[Federal Register Volume 87, Number 95 (Tuesday, May 17, 2022)]
[Notices]
[Pages 29963-29977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-10509]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94892; File No. SR-EMERALD-2022-18]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing of a Proposed Rule Change To Establish Fees for the Exchange's 
cToM Market Data Product; Suspension of and Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove the Proposed 
Rule Change

May 11, 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 29, 2022, MIAX Emerald, LLC (``MIAX Emerald'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Item II below, which Item has been 
prepared by the Exchange. The Exchange filed the proposed rule change 
pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\ and Rule 19b-4(f)(2) 
thereunder.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons and is,

[[Page 29964]]

pursuant to Section 19(b)(3)(C) of the Act, hereby: (i) Temporarily 
suspending the proposed 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 Exchange's Fee 
Schedule (``Fee Schedule'') to establish fees for the market data 
product known as MIAX Emerald Complex Top of Market (``cToM''). The 
fees became operative on April 29, 2022. The text of the proposed rule 
change is available on the Exchange's website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX's principal office, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV [sic] below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange previously adopted rules governing the trading of 
Complex Orders \5\ on the MIAX Emerald System \6\ in 2018,\7\ ahead of 
the Exchange's planned launch, which took place on March 1, 2019. 
Shortly thereafter, the Exchange adopted the market data product, cToM, 
and provided cToM free of charge for over two years to incentivize 
market participants to subscribe and absorbed all costs associated with 
producing the cToM data product.\8\ As discussed more fully below, the 
Exchange recently calculated its annual aggregate costs for providing 
cToM to subscribers to be $236,284, or $19,690 per month. Because the 
Exchange has offered cToM free of charge, the Exchange has borne 100% 
of the costs for the compilation and dissemination of cToM to 
subscribers. The Exchange now proposes to amend Section 6)a) of the Fee 
Schedule to establish fees for the cToM data product in order to recoup 
a portion, but not all, of these ongoing costs.
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    \5\ See Exchange Rule 518(a)(5) for the definition of Complex 
Orders.
    \6\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \7\ See Securities Exchange Act Release Nos. 84891 (December 20, 
2018), 83 FR 67421 (December 28, 2018) (In the Matter of the 
Application of MIAX EMERALD, LLC for Registration as a National 
Securities Exchange; Findings, Opinion, and Order of the 
Commission); and 85345 (March 18, 2019), 84 FR 10848 (March 22, 
2019) (SR-EMERALD-2019-13) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518, 
Complex Orders).
    \8\ See Securities Exchange Act Release No. 85207 (February 27, 
2019), 84 FR 7963 (March 5, 2019) (SR-EMERALD-2019-09) (providing a 
complete description of the cToM data feed).
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Background
    In summary, cToM provides subscribers with the same information as 
the MIAX Emerald Top of Market (``ToM'') data product as it relates to 
the Strategy Book,\9\ i.e., the Exchange's best bid and offer for a 
complex strategy, with aggregate size, based on displayable order and 
quoting interest in the complex strategy on the Exchange. However, cToM 
provides subscribers with the following additional information that is 
not included in ToM: (i) The identification of the complex strategies 
currently trading on the Exchange; (ii) complex strategy last sale 
information; and (iii) the status of securities underlying the complex 
strategy (e.g., halted, open, or resumed). cToM is therefore a distinct 
market data product from ToM in that it includes additional information 
that is not available to subscribers that receive only the ToM data 
feed. ToM subscribers are not required to subscribe to cToM, and cToM 
subscribers are not required to subscribe to ToM.\10\
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    \9\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \10\ See supra note 8.
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Proposal
    The Exchange now proposes to amend Section 6(a) of the Fee Schedule 
to charge monthly fees to Distributors \11\ of cToM. Specifically, the 
Exchange proposes to assess Internal Distributors $1,250 per month and 
External Distributors $1,750 per month for the cToM data feed.\12\ The 
proposed fees are identical to the fees that the Exchange, and its 
affiliate, Miami International Securities Exchange (``MIAX''), 
currently charge for their ToM data products, both of which were 
previously published by the Commission and remain in effect today.\13\ 
The Exchange does not propose to adopt redistribution fees for the cToM 
data feed. However, the recipient of the cToM data feed would be 
required to become a data subscriber and would be subject to the 
applicable fees. The Exchange also does not propose to charge any 
additional fees based on a subscriber's use of the cToM data feed, 
e.g., displayed versus non-displayed use, and does not propose to 
impose any individual per user fees.
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    \11\ A ``Distributor'' of MIAX Emerald data is any entity that 
receives a feed or file of data either directly from MIAX Emerald or 
indirectly through another entity and then distributes it either 
internally (within that entity) or externally (outside that entity). 
All Distributors are required to execute a MIAX Emerald Distributor 
Agreement. See Section 6(a) of the Fee Schedule.
    \12\ The Exchange also proposes to make a minor related change 
to remove ``(as applicable)'' from the explanatory paragraph in 
Section 6(a) as it will not change fees for both the ToM and cToM 
data feeds.
    \13\ See Securities Exchange Act Release Nos. 91145 (February 
17, 2021), 86 FR 11033 (February 23, 2021) (SR-EMERALD-2021-05); 
73942 (December 24, 2014), 80 FR 71 (January 2, 2015) (SR-MIAX-2014-
66).
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    As it does today for ToM, the Exchange proposes to assess cToM fees 
on Internal and External Distributors in each month the Distributor is 
credentialed to use cToM in the production environment. Also, as the 
Exchange does today for ToM, market data fees for cToM will be reduced 
for new Distributors for the first month during which they subscribe to 
cToM, based on the number of trading days that have been held during 
the month prior to the date on which that subscriber has been 
credentialed to use cToM in the production environment. Such new 
Distributors will be assessed a pro-rata percentage of the fees listed 
in the table in Section 6(a) of the Fee Schedule, which is the 
percentage of the number of trading days remaining in the affected 
calendar month as of the date on which they have been credentialed to 
use cToM in the production environment, divided by the total number of 
trading days in the affected calendar month.
    The Exchange believes that other exchanges' fees for complex market 
data are useful examples and provides the below table for comparison 
purposes only to show how the Exchange's proposed fees compare to fees 
currently charged by other options exchanges for similar complex market 
data. As shown by the below table, the Exchange's proposed fees for 
cToM are similar to or less than fees charged for similar data products 
provided by other options exchanges.

[[Page 29965]]



