[Federal Register Volume 87, Number 76 (Wednesday, April 20, 2022)]
[Notices]
[Pages 23660-23674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-08387]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94722; File No. SR-PEARL-2022-12]


Self-Regulatory Organizations; MIAX PEARL LLC; Notice of Filing 
of a Proposed Rule Change To Amend the MIAX PEARL Options Fee Schedule 
To Increase the Monthly Fees for MIAX Express Network Full Service 
Port; Suspension of and Order Instituting Proceedings To Determine 
Whether To Approve or Disapprove the Proposed Rule Change

April 14, 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 April 1, 2022, MIAX PEARL, LLC (``MIAX Pearl'' 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 Pearl Options 
Fee Schedule (the ``Fee Schedule'') to amend the fees for the 
Exchange's MIAX Express Network Full Service (``MEO'') \3\ Ports.
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    \3\ ``MEO Interface'' or ``MEO'' means a binary order interface 
for certain order types as set forth in Rule 516 into the MIAX Pearl 
System. See the Definitions Section of the Fee Schedule and Exchange 
Rule 100.
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
Pearl's principal office, and at the Commission's Public Reference 
Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the

[[Page 23661]]

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 increase the 
fees for its Full Service MEO Ports, Bulk and Single, which allow 
Members \4\ to submit electronic orders in all products to the 
Exchange. The Exchange initially filed this proposal on July 1, 2021, 
with the proposed fee changes being immediately effective (``First 
Proposed Rule Change'').\5\ The First Proposed Rule Change was 
published for comment in the Federal Register on July 15, 2021.\6\ The 
Commission received one comment letter on the First Proposed Rule 
Change \7\ and subsequently suspended the Frist [sic] Proposed Rule 
Change on August 27, 2021.\8\ The Exchange withdrew First Proposed Rule 
Change on October 12, 2021 and re-submitted the proposal on November 1, 
2021, with the proposed fee changes being immediately effective 
(``Second Proposed Rule Change'').\9\ The Second Proposed Rule Change 
provided additional justification for the proposed fee changes and 
addressed certain points raised in the single comment letter that was 
submitted on the First Proposed Rule Change. The Second Proposed Rule 
Change was published for comment in the Federal Register on November 
17, 2021.\10\ The Commission received no comment letters on the Second 
Proposed Rule Change. Nonetheless, the Exchange withdrew the Second 
Proposed Rule Change on December 20, 2021 and submitted a revised 
proposal for immediate effectiveness (``Third Proposed Rule 
Change'').\11\ The Third Proposed Rule Change was published for comment 
in the Federal Register on January 10, 2022.\12\ Although the 
Commission again did not receive any comment letters on the Third 
Proposed Rule Change, the Exchange withdrew the Third Proposed Rule 
Change on February 15, 2022 and submitted a revised proposal for 
immediate effectiveness, which was noticed and immediately suspended by 
the Commission on February 18, 2022 (``Fourth Proposed Rule 
Change'').\13\ The Commission received one comment letter on the Fourth 
Proposed Rule Change.\14\ The Exchange withdrew the Fourth Proposed 
Rule Change on March 30, 2022 and submits this revised proposal to be 
effective April 1, 2022 (``Fifth Proposed Rule Change'').
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    \4\ ``Member'' means an individual or organization that is 
registered with the Exchange pursuant to Chapter II of Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \5\ See Securities Exchange Act Release No. 92365 (July 9, 
2021), 86 FR 37347 (July 15, 2021) (SR-PEARL-2021-33).
    \6\ See id.
    \7\ See Letter from Richard J. McDonald, Susquehanna 
International Group, LLC (``SIG''), to Vanessa Countryman, 
Secretary, Commission, dated September 7, 2021 (``SIG Letter 1'').
    \8\ See Securities Exchange Act Release No. 92798 (August 27, 
2021), 86 FR 49360 (September 2, 2021).
    \9\ See Securities Exchange Act Release No. 93556 (November 10, 
2021), 86 FR 64235 (November 17, 2021) (SR-PEARL-2021-53).
    \10\ See id.
    \11\ Securities Exchange Act Release No. 93894 (January 4, 
2022), 87 FR 1203 (January 10, 2022) (SR-PEARL-2021-58).
    \12\ Id.
    \13\ See Securities Exchange Act Release No. 94286 (February 18, 
2022), 87 FR 10860 (February 25, 2022) (SR-PEARL-2022-04) (Notice of 
Filing of a Proposed Rule Change to Amend the MIAX PEARL Options Fee 
Schedule to Increase the Monthly Fees for MIAX Express Network Full 
Service Port; Suspension of and Order Instituting Proceedings to 
Determine Whether to Approve or Disapprove the Proposed Rule 
Change).
    \14\ See Letter from Richard J. McDonald, SIG, to Vanessa 
Countryman, Secretary, Commission, dated March 15, 2022 (``SIG 
Letter 2'').
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Full Service MEO Port Fee Changes
    The Exchange currently offers different types of MEO Ports 
depending on the services required by the Member, including a Full 
Service MEO Port-Bulk,\15\ a Full Service MEO Port-Single,\16\ and a 
Limited Service MEO Port.\17\ For one monthly price, a Member may be 
allocated two (2) Full-Service MEO Ports of either type per matching 
engine \18\ and may request Limited Service MEO Ports for which MIAX 
Pearl will assess Members Limited Service MEO Port fees per matching 
engine based on a sliding scale for the number of Limited Service MEO 
Ports utilized each month. The two (2) Full-Service MEO Ports that may 
be allocated per matching engine to a Member may consist of: (a) Two 
(2) Full Service MEO Ports--Bulk; (b) two (2) Full Service MEO Ports--
Single; or (c) one (1) Full Service MEO Port--Bulk and one (1) Full 
Service MEO Port--Single.
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    \15\ ``Full Service MEO Port--Bulk'' means an MEO port that 
supports all MEO input message types and binary bulk order entry. 
See the Definitions Section of the Fee Schedule.
    \16\ ``Full Service MEO Port--Single'' means an MEO port that 
supports all MEO input message types and binary order entry on a 
single order-by-order basis, but not bulk orders. See the 
Definitions Section of the Fee Schedule.
    \17\ ``Limited Service MEO Port'' means an MEO port that 
supports all MEO input message types, but does not support bulk 
order entry and only supports limited order types, as specified by 
the Exchange via Regulatory Circular. See the Definitions Section of 
the Fee Schedule.
    \18\ A ``Matching Engine'' is a part of the MIAX Pearl 
electronic system that processes options orders and trades on a 
symbol-by-symbol basis. Some Matching Engines will process option 
classes with multiple root symbols, and other Matching Engines may 
be dedicated to one single option root symbol. A particular root 
symbol may only be assigned to a single designated Matching Engine. 
A particular root symbol may not be assigned to multiple Matching 
Engines. See the Definitions Section of the Fee Schedule.
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    Unlike other options exchanges that provide similar port 
functionality and charge fees on a per port basis,\19\ the Exchange 
offers Full Service MEO Ports as a package and provides Members with 
the option to receive up to two Full Service MEO Ports (described 
above) per matching engine to which that Member connects. The Exchange 
currently has twelve (12) matching engines, which means Members may 
receive up to twenty-four (24) Full Service MEO Ports for a single 
monthly fee, that can vary based on certain volume percentages, as 
described below. For illustrative purposes and as described in more 
detail below, the Exchange currently assesses a fee of $5,000 per month 
for Members that

