order to establish the ability to quote the symbols handled by that 
engine.\66\
---------------------------------------------------------------------------

    \59\ See ``The market at a glance,'' available at https://www.miaxoptions.com/ (last visited November 26, 2021).
    \60\ See id.
    \61\ See NYSE American Options Fee Schedule, Section V.A., Port 
Fees; NYSE Arca Options Fee Schedule, Port Fees.
    \62\ See NYSE Technology FAQ and Best Practices: Options, 
Section 5.1 (How many matching engines are used by each exchange?) 
(September 2020) (providing a link to an Excel file detailing the 
number of matching engines per options exchange).
    \63\ See supra note 59.
    \64\ See NASDAQ Stock Market, NASDAQ Options 7 Pricing Schedule, 
Section 3, NASDAQ Options Market--Ports and Other Services.
    \65\ See NASDAQ Specialized Quote Interface (SQF) Specification, 
Version 6.4 (October 2017), Section 2, Architecture (the ``NASDAQ 
SQF Interface Specification'').
    \66\ See id.
---------------------------------------------------------------------------

    In the each of the above cases, the Exchange's highest tier in the 
proposed tiered-pricing structure is similar to or 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 port alternatives. Each of 
the port rates in place at competing options exchanges were filed with 
the Commission for immediate effectiveness and remain in place today.

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 the proposed pricing structure is 
associated with relative usage of the various market participants. 
Firms that are primarily order routers seeking best-execution do not 
utilize Limited Service MEI Ports on MIAX Emerald and therefore will 
not pay the fees associated with the tiered-pricing structure. Rather, 
the fees described in the proposed tiered-pricing structure will only 
be allocated to Market Making firms that engage in advanced trading 
strategies and typically request multiple Limited Service MEI Ports, 
beyond the two that are free. Accordingly, the firms engaged in a 
Market Making business generate higher costs by utilizing more of the 
Exchange's resources. Those Market Making firms that purchase higher 
amounts of additional Limited Service MEI Ports tend to have specific 
business oriented market making and trading strategies, as opposed to 
firms engaging solely in best-execution order routing business. 
Additionally, the use of such additional Limited Service MEI Ports is 
entirely voluntary.
    The Exchange also does not believe that the proposed rule change 
will result in any burden on inter-market 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 access 
all options exchanges. The Exchange operates in a highly competitive 
environment, and as discussed above, its ability to price access and 
ports is constrained by competition among exchanges and third parties. 
There are other options markets of which market participants may access 
in order 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 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.
    Regrettably, the Exchange believes that the application of the 
Guidance to date has adversely affected inter-market competition by 
impeding the ability of smaller, low cost exchanges to adopt or 
increase fees for their market data and access services (including 
connectivity and port products and services). Since the adoption of the 
Guidance, and even more so recently, it has become harder, particularly 
for smaller, low cost exchanges, to adopt or increase fees to generate 
revenue necessary to invest in systems, provide innovative trading 
products and solutions, and improve competitive standing to the benefit 
of the affected exchanges' market participants. Although the Staff 
Guidance has served an important policy goal of improving disclosures 
and requiring exchanges to justify that their market data and access 
fee proposals are fair and reasonable, it has also negatively impacted 
exchanges, and particularly many smaller, low cost exchanges, that seek 
to adopt or increase fees despite providing enhanced disclosures and 
rationale to support their proposed fee changes.

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 \67\ and three comment letters on the Second 
[sic] Proposed Rule Change.\68\ The Exchange responded to the comment 
letters in the Fourth Proposed Rule Change and repeats its response in 
is filing. No comment letters were received in

[[Page 9706]]

response to the Fourth Proposed Rule Change.
---------------------------------------------------------------------------

    \67\ See supra note 8.
    \68\ See supra note 12.
---------------------------------------------------------------------------

SIG Letter 2
    SIG Letter 2 argues that the Exchange, in withdrawing the First 
Proposed Rule Change and refiling the Second [sic] 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.'' \69\ 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 [sic] 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 [sic] 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 [sic] Proposed Rule Changes.
---------------------------------------------------------------------------