------------------------------------------------------------------------
             Exchange                            Monthly fee
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MIAX Emerald (as proposed)........  $1,250--Internal Distributor,
                                     $1,750--External Distributor.
NYSE American, LLC (``Amex'') \14\  $1,500--Access Fee, $1,000--
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution).
NYSE Arca, Inc. (``Arca'') \15\...  $1,500--Access Fee, $1,000--
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution).
NASDAQ PHLX LLC (``PHLX'') \16\...  $3,000--Internal Distributor,
                                     $3,500--External Distributor.
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    The Exchange also proposes to amend the paragraph below the table 
of fees for ToM and cToM in Section 6(a) of the Fee Schedule to make a 
minor, non-substantive correction by deleting the phrase ``(as 
applicable)'' in the first sentence following the table of fees for ToM 
and cToM. The purpose of this proposed change is to remove unnecessary 
text from the Fee Schedule.
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    \14\ See NYSE American Options Proprietary Market Data Fees, 
American Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf.
    \15\ See NYSE Arca Options Proprietary Market Data Fees, Arca 
Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
    \16\ See PHLX Price List--U.S. Derivatives Data, PHLX Orders 
Fees, at http://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX.
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cToM Content Is Available From Alternative Sources
    cToM is also not the exclusive source for Complex Order information 
from the Exchange and market participants may choose to subscribe to 
the Exchange's other data products to receive such information. It is a 
business decision of market participants whether to subscribe to the 
cToM data product or not. Market participants that choose not to 
subscribe to cToM can derive much, if not all, of the same information 
provided in the cToM feed from other Exchange sources, including, for 
example, the MIAX Emerald Order Feed (``MOR'').\17\ The following cToM 
information is provided to subscribers of MOR: The Exchange's best bid 
and offer for a complex strategy, with aggregate size, based on 
displayable order and quoting interest in the complex strategy on the 
Exchange; the identification of the complex strategies currently 
trading on the Exchange; and the status of securities underlying the 
complex strategy (e.g., halted, open, or resumed). In addition to the 
cToM information contained in MOR, complex strategy last sale 
information can be derived from the Exchange's ToM data feed. 
Specifically, market participants may deduce that last sale information 
for multiple trades in related options series that are disseminated via 
the ToM data feed with the same timestamp are likely part of a Complex 
Order transaction and last sale.
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    \17\ See MIAX website, Market Data & Offerings, at https://www.miaxoptions.com/market-data-offerings (last visited April 1, 
2022). In general, MOR provides real-time ulta-low latency updates 
on the following information: New Simple Orders added to the MIAX 
Emerald Order Book; updates to Simple Orders resting on the MIAX 
Emerald Order Book; new Complex Orders added to the Strategy Book 
(i.e., the book of Complex Orders); updates to Complex Orders 
resting on the Strategy Book; MIAX Emerald listed series updates; 
MIAX Emerald Complex Strategy definitions; the state of the MIAX 
Emerald System; and MIAX Emerald's underlying trading state.
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Implementation
    The proposed rule change will be effective May 2, 2022. The 
Exchange initially filed this proposal on June 30, 2021 with the 
proposed fees effective beginning July 1, 2021.\18\ Between August 2021 
and February 2022, the Exchange withdrew and refiled the proposed rule 
change, each time to meaningfully attempt to provide additional 
justification for the proposed fee changes, provide enhanced details 
regarding the Exchange's cost methodology, and address questions 
contained in the Commission's suspension order.\19\ No comment letters 
were submitted on any filings made to date regarding the proposed cToM 
fees. The Commission again suspended the proposed fees on February 15, 
2022.\20\ The Exchange then provided the cToM data feed free of charge 
for the month of March 2022 and absorbed all associated costs.
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    \18\ See Securities Exchange Act Release No. 92358 (July 9, 
2021), 86 FR 37361 (July 15, 2021) (SR-EMERALD-2021-21).
    \19\ See Securities Exchange Act Release Nos. 92789 (August 27, 
2021), 86 FR 49364 (September 2, 2021) (SR-MIAX-2021-28, SR-EMERALD-
2021-21) (``Suspension Order 1''); 93471 (October 29, 2021), 86 FR 
60947 (November 4, 2021) (SR-EMERALD-2021-32); 93427 (October 26, 
2021), 86 FR 60310 (November 1, 2021) (SR-EMERALD-2021-34); and 
93811 (December 17, 2021), 86 FR 73051 (December 23, 2021) (SR-
EMERALD-2021-44).
    \20\ See Securities Exchange Act Release No. 94263 (February 15, 
2022), 87 FR 9766 (February 22, 2022) (SR-EMERALD-2022-06) 
(``Suspension Order 2'').
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    On March 30, 2022, the Exchange withdrew the proposed rule change 
that was previously suspended by the Commission on February 15, 2022. 
After providing the cToM data product free of charge for the month of 
March 2022, on April 1, 2022, the Exchange submitted a revised proposal 
for immediate effectiveness. This revised proposal provided additional 
details regarding the Exchange's cost methodology, revenue projections, 
and responded to various questions and requests for information 
contained in the Commission's suspension orders. The Exchange withdrew 
that revised proposal and submitted a further revised filing on April 
29, 2022. The newest revised filing builds upon the additional details 
regarding the Exchange's cost methodology and revenue projections, as 
well as the Exchange's responses to various questions and requests for 
information contained in the Commission's suspension orders.
2. Statutory Basis
    The Exchange believes that the proposed fees are consistent with 
Section 6(b) of the Act \21\ in general, and furthers the objectives of 
Section 6(b)(4) of the Act \22\ 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 which the 
Exchange operates or controls. The Exchange also believes the proposed 
fees further the objectives of Section 6(b)(5) of the Act \23\ in that 
they are designed to promote just and equitable principles of trade, 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general protect investors 
and the public interest and are not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(4).
    \23\ 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

[[Page 29966]]

Network (the ``BOX Order'').\24\ 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.'' \25\ Based on both the BOX Order and the 
Guidance, the Exchange believes that the proposed fees are consistent 
with the Act because they are: (i) Reasonable, equitably allocated, not 
unfairly discriminatory, and not an undue burden on competition; (ii) 
comply with the BOX Order and the Guidance; (iii) supported by evidence 
(including comprehensive revenue and cost data and analysis) that they 
are fair and reasonable and will not result in excessive pricing or 
supra-competitive profit; and (iv) identical to the prices the Exchange 
currently charges for its ToM data product and the prices the 
Exchange's affiliate, MIAX, charges for its ToM product, both of which 
were previously published by the Commission and remain in effect 
today.\26\
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    \24\ 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).
    \25\ 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'').
    \26\ See supra note 13.
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    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations (``SROs'') and broker-dealers increased authority and 
flexibility to offer new and unique market data to the public. It was 
believed that this authority would expand the amount of data available 
to consumers, and also spur innovation and competition for the 
provision of market data. Particularly, cToM further broadens the 
availability of U.S. option market data to investors consistent with 
the principles of Regulation NMS. The data product also promotes 
increased transparency through the dissemination of cToM. Particularly, 
cToM provides subscribers with the same information as ToM, but 
includes the following additional information: (i) The identification 
of the complex strategies currently trading on the Exchange; (ii) 
complex strategy last sale information; and (iii) the status of 
securities underlying the complex strategy (e.g., halted, open, or 
resumed). The Exchange believes cToM provides a valuable tool that 
subscribers can use to gain substantial insight into the trading 
activity in Complex Orders, but also emphasizes such data is not 
necessary for trading. Moreover, other exchanges offer similar data 
products.\27\
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    \27\ See supra notes 14 through 16.
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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.
    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.'' 
\28\ 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.'' \29\ 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.'' \30\ 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 producing and 
disseminating cToM data and will not result in the Exchange generating 
a supra-competitive profit.
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    \28\ See Guidance, supra note 25.
    \29\ Id.
    \30\ 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.'' \31\ 
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.'' \32\ The Exchange provides 
this analysis below.
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    \31\ Id.
    \32\ Id.
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    The proposed fees are based on a cost-plus model. The Exchange 
believes that it is important to demonstrate that the proposed fees are 
based on its costs and reasonable business needs and believes the 
proposed fees will allow the Exchange to begin to offset expenses. 
However, as discussed more fully below, such fees may also result in 
the Exchange recouping less than, or more than, all of its costs of 
providing the cToM data feed because of the uncertainty of forecasting 
subscriber decision making with respect to firms' market data 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 suspension orders sought additional information and comments on 
various aspects of the prior proposed fee changes. In many respects, 
the Commission's questions about the prior proposed fee changes raise 
broader questions around the factors the Commission should consider and 
the type of data and analysis an exchange should provide in considering 
whether market data, port fees, or connectivity fees are fair and 
reasonable under a cost-based methodology. The suspension orders also 
sought 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 and percentage allocation or statements regarding the 
Exchange's overall estimated costs for the internal expense categories 
and general shared expenses figure. The Exchange added this additional 
information below.
    In this filing, the Exchange offers a conceptual framework for 
further considering the Commission's questions that draws on the 
Exchange's own experience over several years of analyzing its own 
costs. The elements of that framework are as follows:
    First, the Exchange created a flat, simple fee structure that 
imposes a single monthly fee for Internal Distributors and External 
Distributors, without added fees based on the way the data is used or 
individual per user fees. The Exchange believes this relatively simple, 
flat fee structure is