[[Page 23662]]

reach the highest Full Service MEO Port--Bulk Tier, regardless of the 
number of Full Service MEO Ports allocated to the Member. For example, 
assuming a Member connects to all twelve (12) matching engines during a 
month, with two Full Service MEO Ports per matching engine, this 
results in a cost of $208.33 per Full Service MEO Port ($5,000 divided 
by 24) for the month. This fee had been unchanged since the Exchange 
adopted Full Service MEO Port fees in 2018.\20\ The Exchange proposes 
to increase Full Service MEO Port fees as further described below, with 
the highest monthly fee of $10,000 for the Full Service MEO Port--Bulk. 
Members will continue to receive two (2) Full Service MEO Ports to each 
matching engine to which they connect for the single flat monthly fee. 
Assuming a Member connects to all twelve (12) matching engines during 
the month, with two Full Service MEO Ports per matching engine, this 
would result in a cost of $416.67 per Full Service MEO Port ($10,000 
divided by 24).
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    \19\ See NYSE American Options Fee Schedule, Section V.A., Port 
Fees (each port charged on a per matching engine basis, with NYSE 
American having 17 match engines). 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); 
NYSE Arca Options Fee Schedule, Port Fees (each port charged on a 
per matching engine basis, NYSE Arca having 19 match engines); and 
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). See NASDAQ Fee Schedule, Nasdaq 
Options 7 Pricing Schedule, Section 3, Nasdaq Options Market--Ports 
and Other Services (each port charged on a per matching engine 
basis, with Nasdaq having multiple matching engines). See Nasdaq 
Specialized Quote Interface (SQF) Specification, Version 6.5b 
(updated February 13, 2020), Section 2, Architecture, available at 
https://www.nasdaq.com/docs/2020/02/18/Specialized-Quote-Interface-SQI-6.5b.pdf (the ``NASDAQ SQF Interface Specification''). The 
NASDAQ SQF Interface Specification also provides that NASDAQ's 
affiliates, Nasdaq PHLX LLC (``Nasdaq Phlx'') and Nasdaq BX, Inc. 
(``Nasdaq BX''), have trading infrastructures that may consist of 
multiple matching engines with each matching engine trading only a 
range of option underlyings. Further, the NASDAQ SQF Interface 
Specification provides that 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.
    \20\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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    The Exchange assesses Members Full Service MEO Port Fees, either 
for a Full Service MEO Port--Bulk and/or for a Full Service MEO Port--
Single, based upon the monthly total volume executed by a Member and 
its Affiliates \21\ on the Exchange across all origin types, not 
including Excluded Contracts,\22\ as compared to the Total Consolidated 
Volume (``TCV''),\23\ in all MIAX Pearl-listed options. The Exchange 
adopted a tier-based fee structure based upon the volume-based tiers 
detailed in the definition of ``Non-Transaction Fees Volume-Based 
Tiers'' described in the Definitions section of the Fee Schedule. The 
Exchange assesses these and other monthly Port fees to Members in each 
month the market participant is credentialed to use a Port in the 
production environment.
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    \21\ ``Affiliate'' means (i) an affiliate of a Member of at 
least 75% common ownership between the firms as reflected on each 
firm's Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX Pearl 
Market Maker) that has been appointed by a MIAX Pearl Market Maker, 
pursuant to the following process. A MIAX Pearl Market Maker 
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for 
the purposes of the Fee Schedule, by each completing and sending an 
executed Volume Aggregation Request Form by email to 
[email protected] no later than 2 business days prior to 
the first business day of the month in which the designation is to 
become effective. Transmittal of a validly completed and executed 
form to the Exchange along with the Exchange's acknowledgement of 
the effective designation to each of the Market Maker and EEM will 
be viewed as acceptance of the appointment. The Exchange will only 
recognize one designation per Member. A Member may make a 
designation not more than once every 12 months (from the date of its 
most recent designation), which designation shall remain in effect 
unless or until the Exchange receives written notice submitted 2 
business days prior to the first business day of the month from 
either Member indicating that the appointment has been terminated. 
Designations will become operative on the first business day of the 
effective month and may not be terminated prior to the end of the 
month. Execution data and reports will be provided to both parties. 
See the Definitions Section of the Fee Schedule.
    \22\ ``Excluded Contracts'' means any contracts routed to an 
away market for execution. See the Definitions Section of the Fee 
Schedule.
    \23\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX Pearl for the 
month for which the fees apply, excluding consolidated volume 
executed during the period of time in which the Exchange experiences 
an Exchange System Disruption (solely in the option classes of the 
affected Matching Engine). See the Definitions Section of the Fee 
Schedule.
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    Current Full Service MEO Port--Bulk Fees. The Exchange currently 
assesses Members monthly Full Service MEO Port--Bulk fees as follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $3,000;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $4,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $5,000.
    Proposed Full Service MEO Port--Bulk Fees. The Exchange proposes to 
assess Members monthly Full Service MEO Port--Bulk fees as follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $5,000;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $7,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $10,000.
    Current Full Service MEO Port--Single Fees. The Exchange currently 
assesses Members monthly Full Service MEO Port--Single fees as follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $2,000;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $3,375; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $3,750.
    Proposed Full Service MEO Port--Single Fees. The Exchange proposes 
to assess Members monthly Full Service MEO Port--Single fees as 
follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $2,500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $3,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $4,500.
    The Exchange offers various types of ports with differing prices 
because each port accomplishes different tasks, are suited to different 
types of Members, and consume varying capacity amounts of the network. 
For instance, MEO ports allow for a higher throughput and can handle 
much higher quote/order rates than FIX ports. Members that are Market 
Makers \24\ or high frequency trading firms utilize these ports 
(typically coupled with 10Gb ULL connectivity) because they transact in 
significantly higher amounts of messages being sent to and from the 
Exchange, versus FIX port users, who are traditionally customers 
sending only orders to the Exchange (typically coupled with 1Gb 
connectivity). The different types of ports cater to the different 
types of Exchange Memberships and different capabilities of the various 
Exchange Members. Certain Members need ports and connections that can 
handle using far more of the network's capacity for message throughput, 
risk protections, and the amount of information that the System has to 
assess. Those Members may account for the vast majority of network 
capacity utilization and volume executed on the Exchange, as discussed 
throughout.
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    \24\ The term ``Market Maker'' means a Member registered with 
the Exchange for the purpose of making markets in options contracts 
traded on the Exchange and that is vested with the rights and 
responsibilities specified in Chapter VI of Exchange Rules. See the 
Definitions Section of the Fee Schedule and Exchange Rule 100.
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    The Exchange proposes to increase its monthly Full Service MEO Port 
fees

[[Page 23663]]

since it has not done so since the fees were adopted in 2018,\25\ which 
are designed to recover a portion of the costs associated with directly 
accessing the Exchange. The Exchange notes that its affiliates, Miami 
International Securities Exchange, LLC (``MIAX'') and MIAX Emerald, LLC 
(``MIAX Emerald''), charge fees for their high throughput, low latency 
MIAX Express Interface (``MEI'') Ports in a similar fashion as the 
Exchange charges for its MEO Ports--generally, the more active user the 
Member (i.e., the greater number/greater national ADV of classes 
assigned to quote on MIAX and MIAX Emerald), the higher the MEI Port 
fee.\26\ This concept is not new or novel. The Exchange also notes that 
the proposed increased fees for the Exchange's Full Service MEO Ports 
are in line with, or cheaper than, the similar port fees for similar 
membership fees charged by other options exchanges.\27\
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    \25\ See supra note 20.
    \26\ See MIAX Fee Schedule, Section 5)d)ii); MIAX Emerald Fee 
Schedule, Section 5)d)ii).
    \27\ See NYSE American Options Fee Schedule, Section V.A., Port 
Fees; NYSE Arca Options Fee Schedule, Port Fees; Nasdaq Stock Market 
LLC (``NASDAQ''), Options 7, Pricing Schedule, Section 3.
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    The Exchange has historically undercharged for Full Service MEO 
Ports as compared to other options exchanges because the Exchange 
provides Full Service MEO Ports as a package for a single monthly fee. 
As described above, this package includes two Full Service MEO Ports 
for each of the Exchange's twelve (12) matching engines. The Exchange 
understands other options exchanges charge fees on a per port basis. 
The Exchange believes other exchanges' port fees are useful examples 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.