    \69\ See SIG Letter 2, supra note 12, at page 1.
---------------------------------------------------------------------------

    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.'' \70\ 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 [sic] Proposed Rule Changes and this filing.
---------------------------------------------------------------------------

    \70\ 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

    Until recently, the Exchange operated at a net annual loss since it 
launched operations in 2019.\71\ 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 and Second [sic] Proposed Rule 
Changes. Similar justifications for the proposed fee change included in 
the First and Second [sic] 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.\72\ Those filings were not 
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.\73\ 
The Exchange leveraged its past work with Commission Staff to ensure 
the justification provided herein and in the First and Second [sic] 
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.'' \74\ That same commenter also noted their ``worry that 
the Commission's process for reviewing and evaluating exchange filings 
may be inconsistently applied.'' \75\
---------------------------------------------------------------------------

    \71\ See supra note 44.
    \72\ 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).
    \73\ 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).
    \74\ See HMA Letter, supra note 12.
    \75\ 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

[[Page 9707]]

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. With regards 
to the First and Second [sic] Proposed Rule Changes, the SIG Letter 
does not directly address the proposed fees or lay out specific 
arguments as to why the proposal is not consistent with Section 6(b)(4) 
of the Act. Rather, it simply describes the proposed fee change and 
flippantly states that its claims concerning the 10Gb ULL fee change 
proposals by the Exchange, and its affiliates, apply to these changes. 
Nonetheless, the Exchange submits the below response to the SIG Letter 
concerning the First Proposed Rule Change.
    Furthermore, the Exchange has enhanced its cost and revenue 
analysis and data in this Fourth [sic] 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's 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 regarding additional Limited Service MEI Port fees 
from SIG Letter 1 (while excluding arguments that pertain solely to 
connectivity), 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 . . . and comparisons to competing exchanges' overall 
operating profit margins are an inapt ``apples-to-oranges'' 
comparison . . . (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 . . . .'' \76\
---------------------------------------------------------------------------

    \76\ See SIG Letter 3, supra note 12.
---------------------------------------------------------------------------

General
    First, the SIG Letter 1 states that additional Limited Service MEI 
Ports ``are critical to Exchange members to be competitive and to 
provide essential protection from adverse market events'' (emphasis 
added).\77\ The Exchange notes that this statement is generally not 
true for additional Limited Service MEI Ports as those ports are 
completely voluntary and used primarily for entering liquidity removing 
orders and not risk protection activities like purging quotes resting 
on the MIAX Emerald Book. Additional Limited Service MEI Ports are 
essentially used for competitive reasons and Market Makers may choose 
to utilize one or two Limited Service MEI Ports that are provided for 
free, or purchase additional Limited Service MEI Ports based on their 
business needs and desire to attempt to access the market quicker by 
using one port that may have less latency. For instance, a Market Maker 
may have just sent numerous messages and/or orders over one of their 
additional Limited Service MEI Ports that are in queue to be processed. 
That same Market Maker then seeks to enter an order to remove liquidity 
from the Exchange's Book. That Market Maker may choose to send that 
order simultaneously over all of their Limited Service MEI Ports that 
they elected to purchase to ensure that their liquidity taking order 
accesses the Exchange as quickly as possible.
---------------------------------------------------------------------------

    \77\ See SIG Letter 1 at page 2, supra note 12.
---------------------------------------------------------------------------

If the Exchanges Were To Attempt To Establish Unreasonable Pricing, 
Then No Market Participant Would Join or Connect to the Exchange, and 
Existing Market Participants Would Disconnect
    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.'' \78\ 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 access 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.'' \79\ Nonetheless, the 
Fourth [sic] 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.
---------------------------------------------------------------------------

    \78\ Id.
    \79\ See Guidance, supra note 28.
---------------------------------------------------------------------------

The Proposed Access 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 Exchanges' claims that they will not realize a 
supracompetitive profit,'' and ``comparisons to competing exchanges' 
overall operating profit margins are an inapt `apples-to-oranges' 
comparison.'' \80\
---------------------------------------------------------------------------

    \80\ See supra note 12.
---------------------------------------------------------------------------

    The Exchange has provided ample data that the Proposed Access Fees 
would not result in excessive pricing or a supra-competitive profit. In 
this Fourth [sic] 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 
Fourth [sic] 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.
Recoupment of Exchange Infrastructure Costs
    Nowhere in this proposal or in the First, Second [sic], or Third 
[sic] Proposed Rule Changes 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.