[[Page 29967]]

transparent and easy for users to apply, and this difference also helps 
show that it meets the objectives of the Act.
    The Exchange then conducted an extensive cost review in which the 
Exchange analyzed nearly every expense item in the Exchange's general 
expense ledger to determine whether each such expense relates to the 
cToM data feed. That methodology does not allow for ``double-counting'' 
of the same costs for different classes of exchange products--for 
example transaction services, other market data products, physical 
connectivity, ``logical'' port connections or regulatory resources.
    The Exchange then sought to narrowly allocate specific costs to the 
market data products to which the proposed fees would apply. In this 
filing, the Exchange provided more detail about how that allocation was 
determined and included information about tangential cost items that 
were not included. In determining what portion (or percentage) to 
allocate to producing and disseminating the cToM data feed, each 
Exchange department head, in coordination with other Exchange 
personnel, determined the expenses that support producing and 
distributing the cToM data feed. 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 producing and distributing the cToM data feed. The Exchange 
reviewed each individual expense to determine if such expense was 
related to producing and disseminating the cToM data feed. Once the 
expenses were identified, the Exchange department heads, with the 
assistance of the Exchange's internal finance department, reviewed such 
expenses holistically on an Exchange-wide level to determine what 
portion of that expense supports producing and disseminating the cToM 
data feed. The sum of all such portions of expenses represents the 
total cost to the Exchange to produce and disseminate the cToM data 
feed. For the avoidance of doubt, no expense amount is allocated twice. 
Specifically, no expense amount is allocated to more than one expense 
category within this filing and no expense amount that is allocated as 
a cost to produce and disseminate the cToM data feed in this filing has 
been or will be allocated as a cost to provide any other exchange 
product or service in any other fee filing. In the suspension orders, 
the Commission questioned whether further explanation of the Exchange's 
cost analysis was necessary. The Exchange provides further details 
concerning its cost analysis in response to this question.
    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.
    Finally, the Exchange acknowledges that it is difficult to predict 
how much revenue the Exchange will receive from the proposed fees with 
precision. The analysis conducted by the Exchange is designed to make a 
fair and reasonable assessment of costs and resources allocated to 
support the production and dissemination of the cToM data feed 
associated with the proposed fees. The Exchange further 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 basis, reviews its costs and resource 
allocations to ensure it appropriately allocates resources to properly 
provide services to the Exchange's constituents. As part of this 
proposed rule change, and as described further below, the Exchange is 
committing to conduct an annual cost review with respect to fees that 
are cost justified in this proposed rule change beginning one year from 
the date of this proposal, and annually thereafter. The Exchange 
expects that it may propose to adjust fees at that time, either to 
increase fees in the event that revenues fail to reasonably cover costs 
at the estimated margin set forth below, or to decrease fees in the 
event that revenue materially exceeds the Exchange's current 
projections. In the event that the Exchange determines to propose a fee 
change, updated cost estimates will be included in a rule filing 
proposing the fee change.
    The Exchange believes applying this framework to the proposed fees 
shows that they are consistent with the requirements of the Act, 
leaving aside that the proposed fees are relatively similar to, or less 
than, fees charged by other exchanges for similar market data products.
Exchange Costs and Cost Methodology
    The Exchange notes that there are material costs associated with 
providing the infrastructure and headcount to fully support the 
production and dissemination of the cToM data feed. As described below, 
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.\33\ The Exchange believes the 
proposed fees are a reasonable attempt to offset a portion of those 
costs associated with producing and disseminating the cToM data feed.
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    \33\ Both fixed and variable expenses have significant impact on 
the Exchange's overall costs to provide the cToM data feed. For 
example, to accommodate new Members, the Exchange may need to 
purchase additional hardware to support those Members and provide 
the cToM data feed. 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.
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    The Exchange estimated its total annual expense to provide the cToM 
data feed 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 produce and disseminate the cToM data feed; and (3) general 
shared expenses.\34\ The below table details each of these individual 
external and internal annual costs considered by the Exchange to be 
directly related to offering cToM to subscribers, and not any other 
product or service offered by the Exchange. The below table also 
details the general shared expense allocated to this proposal. Each of 
these expenses are discussed in more detail further below.
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    \34\ The percentage allocations used in this proposed rule 
change may differ from past filings from the Exchange or its 
affiliates due to adjustments to internal resource allocations and 
different system architecture of the Exchange as compared to its 
affiliates.
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    For 2022, the total annual expense for producing and disseminating 
the cToM data feed is estimated to be $236,284, or $19,690 per month. 
The Exchange utilized its estimated 2022 revenue and

[[Page 29968]]

costs, which utilize the same methodology set forth in the Exchange's 
previously-issued Audited Unconsolidated Financial Statements.\35\
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    \35\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the 
information technology and communication costs line item under the 
section titled ``Operating Expenses Incurred Directly or Allocated 
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing 
its financial statements for 2018. See Securities Exchange Act 
Release No. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020) 
(SR-EMERALD-2019-39). Accordingly, the third-party expense described 
in this filing is attributed to the same line item for the 
Exchange's 2022 Form 1 Amendment, which will be filed in 2023. In 
its suspension orders, the Commission also asked should the Exchange 
use cost projections or actual costs estimated for 2021 in a filing 
made in 2022, or make cost projections for 2022. The Exchange 
utilized expenses from its most recent audited financial statement 
as those numbers are more reliable than more recent unaudited 
numbers, which may be subject to change.

------------------------------------------------------------------------
                            External expenses
-------------------------------------------------------------------------
                                           Percentage of total expense
                Category                         amount allocated
------------------------------------------------------------------------
Data Center Provider...................  0.20%.
Fiber Connectivity Provider............  0.20%.
Hardware and Software Providers........  0.20%.
                                        --------------------------------
    Total of External Expenses.........  $5,434.\36\
------------------------------------------------------------------------


 
                            Internal expenses
-------------------------------------------------------------------------
                Category                     Expense amount allocated
------------------------------------------------------------------------
Employee Compensation..................  $209,610 (representing 2% of
                                          total $9,900,032 expense)
Depreciation and Amortization..........  $4,055 (representing 0.12% of
                                          total $3,363,841 expense)
Occupancy..............................  $11,410 (representing 2% of
                                          total $538,916 expense)
                                        --------------------------------
    Total of Internal Expenses.........  $225,075
                                        --------------------------------
    Total Allocated Shared Expenses....  $5,775 (representing 0.2% of
                                          total $2,872,232 expense)
                                        --------------------------------
        Total External + Internal +      $236,284
         Allocated Shared Expenses.
------------------------------------------------------------------------

    In its suspension orders, the Commission solicited commenters' 
views on whether the Exchange has provided sufficient detail on the 
identity and nature of services provided by third parties. The 
Commission further solicited commenters' views on whether the Exchange 
has provided sufficient detail on the elements that go into producing 
and distributing the cToM data feed, including how shared costs are 
allocated and attributed to the cToM data feed, to permit an 
independent review and assessment of the reasonableness of purported 
cost-based fees and the corresponding profit margin thereon. In 
response, the Exchange provides additional detail regarding the 
identity and nature of services provided by third parties, the elements 
that go into producing and distributing the cToM data feed, and how 
expenses are allocated. The Exchange believes this additional detail is 
sufficient to support a finding that the proposed fees are consistent 
with the Exchange Act.
---------------------------------------------------------------------------

    \36\ 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 amount.
---------------------------------------------------------------------------

    The Exchange notes that it only has a single source of revenue, 
distribution fees, to recover those costs associated with providing and 
disseminating the cToM data feed. For clarity, the Exchange took a 
conservative approach in determining the expense and the percentage of 
that expense to be allocated to providing the cToM data feed. The 
Exchange describes below the analysis conducted for each expense and 
the resources or determinations that were considered when determining 
the amount necessary to allocate to each expense. The Exchange notes 
that, without the specific third party and internal expense items, the 
Exchange would not be able to provide and distribute cToM data feed. 
Each of these expense items, including physical hardware, software, 
employee compensation and benefits, occupancy costs, and the 
depreciation and amortization of equipment, were identified through a 
line-by-line cost analysis and determined to be integral to providing 
and distributing the cToM data feed for the reasons discussed below. 
Only a portion of all fees paid to such third parties are included in 
the third party expenses described herein, and, again, no expense 
amount is allocated twice. For example, the Exchange does not allocate 
its entire information technology and communication costs to providing 
and distributing the cToM data feed because it determined that a 
portion of those costs are attributable to other areas of the 
Exchange's operations, such as ports and transaction services, as well 
as other market data products provided by the Exchange. This may result 
in the Exchange under allocating an expense to provide the cToM data 
feed, and such expenses may actually be higher than what the Exchange 
allocated as part of this proposal.\37\
---------------------------------------------------------------------------