------------------------------------------------------------------------
            Exchange                 Type of port         Monthly fee
------------------------------------------------------------------------
MIAX Pearl (as proposed) (equity  MEO Full Service--  Tier 1: $5,000 (or
 options market share of 4.32%     Bulk.               $208.33 per
 as of March 29, 2022 for the                          Matching Engine).
 month of March).\28\                                 Tier 2: $7,500 (or
                                                       $312.50 per
                                                       Matching Engine).
                                                      Tier 3: $10,000
                                                       (or $416.66 per
                                                       Matching Engine).
                                  MEO Full Service--  Tier 1: $2,500 (or
                                   Single.             $104.16 per
                                                       Matching Engine).
                                                      Tier 2: $3,500 (or
                                                       $145.83 per
                                                       Matching Engine).
                                                      Tier 3: $4,500 (or
                                                       $187.50 per
                                                       Matching Engine).
The NASDAQ Stock Market LLC       Order/Quote Entry.  Ports 1-40: $450
 (``NASDAQ'') \29\ (equity                             each.
 options market share of 8.62%                        Ports 41 or more:
 as of March 29, 2022 for the                          $150 each.
 month of March).\30\
Nasdaq ISE LLC (``ISE'') \31\     Order/Quote Entry.  Ports 1-40: $450
 (equity options market share of                       each.
 5.83% as of March 29, 2022 for                       Ports 41 or more:
 the month of March).\32\                              $150 each.
NYSE American LLC (``Amex'')      Specialized Quote   Ports 1-5: $1,500
 \33\ (equity options market       Interface.          each.
 share of 7.15% as of March 29,                       Ports 6-20: $1,000
 2022 for the month of                                 each.
 March).\34\                                          Ports 21 or more:
                                                       $500.
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Implementation
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    \28\ See ``The market at a glance,'' available at https://www.miaxoptions.com/(last visited March 29, 2022).
    \29\ See NASDAQ Rules, General 8: Connectivity, Section 1. Co-
Location Services.
    \30\ See supra note 28.
    \31\ See ISE Rules, General 8: Connectivity.
    \32\ See supra note 28.
    \33\ See NYSE American Options Fee Schedule, Section IV.
    \34\ See supra note 28.
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    The proposed fees are effective beginning April 1, 2022.
2. Statutory Basis
    The Exchange believes that the proposed increase to the MEO Port 
fees is consistent with Section 6(b) of the Act \35\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \36\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Members and other persons 
using any facility or system that the Exchange operates or controls. 
The Exchange also believes the proposed MEO Port fees furthers the 
objectives of Section 6(b)(5) of the Act \37\ 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 and the public 
interest and are not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
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    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(4).
    \37\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the information provided to justify the 
proposed fees meets or exceeds the amount of detail required in respect 
of proposed fee changes as set forth in recent Commission and 
Commission Staff guidance. 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'').\38\ 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.'' \39\ Based on both the BOX Order and the Guidance, the 
Exchange believes that the proposed MEO Port fees is consistent with 
the Act because it (i) is reasonable, equitably allocated, not unfairly 
discriminatory, and not an undue burden on competition; (ii) complies 
with the BOX Order and the Guidance; and (iii) is supported by evidence 
(including comprehensive revenue and cost data and analysis) that the 
proposed fees are fair and reasonable and will not result in excessive 
pricing or supra-competitive profit.
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    \38\ 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).
    \39\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
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The Proposed 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

[[Page 23664]]

believes this high standard is especially important when an exchange 
imposes various fees for market participants to access an exchange's 
marketplace.
    In the Guidance, the Commission Staff states that, ``[a]s an 
initial step in assessing the reasonableness of a fee, staff considers 
whether the fee is constrained by significant competitive forces.'' 
\40\ 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.'' \41\ In the Guidance, the Commission Staff further states that, 
``[i]f an SRO seeks to support its claims that a proposed fee is fair 
and reasonable because it will permit recovery of the SRO's costs, or 
will not result in excessive pricing or supra-competitive profit, 
specific information, including quantitative information, should be 
provided to support that argument.'' \42\ The Exchange does not assert 
that the proposed fees are constrained by competitive forces. Rather, 
the Exchange asserts that the proposed fees are reasonable because they 
will permit recovery of the Exchange's costs in providing access 
services to supply MEO Ports and will not result in the Exchange 
generating a supra-competitive profit.
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    \40\ Id.
    \41\ Id.
    \42\ 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.'' \43\ 
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.'' \44\ The Exchange provides 
this analysis below.
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    \43\ Id.
    \44\ Id.
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    The proposed fees are based on a cost-plus model. An MEO Port 
provides access to each of the three Exchange networks, extranet, 
internal network, and external network, all of which are necessary for 
Exchange operations. The Exchange's extranet provides the means by 
which the Exchange communicates with market participants and includes 
access to the Member portal and the ability to send and receive daily 
communications and reports. The internal network connects the extranet 
to the rest of the Exchange's systems and includes trading systems, 
market data systems, and network monitoring. The external network 
includes connectivity between the Exchange and other national 
securities exchanges, market data providers, and between the Exchange's 
locations in Princeton, New Jersey, Secaucus, New Jersey (NY4), Miami, 
Florida, and Chicago, Illinois (CH4). In determining the appropriate 
fees to charge Members and non-Members to access the Exchange's System 
Networks via MEO Ports, the Exchange considered its costs to provide 
and maintain its System Networks and connectivity to those System 
Networks, using costs that are related to providing and maintaining 
access the Exchange's System Networks via MEO Ports to estimate such 
costs, and set fees that are designed to cover its costs with a limited 
return in excess of such costs. The Exchange believes that it is 
important to demonstrate that the proposed fees are based on the 
Exchange's costs and reasonable business needs and believes the 
proposed fees will allow the Exchange to continue to offset expenses. 
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 access to the Exchange's System Networks via MEO Ports 
because of the uncertainty of forecasting subscriber decision making 
with respect to firms' port and access needs. The Exchange believes 
that the proposed fees will not result in excessive pricing or supra-
competitive profit based on the total expenses the Exchange incurs 
versus the total revenue the Exchange projects to collect, and 
therefore meets the standards in the Act as interpreted by the 
Commission and the Commission Staff in the BOX Order and the Guidance.
    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 MEO 
Ports, and, if such expense did so relate, what portion (or percentage) 
of such expense actually supports access to the Exchange's System 
Networks via MEO Ports. In determining what portion (or percentage) to 
allocate to access services, each Exchange department head, in 
coordination with other Exchange personnel, determined the expenses 
that support access services and System Networks associated with MEO 
Ports. 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 analysis also 
included each department head meeting with the divisions of teams 
within each department to determine the amount of time and resources 
allocated by employees within each division towards the access services 
and System Networks associated with MEO Ports. The Exchange reviewed 
each individual expense to determine if such expense was related to MEO 
Ports. 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 and the 
System Networks. The sum of all such portions of expenses represents 
the total cost to the Exchange to provide access services associated 
with MEO Ports. For the avoidance of doubt, no expense amount is 
allocated twice.
    The 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 MEO Ports. 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 historically, 
and on an ongoing annual basis, reviews its costs and resource 
allocations to ensure it appropriately allocates resources to properly 
provide services to the Exchange's constituents.
    The Exchange believes exchanges, like all businesses, should be 
provided flexibility when developing and applying a methodology to 
allocate 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.
    The Exchange notes that there are material costs associated with 
providing the infrastructure and headcount to

[[Page 23665]]

fully support access to the Exchange and its System Networks via MEO 
Ports. 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. Both fixed and 
variable expenses have significant impact on the Exchange's overall 
costs to provide and maintain access to the Exchange's System Networks 
via MEO Ports. For example, to accommodate new Members, the Exchange 
may need to purchase additional hardware to support those Members as 
well as provide enhanced monitoring and reporting of customer 
performance that the Exchange and its affiliates currently provide. 
Further, as the total number of Members increases, the Exchange and its 
affiliates may need to increase their data center footprint and consume 
more power, resulting in increased costs charged by their third-party 
data center provider. Accordingly, the cost to the Exchange and its 
affiliates to provide access to its Members is not fixed. The Exchange 
believes the proposed fees are a reasonable attempt to offset a portion 
of those costs associated with providing access to and maintaining its 
System Networks' infrastructure and related MEO Ports.
    The Exchange estimated its total annual expense to provide and 
maintain access to the Exchange's System Networks via MEO Ports based 
on the following general expense categories: (1) External expenses, 
which include fees paid to third parties for certain products and 
services; (2) internal expenses relating to the internal costs to 
provide the services associated with MEO Ports; and (3) general shared 
expenses.\45\ The Guidance does not include any information regarding 
the methodology that an exchange should use to determine its cost 
associated with a proposed fee change. The Exchange utilized a 
methodology in this proposed fee change that it believes is reasonable 
because the Exchange analyzed its entire cost structure, allocated a 
percentage of each cost attributable to maintaining its System 
Networks, then divided those costs according to the cost methodology 
outlined below.
---------------------------------------------------------------------------

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

    For 2022, the total annual expense for providing the access 
services associated with the MEO Ports is estimated to be $2,923,534, 
or $243,627 per month. The Exchange believes it is more appropriate to 
analyze the proposed fees utilizing its estimated 2022 revenue and 
costs, which utilize the same presentation methodology as set forth in 
the Exchange's previously-issued Audited Unconsolidated Financial 
Statements.\46\ The $2,923,534 estimated total annual expense is 
directly related to the access to the Exchange's System Networks via 
MEO Ports and not any other product or service offered by the Exchange. 
For example, it does not include general costs of operating matching 
engines and other trading technology. No expense amount was allocated 
twice. Each of the categories of expenses are set forth in the 
following table and details of the individual line-item costs 
considered by the Exchange for each category are described further 
below.
---------------------------------------------------------------------------

    \46\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the 
information technology and communication costs line item under the 
section titled ``Operating Expenses Incurred Directly or Allocated 
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing 
its financial statements for 2018. See Securities Exchange Act 
Release No. 87876 (December 31, 2019), 85 FR 757 (January 7, 2020) 
(SR-PEARL-2019-36). Accordingly, the third party expense described 
in this filing is attributed to the same line item for the 
Exchange's 2022 Form 1 Amendment, which will be filed in 2023.

