[Federal Register Volume 88, Number 126 (Monday, July 3, 2023)]
[Notices]
[Pages 42844-42868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-13999]



[[Page 42843]]

Vol. 88

Monday,

No. 126

July 3, 2023

Part III





Securities and Exchange Commission





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Self-Regulatory Organizations; Miami International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend the Fee Schedule To Modify Certain Connectivity and 
Port Fees; Notice

  Federal Register / Vol. 88, No. 126 / Monday, July 3, 2023 / 
Notices  

[[Page 42844]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97814; File No. SR-MIAX-2023-25]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the Fee Schedule To Modify Certain 
Connectivity and Port Fees

June 27, 2023.
    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 June 16, 2023, Miami International Securities Exchange, LLC 
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Fee Schedule 
(``Fee Schedule'') to amend certain connectivity and port fees.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings, at MIAX's principal 
office, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule as follows: (1) 
increase the fees for a 10 gigabit (``Gb'') ultra-low latency (``ULL'') 
fiber connection for Members \3\ and non-Members; and (2) amend the 
fees for Limited Service MIAX Express Interface (``MEI'') Ports \4\ 
available to Market Makers.\5\ The Exchange and its affiliate, MIAX 
PEARL, LLC (``MIAX Pearl'') operated 10Gb ULL connectivity (for MIAX 
Pearl's options market) on a single shared network that provided access 
to both exchanges via a single 10Gb ULL connection. The Exchange last 
increased fees for 10Gb ULL connections from $9,300 to $10,000 per 
month on January 1, 2021.\6\ At the same time, MIAX Pearl also 
increased its 10Gb ULL connectivity fee from $9,300 to $10,000 per 
month.\7\ The Exchange and MIAX Pearl shared a combined cost analysis 
in those filings due to the single shared 10Gb ULL connectivity network 
for both exchanges. In those filings, the Exchange and MIAX Pearl 
allocated a combined total of $17.9 million in expenses to providing 
10Gb ULL connectivity.\8\
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    \3\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \4\ MIAX Express Interface is a connection to MIAX systems that 
enables Market Makers to submit simple and complex electronic quotes 
to MIAX. See Fee Schedule, note 26.
    \5\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. See Exchange Rule 100.
    \6\ See Securities Exchange Act Release No. 90980 (January 25, 
2021), 86 FR 7602 (January 29, 2021) (SR-MIAX-2021-02).
    \7\ See Securities Exchange Act Release No. 90981 (January 25, 
2021), 86 FR 7582 (January 29, 2021) (SR-PEARL-2021-01).
    \8\ See id.
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    Beginning in late January 2023, the Exchange also recently 
determined a substantial operational need to no longer operate 10Gb ULL 
connectivity on a single shared network with MIAX Pearl. The Exchange 
bifurcated 10Gb ULL connectivity due to ever-increasing capacity 
constraints and to enable it to continue to satisfy the anticipated 
access needs for Members and other market participants.\9\ Since the 
time of the 2021 increase discussed above, the Exchange experienced 
ongoing increases in expenses, particularly internal expenses.\10\ As 
discussed more fully below, the Exchange recently calculated increased 
annual aggregate costs of $12,034,554 for providing 10Gb ULL 
connectivity on a single unshared network (an overall increase over its 
prior cost to provide 10Gb ULL connectivity on a shared network with 
MIAX Pearl) and $2,157,178 for providing Limited Service MEI Ports.
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    \9\ See MIAX Options and MIAX Pearl Options--Announce planned 
network changes related to shared 10G ULL extranet, issued August 
12, 2022, available at https://www.miaxglobal.com/alert/2022/08/12/miax-options-and-miax-pearl-options-announce-planned-network-changes-0. The Exchange will continue to provide access to both the 
Exchange and MIAX Pearl over a single shared 1Gb connection. See 
Securities Exchange Act Release Nos. 96553 (December 20, 2022), 87 
FR 79379 (December 27, 2022) (SR-PEARL-2022-60); 96545 (December 20, 
2022) 87 FR 79393 (December 27, 2022) (SR-MIAX-2022-48).
    \10\ For example, the New York Stock Exchange, Inc.'s (``NYSE'') 
Secure Financial Transaction Infrastructure (``SFTI'') network, 
which contributes to the Exchange's connectivity cost, increased its 
fees by approximately 9% since 2021. Similarly, since 2021, the 
Exchange, and its affiliates, experienced an increase in data center 
costs of approximately 17% and an increase in hardware and software 
costs of approximately 19%. These percentages are based on the 
Exchange's actual 2021 and proposed 2023 budgets.
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    Much of the cost relates to monitoring and analysis of data and 
performance of the network via the subscriber's connection with 
nanosecond granularity, and continuous improvements in network 
performance with the goal of improving the subscriber's experience. The 
costs associated with maintaining and enhancing a state-of-the-art 
network is a significant expense for the Exchange, and thus the 
Exchange believes that it is reasonable and appropriate to help offset 
those increased costs by amending fees for connectivity services. 
Subscribers expect the Exchange to provide this level of support so 
they continue to receive the performance they expect. This 
differentiates the Exchange from its competitors.
    The Exchange now proposes to amend the Fee Schedule to amend the 
fees for 10Gb ULL connectivity and Limited Service MEI Ports in order 
to recoup cost related to bifurcating 10Gb connectivity to the Exchange 
and MIAX Pearl as well as the ongoing costs and increase in expenses 
set forth below in the Exchange's cost analysis.\11\ The Exchange 
proposes to implement the changes to the Fee Schedule pursuant to this 
proposal immediately. The Exchange initially filed the proposal on 
December 30, 2022 (SR-MIAX-2022-50) (the ``Initial Proposal'').\12\ On

[[Page 42845]]

February 23, 2023, the Exchange withdrew the Initial Proposal and 
replaced it with a revised proposal (SR-MIAX-2023-08) (the ``Second 
Proposal'').\13\ On April 20, 2023, the Exchange withdrew the Second 
Proposal and replaced it with a revised proposal (SR-MIAX-2023-18) (the 
``Third Proposal'').\14\ On June 16, 2023, the Exchange withdrew the 
Third Proposal and replaced it with this further revised proposal (SR-
MIAX-2023-25).\15\
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    \11\ The Exchange notes that MIAX Pearl Options will make a 
similar filing to increase its 10Gb ULL connectivity fees.
    \12\ See Securities Exchange Act Release No. 96629 (January 10, 
2023), 88 FR 2729 (January 17, 2023) (SR-MIAX-2022-50).
    \13\ See Securities Exchange Act Release No. 97081 (March 8, 
2023), 88 FR 15782 (March 14, 2023) (SR-MIAX-2023-08).
    \14\ See Securities Exchange Act Release No. 97419 (May 2, 
2023), 88 FR 29777 (May 8, 2023) (SR-MIAX-2023-18).
    \15\ The Exchange met with Commission Staff to discuss the Third 
Proposal during which the Commission Staff provided feedback and 
requested additional information, including, most recently, 
information about total costs related to certain third party 
vendors. Such vendor cost information is subject to confidentiality 
restrictions. The Exchange has provided this information to 
Commission Staff under separate cover with a request for 
confidentiality. While the Exchange will continue to be responsive 
to Commission Staff's information requests, the Exchange believes 
that the Commission should, at this point, issue substantially more 
detailed guidance for exchanges to follow in the process of pursuing 
a cost-based approach to fee filings, and that, for the purposes of 
fair competition, detailed disclosures by exchanges, such as those 
that the Exchange is providing now, should be consistent across all 
exchanges, including for those that have resisted a cost-based 
approach to fee filings, in the interests of fair and even 
disclosure and fair competition.
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    The Exchange previously included a cost analysis in the Initial, 
Second, and Third Proposals. As described more fully below, the 
Exchange provides an updated cost analysis that includes, among other 
things, additional descriptions of how the Exchange allocated costs 
among it and its affiliated exchanges (MIAX Pearl (separately among 
MIAX Pearl Options and MIAX Pearl Equities) and MIAX Emerald \16\ 
(together with MIAX Pearl Options and MIAX Pearl Equities, the 
``affiliated markets'')) to ensure no cost was allocated more than 
once, as well as additional detail supporting its cost allocation 
processes and explanations as to why a cost allocation in this proposal 
may differ from the same cost allocation in a similar proposal 
submitted by one of its affiliated exchanges. Although the baseline 
cost analysis used to justify the proposed fees was made in the 
Initial, Second, and Third Proposals, the fees themselves have not 
changed since the Initial, Second, or Third Proposals and the Exchange 
still proposes fees that are intended to cover the Exchange's cost of 
providing 10Gb ULL connectivity and Limited Service MEI Ports with a 
reasonable mark-up over those costs.
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    \16\ The term ``MIAX Emerald'' means MIAX Emerald, LLC. See 
Exchange Rule 100.
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* * * * *
    Starting in 2017, following the United States Court of Appeals for 
the District of Columbia's Susquehanna Decision \17\ and various other 
developments, the Commission began to undertake a heightened review of 
exchange filings, including non-transaction fee filings that was 
substantially and materially different from it prior review process 
(hereinafter referred to as the ``Revised Review Process''). In the 
Susquehanna Decision, the D.C. Circuit Court stated that the Commission 
could not maintain a practice of ``unquestioning reliance'' on claims 
made by a self-regulatory organization (``SRO'') in the course of 
filing a rule or fee change with the Commission.\18\ Then, on October 
16, 2018, the Commission issued an opinion in Securities Industry and 
Financial Markets Association finding that exchanges failed both to 
establish that the challenged fees were constrained by significant 
competitive forces and that these fees were consistent with the 
Act.\19\ On that same day, the Commission issued an order remanding to 
various exchanges and national market system (``NMS'') plans challenges 
to over 400 rule changes and plan amendments that were asserted in 57 
applications for review (the ``Remand Order'').\20\ The Remand Order 
directed the exchanges to ``develop a record,'' and to ``explain their 
conclusions, based on that record, in a written decision that is 
sufficient to enable us to perform our review.'' \21\ The Commission 
denied requests by various exchanges and plan participants for 
reconsideration of the Remand Order.\22\ However, the Commission did 
extend the deadlines in the Remand Order ``so that they d[id] not begin 
to run until the resolution of the appeal of the SIFMA Decision in the 
D.C. Circuit and the issuance of the court's mandate.'' \23\ Both the 
Remand Order and the Order Denying Reconsideration were appealed to the 
D.C. Circuit.
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    \17\ See Susquehanna International Group, LLP v. Securities & 
Exchange Commission, 866 F.3d 442 (D.C. Circuit 2017) (the 
``Susquehanna Decision'').
    \18\ Id.
    \19\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 84432, 2018 WL 5023228 (October 16, 2018) (the ``SIFMA 
Decision'').
    \20\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 84433, 2018 WL 5023230 (Oct. 16, 2018). See 15 U.S.C. 
78k-1, 78s; see also Rule 608(d) of Regulation NMS, 17 CFR 
242.608(d) (asserted as an alternative basis of jurisdiction in some 
applications).
    \21\ Id. at page 2.
    \22\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 85802, 2019 WL 2022819 (May 7, 2019) (the ``Order 
Denying Reconsideration'').
    \23\ Order Denying Reconsideration, 2019 WL 2022819, at *13.
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    While the above appeal to the D.C. Circuit was pending, on March 
29, 2019, the Commission issued an order disapproving a proposed fee 
change by BOX Exchange LLC (``BOX'') to establish connectivity fees 
(the ``BOX Order''), which significantly increased the level of 
information needed for the Commission to believe that an exchange's 
filing satisfied its obligations under the Act with respect to changing 
a fee.\24\ Despite approving hundreds of access fee filings in the 
years prior to the BOX Order (described further below) utilizing a 
``market-based'' test, the Commission changed course and disapproved 
BOX's proposal to begin charging connectivity at one-fourth the rate of 
competing exchanges' pricing.
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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). The Commission noted 
in the BOX Order that it ``historically applied a `market-based' 
test in its assessment of market data fees, which [the Commission] 
believe[s] present similar issues as the connectivity fees proposed 
herein.'' Id. at page 16. Despite this admission, the Commission 
disapproved BOX's proposal to begin charging $5,000 per month for 
10Gb connections (while allowing legacy exchanges to charge rates 
equal to 3-4 times that amount utilizing ``market-based'' fee 
filings from years prior).
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    Also while the above appeal was pending, 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\ In the Staff 
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.'' \26\ The Staff 
Guidance also 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.'' \27\
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    \25\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Staff Guidance'').
    \26\ Id.
    \27\ Id.
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    Following the BOX Order and Staff Guidance, on August 6, 2020, the 
D.C. Circuit vacated the Commission's SIFMA Decision in NASDAQ Stock