    \37\ The Exchange notes that expenses associated with its 
affiliates, MIAX and MIAX Pearl (the options and equities markets), 
are accounted for separately and are not included within the scope 
of this filing.
---------------------------------------------------------------------------

    Further, as part of 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 as compared to prior versions of this 
proposed fee change that were previously withdrawn by the Exchange. The 
revised percentages are, among other things, the result of the shifting 
of internal resources in response to business objectives. 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

[[Page 29969]]

architecture of the Exchange as compared to its affiliates.\38\
---------------------------------------------------------------------------

    \38\ The Exchange notes that the expense allocations differ from 
the Exchange's filing earlier in 2021, SR-EMERALD-2021-05, because 
that prior filing pertained to several different market data fees, 
which the Exchange had not been charging for since the Exchange 
launched operations in March 2019. See Securities Exchange Act 
Release No. 91145 (February 17, 2021), 86 FR 11033 (February 23, 
2021) (SR-EMERALD-2021-05) (adopting fees for the ToM, 
Administrative Information Subscriber (`AIS'), and MOR data feeds, 
all of which had been free for market participants for over two 
years since inception).
---------------------------------------------------------------------------

External Expense Allocations
    For 2022, annual expenses relating to fees paid by the Exchange to 
third parties for products and services necessary to provide the cToM 
data feed are estimated to be $5,434.\39\ This includes 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; and (3) hardware and software providers, which support the 
production environment in which Members and non-Members connect to the 
network to receive market data.\40\
---------------------------------------------------------------------------

    \39\ See supra note 36.
    \40\ Id. The Exchange did not allocate any expense associated 
with the proposed fees towards the Securities Financial Transaction 
Infrastructure (``SFTI'') and various other service providers' 
because the Exchange's architecture takes advantage of an advance in 
design to eliminate the need for a market data distribution gateway 
layer. The computation and dissemination via an API is done solely 
within the match engine environment and is then delivered via the 
Member and non-Member connectivity infrastructure. This architecture 
delivers a market data system that is more efficient both in cost 
and performance. Accordingly, the Exchange determined not to 
allocate any expense associated with SFTI and various other service 
providers.
---------------------------------------------------------------------------

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 and distribute market data in the third 
party data centers where it maintains its equipment as well as related 
costs described below. 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, provide a trading platform for market participants, and 
produce and distribute market data. The Exchange does not employ a 
separate fee to cover its data center expense and recoups that expense, 
in part, by charging for the cToM data feed.
    The Exchange reviewed its data center footprint and space utilized, 
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 space utilized by each area.\41\ Based on this 
review, the Exchange determined that 0.20% of the total applicable data 
center provider expense is applicable to providing the cToM data feed. 
The Exchange reviewed space utilized to house rack space, cage usage, 
servers, switches, cabling, storage space, heating and cooling of 
physical space, and monitoring, and identified that a small portion of 
that footprint is dedicated to equipment used to produce and distribute 
the cToM data feed.
---------------------------------------------------------------------------

    \41\ The Investors Exchange, Inc. (``IEX'') also allocated data 
center costs to produce market data based on space utilized. See 
Securities Exchange Act Release No. 94630 (April 7, 2022), 87 FR 
21945, at page 21949 (April 13, 2022) (SR-IEX-2022-02) (``IEX Market 
Data Fee Proposal'') (noting that ``[d]ata Center costs consist of 
the fees charged by the third-party data centers used by IEX and 
represent less than 10% the Exchange's total data center costs based 
on space utilized'' (emphasis added)).
---------------------------------------------------------------------------

    The Exchange believes this allocation is reasonable because it 
represents the costs associated with housing the Exchange's equipment 
dedicated to processing and disseminating the cToM data feed. The 
Exchange excluded from this allocation a portion of the Exchange's data 
center expense that is due to space utilized to provide and maintain 
connectivity to the Exchange's System Networks, including providing 
cabling within the data center between market participants and the 
Exchange. The Exchange also did not allocate the remainder of the data 
center expense because it pertains to space utilized by other areas of 
the Exchange's operations, such as connectivity, ports and transaction 
services, as well as other market data products provided by the 
Exchange.
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. Fiber 
connectivity is also necessary for personnel responsible for overseeing 
and providing customer service related to producing and distributing 
the cToM data feed, receiving relevant data and being able to 
communicate between the Exchange's various locations and data centers. 
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 in a manner necessary to maintain and support the cToM 
data feed. Fiber connectivity is a necessary integral means to 
disseminate information, including data related to producing and 
distributing the cToM data feed, from the Exchange's primary data 
center to other Exchange locations. It is necessary for Exchange 
employees located in various locations to be able to communicate and 
receive the necessary data to maintain and provide customer support 
related to the cToM data feed. The Exchange would not be able to 
operate and support the network and produce and distribute the cToM 
data feed without third party fiber connectivity. The Exchange does not 
employ a separate fee to cover its fiber connectivity expense and 
recoups that expense, in part, by charging for cToM data feed.
    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 0.20% of the total fiber connectivity expense was 
applicable to producing and distributing the cToM data feed. The 
Exchange reviewed its total fiber connectivity expense and allocated it 
among transaction services, connectivity, ports, other market data 
products, and administrative operations based on usage. The Exchange 
then further divided up its fiber connectivity costs related to market 
data and

[[Page 29970]]

identified the portion that is attributable to producing and 
maintaining the cToM data feed, also based on usage. This allocation 
is, therefore, based on the amount of bandwidth and fiber connectivity 
the Exchange calculated is utilized to support exchange operations, and 
ongoing network monitoring and maintenance that are necessary to 
produce and maintain the cToM data feed. The Exchange believes this 
allocation is reasonable because it reflects the portion of the fiber 
connectivity expense that relates to producing and distributing the 
cToM data feed. The Exchange excluded a large portion of the Exchange's 
fiber connectivity expense that 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. 
The Exchange also excluded from this allocation fiber connectivity 
usage related to system connectivity or other business lines, such as 
transaction services and other market data products offered by the 
Exchange, 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 and does not directly relate to 
providing the cToM data feed. The Exchange believes this allocation is 
reasonable because it represents the Exchange's cost to produce and 
distribute the cToM data feed.
Hardware and Software Providers
    The Exchange relies on dozens of third party hardware and software 
providers for equipment necessary to produce and disseminate the cToM 
data feed. This includes either the purchase or licensing of physical 
equipment, such as servers, switches, cabling, and devices needed by 
Exchange personnel to monitor servers and the health of market data 
products, including the cToM data feed. This consists of real-time 
monitoring of system performance, integrity, and latency of market data 
products. It also includes the Exchange purchasing or licensing 
software necessary for security monitoring, data analysis and Exchange 
operations. Hardware and software providers are necessary to produce 
and distribute the cToM data feed. Hardware and software equipment and 
licenses for that equipment are also necessary to operate and monitor 
physical assets necessary to produce and distribute the cToM data feed. 
Hardware and software equipment and licenses are key to the operation 
of the Exchange and without them the Exchange would not be able to 
produce and distribute the cToM data feed. The Exchange does not employ 
a separate fee to cover its hardware and software expense and recoups 
that expense, in part, by charging for cToM data feed dissemination.
    The Exchange reviewed its 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. The Exchange 
then divided those costs among transaction services, ports, 
connectivity, other market data products, and other Exchange operations 
based on whether all of that hardware or software is based on usage. 
The Exchange then reviewed the amount allocated to producing and 
distributing market data generally and what portion of that hardware 
and software equipment or license is used to support the cToM data feed 
specifically. Based on this review, the Exchange determined that 0.20% 
of the total applicable hardware and software expense is allocated to 
producing and distributing the cToM data feed. This percentage reflects 
the amount of hardware and software equipment and licenses dedicated to 
produce and maintain the cToM data feed.\42\ Hardware and software 
equipment and licenses are key to the operation of the Exchange and 
production and distribution of market data. Without them, the Exchange 
would not be able to develop, and market participants would not be able 
to purchase, the cToM data feed. The Exchange only allocated the 
portion of this expense to the hardware and software that is related to 
the cToM data feed, such as operating servers and equipment necessary 
to produce and distribute the cToM data feed. 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 connectivity 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, as well as other market data products 
provided by the Exchange, and is not directly related to producing and 
disseminating the cToM data feed. The Exchange believes this allocation 
is reasonable because it represents the Exchange's cost to produce and 
disseminate the cToM data feed, and not any other service, as supported 
by its cost review.
---------------------------------------------------------------------------