------------------------------------------------------------------------
                            External expenses
-------------------------------------------------------------------------
                                                         Percentage of
                       Category                          total expense
                                                        amount allocated
------------------------------------------------------------------------
Data Center Provider.................................              1.80%
Fiber Connectivity Provider..........................              0.90%
Security Financial Transaction Infrastructure                      0.90%
 (``SFTI''), and Other Connectivity and Content
 Service Providers...................................
Hardware and Software Providers......................              0.90%
                                                      ------------------
Total of External Expenses...........................      \47\ $295,184
------------------------------------------------------------------------
                            Internal expenses
------------------------------------------------------------------------
Category                                                 Expense amount
                                                           allocated
------------------------------------------------------------------------
Employee Compensation................................         $2,066,488
Depreciation and Amortization........................            161,578
Occupancy............................................             62,531
                                                      ------------------
    Total of Internal expenses.......................          2,290,597
------------------------------------------------------------------------
Allocated Shared Expenses............................            337,753
------------------------------------------------------------------------

    The Exchange notes that it only has two primary sources of revenue, 
connectivity and port fees, to recover those costs associated with 
providing and maintaining access to the Exchange's System Networks. The 
Exchange notes that, without the specific third party and internal 
expense items, the Exchange would not be able to provide and maintain 
the System Networks and access to the System Networks via MEO Ports to 
Members. Each of these expense items, including physical hardware, 
software, employee compensation and benefits, occupancy costs, and the 
depreciation and amortization of equipment, has been identified through 
a line-by-line item analysis to be integral to providing and 
maintaining the System Networks and

[[Page 23666]]

access to System Networks via MEO Ports.
---------------------------------------------------------------------------

    \47\ The Exchange does not believe it is appropriate to disclose 
the actual amount it pays to each individual third-party provider as 
those fee arrangements are competitive or the Exchange is 
contractually prohibited from disclosing that number.
---------------------------------------------------------------------------

    For clarity, the Exchange took a conservative approach in 
determining the expense and the percentage of that expense to be 
allocated to providing and maintaining the System Networks and access 
to System Networks in connection with MEO Ports. The Exchange describes 
the analysis conducted for each expense and the resources or 
determinations that were considered when determining the amount 
necessary to allocate to each expense. 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 providing and maintaining the System Networks 
and access to Exchange's System Networks via MEO Ports. This may result 
in the Exchange under allocating an expense to provide and maintain its 
System Networks and access to the System Networks via MEO Ports, and 
such expenses may actually be higher than what the Exchange allocated 
as part of this proposal. The Exchange notes that expenses associated 
with its affiliates, MIAX and MIAX Emerald, as well as the Exchange's 
equities market, are accounted for separately and are not included 
within the scope of this filing.
    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 resulted in revised percentage 
allocations in this filing. The revised percentages are, among other 
things, the result of the shuffling of internal resources in response 
to business objectives and changes to fees charged and services 
provided by third parties. Therefore, the percentage allocations used 
in this proposed rule change may differ from past filings from the 
Exchange or its affiliates due to, among other things, changes in 
expenses charged by third parties, adjustments to internal resource 
allocations, and different system architecture of the Exchange as 
compared to its affiliates.
External Expense Allocations
    For 2022, expenses relating to fees paid by the Exchange to third 
parties for products and services necessary to provide and maintain the 
System Networks and access to the System Networks via a MEO Port are 
estimated to be $295,184. This includes, but is not limited to, a 
portion of the fees paid to: (1) A third party data center provider, 
including for the primary, secondary, and disaster recovery locations 
of the Exchange's trading system infrastructure; (2) a fiber 
connectivity provider for network services (fiber and bandwidth 
products and services) linking the Exchange's and its affiliates' 
office locations in Princeton, New Jersey and Miami, Florida, to all 
data center locations; (3) SFTI, which supports connectivity feeds for 
the entire U.S. options industry; (4) various other content and 
connectivity service providers, 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 that support the production environment 
in which Members and non-Members connect to the network to trade and 
receive market data.
Data Center Space and Operations Provider
    The Exchange does not own the primary data center or the secondary 
data center, but instead leases space in data centers operated by third 
parties where the Exchange houses servers, switches and related 
equipment. Data center costs include an allocation of the costs the 
Exchange incurs to provide physical connectivity in the third-party 
data centers where it maintains its equipment as well as related costs. 
The data center provider operates the data centers (primary, secondary, 
and disaster recovery) that host the Exchange's network infrastructure. 
Without the retention of a third-party data center, the Exchange would 
not be able to operate its systems and provide a trading platform for 
market participants. The Exchange does not employ a separate fee to 
cover its data center expense and recoups that expense, in part, by 
charging for MEO Ports.
    The Exchange reviewed its data center footprint, including its 
total rack space, cage usage, number of servers, switches, cabling 
within the data center, heating and cooling of physical space, storage 
space, and monitoring and divided its data center expenses among 
providing transaction services, market data, and connectivity. Based on 
this review, the Exchange determined that 1.80% of the total applicable 
data center provider expense is applicable to providing and maintaining 
access services and System Networks associated with MEO Ports. The 
Exchange believes this allocation is reasonable because MEO Ports are a 
core means of access to the Exchange's network, providing one method 
for market participants to send and receive order and trade messages, 
as well as receive market data. A large portion of the Exchange's data 
center expense is due to providing and maintaining port access and 
connectivity to the Exchange's System Networks, including providing 
cabling within the data center between market participants and the 
Exchange. The Exchange excluded from this allocation servers that are 
dedicated to market data. The Exchange also did not allocate the 
remainder of the data center expense because it pertains to other areas 
of the Exchange's operations, such as other ports, market data, and 
transaction services.
Fiber Connectivity Provider
    The Exchange engages a third-party service provider that provides 
the internet, fiber and bandwidth connections between the Exchange's 
networks, primary and secondary data center, and office locations in 
Princeton and Miami. Fiber connectivity is necessary for the Exchange 
to switch to its secondary data center in the case of an outage in its 
primary data center. Fiber connectivity also allows the Exchange's 
National Operations & Control Center (``NOCC'') and Security Operations 
Center (``SOC'') in Princeton to communicate with the Exchange's 
primary and secondary data centers. As such, all trade data, including 
the billions of messages each day, flow through this third-party 
provider's infrastructure over the Exchange's network. Without these 
services, the Exchange would not be able to operate and support the 
network and provide and maintain access services and System Networks 
associated with the MEO Ports to its Members and their customers. 
Without the retention of a third-party fiber connectivity provider, the 
Exchange would not be able to communicate between its data centers and 
office locations. The Exchange does not employ a separate fee to cover 
its fiber connectivity expense and recoups that expense, in part, by 
charging for MEO Ports.
    The Exchange reviewed it costs to retain fiber connectivity from a 
third party, including the ongoing costs to support fiber connectivity, 
ensuring adequate bandwidth and infrastructure maintenance to support 
exchange operations, and ongoing network monitoring and maintenance and 
determined that 0.90% of the total fiber connectivity expense was 
applicable to providing and maintaining access services and System 
Networks associated with MEO Ports. The Exchange believes this 
allocation is reasonable because MEO Ports are a core means of access 
to the Exchange's