[[Page 9708]]

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.
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.'' The Exchange does not believe it is necessary to respond 
to this assertion because it has never set forth a ``platform 
competition'' \81\ argument to justify the Proposed Access Fees in the 
First or Second [sic] Proposed Rule Changes nor does it do so in this 
filing.
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    \81\ 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 
28.
---------------------------------------------------------------------------

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.'' \82\ The 
Exchange never directly asserted in the First or Second [sic] 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.
---------------------------------------------------------------------------

    \82\ See SIFMA Letter, supra note 12.
---------------------------------------------------------------------------

Other SIFMA Assertions
    SIFMA also challenges or asserts: (i) Whether the Exchange has 
shown that the fees are equitable and non-discriminatory; (ii) that a 
tiered pricing structure will encourage market participants to be more 
economical with the usage; (iii) greater number of ports use greater 
Exchange resources; and (iv) 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. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\83\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\84\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization (``SRO'') if it appears to the Commission that such action 
is necessary or appropriate in the public interest, for the protection 
of investors, or otherwise in furtherance of the purposes of the Act. 
As discussed below, the Commission believes a temporary suspension of 
the proposed rule change is necessary and appropriate to allow for 
additional analysis of the proposed rule change's consistency with the 
Act and the rules thereunder.
---------------------------------------------------------------------------

    \83\ 15 U.S.C. 78s(b)(3)(C).
    \84\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    As the Exchange further details above, the Exchange first filed a 
proposed rule change proposing fee changes as proposed herein on August 
2, 2021. That proposal, SR-EMERALD-2021-25, was published for comment 
in the Federal Register on August 19, 2021.\85\ On September 24, 2021 
the Exchange withdrew SR-EMERALD-2021-25 and re-filed its proposal on 
September 27, 2021 (SR-EMERALD-2021-30). On September 28, 2021, the 
Exchange withdrew SR-EMERALD-2021-30 and filed a proposed rule change 
proposing fee changes as proposed herein. That proposal, SR-EMERALD-
2021-31, was published for comment in the Federal Register on October 
5, 2021.\86\ The Commission received three comment letters from two 
separate commenters on SR-EMERALD-2021-31.\87\ On November 22, 2021, 
pursuant to Section 19(b)(3)(C) of the Act, the Commission: (1) 
Temporarily suspended the proposed rule change; and (2) instituted 
proceedings to determine whether to approve or disapprove the proposed 
rule change.\88\ On December 1, 2021, the Exchange withdrew SR-EMERALD-
2021-31 and filed a proposed rule change proposing fee changes as 
proposed herein. That filing, SR-EMERALD-2021-43,\89\ was published for 
comment in the Federal Register on December 20, 2021.\90\ On January 
27, 2022, pursuant to Section 19(b)(3)(C) of the Act, the Commission: 
(1) Temporarily suspended the proposed rule change (SR-EMERALD-2021-
43); and (2) instituted proceedings to determine whether to approve or 
disapprove the proposal.\91\ On February 1, 2022, the Exchange withdrew 
SR-EMERALD-2021-43 and filed the instant filing, which is substantially 
similar.
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    \85\ See Securities Exchange Act Release No. 92662 (August 13, 
2021), 86 FR 46726 (August 19, 2021) (SR-EMERALD-2021-25). The 
Commission received one comment letter on that proposal. Comment on 
SR-EMERALD-2021-25 can be found at: https://www.sec.gov/comments/sr-emerald-2021-25/sremerald202125.htm.
    \86\ See Securities Exchange Act Release No. 93188 (September 
29, 2021), 86 FR 55052 (October 5, 2021) (SR-EMERALD-2021-31).
    \87\ Comment on SR-EMERALD-2021-31 can be found at: https://www.sec.gov/comments/sr-emerald-2021-31/sremerald202131.htm.
    \88\ See Securities Exchange Act Release No. 93640 (November 22, 
2021), 86 FR 67745 (November 29, 2021).
    \89\ See text accompanying supra note 15.
    \90\ See Securities Exchange Act Release No. 93772 (December 14, 
2021), 86 FR 71965 (December 20, 2021).
    \91\ See Securities Exchange Act Release No. 94087 (January 27, 
2022), 87 FR 5918 (February 2, 2022).
---------------------------------------------------------------------------