    \42\ The Exchange notes that IEX used a similar methodology to 
allocate hardware costs to market data. See IEX Market Data Fee 
Proposal, id. at page 21950 (noting that ``IEX only included 
hardware specifically dedicated to the market data feeds in 
calculating the costs of providing market data'').
---------------------------------------------------------------------------

Internal Expense Allocations
    For 2022, total internal annual expense relating to the Exchange 
producing and distributing the cToM data feed is estimated to be 
$225,075. This includes costs associated with: (1) Employee 
compensation and benefits for full-time employees that support market 
data, 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 produce and distribute the cToM data feed, 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 support 
the cToM data feed.
Employee Compensation and Benefits
    Human personnel are key to exchange operations and supporting the 
Exchange's ongoing provision of the cToM data feed. The Exchange 
reviewed its employee compensation and benefits expense and the portion 
of that expense allocated to providing the cToM data feed. As part of 
this review, the Exchange considered employees whose functions include 
providing and maintaining the cToM data feed and used a blended rate of 
compensation reflecting salary, stock and bonus compensation, bonuses, 
benefits, payroll taxes, and 401K matching contributions.\43\
---------------------------------------------------------------------------

    \43\ For purposes of this allocation, the Exchange did not 
consider expenses related to office space, supplies, or equipment 
use by employees who support cToM data feed.
---------------------------------------------------------------------------

    In its suspension orders, the Commission asked the Exchange provide 
more detail about the methodology the Exchange used to determine how 
much of an employee's time is devoted to market data related 
activities. In considering the cost of personnel, the Exchange 
generally considered the time spent on various market data projects and 
initiatives through project management tracking tools and analysis of 
employee resource allocations, among its Technology Team in the 
following areas: Technical

[[Page 29971]]

Operations, Software Engineering, Quality Assurance, and 
Infrastructure. The Exchange did not consider non-Technology Teams such 
as Market Operations, Project Management, Regulatory, Legal, and 
Accounting/Finance.\44\
---------------------------------------------------------------------------

    \44\ The Exchange notes that IEX used a similar methodology to 
allocate employee compensation related costs to market data. See IEX 
Market Data Fee Proposal, supra note 41 at page 29150 (noting that 
``[f]or personnel costs, IEX calculated an allocation of employee 
time for employees whose functions include providing and maintaining 
IEX Data and/or the proprietary market data feeds used to transmit 
IEX Data, and used a blended rate of compensation reflecting salary, 
stock and bonus compensation, benefits, payroll taxes, and 401(k) 
matching contributions'').
---------------------------------------------------------------------------

    Based on this review, the Exchange determined to allocate $209,610 
in employee compensation and benefits expense to producing and 
distributing the cToM data feed. This represents approximately 2.0% of 
the $9,900,032 total projected expense for employee compensation and 
benefits. The Exchange determined the cost allocation for employees who 
perform work in support of producing and distributing the cToM data 
feed to arrive at a full time equivalent (``FTE'') of 0.6 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 producing and 
distributing the cToM data feed. 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 producing and distributing the cToM data feed. The Exchange 
determined the above allocation based on the personnel whose work 
focused on functions necessary to producing and distributing the cToM 
data feed. The Exchange does not charge a separate fee for employees 
who support the cToM data feed and the Exchange seeks to recoup that 
expense, in part, by charging for the cToM data feed.
    The Exchange believes it is appropriate to include incentive 
compensation in the blended personnel compensation rate on the same 
basis as other personnel costs for in-scope employees because incentive 
compensation is a part of the total personnel costs associated with the 
Exchange's costs to provide the cToM data feed. Moreover, the Exchange 
notes that it has taken a conservative approach in determining which 
employees to include in its cost analysis, in terms of function and 
percent allocation, so that the included personnel costs are directly 
and closely tied to the costs of providing the cToM data feed. The FTE 
allocation represents just 2.0% of the Exchange's overall personnel 
costs. Consistent with the Exchange's conservative methodology to limit 
costs allocated to producing and disseminating the cToM data feed, this 
approach includes only a de minimis personnel cost allocation for 
senior level executives and no allocation for members of the Exchange's 
board of directors. Accordingly, the Exchange believes that the 
allocated personnel expenses included are appropriately attributable to 
producing and disseminating the cToM data feed.
Depreciation and Amortization
    A key expense incurred by the Exchange relates to the depreciation 
and amortization of equipment that the Exchange procured to produce and 
distribute the cToM data feed. The Exchange reviewed all of its 
physical assets and software, owned and leased, and determined whether 
each asset is related to providing and maintaining the cToM data feeds, 
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 and depreciated or leased 
over periods ranging from three to five years. Based on the Exchange's 
experience, this depreciation period equals the typical life expectancy 
of those assets. In determining the amount of depreciation and 
amortization to apply to providing the cToM data feeds, the Exchange 
considered the depreciation of hardware and software that are key to 
its provision of the cToM data feeds. 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 produce and distribute the cToM data 
feed. Without them, market participants would not be able to receive 
the cToM data feed. The Exchange seeks to recoup a portion of its 
depreciation expense by charging for the cToM data feed.
    Based on this review, the Exchange determined to allocate $4,055 in 
depreciation and amortization expense to producing and distributing the 
cToM data feed. This is only 0.12% of the $3,363,841 total projected 
expense for depreciation and amortization. For purposes of the 
allocation of these costs to the cToM data feed, the Exchange allocates 
the annual depreciation (i.e., one-third or one-fifth of the initial 
asset value based on the typical life expectancy of those assets). One-
third or one-fifth of the cost of each asset is included in the annual 
costs allocated to the cToM data feed. The Exchange only included 
assets specifically dedicated to the cToM data feed in calculating the 
costs of providing the cToM data feed. This means that physical assets 
used for transaction services, other market data products, or other 
Exchange operations were excluded from the calculation.\45\ 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 connectivity, unrelated 
administrative services, or other market data products provided by the 
Exchange. All of the expenses outlined in this proposed fee change 
refer to the operating expenses of the Exchange. In the suspension 
orders, the Commission asked for additional detail or explanation to 
ensure that no expense amount is allocated twice. The Exchange did not 
included any future capital expenditures within these costs ensuring 
that no cost is counted twice. 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.
---------------------------------------------------------------------------

    \45\ The Exchange notes that IEX used a similar methodology to 
allocate hardware costs to market data. See IEX Market Data Fee 
Proposal at note 54, supra note 41 at page 21950 (noting that 
``[h]ardware is depreciated on a straight-line three-year period, 
which in IEX's experience, is equal to the typical life expectancy 
of those assets. As noted above, one-third of the cost of each 
hardware asset is included in the annual costs allocated to market 
data. IEX only included hardware specifically dedicated to the 
market data feeds in calculating the costs of providing market data. 
This means that physical assets used for both order entry and market 
data were excluded from the calculation'').
---------------------------------------------------------------------------

Occupancy
    The Exchange rents and maintains multiple physical locations to 
house staff and equipment necessary to support the production and 
dissemination of the cToM data feed. 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 
producing and distributing the cToM data feed. Similarly, the Exchange 
also considered

[[Page 29972]]

the actual physical space used to house hardware and other equipment 
necessary to provide and maintain the cToM data feed. The Exchange 
maintains staff that support producing and distributing the cToM data 
feed in various locations and needs to provide workplaces for that 
staff as well as space to house hardware and equipment necessary for 
those employees to perform those functions.\46\ This equipment includes 
computers, servers, and accessories necessary to support producing and 
distributing cToM data feed. Based on this review, the Exchange 
determined to allocate $11,410 of its occupancy expense to producing 
and distributing the cToM data feed. According to the Exchange's 
calculations, it allocated approximately 2.0% of the total applicable 
occupancy expense to producing and distributing the cToM data feeds. 
This is only a portion of the $538,916 total projected expense for 
occupancy. 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 cToM data 
feed. 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 transaction and administrative 
services.
---------------------------------------------------------------------------