[[Page 42846]]

Market, LLC v. SEC \28\ and remanded for further proceedings consistent 
with its opinion.\29\ That same day, the D.C. Circuit issued an order 
remanding the Remand Order to the Commission for reconsideration in 
light of NASDAQ. The court noted that the Remand Order required the 
exchanges and NMS plan participants to consider the challenges that the 
Commission had remanded in light of the SIFMA Decision. The D.C. 
Circuit concluded that because the SIFMA Decision ``has now been 
vacated, the basis for the [Remand Order] has evaporated.'' \30\ 
Accordingly, on August 7, 2020, the Commission vacated the Remand Order 
and ordered the parties to file briefs addressing whether the holding 
in NASDAQ v. SEC that Exchange Act Section 19(d) does not permit 
challenges to generally applicable fee rules requiring dismissal of the 
challenges the Commission previously remanded.\31\ The Commission 
further invited ``the parties to submit briefing stating whether the 
challenges asserted in the applications for review . . . should be 
dismissed, and specifically identifying any challenge that they contend 
should not be dismissed pursuant to the holding of Nasdaq v. SEC.'' 
\32\ Without resolving the above issues, on October 5, 2020, the 
Commission issued an order granting SIFMA and Bloomberg's request to 
withdraw their applications for review and dismissed the 
proceedings.\33\
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    \28\ NASDAQ Stock Mkt., LLC v. SEC, No 18-1324, --- Fed. App'x -
---, 2020 WL 3406123 (D.C. Cir. June 5, 2020). The court's mandate 
was issued on August 6, 2020.
    \29\ Nasdaq v. SEC, 961 F.3d 421, at 424, 431 (D.C. Cir. 2020). 
The court's mandate issued on August 6, 2020. The D.C. Circuit held 
that Exchange Act ``Section 19(d) is not available as a means to 
challenge the reasonableness of generally-applicable fee rules.'' 
Id. The court held that ``for a fee rule to be challengeable under 
Section 19(d), it must, at a minimum, be targeted at specific 
individuals or entities.'' Id. Thus, the court held that ``Section 
19(d) is not an available means to challenge the fees at issue'' in 
the SIFMA Decision. Id.
    \30\ Id. at *2; see also id. (``[T]he sole purpose of the 
challenged remand has disappeared.'').
    \31\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 89504, 2020 WL 4569089 (August 7, 2020) (the ``Order 
Vacating Prior Order and Requesting Additional Briefs'').
    \32\ Id.
    \33\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 90087 (October 5, 2020).
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    As a result of the Commission's loss of the NASDAQ v. SEC case 
noted above, the Commission never followed through with its intention 
to subject the over 400 fee filings to ``develop a record,'' and to 
``explain their conclusions, based on that record, in a written 
decision that is sufficient to enable us to perform our review.'' \34\ 
As such, all of those fees remained in place and amounted to a baseline 
set of fees for those exchanges that had the benefit of getting their 
fees in place before the Commission Staff's fee review process 
materially changed. The net result of this history and lack of 
resolution in the D.C. Circuit Court resulted in an uneven competitive 
landscape where the Commission subjects all new non-transaction fee 
filings to the new Revised Review Process, while allowing the 
previously challenged fee filings, mostly submitted by incumbent 
exchanges prior to 2019, to remain in effect and not subject to the 
``record'' or ``review'' earlier intended by the Commission.
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    \34\ See supra note 29, at page 2.
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    While the Exchange appreciates that the Staff Guidance articulates 
an important policy goal of improving disclosures and requiring 
exchanges to justify that their market data and access fee proposals 
are fair and reasonable, the practical effect of the Revised Review 
Process, Staff Guidance, and the Commission's related practice of 
continuous suspension of new fee filings, is anti-competitive, 
discriminatory, and has put in place an un-level playing field, which 
has negatively impacted smaller, nascent, non-legacy exchanges (``non-
legacy exchanges''), while favoring larger, incumbent, entrenched, 
legacy exchanges (``legacy exchanges'').\35\ The legacy exchanges all 
established a significantly higher baseline for access and market data 
fees prior to the Revised Review Process. From 2011 until the issuance 
of the Staff Guidance in 2019, national securities exchanges filed, and 
the Commission Staff did not abrogate or suspend (allowing such fees to 
become effective), at least 92 filings \36\ to amend exchange 
connectivity or port fees (or similar access fees). The support for 
each of those filings was a simple statement by the relevant exchange 
that the fees were constrained by competitive forces.\37\ These fees 
remain in effect today.
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    \35\ Commission Chair Gary Gensler recently reiterated the 
Commission's mandate to ensure competition in the equities markets. 
See ``Statement on Minimum Price Increments, Access Fee Caps, Round 
Lots, and Odd-Lots'', by Chair Gary Gensler, dated December 14, 2022 
(stating ``[i]n 1975, Congress tasked the Securities and Exchange 
Commission with responsibility to facilitate the establishment of 
the national market system and enhance competition in the securities 
markets, including the equity markets'' (emphasis added)). In that 
same statement, Chair Gary Gensler cited the five objectives laid 
out by Congress in 11A of the Exchange Act (15 U.S.C. 78k-1), 
including ensuring ``fair competition among brokers and dealers, 
among exchange markets, and between exchange markets and markets 
other than exchange markets. . . .'' (emphasis added). Id. at note 
1. See also Securities Acts Amendments of 1975, available at https://www.govtrack.us/congress/bills/94/s249.
    \36\ This timeframe also includes challenges to over 400 rule 
filings by SIFMA and Bloomberg discussed above. Sec. Indus. & Fin. 
Mkts. Ass'n, Securities Exchange Act Release No. 84433, 2018 WL 
5023230 (Oct. 16, 2018). Those filings were left to stand, while at 
the same time, blocking newer exchanges from the ability to 
establish competitive access and market data fees. See The Nasdaq 
Stock Market, LLC v. SEC, Case No. 18-1292 (D.C. Cir. June 5, 2020). 
The expectation at the time of the litigation was that the 400 rule 
flings challenged by SIFMA and Bloomberg would need to be justified 
under revised review standards.
    \37\ See, e.g., Securities Exchange Act Release Nos. 74417 
(March 3, 2015), 80 FR 12534 (March 9, 2015) (SR-ISE-2015-06); 83016 
(April 9, 2018), 83 FR 16157 (April 13, 2018) (SR-PHLX-2018-26); 
70285 (August 29, 2013), 78 FR 54697 (September 5, 2013) (SR-
NYSEMKT-2013-71); 76373 (November 5, 2015), 80 FR 70024 (November 
12, 2015) (SR-NYSEMKT-2015-90); 79729 (January 4, 2017), 82 FR 3061 
(January 10, 2017) (SR-NYSEARCA-2016-172).
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    The net result is that the non-legacy exchanges are effectively now 
blocked by the Commission Staff from adopting or increasing fees to 
amounts comparable to the legacy exchanges (which were not subject to 
the Revised Review Process and Staff Guidance), despite providing 
enhanced disclosures and rationale to support their proposed fee 
changes that far exceed any such support provided by legacy exchanges. 
Simply put, legacy exchanges were able to increase their non-
transaction fees during an extended period in which the Commission 
applied a ``market-based'' test that only relied upon the assumed 
presence of significant competitive forces, while exchanges today are 
subject to a cost-based test requiring extensive cost and revenue 
disclosures, a process that is complex, inconsistently applied, and 
rarely results in a successful outcome, i.e., non-suspension. The 
Revised Review Process and Staff Guidance changed decades-long 
Commission Staff standards for review, resulting in unfair 
discrimination and placing an undue burden on inter-market competition 
between legacy exchanges and non-legacy exchanges.
    Commission Staff now require exchange filings, including from non-
legacy exchanges such as the Exchange, to provide detailed cost-based 
analysis in place of competition-based arguments to support such 
changes. However, even with the added detailed cost and expense 
disclosures, the Commission Staff continues to either suspend such 
filings and institute disapproval proceedings, or put the exchanges in 
the unenviable position of having to repeatedly withdraw and re-file 
with additional detail in order to continue to charge those fees.\38\ 
By impeding any

[[Page 42847]]

path forward for non-legacy exchanges to establish commensurate non-
transaction fees, or by failing to provide any alternative means for 
smaller markets to establish ``fee parity'' with legacy exchanges, the 
Commission is stifling competition: non-legacy exchanges are, in 
effect, being deprived of the revenue necessary to compete on a level 
playing field with legacy exchanges. This is particularly harmful, 
given that the costs to maintain exchange systems and operations 
continue to increase. The Commission Staff's change in position impedes 
the ability of non-legacy exchanges to raise revenue to invest in their 
systems to compete with the legacy exchanges who already enjoy 
disproportionate non-transaction fee based revenue. For example, the 
Cboe Exchange, Inc. (``Cboe'') reported ``access and capacity fee'' 
revenue of $70,893,000 for 2020 \39\ and $80,383,000 for 2021.\40\ Cboe 
C2 Exchange, Inc. (``C2'') reported ``access and capacity fee'' revenue 
of $19,016,000 for 2020 \41\ and $22,843,000 for 2021.\42\ Cboe BZX 
Exchange, Inc. (``BZX'') reported ``access and capacity fee'' revenue 
of $38,387,000 for 2020 \43\ and $44,800,000 for 2021.\44\ Cboe EDGX 
Exchange, Inc. (``EDGX'') reported ``access and capacity fee'' revenue 
of $26,126,000 for 2020 \45\ and $30,687,000 for 2021.\46\ For 2021, 
the affiliated Cboe, C2, BZX, and EDGX (the four largest exchanges of 
the Cboe exchange group) reported $178,712,000 in ``access and capacity 
fees'' in 2021. NASDAQ Phlx, LLC (``NASDAQ Phlx'') reported ``Trade 
Management Services'' revenue of $20,817,000 for 2019.\47\ The Exchange 
notes it is unable to compare ``access fee'' revenues with NASDAQ Phlx 
(or other affiliated NASDAQ exchanges) because after 2019, the ``Trade 
Management Services'' line item was bundled into a much larger line 
item in PHLX's Form 1, simply titled ``Market services.'' \48\
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    \38\ The Exchange has filed, and subsequently withdrawn, various 
forms of this proposed fee change numerous times since August 2021 
with each proposal containing hundreds of cost and revenue 
disclosures never previously disclosed by legacy exchanges in their 
access and market data fee filings prior to 2019.
    \39\ According to Cboe's 2021 Form 1 Amendment, access and 
capacity fees represent fees assessed for the opportunity to trade, 
including fees for trading-related functionality. See Cboe 2021 Form 
1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \40\ See Cboe 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001155.pdf.
    \41\ See C2 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000469.pdf.
    \42\ See C2 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001156.pdf.
    \43\ See BZX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \44\ See BZX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001152.pdf.
    \45\ See EDGX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000467.pdf.
    \46\ See EDGX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001154.pdf.
    \47\ According to PHLX, ``Trade Management Services'' includes 
``a wide variety of alternatives for connectivity to and accessing 
[the PHLX] markets for a fee. These participants are charged monthly 
fees for connectivity and support in accordance with [PHLX's] 
published fee schedules.'' See PHLX 2020 Form 1 Amendment, available 
at https://www.sec.gov/Archives/edgar/vprr/2001/20012246.pdf.
    \48\ See PHLX Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000475.pdf. The Exchange 
notes that this type of Form 1 accounting appears to be designed to 
obfuscate the true financials of such exchanges and has the effect 
of perpetuating fee and revenue advantages of legacy exchanges.
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    The much higher non-transaction fees charged by the legacy 
exchanges provides them with two significant competitive advantages. 
First, legacy exchanges are able to use their additional non-
transaction revenue for investments in infrastructure, vast marketing 
and advertising on major media outlets,\49\ new products and other 
innovations. Second, higher non-transaction fees provide the legacy 
exchanges with greater flexibility to lower their transaction fees (or 
use the revenue from the higher non-transaction fees to subsidize 
transaction fee rates), which are more immediately impactful in 
competition for order flow and market share, given the variable nature 
of this cost on member firms. The prohibition of a reasonable path 
forward denies the Exchange (and other non-legacy exchanges) this 
flexibility, eliminates the ability to remain competitive on 
transaction fees, and hinders the ability to compete for order flow and 
market share with legacy exchanges. While one could debate whether the 
pricing of non-transaction fees are subject to the same market forces 
as transaction fees, there is little doubt that subjecting one exchange 
to a materially different standard than that historically applied to 
legacy exchanges for non-transaction fees leaves that exchange at a 
disadvantage in its ability to compete with its pricing of transaction 
fees.
---------------------------------------------------------------------------