    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder

[[Page 9709]]

applicable to the exchange.\92\ The instructions to Form 19b-4, on 
which exchanges file their proposed rule changes, specify that such 
statement ``should be sufficiently detailed and specific to support a 
finding that the proposed rule change is consistent with [those] 
requirements.'' \93\
---------------------------------------------------------------------------

    \92\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \93\ See id.
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    Among other things, exchange proposed rule changes are subject to 
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which 
requires the rules of an exchange to: (1) Provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \94\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not permit unfair discrimination between 
customers, issuers, brokers, or dealers; \95\ and (3) not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\96\
---------------------------------------------------------------------------

    \94\ 15 U.S.C. 78f(b)(4).
    \95\ 15 U.S.C. 78f(b)(5).
    \96\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether the proposed additional Limited 
Service MEI Port fees are consistent with the statutory requirements 
applicable to a national securities exchange under the Act. In 
particular, the Commission will consider whether the proposed rule 
change satisfies the standards under the Act and the rules thereunder 
requiring, among other things, that an exchange's rules provide for the 
equitable allocation of reasonable fees among members, issuers, and 
other persons using its facilities; not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; and not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.\97\
---------------------------------------------------------------------------

    \97\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\98\
---------------------------------------------------------------------------

    \98\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    The Commission is instituting proceedings pursuant to Sections 
19(b)(3)(C) \99\ and 19(b)(2)(B) \100\ of the Act to determine whether 
the Exchange's proposed rule change should be approved or disapproved. 
Institution of such proceedings is appropriate at this time in view of 
the legal and policy issues raised by the proposed rule change. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, as described below, the Commission seeks and encourages 
interested persons to provide comments on the proposed rule change to 
inform the Commission's analysis of whether to approve or disapprove 
the proposed rule change.
---------------------------------------------------------------------------

    \99\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \100\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\101\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of whether the Exchange has sufficiently 
demonstrated how the proposed rule change is consistent with Sections 
6(b)(4),\102\ 6(b)(5),\103\ and 6(b)(8) \104\ of the Act. Section 
6(b)(4) of the Act requires that the rules of a national securities 
exchange provide for the equitable allocation of reasonable dues, fees, 
and other charges among its members and issuers and other persons using 
its facilities. Section 6(b)(5) of the Act requires that the rules of a 
national securities exchange be designed, among other things, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest, and not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act 
requires that the rules of a national securities exchange not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \101\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act 
also provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding, or if the 
exchange consents to the longer period. See id.
    \102\ 15 U.S.C. 78f(b)(4).
    \103\ 15 U.S.C. 78f(b)(5).
    \104\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, in addition to any 
other comments they may wish to submit about the proposed rule change. 
In particular, the Commission seeks comment on the following aspects of 
the proposal and asks commenters to submit data where appropriate to 
support their views:

    1. Cost Estimates and Allocation. The Exchange states that it is 
not asserting that the Proposed Access Fees are constrained by 
competitive forces, but rather set forth a ``cost-plus model,'' 
employing a ``conservative methodology'' that ``strictly considers 
only those costs that are most clearly directly related to the 
provision and maintenance of additional Limited Service MEI Ports.'' 
\105\ As described above by the Exchange, MIAX Emerald projects 
$0.88 million in aggregate annual estimated costs for 2021 for 
additional Limited Service MEI Ports. Do commenters believe that the 
Exchange has provided sufficient detail about how it determined (a) 
which categories and sub-categories of third-party and internal 
expenses are most clearly directly associated with providing and 
maintaining additional Limited Service MEI Ports, (b) the total 
annual expenses associated with such categories/sub-categories, and 
(c) what percentage of each such expense should be allocated as 
actually supporting the additional Limited Service MEI Ports (as 
opposed to, for example, allocated to the first two ``free'' Limited 
Service MEI Ports or other types of ports or connectivity services 
offered by the Exchange)? The Exchange describes a ``proprietary'' 
process involving all Exchange department heads, including the 
finance department and numerous meetings between the Exchange's 
Chief Information Officer, Chief Financial Officer, Head of 
Strategic Planning and Operations, Chief Technology Officer, various 
members of the Legal Department, and other group leaders, but does 
not specify further what principles were applied in making these 
determinations or arriving at particular allocations. Do commenters 
believe further explanation is necessary? For employee compensation 
and benefit costs, for example, the Exchange calculated an 
allocation of employee time in several departments, including 
Technology, Back Office, Systems Operations, Networking, Business 
Strategy Development, and Trade Operations, but does not provide the 
job titles and salaries of persons whose time was accounted for, or 
explain the methodology used to determine how much of an employee's 
time is devoted to providing and maintaining additional Limited 
Service MEI Ports. What are

[[Page 9710]]

commenters' views on whether the Exchange has provided sufficient 
detail on the identity and nature of services provided by third 
parties? Across all of the categories and sub-categories of third-
party and internal expenses that the Exchange identified as being 
clearly directly associated with providing and maintaining 
additional Limited Service MEI Ports, what are commenters' views on 
whether the Exchange has provided sufficient detail on how it 
selected such categories/sub-categories and how shared costs within 
or among such categories/sub-categories are allocated to additional 
Limited Service MEI Ports, to permit an independent review and 
assessment of the reasonableness of purported cost-based fees and 
the corresponding profit margin thereon? Should the Exchange be 
required to identify the categories/sub-categories of expenses that 
it deemed not to be clearly directly associated with additional 
Limited Service MEI Ports, and/or what Exchange products or services 
account for the un-allocated percentage of those categories/sub-
categories of expenses that were deemed to be associated with 
additional Limited Service MEI Ports (e.g., what products or 
services are associated with the approximately 98 percent of 
applicable depreciation and amortization expenses that MIAX Emerald 
does not allocate to the Proposed Access Fees)? Do commenters 
believe that the costs projected for 2021 are generally 
representative of expected costs going forward (to the extent 
commenters consider 2021 to be a typical or atypical year), or 
should an exchange present an estimated range of costs with an 
explanation of how profit margins could vary along the range of 
estimated costs? Should the Exchange use cost projections or actual 
cost estimates for 2021 in a filing made in 2022, or make cost 
projections for 2022?
---------------------------------------------------------------------------

    \105\ See supra Section II.A.2.
---------------------------------------------------------------------------

    2. Revenue Estimates and Profit Margin Range. The Exchange uses 
a single monthly revenue figure (November 2021) as the basis for 
calculating its projected profit margin of 66 percent. The Exchange 
argues that projecting revenues on a per month basis is reasonable 
``as the revenue generated from access services subject to the 
proposed fee generally remains static from month to month.'' \106\ 
Yet the Exchange also acknowledges that ``the revenue . . . may vary 
from month to month due to changes in ports.'' \107\ Similarly, the 
Exchange states that ``the number of ports has not materially 
changed over the previous months,'' yet also states that firms 
``frequently add and drop ports mid-month.'' \108\ Do commenters 
believe a single month provides a reasonable basis for a revenue 
projection? If not, why not? The profit margin is also dependent on 
the accuracy of the cost projections which, if inflated 
(intentionally or unintentionally), may render the projected profit 
margin meaningless. The Exchange acknowledges that this margin may 
fluctuate from month to month due to changes in the number of ports 
purchased, and that costs may increase.\109\ The Exchange does not 
account for the possibility of cost decreases, however. What are 
commenters' views on the extent to which actual costs (or revenues) 
deviate from projected costs (or revenues)? Do commenters believe 
that the Exchange's methodology for estimating the profit margin is 
reasonable? Should the Exchange provide a range of profit margins 
that it believes are reasonably possible, and the reasons therefor?
---------------------------------------------------------------------------