[[Page 23667]]

network, providing one method for market participants to send and 
receive order and trade messages, as well as receive market data. A 
large portion of the Exchange's fiber connectivity expense is due to 
providing and maintaining connectivity between the Exchange's System 
Networks, data centers, and office locations and is core to the daily 
operation of the Exchange. Fiber connectivity is a necessary integral 
means to disseminate information from the Exchange's primary data 
center to other Exchange locations. The Exchange excluded from this 
allocation fiber connectivity usage related to market data or other 
business lines. The Exchange also did not allocate the remainder of 
this expense because it pertains to other areas of the Exchange's 
operations and does not directly relate to providing and maintaining 
access services and System Networks associated with MEO Ports. The 
Exchange believes this allocation is reasonable because it represents 
the Exchange's actual cost to retain fiber connectivity and maintain 
and provide access to its System Networks via MEO Ports.
Connectivity and Content Services Provided by SFTI and Other Providers
    The Exchange relies on SFTI and various other connectivity and 
content service providers for connectivity and data feeds for the 
entire U.S. options industry, as well as content, connectivity, and 
infrastructure services for critical components of the network that are 
necessary to provide and maintain its System Networks and access to its 
System Networks via MEO Ports. Specifically, the Exchange utilizes SFTI 
and other content service provider to connect to other national 
securities exchanges, the Options Price Reporting Authority (``OPRA''), 
and to receive market data from other exchanges and market data 
providers. SFTI is operated by the Intercontinental Exchange, the 
parent company of five registered exchanges, and has become integral to 
the U.S. markets. The Exchange understands SFTI provides services to 
most, if not all, of the other U.S. exchanges and other market 
participants. Without services from SFTI and various other service 
providers, the Exchange would not be able to connect to other national 
securities exchanges, market data providers, or OPRA and, therefore, 
would not be able to operate and support its System Networks. The 
Exchange does not employ a separate fee to cover its SFTI and content 
service provider expense and recoups that expense, in part, by charging 
for MEO Ports.
    The Exchange reviewed it costs to retain SFTI and other content 
service providers, including network monitoring and maintenance, 
remediation of connectivity related issues, and ongoing administrative 
activities related to connectivity management and determined that 0.90% 
of the total applicable SFTI and other service provider expense is 
allocated to providing the access services associated with MEO Ports. 
SFTI and other content service providers are key vendors and necessary 
components in providing connectivity to the Exchange. The primary 
service SFTI provides for the Exchange is connectivity to other 
national securities exchanges and their disaster recovery facilities 
and, therefore, a vast portion of this expense is allocated to 
providing access to the System Networks via MEO Ports. Connectivity via 
SFTI is necessary for purposes of order routing and accessing disaster 
recovery facilities in the case of a system outage. Engaging SFTI and 
other like vendors provides purchasers of MEO Ports connectivity to 
other national securities exchanges for purposes of order routing and 
disaster recovery. The Exchange did not allocate a portion of this 
expense that relates to the receipt of market data from other national 
securities exchange and OPRA. The Exchange also did not allocate the 
remainder of this expense because it pertains to other areas of the 
Exchange's operations and does not directly relate to providing and 
maintaining the System Networks or access to its System Networks via 
MEO Ports. The Exchange believes this allocation is reasonable because 
it represents the Exchange's actual cost to provide and maintain its 
System Networks and access to its System Networks via MEO Ports, and 
not any other service, as supported by its cost review.
Hardware and Software Providers
    The Exchange relies on dozens of third-party hardware and software 
providers for equipment necessary to operate its System Networks. This 
includes either the purchase or licensing of physical equipment, such 
as servers, switches, cabling, and monitoring devices. It also includes 
the purchase or license of software necessary for security monitoring, 
data analysis and Exchange operations. Hardware and software providers 
are necessary to maintain its System Networks and provide access to its 
System Networks via MEO Ports. Hardware and software equipment and 
licenses for that equipment are also necessary to operate and monitor 
physical assets necessary to offer physical connectivity to the 
Exchange. Hardware and software equipment and licenses are key to the 
operation of the Exchange and, without them, the Exchange would not be 
able to operate and support its System Networks and provide access to 
its Members and their customers. The Exchange does not employ a 
separate fee to cover its hardware and software expense and recoups 
that expense, in part, by charging for MEO Ports.
    The Exchange reviewed it hardware and software related costs, 
including software patch management, vulnerability management, 
administrative activities related to equipment and software management, 
professional services for selection, installation and configuration of 
equipment and software supporting exchange operations and determined 
that 0.90% of the total applicable hardware and software expense is 
allocated to providing and maintaining access services and System 
Networks associated with MEO Ports. Hardware and software equipment and 
licenses are key to the operation of the Exchange and its System 
Networks. Without them, market participants would not be able to access 
the System Networks via MEO Ports. The Exchange only allocated the 
portion of this expense to the hardware and software that is related to 
a market participant's use of MEO Ports, such as operating its matching 
engines. The Exchange, therefore, did not allocate portions of its 
hardware and software expense that related to other areas of the 
Exchange's business, such as hardware and software used for market data 
or unrelated administrative services. The Exchange also did not 
allocate the remainder of this expense because it pertains to other 
areas of the Exchange's operations, such as ports or transaction 
services, and does not directly relate to providing and maintaining its 
System Networks and access to its System Networks via MEO Ports. The 
Exchange believes this allocation is reasonable because it represents 
the Exchange's cost to provide and maintain its System Networks and 
access to its System Networks via MEO Ports, and not any other service, 
as supported by its cost review.
Internal Expense Allocations
    For 2022, total internal expenses relating to the Exchange 
providing and maintaining its System Networks and access to its System 
Networks via a MEO Port connection are estimated to be $2,290,597. This 
includes, but is not limited to, costs associated with: (1)

[[Page 23668]]

Employee compensation and benefits for full-time employees that support 
the System Networks and access to System Networks via MEO Ports, 
including staff in network operations, trading operations, development, 
system operations, business, as well as staff in general corporate 
departments (such as legal, regulatory, and finance) that support those 
employees and functions as well as important system upgrades; (2) 
depreciation and amortization of hardware and software used to provide 
and maintain access services and System Networks associated with MEO 
Ports, 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 and maintain the System Networks 
and access to System Networks via MEO Ports. The breakdown of these 
costs is more fully described below.
Employee Compensation and Benefits
    Human personnel are key to exchange operations and supporting the 
Exchange's ongoing provision and maintenance of the System Networks and 
access to System Networks via MEO Ports. The Exchange reviewed its 
employee compensation and benefits expense and the portion of that 
expense allocated to providing and maintaining the System Networks and 
access to System Networks via MEO Ports. As part of this review, the 
Exchange considered employees whose functions include providing and 
maintaining the System Networks and MEO Ports and used a blended rate 
of compensation reflecting salary, stock and bonus compensation, 
bonuses, benefits, payroll taxes, and 401K matching contributions.\48\
---------------------------------------------------------------------------

    \48\ For purposes of this allocation, the Exchange did not 
consider expenses related to supporting employees who support MEO 
Ports, such as office space and supplies. The Exchange determined 
cost allocation for employees who perform work in support of 
offering access services and System Networks to arrive at a full 
time equivalent (``FTE'') of 6.3 FTEs across all the identified 
personnel. The Exchange then multiplied the FTE times a blended 
compensation rate for all relevant Exchange personnel to determine 
the personnel costs associated with providing the access services 
and System Networks associated with MEO Ports.
---------------------------------------------------------------------------

    Based on this review, the Exchange determined to allocate 
$2,066,488 in employee compensation and benefits expense to providing 
access to the System Networks. To determine the appropriate allocation 
the Exchange reviewed the time employees allocated to supporting its 
System Networks and access to its System Networks via MEO Ports. Senior 
staff also reviewed these time allocations with department heads and 
team leaders to determine whether those allocations were appropriate. 
These employees are critical to the Exchange to provide and maintain 
access to its System Networks via MEO Ports for its Members, non-
Members and their customers. The Exchange determined the above 
allocation based on the personnel whose work focused on functions 
necessary to provide and maintain the System Networks and access to 
System Networks via MEO Ports. The Exchange does not charge a separate 
fee regarding employees who support MEO Ports and the Exchange seeks to 
recoup that expense, in part, by charging for MEO Ports.
Depreciation and Amortization
    A key expense incurred by the Exchange relates to the depreciation 
and amortization of equipment that the Exchange procured to provide and 
maintain the System Networks and access to System Networks via MEO 
Ports. The Exchange reviewed all of its physical assets and software, 
owned and leased, and determined whether each asset is related to 
providing and maintaining its System Networks and access to its System 
Networks via MEO Ports, and added up the depreciation of those assets. 
All physical assets and software, which includes assets used for 
testing and monitoring of Exchange infrastructure, were valued at cost, 
depreciated or leased over periods ranging from three to five years. In 
determining the amount of depreciation and amortization to apply to 
providing MEO Ports and the System Networks, the Exchange considered 
the depreciation of hardware and software that are key to the operation 
of the Exchange and its System Networks. This includes servers, 
computers, laptops, monitors, information security appliances and 
storage, and network switching infrastructure equipment, including 
switches and taps, that were previously purchased to maintain and 
provide access to its System Networks via MEO Ports. Without them, 
market participants would not be able to access the System Networks. 
The Exchange seeks to recoup a portion of its depreciation expense by 
charging for MEO Ports.
    Based on this review, the Exchange determined to allocate $161,578 
in depreciation and amortization expense to providing access to the 
System Networks via a MEO Port fees. The Exchange only allocated the 
portion of this depreciation expense to the hardware and software 
related to a market participant's use of MEO Ports. The Exchange, 
therefore, did not allocate portions of depreciation expense that 
relates to other areas of the Exchange's business, such as the 
depreciation of hardware and software used for market data or unrelated 
administrative services.\49\
---------------------------------------------------------------------------