    \49\ See, e.g., CNBC Debuts New Set on NYSE Floor, available at 
https://www.cnbc.com/id/46517876.
---------------------------------------------------------------------------

    While the Commission has clearly noted that the Staff Guidance is 
merely guidance and ``is not a rule, regulation or statement of the . . 
. Commission . . . the Commission has neither approved nor disapproved 
its content . . .'',\50\ this is not the reality experienced by 
exchanges such as MIAX. As such, non-legacy exchanges are forced to 
rely on an opaque cost-based justification standard. However, because 
the Staff Guidance is devoid of detail on what must be contained in 
cost-based justification, this standard is nearly impossible to meet 
despite repeated good-faith efforts by the Exchange to provide 
substantial amount of cost-related details. For example, the Exchange 
has attempted to increase fees using a cost-based justification 
numerous times, having submitted over six filings.\51\ However, despite 
providing 100+ page filings describing in extensive detail its costs 
associated with providing the services described in the filings, 
Commission Staff continues to suspend such filings, with the rationale 
that the Exchange has not provided sufficient detail of its costs and 
without ever being precise about what additional data points are 
required. The Commission Staff appears to be interpreting the 
reasonableness standard set forth in Section 6(b)(4) of the Act \52\ in 
a manner that is not possible to achieve. This essentially nullifies 
the cost-based approach for exchanges as a legitimate alternative as 
laid out in the Staff Guidance. By refusing to accept a reasonable 
cost-based argument to justify non-transaction fees (in addition to 
refusing to accept a competition-based argument as described above), or 
by failing to provide the detail required to achieve that standard, the 
Commission Staff is effectively preventing non-legacy exchanges from 
making any non-transaction fee changes, which benefits the legacy 
exchanges and is anticompetitive to the non-legacy exchanges. This does 
not meet the fairness standard under the Act and is discriminatory.
---------------------------------------------------------------------------

    \50\ See supra note 25, at note 1.
    \51\ See Securities Exchange Act Release Nos. 94890 (May 11, 
2022), 87 FR 29945 (May 17, 2022) (SR-MIAX-2022-20); 94720 (April 
14, 2022), 87 FR 23586 (April 20, 2022) (SR-MIAX-2022-16); 94719 
(April 14, 2022), 87 FR 23600 (April 20, 2022) (SR-MIAX-2022-14); 
94259 (February 15, 2022), 87 FR 9747 (February 22, 2022) (SR-MIAX-
2022-08); 94256 (February 15, 2022), 87 FR9711 (February 22, 2022) 
(SR-MIAX-2022-07); 93771 (December 14, 2021), 86 FR 71940 (December 
20, 2021) (SR-MIAX-2021-60); 93775 (December 14, 2021), 86 FR 71996 
(December 20, 2021) (SR-MIAX-2021-59); 93185 (September 29, 2021), 
86 FR 55093 (October 5, 2021) (SR-MIAX-2021-43); 93165 (September 
28, 2021), 86 FR 54750 (October 4, 2021) (SR-MIAX-2021-41); 92661 
(August 13, 2021), 86 FR 46737 (August 19, 2021) (SR-MIAX-2021-37); 
92643 (August 11, 2021), 86 FR 46034 (August 17, 2021) (SR-MIAX-
2021-35).
    \52\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    Because of the un-level playing field created by the Revised Review 
Process and Staff Guidance, the Exchange

[[Page 42848]]

believes that the Commission Staff, at this point, should either (a) 
provide sufficient clarity on how its cost-based standard can be met, 
including a clear and exhaustive articulation of required data and its 
views on acceptable margins,\53\ to the extent that this is pertinent; 
(b) establish a framework to provide for commensurate non-transaction 
based fees among competing exchanges to ensure fee parity; \54\ or (c) 
accept that certain competition-based arguments are applicable given 
the linkage between non-transaction fees and transaction fees, 
especially where non-transaction fees among exchanges are based upon 
disparate standards of review, lack parity, and impede fair 
competition. Considering the absence of any such framework or clarity, 
the Exchange believes that the Commission does not have a reasonable 
basis to deny the Exchange this change in fees, where the proposed 
change would result in fees meaningfully lower than comparable fees at 
competing exchanges and where the associated non-transaction revenue is 
meaningfully lower than competing exchanges.
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    \53\ To the extent that the cost-based standard includes 
Commission Staff making determinations as to the appropriateness of 
certain profit margins, the Exchange believes that Staff should be 
clear as to what they determine is an appropriate profit margin.
    \54\ In light of the arguments above regarding disparate 
standards of review for historical legacy non-transaction fees and 
current non-transaction fees for non-legacy exchanges, a fee parity 
alternative would be one possible way to avoid the current unfair 
and discriminatory effect of the Staff Guidance and Revised Review 
Process. See, e.g., CSA Staff Consultation Paper 21-401, Real-Time 
Market Data Fees, available at https://www.bcsc.bc.ca/-/media/PWS/Resources/Securities_Law/Policies/Policy2/21401_Market_Data_Fee_CSA_Staff_Consulation_Paper.pdf.
---------------------------------------------------------------------------

    In light of the above, disapproval of this would not meet the 
fairness standard under the Act, would be discriminatory and places a 
substantial burden on competition. The Exchange would be uniquely 
disadvantaged by not being able to increase its access fees to 
comparable levels (or lower levels than current market rates) to those 
of other options exchanges for connectivity. If the Commission Staff 
were to disapprove this proposal, that action, and not market forces, 
would substantially affect whether the Exchange can be successful in 
its competition with other options exchanges. Disapproval of this 
filing could also be viewed as an arbitrary and capricious decision 
should the Commission Staff continue to ignore its past treatment of 
non-transaction fee filings before implementation of the Revised Review 
Process and Staff Guidance and refuse to allow such filings to be 
approved despite significantly enhanced arguments and cost 
disclosures.\55\
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    \55\ The Exchange's costs have clearly increased and continue to 
increase, particularly regarding capital expenditures, as well as 
employee benefits provided by third parties (e.g., healthcare and 
insurance). Yet, practically no fee change proposed by the Exchange 
to cover its ever-increasing costs has been acceptable to the 
Commission Staff since 2021. The only other fair and reasonable 
alternative would be to require the numerous fee filings 
unquestioningly approved before the Staff Guidance and Revised 
Review Process to ``develop a record,'' and to ``explain their 
conclusions, based on that record, in a written decision that is 
sufficient to enable us to perform our review,'' and to ensure a 
comparable review process with the Exchange's filing.
---------------------------------------------------------------------------

* * * * *
10Gb ULL Connectivity Fee Change
    The Exchange recently filed a proposal to no longer operate 10Gb 
connectivity to the Exchange on a single shared network with its 
affiliate, MIAX Pearl Options. This change is an operational necessity 
due to ever-increasing capacity constraints and to accommodate 
anticipated access needs for Members and other market participants.\56\ 
This proposal: (i) sets forth the applicable fees for the bifurcated 
10Gb ULL network; (ii) removes provisions in the Fee Schedule that 
provide for a shared 10Gb ULL network; and (iii) specifies that market 
participants may continue to connect to both the Exchange and MIAX 
Pearl Options via the 1Gb network.
---------------------------------------------------------------------------

    \56\ See supra note 9.
---------------------------------------------------------------------------

    The Exchange bifurcated the Exchange and MIAX Pearl Options 10Gb 
ULL networks on January 23, 2023. The Exchange issued an alert on 
August 12, 2022 publicly announcing the planned network change and 
implementation plan and dates to provide market participants adequate 
time to prepare.\57\ Upon bifurcation of the 10Gb ULL network, 
subscribers need to purchase separate connections to the Exchange and 
MIAX Pearl Options at the applicable rate. The Exchange's proposed 
amended rate for 10Gb ULL connectivity is described below. Prior to the 
bifurcation of the 10Gb ULL networks, subscribers to 10Gb ULL 
connectivity would be able to connect to both the Exchange and MIAX 
Pearl Options at the applicable rate set forth below.
---------------------------------------------------------------------------

    \57\ Id.
---------------------------------------------------------------------------

    The Exchange, therefore, proposes to amend the Fee Schedule to 
increase the fees for Members and non-Members to access the Exchange's 
system networks \58\ via a 10Gb ULL fiber connection and to specify 
that this fee is for a dedicated connection to the Exchange and no 
longer provides access to MIAX Pearl Options. Specifically, the 
Exchange proposes to amend Sections 5)a)-b) of the Fee Schedule to 
increase the 10Gb ULL connectivity fee for Members and non-Members from 
$10,000 per month to $13,500 per month (``10Gb ULL Fee'').\59\ The 
Exchange also proposes to amend the Fee Schedule to reflect the 
bifurcation of the 10Gb ULL network and specify that only the 1Gb 
network provides access to both the Exchange and MIAX Pearl Options.
---------------------------------------------------------------------------

    \58\ The Exchange's system networks consist of the Exchange's 
extranet, internal network, and external network.
    \59\ Market participants that purchase additional 10Gb ULL 
connections as a result of this change will not be subject to the 
Exchange's Member Network Connectivity Testing and Certification Fee 
under Section 4)c) of the Exchange's fee schedule. See Section 4)c) 
of the Exchange's Fee Schedule available at https://www.miaxglobal.com/markets/us-options/miax-options/fees (providing 
that ``Network Connectivity Testing and Certification Fees will not 
be assessed in situations where the Exchange initiates a mandatory 
change to the Exchange's system that requires testing and 
certification. Member Network Connectivity Testing and Certification 
Fees will not be assessed for testing and certification of 
connectivity to the Exchange's Disaster Recovery Facility.'').
---------------------------------------------------------------------------

    The Exchange proposes to make the following changes to reflect the 
bifurcated 10Gb ULL network for the Exchange and MIAX Pearl Options. 
The Exchange proposes to amend the explanatory paragraphs below the 
network connectivity fee tables in Sections 5)a)-b) of the Fee Schedule 
to specify that, with the bifurcated 10Gb ULL network, Members (and 
non-Members) utilizing the MENI to connect to the trading platforms, 
market data systems, test systems, and disaster recovery facilities of 
the Exchange and MIAX Pearl Options via a single, can only do so via a 
shared 1Gb connection.
    The Exchange will continue to assess monthly Member and non-Member 
network connectivity fees for connectivity to the primary and secondary 
facilities in any month the Member or non-Member is credentialed to use 
any of the Exchange APIs or market data feeds in the production 
environment. The Exchange will continue to pro-rate the fees when a 
Member or non-Member makes a change to the connectivity (by adding or 
deleting connections) with such pro-rated fees based on the number of 
trading days that the Member or non-Member has been credentialed to 
utilize any of the Exchange APIs or market data feeds in the production 
environment through such connection, divided by the total number of 
trading days in such month multiplied by the applicable monthly rate.