    \46\ For the avoidance of doubt, the Exchange did not include 
within this cost any portion of its costs related to third party 
fiber connectivity used by Exchange staff in different office 
locations to communicate as part of their role in supporting the 
cToM data feed.
---------------------------------------------------------------------------

Allocated Shared Expense
    Finally, a limited portion of general shared expenses was allocated 
to the cToM data feed costs, as without these general shared costs, the 
Exchange would not be able to operate in the manner that it does and 
produce and distribute the cToM data feed. 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 the cToM data feed is estimated to 
be $5,755. This represents approximately 0.2% of the $2,872,232 total 
projected general shared combined expense. The Exchange used the 
weighted average of the above allocations to determine the amount of 
general shared expenses to allocate to the Exchange. Next, based on 
additional management and expense analysis, these fees are allocated to 
the proposal.
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, 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 the 
cToM data feed, the Exchange analyzed the number of Members and non-
Members currently receiving the cToM data feed 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 cToM data fee, 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 the month of March 2022, prior to the effectiveness of the 
proposed cToM fees, the Exchange had 13 cToM data feed subscribers, for 
which the Exchange charged $0. This resulted in a loss of $19,690 for 
that month. For April 2022, the Exchange anticipates that it will have 
13 cToM data feed subscribers.\47\ Assuming the Exchange charges the 
proposed fees for Distributors, the Exchange would generate revenue of 
$16,250 for April 2022. This would result in a loss of $3,440 ($16,250 
minus $19,690) for the month of April (a negative 21% margin from March 
2022 to April 2022).
---------------------------------------------------------------------------

    \47\ The Exchange notes that the number of cToM subscribers may 
change over time. Beginning with June 2021, the month prior to the 
original fee change to adopt cToM data fees, the Exchange had the 
following number of subscribers each month: June (13 subscribers); 
July (13 subscribers); August (12 subscribers); September (15 
subscribers); October (12 subscribers); November (12 subscribers); 
December (12 subscribers); January (12 subscribers); February (12 
subscribers); March (13 subscribers); and April (13 subscribers).
---------------------------------------------------------------------------

    The Exchange believes that conducting the above analysis on a per 
month basis is reasonable as the revenue generated from the cToM data 
feed is 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 margin may also 
fluctuate from month to month based on the uncertainty of predicting 
how many subscribers may purchase cToM data feed subscriptions from 
month to month as Members and non-Members are free to add and drop 
subscriptions 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.'' \48\ Until recently, the 
Exchange has operated at a cumulative net annual loss since it launched 
operations in 2019.\49\ 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 the cToM data feed, for free, as 
well as other products 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 previously provided the cToM data feed free of 
charge and absorbed all costs associated with providing the cToM data 
feed to market participants. In this proposal, the Exchange would 
continue to offer the cToM data feed for a fee that still falls short 
of covering the Exchange's expenses. The Exchange is not generating a 
profit, and therefore, cannot be deemed to be generating a ``supra-
competitive'' profit by now charging for the cToM data feed. The 
Exchange should not now be penalized for seeking to adopt fees to at 
least cover a portion of its costs after offering the cToM data feed 
free of charge. Therefore, the Exchange believes the proposed fees are 
reasonable because they are based on both relative costs to the 
Exchange to generate and disseminate cToM, the extent to which the 
product drives the Exchange's overall costs and the relative value of 
the product, as well as the Exchange's

[[Page 29973]]

objective to make cToM broadly available to market participants. The 
Exchange also believes the proposed fees are reasonable because they 
are designed to generate annual revenue to recoup some of the 
Exchange's annual costs of providing the cToM data feed.
---------------------------------------------------------------------------

    \48\ See Guidance, supra note 25.
    \49\ The Exchange has incurred a cumulative loss of $22 million 
since its inception in 2019 to 2020, the last year for which the 
Exchange's Form 1 data is available. See Exchange's Form 1/A, 
Application for Registration or Exemption from Registration as a 
National Securities Exchange, filed July 28, 2021, available at 
https://sec.report/Document/9999999997-21-004557/.
---------------------------------------------------------------------------

    The Exchange notes that its revenue estimate is based on 
projections 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 the cToM data feed, the Exchange will have to be 
successful in retaining existing clients that wish to receive the cToM 
data feed or obtaining new clients that will purchase such data. To the 
extent the Exchange is successful in encouraging new clients to receive 
the cToM data feed, 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 this proposal demonstrates this fact.
    Finally, the Exchange believes that the proposed fees are 
reasonable because they will not impose onerous audit requirements on 
subscribers, because there will be no need to substantiate the number 
of users of cToM or the manner in which it is being used, but rather 
only whether it is being redistributed internally or to external third 
parties.
Annual Review of Fees
    In its suspension orders, the Commission asks whether exchanges 
should periodically reevaluate fees on an ongoing and periodic basis in 
order to assure that actual revenue aligns with a reasonable cost-plus 
model. As described above and as part of this proposed rule change, the 
Exchange is committing to conduct a one year review of the fees that 
are cost justified as part of this proposed rule change after the date 
of this proposal, and annually thereafter. The Exchange expects that it 
may propose to adjust fees at that time, either to increase fees in the 
event that revenues fail to reasonably cover costs at the estimated 
margin set forth above, or to decrease fees in the event that revenue 
materially exceeds the Exchange's current projections. In the event 
that the Exchange determines to propose a fee change, updated cost 
estimates will be included in a rule filing proposing the fee change. 
The Exchange believes this approach will further increase transparency 
around market data costs and help to ensure that Exchange fees continue 
to be reasonably related to costs.
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 options exchanges' 
costs to provide market data or their fee markup over those costs, and 
therefore cannot use other exchange's market data fees as a benchmark 
to determine a reasonable markup over the costs of providing market 
data. Nevertheless, the Exchange believes the other exchanges' complex 
market data fees are useful examples of alternative approaches to 
providing and charging for complex market data notwithstanding that the 
competing exchanges may have different system architectures that may 
result in different cost structures for the provision of complex market 
data. To that end, the Exchange believes the proposed cToM data fees 
are reasonable because the proposed fees are similar to, or less than 
fees charged for complex market data provided by other options 
exchanges with comparable market shares.
    As described in the below table, the Exchange's proposed fees 
remain less than fees charged for similar market data products provided 
by other options exchanges with similar market share. Each of the 
market data rates in place at competing options exchanges were filed 
with the Commission for immediate effectiveness and remain in place 
today.

------------------------------------------------------------------------
             Exchange                            Monthly fee
------------------------------------------------------------------------
MIAX Emerald (as proposed)........  $1,250--Internal Distributor,
                                     $1,750--External Distributor.
Amex \50\.........................  $1,500--Access Fee, $1,000--
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution).
Arca \51\.........................  $1,500--Access Fee, $1,000--
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution).
PHLX \52\.........................  $3,000--Internal Distributor,
                                     $3,500--External Distributor.
------------------------------------------------------------------------

The Proposed Pricing Is Not Unfairly Discriminatory and Provides for 
the Equitable Allocation of Fees, Dues, and Other Charges
---------------------------------------------------------------------------

    \50\ See NYSE American Options Proprietary Market Data Fees, 
American Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf.
    \51\ See NYSE Arca Options Proprietary Market Data Fees, Arca 
Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
    \52\ See PHLX Price List--U.S. Derivatives Data, PHLX Orders 
Fees, at http://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX.
---------------------------------------------------------------------------