    \49\ All of the expenses outlined in this proposed fee change 
refer to the operating expenses of the Exchange. The Exchange did 
not included any future capital expenditures within these costs. 
Depreciation and amortization represent the expense of previously 
purchased hardware and internally developed software spread over the 
useful life of the assets. Due to the fact that the Exchange has 
only included operating expense and historical purchases, there is 
no double counting of expenses in the Exchange's cost estimates.
---------------------------------------------------------------------------

Occupancy
    The Exchange rents and maintains multiple physical locations to 
house staff and equipment necessary to support access services, System 
Networks, and exchange operations. The Exchange's occupancy expense is 
not limited to the housing of personnel and includes locations used to 
store equipment necessary for Exchange operations. In determining the 
amount of its occupancy related expense, the Exchange considered actual 
physical space used to house employees whose functions include 
providing and maintaining the System Networks and MEO Ports. Similarly, 
the Exchange also considered the actual physical space used to house 
hardware and other equipment necessary to provide and maintain the 
System Networks and MEO Ports. This equipment includes computers, 
servers, and accessories necessary to support the System Networks and 
MEO Ports. Based on this review, the Exchange determined to allocate 
$62,531 of its occupancy expense to provide and maintain the System 
Networks and MEO Ports. The Exchange believes this allocation is 
reasonable because it represents the Exchange's cost to rent and 
maintain a physical location for the Exchange's staff who operate and 
support the System Networks, including providing and maintaining access 
to its System Networks via MEO Ports. The Exchange considered the rent 
paid for the Exchange's Princeton and Miami offices, as well as various 
related costs, such as physical security, property management fees, 
property taxes, and utilities at each of those locations. The Exchange 
did not include occupancy expenses related to housing employees and 
equipment related to other Exchange operations, such as market data and 
administrative services.
* * * * *
    The Exchange notes that a material portion of its total overall 
expense is

[[Page 23669]]

allocated to the provision and maintenance of access services 
(including connectivity and ports). The Exchange believes this is 
reasonable 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. Thus, the 
Exchange believes it is reasonable to allocate a material portion of 
its total overall expense towards providing and maintaining its System 
Networks and access to its System Networks via MEO Ports.
Allocated Shared Expense
    Finally, a limited portion of general shared expenses was allocated 
to overall MEO Port costs as without these general shared costs, the 
Exchange would not be able to operate in the manner that it does and 
provide MEO Ports. The costs included in general shared expenses 
include recruiting and training, marketing and advertising costs, 
professional fees for legal, tax and accounting services, and 
telecommunications costs. For 2022, the Exchange's general shared 
expense allocated to MEO Ports and the System Networks that support 
those connections is estimated to be $337,753. The Exchange used the 
average of the above allocations to determine the amount of general 
shared expenses to allocate to this proposal. The Exchange believes 
this ensures that the allocation correlates to the percentage of the 
above internal and external expense applied to the proposed fee change.
Revenue and Estimated Profit Margin
    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 MEO Ports), 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.
    To determine the Exchange's estimated revenue associated with MEO 
Ports, the Exchange analyzed the number of Members currently utilizing 
MEO Ports and used a recent monthly billing cycle representative of 
current monthly revenue. The Exchange also provided its baseline by 
analyzing March 2022, the monthly billing cycle prior to the proposed 
fees and compared this to its expenses for that month. As discussed 
below, the Exchange does not believe it is appropriate to factor into 
its analysis future revenue growth or decline into its estimates for 
purposes of these calculations, given the uncertainty of such estimates 
due to the continually changing access needs of market participants and 
potential changes in internal and third-party expenses.
    For March 2022, prior to the proposed fees, Members purchased 15 
Full Service MEO Port--Bulk, for which the Exchange anticipates 
charging $60,500, and 4 Full Service MEO Port--Single, for which the 
Exchange anticipates charging $11,125, for a total of $71,625 for that 
month. This will result in a loss of $171,999 ($71,625 in MEO Port 
revenue, minus $243,627 in monthly MEO Port expenses). For April 2022, 
assuming the Exchange charges the proposed fees described herein, the 
Exchange anticipates Members purchasing 15 Full Service MEO Port--Bulk, 
for which the Exchange anticipates charging $112,500, and 4 Full 
Service MEO Port--Single, for which the Exchange anticipates charging 
$13,000, for a total of $125,500 for that month. This will result in a 
loss of $118,127 ($125,500 in MEO Port revenue, minus $243,627 in 
monthly MEO Port expenses).
    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. The Exchange cautions that this 
profit margin may also fluctuate from month to month based on the 
uncertainty of predicting how many ports may be purchased from month to 
month as Members are free to add and drop ports at any time based on 
their own business decisions.
    The Exchange believes the proposed margin is reasonable and will 
not result in a ``supra-competitive'' profit. The Guidance defines 
``supra-competitive profit'' as ``profits that exceed the profits that 
can be obtained in a competitive market.'' \50\ Until recently, the 
Exchange has operated at a cumulative net annual loss since it launched 
operations in 2017.\51\ The Exchange has operated at a net loss due to 
a number of factors, one of which is choosing to forgo revenue by 
offering certain products, such as MEO Ports, at lower rates than other 
options exchanges to attract order flow and encourage market 
participants to experience the high determinism, low latency, and 
resiliency of the Exchange's trading systems. The Exchange is not 
generating a profit, and therefore, cannot be deemed to be generating a 
``supra-competitive'' profit by now increasing the fees for MEO Ports 
while still sustaining a loss. The Exchange should not now be penalized 
for now seeking to raise it fees to near market rates after offering 
such products as discounted prices.
---------------------------------------------------------------------------

    \50\ See supra note 35.
    \51\ The Exchange has incurred a cumulative loss of $86 million 
since its inception in 2017 to 2020. 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://www.sec.gov/Archives/edgar/vprr/2100/21000461.pdf.
---------------------------------------------------------------------------

    The Exchange notes that its revenue estimate is based on estimates 
and will only be realized to the extent such revenue actually produces 
the revenue estimated. As a generally new entrant to the hyper-
competitive exchange environment, and an exchange focused on driving 
competition, the Exchange does not yet know whether such expectations 
will be realized. For instance, in order to generate the revenue 
expected from MEO Ports, the Exchange will have to be successful in 
retaining existing clients that wish to maintain physical connectivity 
or obtaining new clients that will purchase such services. To the 
extent the Exchange is successful in encouraging new clients to connect 
directly to the Exchange, the Exchange does not believe it should be 
penalized for such success. The Exchange, like other exchanges, is, 
after all, a for-profit business. While the Exchange believes in 
transparency around costs and potential margins, the Exchange does not 
believe that these estimates should form the sole basis of whether or 
not a proposed fee is reasonable or can be adopted. Instead, the 
Exchange believes that the information should be used solely to confirm 
that an Exchange is not earning supra-competitive profits, and the 
Exchange believes its cost analysis and related estimates demonstrate 
this fact.
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 exchanges' costs 
to provide ports or their fee markup over those costs, and therefore 
cannot use other exchange's port fees as a benchmark to