[[Page 42849]]

Limited Service MEI Ports
Background
    The Exchange also proposes to amend Section 5)d) of the Fee 
Schedule to adopt a tiered-pricing structure for Limited Service MEI 
Ports available to Market Makers. The Exchange allocates two (2) Full 
Service MEI Ports \60\ and two (2) Limited Service MEI Ports \61\ per 
matching engine \62\ to which each Market Maker connects. Market Makers 
may also request additional Limited Service MEI Ports for each matching 
engine to which they connect. The Full Service MEI Ports and Limited 
Service MEI Ports all include access to the Exchange's primary and 
secondary data centers and its disaster recovery center. Market Makers 
may request additional Limited Service MEI Ports. Currently, Market 
Makers are assessed a $100 monthly fee for each Limited Service MEI 
Port for each matching engine above the first two Limited Service MEI 
Ports that are included for free. This fee was unchanged since 
2016.\63\
---------------------------------------------------------------------------

    \60\ Full Service MEI Ports provide Market Makers with the 
ability to send Market Maker quotes, eQuotes, and quote purge 
messages to the MIAX System. Full Service MEI Ports are also capable 
of receiving administrative information. Market Makers are limited 
to two Full Service MEI Ports per matching engine. See Fee Schedule, 
Section 5)d)ii), note 27.
    \61\ Limited Service MEI Ports provide Market Makers with the 
ability to send eQuotes and quote purge messages only, but not 
Market Maker Quotes, to the MIAX System. Limited Service MEI Ports 
are also capable of receiving administrative information. Market 
Makers initially receive two Limited Service MEI Ports per matching 
engine. See Fee Schedule, Section 5)d)ii), note 28.
    \62\ A ``matching engine'' is a part of the MIAX electronic 
system that processes options quotes and trades on a symbol-by-
symbol basis. Some matching engines will process option classes with 
multiple root symbols, and other matching engines will be dedicated 
to one single option root symbol (for example, options on SPY will 
be processed by one single matching engine that is dedicated only to 
SPY). A particular root symbol may only be assigned to a single 
designated matching engine. A particular root symbol may not be 
assigned to multiple matching engines. See Fee Schedule, Section 
5)d)ii), note 29.
    \63\ See Securities Exchange Act Release No. 79666 (December 22, 
2016), 81 FR 96133 (December 29, 2016) (SR-MIAX-2016-47).
---------------------------------------------------------------------------

Limited Service MEI Port Fee Changes
    The Exchange now proposes to move from a flat monthly fee per 
Limited Service MEI Port for each matching engine to a tiered-pricing 
structure for Limited Service MEI Ports for each matching engine under 
which the monthly fee would vary depending on the number of Limited 
Service MEI Ports each Market Maker elects to purchase. Specifically, 
the Exchange will continue to provide the first and second Limited 
Service MEI Ports for each matching engine free of charge. For Limited 
Service MEI Ports, the Exchange proposes to adopt the following tiered-
pricing structure: (i) the third and fourth Limited Service MEI Ports 
for each matching engine will increase from the current flat monthly 
fee of $100 to $150 per port; (ii) the fifth and sixth Limited Service 
MEI Ports for each matching engine will increase from the current flat 
monthly fee of $100 to $200 per port; and (iii) the seventh or more 
Limited Service MEI Ports will increase from the current monthly flat 
fee of $100 to $250 per port. The Exchange believes a tiered-pricing 
structure will encourage Market Makers to be more efficient when 
determining how to connect to the Exchange. This should also enable the 
Exchange to better monitor and provide access to the Exchange's network 
to ensure sufficient capacity and headroom in the System \64\ in 
accordance with its fair access requirements under Section 6(b)(5) of 
the Act.\65\
---------------------------------------------------------------------------

    \64\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \65\ See 15 U.S.C. 78f(b). The Exchange may offer access on 
terms that are not unfairly discriminatory among its Members, and 
ensure sufficient capacity and headroom in the System. The Exchange 
monitors the System's performance and makes adjustments to its 
System based on market conditions and Member demand.
---------------------------------------------------------------------------

    The Exchange offers various types of ports with differing prices 
because each port accomplishes different tasks, are suited to different 
types of Members, and consume varying capacity amounts of the network. 
For instance, Market Makers who take the maximum amount of Limited 
Service MEI Ports account for approximately greater than 99% of message 
traffic over the network, while Market Makers with fewer Limited 
Service MEI Ports account for approximately less than 1% of message 
traffic over the network. In the Exchange's experience, Market Makers 
who only utilize the two free Limited Service MEI Ports do not have a 
business need for the high performance network solutions required by 
Market Makers who take the maximum amount of Limited Service MEI Ports. 
The Exchange's high performance network solutions and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput and the capacity to handle approximately 18 million 
quote messages per second. Based on May 2023 trading results, the 
Exchange handles more than 12.3 billion quotes on an average day, and 
more than 271 billion quotes over the entire month. Of that total, 
Market Makers with the maximum amount of Limited Service MEI Ports 
generated more than 156 billion quotes (and more than 7 billion quotes 
on an average day), and Market Makers who utilized only the two free 
Limited Service MEI Ports generated approximately 78 billion quotes 
(and approximately 3.5 billion quotes on an average day). Also for May 
2023, Market Makers who utilized 7 to 9 Limited Service MEI ports 
submitted an average of 1.3 billion quotes per day and Market Makers 
who utilized 5-6 Limited Service MEI Ports submitted an average of 356 
million quotes on an average day. In May 2023, the Exchange did not 
have any Market Makers that utilized only 3-4 Limited Service MEI 
Ports.
    To achieve a consistent, premium network performance, the Exchange 
must build out and maintain a network that has the capacity to handle 
the message rate requirements of its most heavy network consumers. 
These billions of messages per day consume the Exchange's resources and 
significantly contribute to the overall network connectivity expense 
for storage and network transport capabilities. The Exchange must also 
purchase additional storage capacity on an ongoing basis to ensure it 
has sufficient capacity to store these messages as part of it 
surveillance program and to satisfy its record keeping requirements 
under the Exchange Act.\66\ Thus, as the number of connections a Market 
Maker has increases, certain other costs incurred by the Exchange that 
are correlated to, though not directly affected by, connection costs 
(e.g., storage costs, surveillance costs, service expenses) also 
increase. The Exchange sought to design the proposed tiered-pricing 
structure to set the amount of the fees to relate to the number of 
connections a firm purchases. The more connections purchased by a 
Market Maker likely results in greater expenditure of Exchange 
resources and increased cost to the Exchange. With this in mind, the 
Exchange proposes no fee or lower fees for those Market Makers who 
receive fewer Limited Service MEI Ports since those Market Makers 
generally tend to send the least amount of orders and messages over 
those connections. Given this difference in network utilization rate, 
the Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory that Market Makers who take the most Limited 
Service MEI Ports pay for the vast majority of the shared network 
resources from which all

[[Page 42850]]

Member and non-Member users benefit, but is designed and maintained 
from a capacity standpoint to specifically handle the message rate and 
performance requirements of those Market Makers.
---------------------------------------------------------------------------

    \66\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    The Exchange proposes to increase its monthly Limited Service MEI 
Port fees since it has not done so since 2016,\67\ which is designed to 
recover a portion of the costs associated with directly accessing the 
Exchange.
---------------------------------------------------------------------------

    \67\ See Securities Exchange Act Release No. 79666 (December 22, 
2016), 81 FR 96133 (December 29, 2016) (SR-MIAX-2016-47).
---------------------------------------------------------------------------

Implementation
    The proposed fee changes are immediately effective.
2. Statutory Basis
    The Exchange believes that the proposed fees are consistent with 
Section 6(b) of the Act \68\ in general, and furthers the objectives of 
Section 6(b)(4) of the Act \69\ 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 \70\ 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.
---------------------------------------------------------------------------

    \68\ 15 U.S.C. 78f(b).
    \69\ 15 U.S.C. 78f(b)(4).
    \70\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 under the Revised Review Process and as set 
forth in recent Staff Guidance. Based on both the BOX Order \71\ and 
the Staff Guidance,\72\ 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 Staff Guidance; and 
(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.
---------------------------------------------------------------------------

    \71\ See supra note 24.
    \72\ See supra note 25.
---------------------------------------------------------------------------

    The Exchange believes that exchanges, in setting fees of all types, 
should meet high standards of transparency to demonstrate why each new 
fee or fee amendment meets the requirements of the Act that fees be 
reasonable, equitably allocated, not unfairly discriminatory, and not 
create an undue burden on competition among market participants. The 
Exchange believes this high standard is especially important when an 
exchange imposes various fees for market participants to access an 
exchange's marketplace.
    In the Staff 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.'' 
\73\ The Staff Guidance further states that, ``. . . even where an SRO 
cannot demonstrate, or does not assert, that significant competitive 
forces constrain the fee at issue, a cost-based discussion may be an 
alternative basis upon which to show consistency with the Exchange 
Act.'' \74\ In the Staff 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, 
. . ., specific information, including quantitative information, should 
be provided to support that argument.'' \75\
---------------------------------------------------------------------------

    \73\ Id.
    \74\ Id.
    \75\ Id.
---------------------------------------------------------------------------

    The proposed fees are reasonable because they promote parity among 
exchange pricing for access, which promotes competition, including in 
the Exchanges' ability to competitively price transaction fees, invest 
in infrastructure, new products and other innovations, all while 
allowing the Exchange to recover its costs to provide dedicated access 
via 10Gb ULL connectivity (driven by the bifurcation of the 10Gb ULL 
network) and Limited Service MEI Ports. As discussed above, the Revised 
Review Process and Staff Guidance have created an uneven playing field 
between legacy and non-legacy exchanges by severely restricting non-
legacy exchanges from being able to increase non-transaction related 
fees to provide them with additional necessary revenue to better 
compete with legacy exchanges, which largely set fees prior to the 
Revised Review Process. The much higher non-transaction fees charged by 
the legacy exchanges provides them with two significant competitive 
advantages: (i) additional non-transaction revenue that may be used to 
fund areas other than the non-transaction service related to the fee, 
such as investments in infrastructure, advertising, new products and 
other innovations; and (ii) greater flexibility to lower their 
transaction fees by using the revenue from the higher non-transaction 
fees to subsidize transaction fee rates. The latter is more immediately 
impactful in competition for order flow and market share, given the 
variable nature of this cost on Member firms. The absence of a 
reasonable path forward to increase non-transaction fees to comparable 
(or lower rates) limits the Exchange's flexibility to, among other 
things, make additional investments in infrastructure and advertising, 
diminishes the ability to remain competitive on transaction fees, and 
hinders the ability to compete for order flow and market share. Again, 
while one could debate whether the pricing of non-transaction fees are 
subject to the same market forces as transaction fees, there is little 
doubt that subjecting one exchange to a materially different standard 
than that applied to other exchanges for non-transaction fees leaves 
that exchange at a disadvantage in its ability to compete with its 
pricing of transaction fees.
The Proposed Fees Ensure Parity Among Exchange Access Fees, Which 
Promotes Competition
    The Exchange commenced operations in 2012 and adopted its initial 
fee schedule, with all connectivity and port fees set at $0.00 (the 
Exchange originally had a non-ULL 10Gb connectivity option, which it 
has since removed).\76\ As a new exchange entrant, the Exchange chose 
to offer connectivity and ports free of charge to encourage market 
participants to trade on the Exchange and experience, among things, the 
quality of the Exchange's technology and trading functionality. This 
practice is not uncommon. New exchanges often do not charge fees or 
charge lower fees for certain services such as memberships/trading 
permits to attract order flow to an exchange, and later amend their 
fees to reflect the true value of those services, absorbing all costs 
to provide those services in the meantime. Allowing new exchange 
entrants time to build and sustain market share through various pricing 
incentives before increasing non-transaction fees encourages market 
entry and fee parity, which promotes competition among exchanges. It 
also enables new