    The Exchange believes that the proposed fees are reasonable, fair, 
and equitable, and not unfairly discriminatory because they are 
designed to align fees with services provided and will apply equally to 
all subscribers. The Exchange believes that it is reasonable, equitable 
and not unfairly discriminatory to assess Internal Distributors fees 
that are less than the fees assessed for External Distributors for 
subscriptions to the cToM data feed because Internal Distributors have 
limited, restricted usage rights to the market data, as compared to 
External Distributors, which have more expansive usage rights. All 
Members and non-Members that determine to receive any market data feed 
of the Exchange (or its affiliates, MIAX Pearl and MIAX), must first 
execute, among other things, the MIAX Exchange Group Exchange Data 
Agreement (the ``Exchange Data Agreement'').\53\ Pursuant to the 
Exchange Data Agreement, Internal Distributors are restricted to the 
``internal use'' of any market data they receive. This means that 
Internal

[[Page 29974]]

Distributors may only distribute the Exchange's market data to the 
recipient's officers and employees and its affiliates.\54\ External 
Distributors may distribute the Exchange's market data to persons who 
are not officers, employees or affiliates of the External 
Distributor,\55\ and may charge their own fees for the redistribution 
of such market data. External Distributors may monetize their receipt 
of the cToM data feed by charging their customers fees for receipt of 
the Exchange's cToM data. Internal Distributors do not have the same 
ability to monetize the Exchange's cToM data feed. Accordingly, the 
Exchange believes it is fair, reasonable and not unfairly 
discriminatory to assess External Distributors a higher fee for the 
Exchange's cToM data feed as External Distributors have greater usage 
rights to commercialize such market data and can adjust their own fee 
structures if necessary.
---------------------------------------------------------------------------

    \53\ See Exchange Data Agreement, available at https://miaxweb2.pairsite.com/sites/default/files/page-files/MIAX_Exchange_Group_Data_Agreement_09032020.pdf.
    \54\ See id.
    \55\ See id.
---------------------------------------------------------------------------

    The Exchange also utilizes more resources to support External 
Distributors versus Internal Distributors, as External Distributors 
have reporting and monitoring obligations that Internal Distributors do 
not have, thus requiring additional time and effort of Exchange staff. 
For example, External Distributors have monthly reporting requirements 
under the Exchange's Market Data Policies.\56\ Exchange staff must 
then, in turn, process and review information reported by External 
Distributors to ensure the External Distributors are redistributing 
cToM data in compliance with the Exchange's Market Data Agreement and 
Policies.
---------------------------------------------------------------------------

    \56\ Section 6 of the Exchange's Market Data Policies, available 
at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Exchange_Group_Market_Data_Policies_07202021.pdf.
---------------------------------------------------------------------------

    The Exchange believes the proposed cToM fees are equitable and not 
unfairly discriminatory because the fee level results in a reasonable 
and equitable allocation of fees amongst subscribers for similar 
services, depending on whether the subscriber is an Internal or 
External Distributor. Moreover, the decision as to whether or not to 
purchase market data is entirely optional to all market participants. 
Potential purchasers are not required to purchase the market data, and 
the Exchange is not required to make the market data available. 
Purchasers may request the data at any time or may decline to purchase 
such data. The allocation of fees among users is fair and reasonable 
because, if market participants determine not to subscribe to the data 
feed, firms can discontinue their use of the cToM data.
    The Exchange further believes that the proposed fees are 
reasonable, fair, and equitable, and non-discriminatory because they 
will apply to all subscribers in the same manner based on whether the 
data is used for internal purposes or distributed to third parties. All 
similarly situated market participants are subject to the same fees. 
The fees also do not depend on any distinctions between or among 
Members, customers, broker-dealers, or any other entity, because they 
are solely determined by the individual market participant based on its 
business needs. The Exchange also notes that the proposed monthly cToM 
fees for Internal and External Distributors are the same prices that 
the Exchange charges for its ToM data product.
    Finally, the Exchange believes that the proposed fees are 
consistent with Section 11A of the Exchange Act in that it is designed 
to facilitate the economically efficient execution of securities 
transactions, fair competition among brokers and dealers, exchange 
markets and markets other than exchange markets, and the practicability 
of brokers executing investors' orders in the best market. 
Specifically, the proposed low cost-based fee will enable a broad range 
of market participants to receive the cToM data feed, thereby 
facilitating the economically efficient execution of securities 
transactions on the Exchange, fair competition between and among such 
Members, and the practicability of Members that are brokers executing 
investors' orders on the Exchange when it is the best market.
    For the foregoing reasons, the Exchange believes that the proposed 
fee is reasonable, equitably allocated, and not unfairly 
discriminatory.
* * * * *
    The Exchange believes the proposed change to delete certain text 
from Section 6(a) of the Fee Schedule promotes just and equitable 
principles of trade and removes impediments to and perfects the 
mechanism of a free and open market and a national market system 
because the proposed change is a non-substantive edit to the Fee 
Schedule to remove unnecessary text. The Exchange believes that this 
proposed change will provide greater clarity to Members and the public 
regarding the Exchange's Fee Schedule and that it is in the public 
interest for the Fee Schedule to be accurate and concise so as to 
eliminate the potential for confusion.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes the proposed fees will not result in any 
burden on intra-market competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because the proposed fees 
will allow the Exchange to recoup some of its costs in providing cToM 
to market participants. As described above, the Exchange has operated 
at a cumulative net annual loss since it launched operations in 2019 
\57\ due to providing a low cost alternative to attract order flow and 
encourage market participants to experience the high determinism and 
resiliency of the Exchange's trading Systems. To do so, the Exchange 
chose to waive the fees for some non-transaction related services and 
Exchange products or provide them at a very marginal cost, which was 
not profitable to the Exchange. This resulted in the Exchange forgoing 
revenue it could have generated from assessing any fees or higher fees. 
The Exchange could have sought to charge higher fees at the outset, but 
that could have served to discourage participation on the Exchange. 
Instead, the Exchange chose to provide a low cost exchange alternative 
to the options industry which resulted in lower initial revenues. An 
example of this is cToM, for which the Exchange only now seeks to adopt 
fees at a level similar to or lower than those of other options 
exchanges.
---------------------------------------------------------------------------

    \57\ See supra note 49.
---------------------------------------------------------------------------

    Since the Exchange initially launched operations with the cToM data 
product in 2019, all Exchange Members and non-Members have had the 
ability to receive the Exchange's cToM data free of charge for the past 
three years. Since 2019, when the Exchange adopted Complex Order 
functionality, the Exchange has spent time and resources building out 
additional features for Complex Order functionality in its System to 
provide better trading strategies and risk protections for market 
participants in order to better compete with other exchanges' complex 
functionality and similar data products focused on complex orders.\58\ 
The Exchange now seeks to recoup its costs for providing cToM to market 
participants and believes the proposed

[[Page 29975]]

fees will not result in excessive pricing or supra-competitive profit.
---------------------------------------------------------------------------

    \58\ See supra notes 14 through 16.
---------------------------------------------------------------------------

Inter-Market Competition
    The Exchange also does not believe the proposed fees would cause 
any unnecessary or inappropriate burden on intermarket competition as 
other exchanges are free to introduce their own comparable data product 
and lower their prices to better compete with the Exchange's offering. 
There is no reason to believe that the newly proposed fees to receive 
the cToM data feed would impair other exchange's ability to compete or 
cause any unnecessary or inappropriate burden on inter-market 
competition. Particularly, the proposed product and fees apply 
uniformly to any purchaser, in that it does not differentiate between 
subscribers that purchase cToM. The proposed fees are set at a modest 
level that would allow any interested Member or non-Member to purchase 
such data based on their business needs.
    The Exchange does not believe that the proposed rule change to make 
a minor, non-substantive edit to Section 6(a) of the Fee Schedule by 
deleting unnecessary text will result in any burden on competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act. This proposed rule change is not being made for competitive 
reasons, but rather is designed to remedy a minor non-substantive issue 
and will provide added clarity to the Fee Schedule. The Exchange 
believes that it is in the public interest for the Fee Schedule to be 
accurate and concise so as to eliminate the potential for confusion on 
the part of market participants. In addition, the Exchange does not 
believe the proposal will impose any burden on inter-market competition 
as the proposal does not address any competitive issues and is intended 
to protect investors by providing further transparency regarding the 
Exchange's Fee Schedule.

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

    Written comments were neither solicited nor received.