[[Page 23670]]

determine a reasonable markup over the costs of providing ports. 
Nevertheless, the Exchange believes the other exchanges' port fees are 
useful examples of alternative approaches to providing and charging for 
ports notwithstanding that the competing exchanges may have different 
system architectures that may result in different cost structures for 
the provision of connectivity. To that end, the Exchange believes the 
proposed fees are reasonable because the proposed fees are still less 
than fees charged for similar ports provided by other options exchanges 
with comparable market shares.
    As described in the above table, the Exchange's proposed fees 
remain less than fees charged for similar ports provided by other 
options exchanges with similar market share. In the each of the above 
cases, the Exchange's proposed fees are still significantly lower than 
that of competing options exchanges with similar market share. Despite 
proposing lower or similar fees to that of competing options exchanges 
with similar market share, the Exchange believes that it provides a 
premium network experience to its Members and non-Members via a highly 
deterministic System, enhanced network monitoring and customer 
reporting, and a superior network infrastructure than markets with 
higher market shares and more expensive connectivity alternatives. Each 
of the rates in place at competing options exchanges were filed with 
the Commission for immediate effectiveness and remain in place today.
The Proposed Fees Are Equitably Allocated
    The Exchange further believes that the proposed fees are 
reasonable, equitably allocated and not unfairly discriminatory 
because, for the flat fee, the Exchange provides each Member two (2) 
Full Service MEO Ports for each matching engine to which that Member is 
connected. Unlike other options exchanges that provide similar port 
functionality and charge fees on a per port basis,\52\ the Exchange 
offers Full Service MEO Ports as a package and provides Members with 
the option to receive up to two Full Service MEO Ports per matching 
engine to which it connects. The Exchange currently has twelve (12) 
matching engines, which means Members may receive up to twenty-four 
(24) Full Service MEO Ports for a single monthly fee, that can vary 
based on certain volume percentages. The Exchange currently assesses 
Members a fee of $5,000 per month in the highest Full Service MEO 
Port--Bulk Tier, regardless of the number of Full Service MEO Ports 
allocated to the Member. Assuming a Member connects to all twelve (12) 
matching engines during a month, with two Full Service MEO Ports per 
matching engine, this results in a cost of $208.33 per Full Service MEO 
Port--Bulk ($5,000 divided by 24) for the month. This fee has been 
unchanged since the Exchange adopted Full Service MEO Port fees in 
2018.\53\ The Exchange now proposes to increase the Full Service MEO 
Port fees, with the highest Tier fee for a Full Service MEO Port--Bulk 
of $10,000 per month. Members will continue to receive two (2) Full 
Service MEO Ports to each matching engine to which they are connected 
for the single flat monthly fee. Assuming a Member connects to all 
twelve (12) matching engines during the month, and achieves the highest 
Tier for that month, with two Full Service MEO Ports--Bulk per matching 
engine, this would result in a cost of $416.67 per Full Service MEO 
Port ($10,000 divided by 24).
---------------------------------------------------------------------------

    \52\ See supra note 19.
    \53\ See supra note 20.
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete.
Intra-Market Competition
    The Exchange believes that the proposed fees do not place certain 
market participants at a relative disadvantage to other market 
participants because the proposed fees do not favor certain categories 
of market participants in a manner that would impose a burden on 
competition; rather, the allocation of the proposed fees reflects the 
network resources consumed by the various size of market participants--
lowest bandwidth consuming members pay the least, and highest bandwidth 
consuming members pays the most, particularly since higher bandwidth 
consumption translates to higher costs to the Exchange.
Inter-Market Competition
    The Exchange believes the proposed fees do not place an undue 
burden on competition on other options exchanges that is not necessary 
or appropriate. In particular, options market participants are not 
forced to connect to (and purchase MEO Ports from) all options 
exchanges. The Exchange also notes that it has far less Members as 
compared to the much greater number of members at other options 
exchanges. Not only does MIAX Pearl have less than half the number of 
members as certain other options exchanges, but there are also a number 
of the Exchange's Members that do not connect directly to MIAX Pearl. 
There are a number of large users of the MEO Interface and broker-
dealers that are members of other options exchange but not Members of 
MIAX Pearl. The Exchange is also unaware of any assertion that its 
existing fee levels or the proposed fees would somehow unduly impair 
its competition with other options exchanges. To the contrary, if the 
fees charged are deemed too high by market participants, they can 
simply disconnect.

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

    One comment letter was submitted on the Fourth Proposed Rule Change 
\54\ and the Exchange responds to issues raised in that comment letter 
here.
---------------------------------------------------------------------------

    \54\ See supra note 14.
---------------------------------------------------------------------------

    First, SIG Letter 2 asserts that the Exchange's motivation for the 
proposed fees is not a proper justification and refers to statements 
included in withdrawn filings about the Exchange's need to recoup 
initial capital expenditures. SIG Letter 2 does not provided a reason 
why recoupment of initial capital expenditures is not a proper 
justification for a proposed rule change. SIG Letter 2 also asserts 
that enhancing profitability is not an appropriate justification for 
the proposed fee change. The Exchange never asserted in any of the 
preceding versions of this proposed fee change that enhancing 
profitability was a motivation for the proposed fee change. Rather, the 
Exchange provided numerous reasons for the proposed fee change, 
including the need to cover ongoing internal and external expenses and 
anticipated increases in those costs due to ongoing inflationary 
pressures.
    Second, SIG Letter 2 claims that the Exchange omitted the data 
necessary to assess the proposed fee change under the Exchange Act. SIG 
Letter 2 also asserts that the Exchange's disclosed cost data is not 
reliable. With each iteration of this proposed fee change, the Exchange 
provided more detail about its cost based analysis and rationale. 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

[[Page 23671]]

Exchange's costs and how the Exchange determined to allocate those 
costs related to the proposed fees. The Exchange was commended by an 
industry group regarding the level of transparency and disclosure 
included in the proposed fee changes and that group was supportive of 
the efforts made by the Exchange and its affiliates to provide 
increased transparency and justification for their proposed fees. The 
commenter specifically noted 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. For example, MIAX detailed the 
associated projected revenues generated from the connectivity fees 
by user class, again in a clear attempt to comply with the SRO Fee 
Filing Guidance.\55\
---------------------------------------------------------------------------

    \55\ See letter from Tyler Gellasch, Executive Director, Healthy 
Markets Association (``HMA''), to Hon. Gary Gensler, Chair, 
Commission, dated October 29, 2021 (commenting on SR-CboeEDGA-2021-
017, SR-CboeBYX-2021-020, SR-Cboe-BZX-2021-047, SR-CboeEDGX-2021-
030, SR-MIAX-2021-41, SR-PEARL-2021-45, and SR-EMERALD-2021-29) 
(``HMA Letter'').

    Despite the Exchange refiling its fee proposals to include 
significantly greater information about the impact of the proposed fees 
on Members and non-Members, primarily at the request of the Commission 
Staff and in response to comments from SIG, SIG argues that the data 
the Exchange provided is insufficient or unreliable. Section 6(b)(4) of 
the Act \56\ requires an exchange to ``provide for the equitable 
allocation of reasonable dues, fees and other charges.'' The standard 
set by Congress for the Exchange to establish or amend a certain fee is 
``reasonableness,'' and the Exchange provided significant detail in 
this filing and past filings to support a finding that the proposed 
fees are reasonable under the Exchange Act.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    SIG Letter 2 also claims that the Exchange has not shown that the 
estimated profit margin is reasonable. In this filing, the Exchange 
enhanced its justification and support to find that the projected 
margin is reasonable and would not result in a supra-competitive 
profit. SIG Letter 2 states that SIG believes exchanges are utilities 
and utilities should only generate single to low double digit profit 
margins. This statement assumes that the projected profit margin is 
reflective of the Exchange's overall profit margin and ignores that 
this is a single profit margin from a single offering that is offset by 
lower or negative profit margins for other products and services 
offered by the Exchange. SIG's statement that utilities should only 
generate single to low double digit profit margins ignores SIG's own 
reference to a 14.4%, low double digit profit margin from one of the 
Exchange's recent proposed fee changes, as well as single digit to 
negative profit margins in other Exchange filings currently pending 
before the Commission.

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\57\ 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,\58\ 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.
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 78s(b)(3)(C).
    \58\ 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 July 
1, 2021, with the proposed fee changes being immediately effective. 
That proposal, SR-PEARL-2021-33, was published for comment in the 
Federal Register on July 15, 2021.\59\ On August 27, 2021, pursuant to 
Section 19(b)(3)(C) of the Act, the Commission: (1) Temporarily 
suspended the proposed rule change (SR-PEARL-2021-33) and (2) 
instituted proceedings to determine whether to approve or disapprove 
the proposed rule change.\60\ On October 12, 2021, the Exchange 
withdrew SR-PEARL-2021-33. On November 1, 2021, the Exchange filed a 
proposed rule change proposing fee changes as proposed herein (SR-
PEARL-2021-53). That proposal, SR-PEARL-2021-53, was published for 
comment in the Federal Register on November 17, 2021.\61\ On December 
20, 2021, the Exchange withdrew SR-PEARL-2021-53 and filed a proposed 
rule change proposing fee changes as proposed herein on December 20, 
2021 (PEARL-2022-58). That filing, SR-PEARL-2021-58, was published for 
comment in the Federal Register on January 10, 2022.\62\ On February 
15, 2022, the Exchange withdrew SR-PEARL-2021-58 and filed a proposed 
rule change proposing fee changes as proposed herein (SR-PEARL-2022-
04). On February 18, 2022, pursuant to Section 19(b)(3)(C) of the Act, 
the Commission: (1) Temporarily suspended the proposed rule change (SR-
PEARL-2022-04); and (2) instituted proceedings to determine whether to 
approve or disapprove the proposal.\63\ The Commission received one 
comment letter on SR-PEARL-2022-04.\64\ On April 1, 2022, the Exchange 
withdrew SR-PEARL-2022-04 and filed the instant filing, which is 
substantially similar.
---------------------------------------------------------------------------