[[Page 42851]]

exchanges to mature their markets and allow market participants to 
trade on the new exchanges without fees serving as a potential barrier 
to attracting memberships and order flow.\77\
---------------------------------------------------------------------------

    \76\ See Securities Exchange Act Release No. 68415 (December 12, 
2012), 77 FR 74905 (December 18, 2012) (SR-MIAX-2012-01).
    \77\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating, ``[t]he 
Exchange established this lower (when compared to other options 
exchanges in the industry) Participant Fee in order to encourage 
market participants to become Participants of BOX . . .''). See also 
Securities Exchange Act Release No. 90076 (October 2, 2020), 85 FR 
63620 (October 8, 2020) (SR-MEMX-2020-10) (proposing to adopt the 
initial fee schedule and stating that ``[u]nder the initial proposed 
Fee Schedule, the Exchange proposes to make clear that it does not 
charge any fees for membership, market data products, physical 
connectivity or application sessions.''). MEMX's market share has 
increased and recently proposed to adopt numerous non-transaction 
fees, including fees for membership, market data, and connectivity. 
See Securities Exchange Act Release Nos. 93927 (January 7, 2022), 87 
FR 2191 (January 13, 2022) (SR-MEMX-2021-19) (proposing to adopt 
membership fees); 96430 (December 1, 2022), 87 FR 75083 (December 7, 
2022) (SR-MEMX-2022-32) and 95936 (September 27, 2022), 87 FR 59845 
(October 3, 2022) (SR-MEMX-2022-26) (proposing to adopt fees for 
connectivity). See also, e.g., Securities Exchange Act Release No. 
88211 (February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-
NYSENAT-2020-05), available at https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf (initiating market data fees for the NYSE National exchange 
after initially setting such fees at zero).
---------------------------------------------------------------------------

    Later in 2013, as the Exchange's market share increased,\78\ the 
Exchange adopted a nominal $10 fee for each additional Limited Service 
MEI Port.\79\ The Exchange last increased the fees for its 10Gb ULL 
fiber connections from $9,300 to $10,000 per month on January 1, 
2021.\80\ The Exchange balanced business and competitive concerns with 
the need to financially compete with the larger incumbent exchanges 
that charge higher fees for similar connectivity and use that revenue 
to invest in their technology and other service offerings.
---------------------------------------------------------------------------

    \78\ The Exchange experienced a monthly average equity options 
trading volume of 1.87% for the month of November 2013. See the 
``Market Share'' section of the Exchange's website, available at 
https://www.miaxglobal.com/.
    \79\ See Securities Exchange Act Release No. 70903 (November 20, 
2013), 78 FR 70615 (November 26, 2013) (SR-MIAX-2013-52).
    \80\ See Securities Exchange Act Release No. 90980 (January 25, 
2021), 86 FR 7602 (January 29, 2021) (SR-MIAX-2021-02).
---------------------------------------------------------------------------

    The proposed changes to the Fee Schedule are reasonable in several 
respects. As a threshold matter, the Exchange is subject to significant 
competitive forces, which constrains its pricing determinations for 
transaction fees as well as non-transaction fees. The fact that the 
market for order flow is competitive has long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission, the D.C. 
Circuit stated, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \81\
---------------------------------------------------------------------------

    \81\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting 
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention to determine 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues, and also recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \82\
---------------------------------------------------------------------------

    \82\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Congress directed the Commission to ``rely on `competition, 
whenever possible, in meeting its regulatory responsibilities for 
overseeing the SROs and the national market system.' '' \83\ As a 
result, and as evidenced above, the Commission has historically relied 
on competitive forces to determine whether a fee proposal is equitable, 
fair, reasonable, and not unreasonably or unfairly discriminatory. ``If 
competitive forces are operative, the self-interest of the exchanges 
themselves will work powerfully to constrain unreasonable or unfair 
behavior.'' \84\ Accordingly, ``the existence of significant 
competition provides a substantial basis for finding that the terms of 
an exchange's fee proposal are equitable, fair, reasonable, and not 
unreasonably or unfairly discriminatory.'' \85\ In the Revised Review 
Process and Staff Guidance, Commission Staff indicated that they would 
look at factors beyond the competitive environment, such as cost, only 
if a ``proposal lacks persuasive evidence that the proposed fee is 
constrained by significant competitive forces.'' \86\
---------------------------------------------------------------------------

    \83\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep. 
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that 
the national market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed.'').
    \84\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \85\ Id.
    \86\ See supra note 25.
---------------------------------------------------------------------------

    The Exchange believes the competing exchanges' 10Gb connectivity 
and port fees are useful examples of alternative approaches to 
providing and charging for access and demonstrating how such fees are 
competitively set and constrained. To that end, the Exchange believes 
the proposed fees are competitive and reasonable because the proposed 
fees are similar to or less than fees charged for similar connectivity 
and port access provided by other options exchanges with comparable 
market shares. As such, the Exchange believes that denying its ability 
to institute fees that allow the Exchange to recoup its costs with a 
reasonable margin in a manner that is closer to parity with legacy 
exchanges, in effect, impedes its ability to compete, including in its 
pricing of transaction fees and ability to invest in competitive 
infrastructure and other offerings.
    The following table shows how the Exchange's proposed fees remain 
similar to or less than fees charged for similar connectivity and port 
access provided by other options exchanges with similar market share. 
Each of the connectivity or port rates in place at competing options 
exchanges were filed with the Commission for immediate effectiveness 
and remain in place today.

----------------------------------------------------------------------------------------------------------------
                                                                                             Monthly fee (per
               Exchange                           Type of connection or port             connection or per port)
----------------------------------------------------------------------------------------------------------------
MIAX (as proposed) (equity options     10Gb ULL connection.............................  $13,500.
 market share of 6.60% for the month   Limited Service MEI Ports.......................  1-2 ports: FREE (not
 of May 2023).\87\                                                                        changed in this
                                                                                          proposal).
                                                                                         3-4 ports: $150 each.
                                                                                         5-6 ports: $200 each.
                                                                                         7 or more ports: $250
                                                                                          each.

[[Page 42852]]

 
NASDAQ \88\ (equity options market     10Gb Ultra fiber connection.....................  $15,000 per connection.
 share of 6.59% for the month of May   SQF Port \90\...................................  1-5 ports: $1,500 per
 2023).\89\                                                                               port.
                                                                                         6-20 ports: $1,000 per
                                                                                          port.
                                                                                         21 or more ports: $500
                                                                                          per port.
NASDAQ ISE LLC (``ISE'') \91\ (equity  10Gb Ultra fiber connection.....................  $15,000 per connection.
 options market share of 6.18% for     SQF Port........................................  $1,100 per port.
 the month of May 2023).\92\
NYSE American LLC (``NYSE American'')  10Gb LX LCN connection..........................  $22,000 per connection.
 \93\ (equity options market share of  Order/Quote Entry Port..........................  1-40 ports: $450 per
 7.34% for the month of May                                                               port.
 2023).\94\                                                                              41 or more ports: $150
                                                                                          per port.
NASDAQ GEMX, LLC (``GEMX'') \95\       10Gb Ultra connection...........................  $15,000 per connection.
 (equity options market share of       SQF Port........................................  $1,250 per port
 2.00% for the month of May
 2023).\96\
----------------------------------------------------------------------------------------------------------------

    There is no requirement, regulatory or otherwise, that any broker-
dealer connect to and access any (or all of) the available options 
exchanges. Market participants may choose to become a member of one or 
more options exchanges based on the market participant's assessment of 
the business opportunity relative to the costs of the Exchange. With 
this, there is elasticity of demand for exchange membership. As an 
example, the Exchange's affiliate, MIAX Pearl Options, experienced a 
decrease in membership as the result of similar fees proposed herein. 
One MIAX Pearl Options Market Maker terminated their MIAX Pearl Options 
membership effective January 1, 2023, as a direct result of the 
proposed connectivity and port fee changes proposed by MIAX Pearl 
Options.
---------------------------------------------------------------------------

    \87\ See supra note 78.
    \88\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports 
and Other Services and NASDAQ Rules, General 8: Connectivity, 
Section 1. Co-Location Services.
    \89\ See supra note 78.
    \90\ Similar to the Exchange's MEI Ports, SQF ports are 
primarily utilized by Market Makers.
    \91\ See ISE Pricing Schedule, Options 7, Section 7, 
Connectivity Fees and ISE Rules, General 8: Connectivity.
    \92\ See supra note 78.
    \93\ See NYSE American Options Fee Schedule, Section V.A. Port 
Fees and Section V.B. Co-Location Fees.
    \94\ See supra note 78.
    \95\ See GEMX Pricing Schedule, Options 7, Section 6, 
Connectivity Fees and GEMX Rules, General 8: Connectivity.
    \96\ See supra note 78.
---------------------------------------------------------------------------

    It is not a requirement for market participants to become members 
of all options exchanges; in fact, certain market participants conduct 
an options business as a member of only one options market.\97\ A very 
small number of market participants choose to become a member of all 
sixteen options exchanges. Most firms that actively trade on options 
markets are not currently Members of the Exchange and do not purchase 
connectivity or port services at the Exchange. Connectivity and ports 
are only available to Members or service bureaus, and only a Member may 
utilize a port.\98\
---------------------------------------------------------------------------

    \97\ BOX recently adopted an electronic market maker trading 
permit fee. See Securities Exchange Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17). In that 
proposal, BOX stated that, ``. . . it is not aware of any reason why 
Market Makers could not simply drop their access to an exchange (or 
not initially access an exchange) if an exchange were to establish 
prices for its non-transaction fees that, in the determination of 
such Market Maker, did not make business or economic sense for such 
Market Maker to access such exchange. [BOX] again notes that no 
market makers are required by rule, regulation, or competitive 
forces to be a Market Maker on [BOX].'' Also in 2022, MEMX 
established a monthly membership fee. See Securities Exchange Act 
Release No. 93927 (January 7, 2022), 87 FR 2191 (January 13, 2022) 
(SR-MEMX-2021-19). In that proposal, MEMX reasoned that that there 
is value in becoming a member of the exchange and stated that it 
believed that the proposed membership fee ``is not unfairly 
discriminatory because no broker-dealer is required to become a 
member of the Exchange'' and that ``neither the trade-through 
requirements under Regulation NMS nor broker-dealers' best execution 
obligations require a broker-dealer to become a member of every 
exchange.''
    \98\ Service Bureaus may obtain ports on behalf of Members.
---------------------------------------------------------------------------

    One other exchange recently noted in a proposal to amend their own 
trading permit fees that of the 62 market making firms that are 
registered as Market Makers across Cboe, MIAX, and BOX, 42 firms access 
only one of the three exchanges.\99\ The Exchange and its affiliates, 
MIAX Pearl and MIAX Emerald, have a total of 47 members. Of those 47 
total members, 35 are members of all three affiliated exchanges, four 
are members of only two (2) affiliated exchanges, and eight (8) are 
members of only one affiliated exchange. The Exchange also notes that 
no firm is a Member of the Exchange only. The above data evidences that 
a broker-dealer need not have direct connectivity to all options 
exchanges, let alone the Exchange and its two affiliates, and broker-
dealers may elect to do so based on their own business decisions and 
need to directly access each exchange's liquidity pool.
---------------------------------------------------------------------------

    \99\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change to Amend the 
Fee Schedule on the BOX Options Market LLC Facility To Adopt 
Electronic Market Maker Trading Permit Fees). The Exchange believes 
that BOX's observation demonstrates that market making firms can, 
and do, select which exchanges they wish to access, and, 
accordingly, options exchanges must take competitive considerations 
into account when setting fees for such access.
---------------------------------------------------------------------------