    \106\ See id.
    \107\ See id.
    \108\ See id.
    \109\ See id.
---------------------------------------------------------------------------

    3. Reasonable Rate of Return. The Exchange states that its 
Proposed Access Fees are ``designed to cover its costs with a 
limited return in excess of such costs,'' that ``revenue and 
associated profit margin . . . are not solely intended to cover the 
costs associated with providing access services subject to the 
Proposed Access Fees,'' and that a 66 percent margin is a limited 
return over such costs.\110\ Do commenters agree with the Exchange 
that its expected 66 percent profit margin would constitute a 
reasonable rate of return over costs for additional Limited Service 
MEI Ports? If not, what would commenters consider to be a reasonable 
rate of return and/or what methodology would they consider to be 
appropriate for determining a reasonable rate of return? The 
Exchange states that it chose to initially provide additional 
Limited Service MEI Ports at a discounted price and to forego 
revenue that it otherwise could have generated from assessing higher 
fees.\111\ Do commenters believe that this should be considered in 
the ``reasonableness'' assessment? Do commenters believe it relevant 
to an assessment of reasonableness that, according to the Exchange, 
the Proposed Access Fees are similar to or lower than fees charged 
by competing options exchanges with similar market share? Should an 
assessment of reasonable rate of return include consideration of 
factors other than costs; and if so, what factors should be 
considered, and why?
---------------------------------------------------------------------------

    \110\ See id.
    \111\ See id.
---------------------------------------------------------------------------

    4. Periodic Reevaluation. The Exchange has addressed whether it 
believes a material deviation from the anticipated profit margin 
would warrant the need to make a rule filing pursuant to Section 
19(b) of the Act to increase or decrease the fees accordingly, 
stating that ``[a]ny requirement that an exchange should conduct a 
periodic re-evaluation on a set timeline of its cost justification 
and amend its fees accordingly should be established by the 
Commission holistically, applied to all exchanges and not just 
pending fee proposals such as this filing,'' and that ``[i]n order 
to be fairly applied, such a mandate should be applied to existing 
access fees as well.'' \112\ In light of the impact that the number 
of ports purchased has on profit margins, and the potential for 
costs to decrease (or increase) over time, what are commenters' 
views on the need for exchanges to commit to reevaluate, on an 
ongoing and periodic basis, their cost-based connectivity fees to 
ensure that the fees stay in line with their stated profitability 
projections and do not become unreasonable over time, for example, 
by failing to adjust for efficiency gains, cost increases or 
decreases, and changes in subscribers? How formal should that 
process be, how often should that reevaluation occur, and what 
metrics and thresholds should be considered? How soon after a new 
connectivity fee change is implemented should an exchange assess 
whether its revenue and/or cost estimates were accurate and at what 
threshold should an exchange commit to file a fee change if its 
estimates were inaccurate? Should an initial review take place 
within the first 30 days after a connectivity fee is implemented? 60 
days? 90 days? Some other period?
---------------------------------------------------------------------------

    \112\ See id.
---------------------------------------------------------------------------