    \59\ See Securities Exchange Act Release No. 92365 (July 9, 
2021), 86 FR 37347. The Commission received one comment letter on 
that proposal. Comment for SR-PEARL-2021-33 can be found at: https://www.sec.gov/comments/sr-pearl-2021-33/srpearl202133-9208443-250011.pdf.
    \60\ See Securities Exchange Act Release No. 93556, 86 FR 49360 
(September 2, 2021).
    \61\ See Securities Exchange Act Release No. 93556 (November 19, 
2021), 86 FR 64235.
    \62\ See Securities Exchange Act Release No. 93894 (January 4, 
2022), 87 FR 1203.
    \63\ See Securities Exchange Act Release No. 94286, 87 FR 10860 
(February 25, 2022).
    \64\ Comment on SR-PEARL-2022-04 can be found at: https://www.sec.gov/comments/sr-emerald-2022-05/sremerald202205-20119633-272460.pdf.
---------------------------------------------------------------------------

    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\65\ 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.'' \66\
---------------------------------------------------------------------------

    \65\ 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'').
    \66\ Id.
---------------------------------------------------------------------------

    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; \67\ (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,

[[Page 23672]]

issuers, brokers, or dealers; \68\ and (3) not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.\69\
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78f(b)(4).
    \68\ 15 U.S.C. 78f(b)(5).
    \69\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether the proposal to increase the 
monthly fees for MIAX Express Network Full Service Ports is consistent 
with the statutory requirements applicable to a national securities 
exchange under the Act. In particular, the Commission will consider 
whether the proposed rule change satisfies the standards under the Act 
and the rules thereunder requiring, among other things, that an 
exchange's rules provide for the equitable allocation of reasonable 
fees among members, issuers, and other persons using its facilities; 
not 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.\70\
---------------------------------------------------------------------------

    \70\ 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.\71\
---------------------------------------------------------------------------

    \71\ 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) \72\ and 19(b)(2)(B) \73\ 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.
---------------------------------------------------------------------------

    \72\ 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.
    \73\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\74\ 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),\75\ 6(b)(5),\76\ and 6(b)(8) \77\ 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.
---------------------------------------------------------------------------

    \74\ 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.
    \75\ 15 U.S.C. 78f(b)(4).
    \76\ 15 U.S.C. 78f(b)(5).
    \77\ 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 MEO Port fee is constrained by 
competitive forces, but rather set forth a ``cost-plus model,'' 
employing a ``conservative approach'' in determining the expense and 
the percentage of that expense to be allocated to providing and 
maintaining the System Networks and access to System Networks in 
connection with MEO Ports.\78\ Setting forth its costs in providing MEO 
Ports, and as summarized in greater detail above, the Exchange projects 
that the total combined annual expense for providing the access 
services associated with the MEO Ports in 2022 will be $2,923,534, the 
sum of: (1) $295,184 In third-party expenses paid in total to their 
Data Center Provider (1.8% of the total applicable expense) for data 
center services; Fiber Connectivity Provider, for network services 
(0.90% of the total applicable expense); SFTI and other connectivity 
and content service providers for connectivity support (0.90% of the 
total applicable expense); and various other hardware and software 
providers (0.90% of the total applicable expense), (2) $2,290,597 in 
internal expenses, allocated to (a) employee compensation and benefit 
costs ($2,066,488); (b) depreciation and amortization ($161,578); and 
(c) occupancy costs ($62,531) and (3) $337,753 of allocated general 
shared expenses that include recruiting and training, marketing and 
advertising costs, professional fees for legal, tax and accounting 
services, and telecommunications costs. Do commenters believe that 
these allocations are reasonable? Should the Exchange be required to 
provide more specific information regarding the allocation of third-
party expenses, such as the overall estimated cost for each category of 
external expenses or at minimum the total applicable third-party 
expenses? Should the Exchange have provided either a percentage 
allocation or statements regarding the Exchange's overall estimated 
costs for the internal expense categories and general shared expenses 
figure? Do commenters believe that the Exchange has provided sufficient 
detail about how it determined which costs are associated with 
providing and maintaining MEO Ports and why? Do commenters believe that 
the Exchange has provided sufficient detail about how it determined 
``general shared expenses'' and how it determined what portion should 
be associated with providing and maintaining MEO Ports? The Exchange 
describes a ``proprietary'' process that was applied in making these 
determinations or arriving at particular allocations. Do commenters 
believe further explanation is necessary? What are commenters' views on 
whether the Exchange has provided sufficient detail on the identity and 
nature of services

[[Page 23673]]

provided by third parties? Across all of the Exchange's projected 
costs, what are commenters' views on whether the Exchange has provided 
sufficient detail on the elements that go into MEO Port costs, 
including how shared costs are allocated and attributed to MEO Port 
expenses, to permit an independent review and assessment of the 
reasonableness of purported cost-based fees and the corresponding 
profit margin thereon?
---------------------------------------------------------------------------

    \78\ See supra Section II.A.2.
---------------------------------------------------------------------------

    2. Revenue Estimates and Profit Margin Range. The Exchange provides 
a single monthly revenue figure from March 2022 as the basis for 
calculating a revenue loss of $118,127 for April 2022. Previously, the 
Exchange stated an estimated profit margin of 38%. What are commenters 
views on the significant increases in expenses allocated for this 
product? If not, why not? The Exchange states that their proposed 
margin is reasonable and is ``designed recover a portion of the costs 
associated with directly accessing the Exchange.'' \79\ 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, but that the 
number of ports has not materially changed over the prior months and so 
the months that the Exchange has used as a baseline to perform its 
assessment are representative of reasonably anticipated costs and 
expenses.\80\ 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 or loss margin is reasonable? Should the Exchange provide a 
range of profit or loss margins that they believe are reasonably 
possible, and the reasons therefor?
---------------------------------------------------------------------------

    \79\ See supra Section II.A.2.
    \80\ See id.
---------------------------------------------------------------------------

    3. Reasonable Rate of Return. As noted, the Exchange previously 
stated an estimated profit margin of 38% and now states a loss. 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? What are commenters' views regarding what 
factors should be considered in determining what constitutes a 
reasonable rate of return for MEO Port fees? Do commenters believe it 
relevant to an assessment of reasonableness that the Exchange's 
proposed fees for MEO Ports are lower than those of other options 
exchanges to which the Exchange has compared? 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?
    4. Periodic Reevaluation. The Exchange has not stated that it would 
re-evaluate the appropriate level of MEO Ports if there is a material 
deviation from the anticipated profit margin. In light of the impact 
that the number of subscribers has on MEO Port 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 MEO Port fees to ensure 
that they stay in line with their stated profitability target 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 MEO Port fee change is implemented 
should an exchange assess whether its subscriber 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 MEO Port fee is implemented? 60 
days? 90 days? Some other period?
    5. Tiered Structure for Full Service MEO Ports Fees. The Exchange 
states that proposed tiered-pricing structure is reasonable, equitably 
allocated, and not unfairly discriminatory because for a flat fee the 
Exchange provides each Member two Full Service MEO Ports for each 
matching engine to which the Member is connected, and further, it is 
the model adopted by the Exchange when it launched operations for its 
Full Service MEO Port fees.\81\ What are commenters' views on the 
adequacy of the information the Exchange provides regarding the 
proposed differentials in fees? Do commenters believe that the proposed 
price differences are supported by the Exchange's assertions that it 
set the level of each proposed new fee in a manner that it equitable 
and not unfairly discriminatory?
---------------------------------------------------------------------------

    \81\ 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.'' \82\ 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,\83\ 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.\84\ 
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.\85\
---------------------------------------------------------------------------

    \82\ 17 CFR 201.700(b)(3).
    \83\ See id.
    \84\ See id.
    \85\ 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

[[Page 23674]]

request for an opportunity to make an oral presentation.\86\
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    \86\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by May 11, 2022. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by May 25, 
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-PEARL-2022-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2022-12. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2022-12 and should be submitted on 
or before May 11, 2022. Rebuttal comments should be submitted by May 
25, 2022.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\87\ that File Number SR-PEARL-2022-12 be, and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \87\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\88\
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    \88\ 17 CFR 200.30-3(a)(12), (57) and (58).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08387 Filed 4-19-22; 8:45 am]
BILLING CODE 8011-01-P