    Not only is there not an actual regulatory requirement to connect 
to every options exchange, the Exchange believes there is also no ``de 
facto'' or practical requirement as well, as further evidenced by the 
broker-dealer membership analysis of the options exchanges discussed 
above. As noted above, this is evidenced by the fact that one MIAX 
Pearl Options Market Maker terminated their MIAX Pearl Options 
membership effective January 1, 2023 as a direct result of the proposed 
connectivity and port fee changes on MIAX Pearl Options (which are 
similar to the changes proposed herein). Indeed, broker-dealers choose 
if and how to access a particular exchange and because it is a choice, 
the Exchange must set reasonable pricing, otherwise prospective members 
would not connect and existing members would disconnect from the 
Exchange. The decision to become a member of an exchange, particularly 
for registered market makers, is complex, and not solely based on the 
non-transactional costs assessed by an exchange. As noted herein, 
specific factors include, but are not limited to: (i) an exchange's 
available liquidity in options series; (ii) trading functionality 
offered on a particular market; (iii) product offerings; (iv) customer 
service on an exchange; and (v) transactional pricing. Becoming a 
member of the exchange does not ``lock'' a potential member into a 
market or diminish the overall competition for exchange services.
    In lieu of becoming a member at each options exchange, a market 
participant may join one exchange and elect to have their orders routed 
in the event that a better price is available on an away market. 
Nothing in the Order Protection Rule requires a firm to become a Member 
at--or establish connectivity to--the Exchange.\100\ If the Exchange is

[[Page 42853]]

not at the national best bid or offer (``NBBO''),\101\ the Exchange 
will route an order to any away market that is at the NBBO to ensure 
that the order was executed at a superior price and prevent a trade-
through.\102\
---------------------------------------------------------------------------

    \100\ See Options Order Protection and Locked/Crossed Market 
Plan (August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
    \101\ See Exchange Rule 100.
    \102\ Members may elect to not route their orders by utilizing 
the Do Not Route order type. See Exchange Rule 516(g).
---------------------------------------------------------------------------

    With respect to the submission of orders, Members may also choose 
not to purchase any connection from the Exchange, and instead rely on 
the port of a third party to submit an order. For example, a third-
party broker-dealer Member of the Exchange may be utilized by a retail 
investor to submit orders into an exchange. An institutional investor 
may utilize a broker-dealer, a service bureau,\103\ or request 
sponsored access \104\ through a member of an exchange in order to 
submit a trade directly to an options exchange.\105\ A market 
participant may either pay the costs associated with becoming a member 
of an exchange or, in the alternative, a market participant may elect 
to pay commissions to a broker-dealer, pay fees to a service bureau to 
submit trades, or pay a member to sponsor the market participant in 
order to submit trades directly to an exchange.
---------------------------------------------------------------------------

    \103\ Service Bureaus provide access to market participants to 
submit and execute orders on an exchange. On the Exchange, a Service 
Bureau may be a Member. Some Members utilize a Service Bureau for 
connectivity and that Service Bureau may not be a Member. Some 
market participants utilize a Service Bureau who is a Member to 
submit orders.
    \104\ Sponsored Access is an arrangement whereby a Member 
permits its customers to enter orders into an exchange's system that 
bypass the Member's trading system and are routed directly to the 
Exchange, including routing through a service bureau or other third-
party technology provider.
    \105\ This may include utilizing a floor broker and submitting 
the trade to one of the five options trading floors.
---------------------------------------------------------------------------

    Non-Member third-parties, such as service bureaus and extranets, 
resell the Exchange's connectivity. This indirect connectivity is 
another viable alternative for market participants to trade on the 
Exchange without connecting directly to the Exchange (and thus not pay 
the Exchange's connectivity fees), which alternative is already being 
used by non-Members and further constrains the price that the Exchange 
is able to charge for connectivity and other access fees to its market. 
The Exchange notes that it could, but chooses not to, preclude market 
participants from reselling its connectivity. Unlike other exchanges, 
the Exchange also does not currently assess fees on third-party 
resellers on a per customer basis (i.e., fees based on the number of 
firms that connect to the Exchange indirectly via the third-
party).\106\ Indeed, the Exchange does not receive any connectivity 
revenue when connectivity is resold by a third-party, which often is 
resold to multiple customers, some of whom are agency broker-dealers 
that have numerous customers of their own.\107\ Particularly, in the 
event that a market participant views the Exchange's direct 
connectivity and access fees as more or less attractive than competing 
markets, that market participant can choose to connect to the Exchange 
indirectly or may choose not to connect to the Exchange and connect 
instead to one or more of the other 15 options markets. Accordingly, 
the Exchange believes that the proposed fees are fair and reasonable 
and constrained by competitive forces.
---------------------------------------------------------------------------

    \106\ See, e.g., Nasdaq Price List--U.S. Direct Connection and 
Extranet Fees, available at, U.S. Direct-Extranet Connection 
(nasdaqtrader.com); and Securities Exchange Act Release Nos. 74077 
(January 16, 2022), 80 FR 3683 (January 23, 2022) (SR-NASDAQ-2015-
002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022) 
(SR-NASDAQ-2017-114).
    \107\ The Exchange notes that resellers, such as SFTI, are not 
required to publicize, let alone justify or file with the Commission 
their fees, and as such could charge the market participant any fees 
it deems appropriate (including connectivity fees higher than the 
Exchange's connectivity fees), even if such fees would otherwise be 
considered potentially unreasonable or uncompetitive fees.
---------------------------------------------------------------------------

    The Exchange is obligated to regulate its Members and secure access 
to its environment. In order to properly regulate its Members and 
secure the trading environment, the Exchange takes measures to ensure 
access is monitored and maintained with various controls. Connectivity 
and ports are methods utilized by the Exchange to grant Members secure 
access to communicate with the Exchange and exercise trading rights. 
When a market participant elects to be a Member, and is approved for 
membership by the Exchange, the Member is granted trading rights to 
enter orders and/or quotes into Exchange through secure connections.
    Again, there is no legal or regulatory requirement that a market 
participant become a Member of the Exchange. This is again evidenced by 
the fact that one MIAX Pearl Options Market Maker terminated their MIAX 
Pearl Options membership effective January 1, 2023 as a direct result 
of the proposed connectivity and port fee changes on MIAX Pearl 
Options. If a market participant chooses to become a Member, they may 
then choose to purchase connectivity beyond the one connection that is 
necessary to quote or submit orders on the Exchange. Members may freely 
choose to rely on one or many connections, depending on their business 
model.
Bifurcation of 10Gb ULL Connectivity and Related Fees
    The Exchange began to operate on a single shared network with MIAX 
Pearl Options when MIAX Pearl commenced operations as a national 
securities exchange on February 7, 2017.\108\ The Exchange and MIAX 
Pearl Options operated on a single shared network to provide Members 
with a single convenient set of access points for both exchanges. Both 
the Exchange and MIAX Pearl Options offer two methods of connectivity, 
1Gb and 10Gb ULL connections. The 1Gb connection services are supported 
by a discrete set of switches providing 1Gb access ports to Members. 
The 10Gb ULL connection services are supported by a second and mutually 
exclusive set of switches providing 10Gb ULL access ports to Members. 
Previously, both the 1Gb and 10Gb ULL shared extranet ports allowed 
Members to use one connection to access both exchanges, namely their 
trading platforms, market data systems, test systems, and disaster 
recovery facilities.
---------------------------------------------------------------------------

    \108\ See Securities Exchange Act Release No. 80061 (February 
17, 2017), 82 FR 11676 (February 24, 2017) (establishing MIAX Pearl 
Fee Schedule and establishing that the MENI can also be configured 
to provide network connectivity to the trading platforms, market 
data systems, test systems, and disaster recovery facility of the 
MIAX Pearl's affiliate, MIAX, via a single, shared connection).
---------------------------------------------------------------------------

    The Exchange stresses that bifurcating the 10Gb ULL connectivity 
between the Exchange and MIAX Pearl Options was not designed with the 
objective to generate an overall increase in access fee revenue. 
Rather, the proposed change was necessitated by 10Gb ULL connectivity 
experiencing a significant decrease in port availability mostly driven 
by connectivity demands of latency sensitive Members that seek to 
maintain multiple 10Gb ULL connections on every switch in the network. 
Operating two separate national securities exchanges on a single shared 
network provided certain benefits, such as streamlined connectivity to 
multiple exchanges, and simplified exchange infrastructure. However, 
doing so was no longer sustainable due to ever-increasing capacity 
constraints and current system limitations. The network is not an 
unlimited resource. As described more fully in the proposal to 
bifurcate the

[[Page 42854]]

10Gb ULL network,\109\ the connectivity needs of Members and market 
participants has increased every year since the launch of MIAX Pearl 
Options and the operations of the Exchange and MIAX Pearl Options on a 
single shared 10Gb ULL network is no longer feasible. This required 
constant System expansion to meet Member demand for additional ports 
and 10Gb ULL connections has resulted in limited available System 
headroom, which eventually became operationally problematic for both 
the Exchange and its customers.
---------------------------------------------------------------------------

    \109\ See Securities Exchange Act Release Nos. 96553 (December 
20, 2022), 87 FR 79379 (December 27, 2022) (SR-PEARL-2022-60); 96545 
(December 20, 2022) 87 FR 79393 (December 27, 2022) (SR-MIAX-2022-
48).
---------------------------------------------------------------------------

    As stated above, the shared network is not an unlimited resource 
and its expansion was constrained by MIAX's and MIAX Pearl Options' 
ability to provide fair and equitable access to all market participants 
of both markets. Due to the ever-increasing connectivity demands, the 
Exchange found it necessary to bifurcate 10Gb ULL connectivity to the 
Exchange's and MIAX Pearl Options' Systems and networks to be able to 
continue to meet ongoing and future 10Gb ULL connectivity and access 
demands.\110\
---------------------------------------------------------------------------

    \110\ Currently, the Exchange maintains sufficient headroom to 
meet ongoing and future requests for 1Gb connectivity. Therefore, 
the Exchange did not propose to alter 1Gb connectivity and continues 
to provide 1Gb connectivity over a shared network.
---------------------------------------------------------------------------