    5. Tiered Structure for Additional Limited Service MEI Ports. 
The Exchange states that the proposed tiered fee structure is 
designed to set the amount of the fees to relate to the number of 
ports a firm purchases \113\ and that ``[c]harging an incrementally 
higher fee to a Market Maker that utilizes numerous ports is 
directly related to the increased costs the Exchange incurs in 
providing and maintaining those additional ports.'' \114\ According 
to the Exchange, firms that purchase numerous Limited Service MEI 
Ports are primarily those that engage in advanced trading 
strategies, typically generate a disproportionate amount of messages 
and order traffic, and frequently add or drop ports mid-month, and 
thus that ``it is equitable for these firms to experience increased 
port costs based on their disproportionate pull on Exchange 
resources to provide the additional port access.'' \115\ The 
Proposed Access Fees would not just increase the previous $100 per 
additional Limited Service MEI Port fee, but would progressively 
increase the fee up to four-fold (up to $400 per port for seven or 
more ports). However, the Exchange has not specifically asserted 
that it is, for example, four times more costly to provide the 
seventh or more ports. Instead, the Exchange argues generally that 
the more ports purchased by a Market Maker ``likely'' results in 
greater expenditure of Exchange resources and increased cost to the 
Exchange, and that as the number of ports an entity has increases, 
certain other costs incurred by the Exchange that are correlated to, 
though not directly affected by, port costs (e.g., storage costs, 
surveillance costs, service expenses) also increase.\116\ Do 
commenters believe that the fees for each tier, as well as the fee 
differences between the tiers, are supported by the Exchange's 
assertions that it set the tiered-pricing structure in a manner that 
is equitable and not unfairly discriminatory? Do commenters believe 
that the Exchange should demonstrate how the proposed tiered fee 
levels correlate with tiered costs (e.g., by providing cost 
information broken down by tier, messaging volumes through the 
additional Limited Service MEI Ports by tier, and/or mid-month add/
drop rates by tier) to better substantiate, by tier, the 
``disproportionate pull'' on the Exchange's resources as a firm 
increases the number of additional Limited Service MEI Ports that it 
purchases and to permit an assessment of the Exchange's statement 
that

[[Page 9711]]

the Proposed Access Fees ``are solely determined by the individual 
Members' or non-Members' business needs and its impact on Exchange 
resources''? \117\
---------------------------------------------------------------------------

    \113\ See id.
    \114\ See id.
    \115\ See id.
    \116\ See id.
    \117\ See id.

    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
[SRO] that proposed the rule change.'' \118\ The description of a 
proposed rule change, its purpose and operation, its effect, and a 
legal analysis of its consistency with applicable requirements must all 
be sufficiently detailed and specific to support an affirmative 
Commission finding,\119\ and any failure of an SRO to provide this 
information may result in the Commission not having a sufficient basis 
to make an affirmative finding that a proposed rule change is 
consistent with the Act and the applicable rules and regulations.\120\ 
Moreover, ``unquestioning reliance'' on an SRO's representations in a 
proposed rule change would not be sufficient to justify Commission 
approval of a proposed rule change.\121\
---------------------------------------------------------------------------

    \118\ 17 CFR 201.700(b)(3).
    \119\ See id.
    \120\ See id.
    \121\ See Susquehanna Int'l Group, LLP v. Securities and 
Exchange Commission, 866 F.3d 442, 446-47 (D.C. Cir. 2017) 
(rejecting the Commission's reliance on an SRO's own determinations 
without sufficient evidence of the basis for such determinations).
---------------------------------------------------------------------------

    The Commission believes it is appropriate to institute proceedings 
to allow for additional consideration and comment on the issues raised 
herein, including as to whether the proposal is consistent with the 
Act, any potential comments or supplemental information provided by the 
Exchange, and any additional independent analysis by the Commission.

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. In particular, the Commission invites the written views of 
interested persons concerning whether the proposal is consistent with 
Sections 6(b)(4), 6(b)(5), and 6(b)(8), or any other provision of the 
Act, or the rules and regulations thereunder. The Commission asks that 
commenters address the sufficiency and merit of the Exchange's 
statements in support of the proposal, in addition to any other 
comments they may wish to submit about the proposed rule change. 
Although there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral 
presentation.\122\
---------------------------------------------------------------------------

    \122\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by an SRO. 
See Securities Acts Amendments of 1975, Report of the Senate 
Committee on Banking, Housing and Urban Affairs to Accompany S. 249, 
S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by March 15, 2022. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by March 29, 
2022.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-EMERALD-2022-05 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 No. SR-EMERALD-2022-05. 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 No. SR-EMERALD-2022-05 and should be submitted on 
or before March 15, 2022. Rebuttal comments should be submitted by 
March 29, 2022.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\123\ that File No. SR-EMERALD-2022-05 be, and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
---------------------------------------------------------------------------

    \123\ 15 U.S.C. 78s(b)(3)(C).
    \124\ 17 CFR 200.30-3(a)(12), (57) and (58).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\124\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03655 Filed 2-18-22; 8:45 am]
BILLING CODE 8011-01-P