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\59\ 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,\60\ 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.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78s(b)(3)(C).
    \60\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    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.\61\ 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.'' \62\
---------------------------------------------------------------------------

    \61\ 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'').
    \62\ 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; \63\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \64\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\65\
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78f(b)(4).
    \64\ 15 U.S.C. 78f(b)(5).
    \65\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether the proposed fees for the cToM 
market data feed are consistent with the statutory requirements 
applicable to a national securities exchange under the Act. In 
particular, the Commission will consider whether the proposed rule 
change satisfies the standards under the Act and the rules thereunder 
requiring, among other things, that an exchange's rules provide for the 
equitable allocation of reasonable fees among members, issuers, and 
other persons using its facilities; not permit unfair discrimination 
between customers, issuers, brokers or dealers; and do not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\66\
---------------------------------------------------------------------------

    \66\ 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.\67\
---------------------------------------------------------------------------

    \67\ 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

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\68\ and 19(b)(2)(B) of the Act \69\ to determine whether the 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, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change to inform the Commission's analysis of whether to 
disapprove the proposed rule change.
---------------------------------------------------------------------------

    \68\ 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.
    \69\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\70\ 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),\71\ 6(b)(5),\72\ and 6(b)(8) \73\ 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

[[Page 29976]]

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.
---------------------------------------------------------------------------

    \70\ Id.
    \71\ 15 U.S.C. 78f(b)(4).
    \72\ 15 U.S.C. 78f(b)(5).
    \73\ 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, which are set forth 
above, 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 fees are constrained by competitive 
forces, but rather sets forth a ``cost-plus model,'' employing a 
``conservative approach,'' that the expenses are ``directly related'' 
to cToM data, and not any other product or service offered by the 
Exchange, and states that the proposed fees are ``reasonable because 
they will permit recovery of the Exchange's costs in providing cToM 
data and will not result in the Exchange generating a supra-competitive 
profit.'' \74\ In explaining its costs, should the Exchange identify 
more specifically which, if any, of its costs are incurred solely to 
provide cToM data? Regarding the allocations provided by the Exchange 
as described in greater detail above, do commenters believe that the 
Exchange provided sufficient detail about how it determined these 
allocations and why they are reasonable? Why or why not? Do commenters 
believe that the Exchange provided sufficient context to permit an 
independent review and assessment of the reasonableness of the cost 
allocations? Do commenters believe that the Exchange provided 
sufficient detail or explanation to support its claim that ``no expense 
amount is allocated twice,'' \75\ whether among the sub-categories of 
expenses in this filing, across the Exchange's fee filings for other 
products or services, or over time?
---------------------------------------------------------------------------

    \74\ See supra Section II.A.2.
    \75\ See id.
---------------------------------------------------------------------------

    2. Revenue Estimates and Profit Margin Range. The Exchange provides 
a single monthly revenue figure as the basis for calculating its 
anticipated profit margin. Do commenters believe this is reasonable? If 
not, why not? The profit margin is also dependent on the accuracy of 
the cost projections which, if inflated (intentionally or 
unintentionally), may render the projected profit margin meaningless. 
The Exchange acknowledges that this margin may fluctuate from month to 
month as Members and non-Members add and drop subscriptions,\76\ and 
that costs may increase. The Exchange does not account for the 
possibility of cost decreases, however. What are commenters' views on 
the extent to which actual costs (or revenues) deviate from projected 
costs (or revenues)? Do commenters believe that the Exchange's 
methodology for estimating the profit margin is reasonable? Should the 
Exchange provide a range of profit margins that it believes are 
reasonably possible, and the reasons therefor?
---------------------------------------------------------------------------

    \76\ See id.
---------------------------------------------------------------------------

    3. Reasonableness. The Exchange states that the proposed fees are 
reasonable because the Exchange is operating at a negative margin for 
this product. Further, the Exchange states that it chose to initially 
provide the cToM data product for free and to forego revenue that they 
otherwise could have generated from assessing any fees.\77\ What are 
commenters' views regarding what factors should be considered in 
determining what constitutes a reasonable fee for the cToM market data 
product? Do commenters believe it relevant to an assessment of 
reasonableness that, according to the Exchange, the Exchange's proposed 
fees are similar to or lower than fees charged by competing options 
exchanges with similar market share? Should an assessment of 
reasonableness include consideration of factors other than costs; and 
if so, what factors should be considered, and why?
---------------------------------------------------------------------------

    \77\ See id.
---------------------------------------------------------------------------

    4. Periodic Reevaluation. The Exchange has stated that it will 
conduct a one-year review of the cost-based fees subject to this 
proposal after the date of the proposal, and annually thereafter. In 
light of the impact that the number of subscriptions has on profit 
margins, and the potential for costs to decrease (or increase) over 
time, what are commenters' views on the need for exchanges to commit to 
reevaluate, on an ongoing and periodic basis, their cost-based data 
fees to ensure that the fees stay in line with their stated 
profitability projections and do not become unreasonable over time, for 
example, by failing to adjust for efficiency gains, cost increases or 
decreases, and changes in subscribers? How formal should that process 
be, how often should that reevaluation occur, and what metrics and 
thresholds should be considered? How soon after a new data fee change 
is implemented should an exchange assess whether its revenue and/or 
cost estimates were accurate and at what threshold should an exchange 
commit to file a fee change if its estimates were inaccurate?
    5. Fees for Internal Distributors versus External Distributors. The 
Exchange argues that it is reasonable, equitable, and not unfairly 
discriminatory to assess Internal Distributors fees that are lower than 
the fees assessed for External Distributors for subscriptions to the 
cToM data feed ($1,250 per month for Internal Distributors versus 
$1,750 per month for External Distributors), since Internal 
Distributors have limited, restricted usage rights to the market data, 
as compared to External Distributors, which have more expansive usage 
rights, including rights to commercialize such market data.\78\ In 
addition, the Exchange states that it ``utilizes more resources'' to 
support External Distributors as compared to Internal Distributors, as 
External Distributors have reporting and monitoring obligations that 
Internal Distributors do not have, thus requiring ``additional time and 
effort'' of the Exchange's staff.\79\ What are commenters' views on the 
adequacy of the information the Exchange provides regarding the 
differential between the Internal Distributor and External Distributor 
fees? Do commenters believe that the fees for Internal Distributors and 
External Distributors, as well as the fee differences between 
Distributors, are supported by the Exchange's assertions that it sets 
the differentiated pricing structure in a manner that is equitable and 
not unfairly discriminatory? Do commenters believe that the Exchange 
should demonstrate how the proposed Distributor fee levels correlate 
with different costs to better substantiate how the Exchange ``utilizes 
more resources'' to support External Distributors versus Internal 
Distributors and permit an assessment of the Exchange's statement that 
``External Distributors have reporting and monitoring obligations that 
Internal Distributors do not have,

[[Page 29977]]

thus requiring additional time and effort of Exchange staff''? \80\
---------------------------------------------------------------------------

    \78\ See id.
    \79\ See id.
    \80\ See id.
---------------------------------------------------------------------------

    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \81\ 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,\82\ 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.\83\ 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.\84\
---------------------------------------------------------------------------

    \81\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \82\ See id.
    \83\ See id.
    \84\ 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. Request for Written Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above, as well as any other relevant 
concerns. In particular, the Commission invites the written views of 
interested persons concerning whether the proposal is consistent with 
Sections 6(b)(4), 6(b)(5), and 6(b)(8), or any other provision of the 
Act, or the rules and regulations thereunder. The Commission asks that 
commenters address the sufficiency and merit of the Exchange's 
statements in support of the proposal, in addition to any other 
comments they may wish to submit about the proposed rule change. 
Although there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral presentation.\85\
---------------------------------------------------------------------------

    \85\ 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 concerning the proposed rule change, including whether the 
proposed rule change is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-EMERALD-2022-18 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EMERALD-2022-18. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-EMERALD-2022-18 and should be submitted 
on or before June 7, 2022. Rebuttal comments should be submitted by 
June 21, 2022.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\86\ that File Number SR-EMERALD-2022-18 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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    \86\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\87\
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    \87\ 17 CFR 200.30-3(a)(12), (57), and (58).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10509 Filed 5-16-22; 8:45 am]
BILLING CODE 8011-01-P