    Unlike the switches that provide 1Gb connectivity, the availability 
for additional 10Gb ULL connections on each switch had significantly 
decreased. This was mostly driven by the connectivity demands of 
latency sensitive Members (e.g., Market Makers and liquidity removers) 
that sought to maintain connectivity across multiple 10Gb ULL switches. 
Based on the Exchange's experience, such Members did not typically use 
a shared 10Gb ULL connection to reach both the Exchange and MIAX Pearl 
Options due to related latency concerns. Instead, those Members 
maintain dedicated separate 10Gb ULL connections for the Exchange and 
separate dedicated 10Gb ULL connections for MIAX Pearl Options. This 
resulted in a much higher 10Gb ULL usage per switch by those Members on 
the shared 10Gb ULL network than would otherwise be needed if the 
Exchange and MIAX Pearl Options had their own dedicated 10Gb ULL 
networks. Separation of the Exchange and MIAX Pearl Options 10Gb ULL 
networks naturally lends itself to reduced 10Gb ULL port consumption on 
each switch and, therefore, increased 10Gb ULL port availability for 
current Members and new Members.
    Prior to bifurcating the 10Gb ULL network, the Exchange and MIAX 
Pearl Options continued to add switches to meet ongoing demand for 10Gb 
ULL connectivity. That was no longer sustainable because simply adding 
additional switches to expand the current shared 10Gb ULL network would 
not adequately alleviate the issue of limited available port 
connectivity. While it would have resulted in a gain in overall port 
availability, the existing switches on the shared 10Gb ULL network in 
use would have continued to suffer from lack of port headroom given 
many latency sensitive Members' needs for a presence on each switch to 
reach both the Exchange and MIAX Pearl Options. This was because those 
latency sensitive Members sought to have a presence on each switch to 
maximize the probability of experiencing the best network performance. 
Those Members routinely decide to rebalance orders and/or messages over 
their various connections to ensure each connection is operating with 
maximum efficiency. Simply adding switches to the extranet would not 
have resolved the port availability needs on the shared 10Gb ULL 
network since many of the latency sensitive Members were unwilling to 
relocate their connections to a new switch due to the potential 
detrimental performance impact. As such, the impact of adding new 
switches and rebalancing ports would not have been effective or 
responsive to customer needs. The Exchange has found that ongoing and 
continued rebalancing once additional switches are added has had, and 
would have continued to have had, a diminishing return on increasing 
available 10Gb ULL connectivity.
    Based on its experience and expertise, the Exchange found the most 
practical way to increase connectivity availability on its switches was 
to bifurcate the existing 10Gb ULL networks for the Exchange and MIAX 
Pearl Options by migrating the exchanges' connections from the shared 
network onto their own set of switches. Such changes accordingly 
necessitated a review of the Exchange's previous 10Gb ULL connectivity 
fees and related costs. The proposed fees are necessary to allow the 
Exchange to cover ongoing costs related to providing and maintaining 
such connectivity, described more fully below. The ever increasing 
connectivity demands that necessitated this change further support that 
the proposed fees are reasonable because this demand reflects that 
Members and non-Members believe they are getting value from the 10Gb 
ULL connections they purchase.
    The Exchange announced on August 12, 2022 the planned network 
change and the January 23, 2023 implementation date to provide market 
participants adequate time to prepare.\111\ Since August 12, 2022, the 
Exchange has worked with current 10Gb ULL subscribers to address their 
connectivity needs ahead of the January 23, 2023 date. Based on those 
interactions and subscriber feedback, the Exchange experienced a 
minimal net increase of six (6) overall 10Gb ULL connectivity 
subscriptions across the Exchange and MIAX Pearl Options. This 
immaterial increase in overall connections reflects a minimal fee 
impact for all types of subscribers and reflects that subscribers 
elected to reallocate existing 10Gb ULL connectivity directly to the 
Exchange or MIAX Pearl Options, or choose to decrease or cease 
connectivity as a result of the change.
---------------------------------------------------------------------------

    \111\ See supra note 9.
---------------------------------------------------------------------------

    Should the Commission Staff disapprove such fees, it would 
effectively dictate how an exchange manages its technology and would 
hamper the Exchange's ability to continue to invest in and fund access 
services in a manner that allows it to meet existing and anticipated 
access demands of market participants. Disapproval could also have the 
adverse effect of discouraging an exchange from optimizing its 
operations and deploying innovative technology to the benefit of market 
participants if it believes the Commission would later prevent that 
exchange from covering its costs and monetizing operational 
enhancements, thus adversely impacting competition. Also, as noted 
above, the economic consequences of not being able to better establish 
fee parity with other exchanges for non-transaction fees hampers the 
Exchange's ability to compete on transaction fees.
Cost Analysis
    In general, the Exchange believes that exchanges, in setting fees 
of all types, should meet very high standards of transparency to 
demonstrate why each new fee or fee increase meets the Exchange Act 
requirements that fees be reasonable, equitably allocated, not unfairly 
discriminatory, and not create an undue burden on competition among 
members and markets. In particular, the Exchange believes that each 
exchange should take extra care to be able to demonstrate that these 
fees are based on its costs and reasonable business needs.
    In proposing to charge fees for connectivity and port services, the 
Exchange is especially diligent in

[[Page 42855]]

assessing those fees in a transparent way against its own aggregate 
costs of providing the related service, and in carefully and 
transparently assessing the impact on Members--both generally and in 
relation to other Members, i.e., to assure the fee will not create a 
financial burden on any participant and will not have an undue impact 
in particular on smaller Members and competition among Members in 
general. The Exchange believes that this level of diligence and 
transparency is called for by the requirements of Section 19(b)(1) 
under the Act,\112\ and Rule 19b-4 thereunder,\113\ with respect to the 
types of information exchanges should provide when filing fee changes, 
and Section 6(b) of the Act,\114\ which requires, among other things, 
that exchange fees be reasonable and equitably allocated,\115\ not 
designed to permit unfair discrimination,\116\ and that they not impose 
a burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\117\ This rule change proposal addresses those 
requirements, and the analysis and data in each of the sections that 
follow are designed to clearly and comprehensively show how they are 
met.\118\ The Exchange reiterates that the legacy exchanges with whom 
the Exchange vigorously competes for order flow and market share, were 
not subject to any such diligence or transparency in setting their 
baseline non-transaction fees, most of which were put in place before 
the Revised Review Process and Staff Guidance.
---------------------------------------------------------------------------

    \112\ 15 U.S.C. 78s(b)(1).
    \113\ 17 CFR 240.19b-4.
    \114\ 15 U.S.C. 78f(b).
    \115\ 15 U.S.C. 78f(b)(4).
    \116\ 15 U.S.C. 78f(b)(5).
    \117\ 15 U.S.C. 78f(b)(8).
    \118\ See supra note 25.
---------------------------------------------------------------------------

    As detailed below, the Exchange recently calculated its aggregate 
annual costs for providing physical 10Gb ULL connectivity to the 
Exchange at $12,034,554 (or approximately $1,002,880 per month, rounded 
up to the nearest dollar when dividing the annual cost by 12 months) 
and its aggregate annual costs for providing Limited Service MEI Ports 
at $2,157,178 (or approximately $179,765 per month, rounded down to the 
nearest dollar when dividing the annual cost by 12 months). In order to 
cover the aggregate costs of providing connectivity to its users (both 
Members and non-Members) \119\ going forward and to make a modest 
profit, as described below, the Exchange proposes to modify its Fee 
Schedule to charge a fee of $13,500 per month for each physical 10Gb 
ULL connection and to remove language providing for a shared 10Gb ULL 
network between the Exchange and MIAX Pearl Options. The Exchange also 
proposes to modify its Fee Schedule to charge tiered rates for 
additional Limited Service MEI Ports.
---------------------------------------------------------------------------

    \119\ Types of market participants that obtain connectivity 
services from the Exchange but are not Members include service 
bureaus and extranets. Service bureaus offer technology-based 
services to other companies for a fee, including order entry 
services, and thus, may access Limited Service MEI Ports on behalf 
of one or more Members. Extranets offer physical connectivity 
services to Members and non-Members.
---------------------------------------------------------------------------

    In 2019, the Exchange completed a study of its aggregate costs to 
produce market data and connectivity (the ``Cost Analysis'').\120\ The 
Cost Analysis required a detailed analysis of the Exchange's aggregate 
baseline costs, including a determination and allocation of costs for 
core services provided by the Exchange--transaction execution, market 
data, membership services, physical connectivity, and port access 
(which provide order entry, cancellation and modification 
functionality, risk functionality, the ability to receive drop copies, 
and other functionality). The Exchange separately divided its costs 
between those costs necessary to deliver each of these core services, 
including infrastructure, software, human resources (i.e., personnel), 
and certain general and administrative expenses (``cost drivers'').
---------------------------------------------------------------------------

    \120\ The Exchange frequently updates it Cost Analysis as 
strategic initiatives change, costs increase or decrease, and market 
participant needs and trading activity changes. The Exchange's most 
recent Cost Analysis was conducted ahead of this filing.
---------------------------------------------------------------------------

    As an initial step, the Exchange determined the total cost for the 
Exchange and the affiliated markets for each cost driver as part of its 
2023 budget review process. The 2023 budget review is a company-wide 
process that occurs over the course of many months, includes meetings 
among senior management, department heads, and the Finance Team. Each 
department head is required to send a ``bottom up'' budget to the 
Finance Team allocating costs at the profit and loss account and vendor 
levels for the Exchange and its affiliated markets based on a number of 
factors, including server counts, additional hardware and software 
utilization, current or anticipated functional or non-functional 
development projects, capacity needs, end-of-life or end-of-service 
intervals, number of members, market model (e.g., price time or pro-
rata, simple only or simple and complex markets, auction functionality, 
etc.), which may impact message traffic, individual system 
architectures that impact platform size,\121\ storage needs, dedicated 
infrastructure versus shared infrastructure allocated per platform 
based on the resources required to support each platform, number of 
available connections, and employees allocated time. All of these 
factors result in different allocation percentages among the Exchange 
and its affiliated markets, i.e., the different percentages of the 
overall cost driver allocated to the Exchange and its affiliated 
markets will cause the dollar amount of the overall cost allocated 
among the Exchange and its affiliated markets to also differ. Because 
the Exchange's parent company currently owns and operates four separate 
and distinct marketplaces, the Exchange must determine the costs 
associated with each actual market--as opposed to the Exchange's parent 
company simply concluding that all costs drivers are the same at each 
individual marketplace and dividing total cost by four (4) (evenly for 
each marketplace). Rather, the Exchange's parent company determines an 
accurate cost for each marketplace, which results in different 
allocations and amounts across exchanges for the same cost drivers, due 
to the unique factors of each marketplace as described above. This 
allocation methodology also ensures that no cost would be allocated 
twice or double-counted between the Exchange and its affiliated 
markets. The Finance Team then consolidates the budget and sends it to 
senior management, including the Chief Financial Officer and Chief 
Executive Officer, for review and approval. Next, the budget is 
presented to the Board of Directors and the Finance and Audit 
Committees for each exchange for their approval. The above steps 
encompass the first step of the cost allocation process.
---------------------------------------------------------------------------

    \121\ For example, the Exchange maintains 24 matching engines, 
MIAX Pearl Options maintains 12 matching engines, MIAX Pearl 
Equities maintains 24 matching engines, and MIAX Emerald maintains 
12 matching engines.
---------------------------------------------------------------------------

    The next step involves determining what portion of the cost 
allocated to the Exchange pursuant to the above methodology is to be 
allocated to each core service, e.g., connectivity and ports, market 
data, and transaction services. The Exchange and its affiliated markets 
adopted an allocation methodology with thoughtful and consistently 
applied principles to guide how much of a particular cost amount 
allocated to the Exchange should be allocated within the Exchange to 
each core service. This is the final step in the cost allocation 
process and is applied to

[[Page 42856]]

each of the cost drivers set forth below. For instance, fixed costs 
that are not driven by client activity (e.g., message rates), such as 
data center costs, were allocated more heavily to the provision of 
physical connectivity (60.6% of total expense amount allocated to 10Gb 
connectivity), with smaller allocations to additional Limited Service 
MEI Ports (7.2%), and the remainder to the provision of other 
connectivity, other ports, transaction execution, membership services 
and market data services (32.3%). This next level of the allocation 
methodology at the individual exchange level also took into account 
factors similar to those set forth under the first step of the 
allocation methodology process described above, to determine the 
appropriate allocation to connectivity or market data versus 
allocations for other services. This allocation methodology was 
developed through an assessment of costs with senior management 
intimately familiar with each area of the Exchange's operations. After 
adopting this allocation methodology, the Exchange then applied an 
allocation of each cost driver to each core service, resulting in the 
cost allocations described below. Each of the below cost allocations is 
unique to the Exchange and represents a percentage of overall cost that 
was allocated to the Exchange pursuant to the initial allocation 
described above.
    By allocating segmented costs to each core service, the Exchange 
was able to estimate by core service the potential margin it might earn 
based on different fee models. The Exchange notes that as a non-listing 
venue it has five primary sources of revenue that it can potentially 
use to fund its operations: transaction fees, fees for connectivity and 
port services, membership fees, regulatory fees, and market data fees. 
Accordingly, the Exchange must cover its expenses from these five 
primary sources of revenue. The Exchange also notes that as a general 
matter each of these sources of revenue is based on services that are 
interdependent. For instance, the Exchange's system for executing 
transactions is dependent on physical hardware and connectivity; only 
Members and parties that they sponsor to participate directly on the 
Exchange may submit orders to the Exchange; many Members (but not all) 
consume market data from the Exchange in order to trade on the 
Exchange; and, the Exchange consumes market data from external sources 
in order to comply with regulatory obligations. Accordingly, given this 
interdependence, the allocation of costs to each service or revenue 
source required judgment of the Exchange and was weighted based on 
estimates of the Exchange that the Exchange believes are reasonable, as 
set forth below. While there is no standardized and generally accepted 
methodology for the allocation of an exchange's costs, the Exchange's 
methodology is the result of an extensive review and analysis and will 
be consistently applied going forward for any other potential fee 
proposals. In the absence of the Commission attempting to specify a 
methodology for the allocation of exchanges' interdependent costs, the 
Exchange will continue to be left with its best efforts to attempt to 
conduct such an allocation in a thoughtful and reasonable manner.
    Through the Exchange's extensive updated Cost Analysis, which was 
again recently further refined, the Exchange analyzed every expense 
item in the Exchange's general expense ledger to determine whether each 
such expense relates to the provision of connectivity and port 
services, and, if such expense did so relate, what portion (or 
percentage) of such expense actually supports the provision of 
connectivity and port services, and thus bears a relationship that is, 
``in nature and closeness,'' directly related to network connectivity 
and port services. In turn, the Exchange allocated certain costs more 
to physical connectivity and others to ports, while certain costs were 
only allocated to such services at a very low percentage or not at all, 
using consistent allocation methodologies as described above. Based on 
this analysis, the Exchange estimates that the aggregate monthly cost 
to provide 10Gb ULL connectivity and Limited Service MEI Port services, 
including both physical 10Gb connections and Limited Service MEI Ports, 
is $1,182,645 (utilizing the rounded numbers when dividing the annual 
cost for 10Gb ULL connectivity and annual cost for Limited Service MEI 
Ports by 12 months, then adding both numbers together), as further 
detailed below.
Costs Related to Offering Physical 10Gb ULL Connectivity
    The following chart details the individual line-item costs 
considered by the Exchange to be related to offering physical dedicated 
10Gb ULL connectivity via an unshared network as well as the percentage 
of the Exchange's overall costs that such costs represent for each cost 
driver (e.g., as set forth below, the Exchange allocated approximately 
25.6% of its overall Human Resources cost to offering physical 
connectivity).

------------------------------------------------------------------------
                                    Allocated    Allocated
           Cost drivers            annual cost    monthly      % Of all
                                      \122\      cost \123\
------------------------------------------------------------------------
Human Resources..................   $3,867,297     $322,275           25
Connectivity (external fees,            70,163        5,847         60.6
 cabling, switches, etc.)........
Internet Services and External         424,584       35,382         73.3
 Market Data.....................
Data Center......................      718,950       59,912         60.6
Hardware and Software Maintenance      727,734       60,645         49.8
 and Licenses....................
Depreciation.....................    2,310,898      192,575         61.6
Allocated Shared Expenses........    3,914,928      326,244         49.1
                                  --------------------------------------
    Total........................   12,034,554    1,002,880         39.4
------------------------------------------------------------------------

    Below are additional details regarding each of the line-item costs 
considered by the Exchange to be related to offering physical 10Gb ULL 
connectivity. While some costs were attempted to be allocated as 
equally as possible among the Exchange and its affiliated markets, the 
Exchange notes that some of its cost allocation percentages for certain 
cost drivers differ when compared to the same cost drivers for the 
Exchange's affiliated markets in their similar proposed fee changes for 
connectivity and ports. This is because the Exchange's cost allocation 
methodology utilizes the actual projected costs of the Exchange (which 
are specific to the Exchange and are independent of the

[[Page 42857]]

costs projected and utilized by the Exchange's affiliated markets) to 
determine its actual costs, which may vary across the Exchange and its 
affiliated markets based on factors that are unique to each 
marketplace. The Exchange provides additional explanation below 
(including the reason for the deviation) for the significant 
differences.
---------------------------------------------------------------------------

    \122\ The Annual Cost includes figures rounded to the nearest 
dollar.
    \123\ The Monthly Cost was determined by dividing the Annual 
Cost for each line item by twelve (12) months and rounding up or 
down to the nearest dollar.
---------------------------------------------------------------------------

Human Resources
    For personnel costs (Human Resources), the Exchange calculated an 
allocation of employee time for employees whose functions include 
providing and maintaining physical connectivity and performance thereof 
(primarily the Exchange's network infrastructure team, which spends 
most of their time performing functions necessary to provide physical 
connectivity) and for which the Exchange allocated a weighted average 
of 42% of each employee's time from the above group assigned to the 
Exchange based on the above-described allocation methodology. The 
Exchange also allocated Human Resources costs to provide physical 
connectivity to a limited subset of personnel with ancillary functions 
related to establishing and maintaining such connectivity (such as 
information security, sales, membership, and finance personnel), for 
which the Exchange allocated cost on an employee-by-employee basis 
(i.e., only including those personnel who support functions related to 
providing physical connectivity) and then applied a smaller allocation 
to such employees (less than 18%). The Exchange notes that it and its 
affiliated markets have 184 employees (excluding employees at non-
options/equities exchange subsidiaries of Miami International Holdings, 
Inc. (``MIH''), the holding company of the Exchange and its affiliated 
markets), and each department leader has direct knowledge of the time 
spent by each employee with respect to the various tasks necessary to 
operate the Exchange. Specifically, twice a year, and as needed with 
additional new hires and new project initiatives, in consultation with 
employees as needed, managers and department heads assign a percentage 
of time to every employee and then allocate that time amongst the 
Exchange and its affiliated markets to determine each market's 
individual Human Resources expense. Then, managers and department heads 
assign a percentage of each employee's time allocated to the Exchange 
into buckets including network connectivity, ports, market data, and 
other exchange services. This process ensures that every employee is 
100% allocated, ensuring there is no double counting between the 
Exchange and its affiliated markets.
    The estimates of Human Resources cost were therefore determined by 
consulting with such department leaders, determining which employees 
are involved in tasks related to providing physical connectivity, and 
confirming that the proposed allocations were reasonable based on an 
understanding of the percentage of their time such employees devote to 
tasks related to providing physical connectivity.\124\ This includes 
personnel from the Exchange departments that are predominately involved 
in providing 1Gb and 10Gb ULL connectivity: Business Systems 
Development, Trading Systems Development, Systems Operations and 
Network Monitoring, Network and Data Center Operations, Listings, 
Trading Operations, and Project Management, of which the Exchange 
allocated 42% of each of their employee's time assigned to the 
Exchange, as stated above. The Exchange notes that senior level 
executives' time was only allocated to the Human Resources costs to the 
extent that they are involved in overseeing tasks related to providing 
physical connectivity. The Human Resources cost was calculated using a 
blended rate of compensation reflecting salary, equity and bonus 
compensation, benefits, payroll taxes, and 401(k) matching 
contributions.
---------------------------------------------------------------------------

    \124\ The Exchange notes that while 12.9 full time equivalents 
(``FTEs'') were allocated in this filing to the Exchange and a 
similar number of FTEs in a similar filing by the Exchange's 
affiliate, MIAX Emerald (11.7 FTEs), the overall cost percentage 
allocated for each differs due to the individual level of 
compensation for each employee assigned to work on projects for the 
exchanges.
---------------------------------------------------------------------------

Connectivity (External Fees, Cabling, Switches, etc.)
    The Connectivity cost driver includes external fees paid to connect 
to other exchanges and third parties, cabling and switches required to 
operate the Exchange. The Connectivity cost driver is more narrowly 
focused on technology used to complete connections to the Exchange and 
to connect to external markets. The Exchange notes that its 
connectivity to external markets is required in order to receive market 
data to run the Exchange's matching engine and basic operations 
compliant with existing regulations, primarily Regulation NMS.
    The Exchange relies on various connectivity providers for 
connectivity to the entire U.S. options industry, and infrastructure 
services for critical components of the network that are necessary to 
provide and maintain its System Networks and access to its System 
Networks via 10Gb ULL connectivity. Specifically, the Exchange utilizes 
connectivity providers to connect to other national securities 
exchanges and the Options Price Reporting Authority (``OPRA''). The 
Exchange understands that these service providers provide services to 
most, if not all, of the other U.S. exchanges and other market 
participants. Connectivity provided by these service providers is 
critical to the Exchanges daily operations and performance of its 
System Networks to which market participants connect to via 10Gb ULL 
connectivity. Without these services providers, the Exchange would not 
be able to connect to other national securities exchanges, market data 
providers or OPRA and, therefore, would not be able to operate and 
support its System Networks. The Exchange does not employ a separate 
fee to cover its connectivity provider expense and recoups that 
expense, in part, by charging for 10Gb ULL connectivity.
Internet Services and External Market Data
    The next cost driver consists of internet Services and external 
market data. Internet services includes third-party service providers 
that provide the internet, fiber and bandwidth connections between the 
Exchange's networks, primary and secondary data centers, and office 
locations in Princeton and Miami.
    External market data includes fees paid to third parties, including 
other exchanges, to receive market data. The Exchange includes external 
market data fee costs towards the provision of 10Gb ULL connectivity 
because such market data is necessary for certain services related to 
connectivity, including pre-trade risk checks and checks for other 
conditions (e.g., re-pricing of orders to avoid locked or crossed 
markets and trading collars). Since external market data from other 
exchanges is consumed at the Exchange's matching engine level, (to 
which 10Gb ULL connectivity provides access) in order to validate 
orders before additional orders enter the matching engine or are 
executed, the Exchange believes it is reasonable to allocate a small 
amount of such costs to 10Gb ULL connectivity.
    The Exchange relies on various content service providers for data 
feeds for the entire U.S. options industry, as well as content for 
critical components of the network that are necessary to provide and 
maintain its System Networks and access to its System

[[Page 42858]]

Networks via 10Gb ULL connectivity. Specifically, the Exchange utilizes 
content service providers to receive market data from OPRA, other 
exchanges and market data providers. The Exchange understands that 
these service providers provide services to most, if not all, of the 
other U.S. exchanges and other market participants. Market data 
provided these service providers is critical to the Exchanges daily 
operations and performance of its System Networks to which market 
participants connect to via 10Gb ULL connectivity. Without these 
services providers, the Exchange would not be able to receive market 
data and, therefore, would not be able to operate and support its 
System Networks. The Exchange does not employ a separate fee to cover 
its content service provider expense and recoups that expense, in part, 
by charging for 10Gb ULL connectivity.
    Lastly, the Exchange notes that the actual dollar amounts allocated 
as part of the second step of the 2023 budget process differ among the 
Exchange and its affiliated markets for the internet Services and 
External Market Data cost driver, even though but for MIAX Emerald, the 
allocation percentages are generally consistent across markets (e.g., 
MIAX Emerald, MIAX, MIAX Pearl Options and MIAX Pearl Equities 
allocated 84.8%, 73.3%, 73.3% and 72.5%, respectively, to the same cost 
driver). This is because: (i) a different percentage of the overall 
internet Services and External Market Data cost driver was allocated to 
MIAX Emerald and its affiliated markets due to the factors set forth 
under the first step of the 2023 budget review process described above 
(unique technical architecture, market structure, and business 
requirements of each marketplace); and (ii) MIAX Emerald itself 
allocated a larger portion of this cost driver to 10Gb ULL connectivity 
because of recent initiatives to improve the latency and determinism of 
its systems. The Exchange notes while the percentage MIAX Emerald 
allocated to the internet Services and External Market Data cost driver 
is greater than the Exchange and its other affiliated markets, the 
overall dollar amount allocated to the Exchange under the initial step 
of the 2023 budget process is lower than its affiliated markets. 
However, the Exchange believes that this is not, in dollar amounts, a 
significant difference. This is because the total dollar amount of 
expense covered by this cost driver is relatively small compared to 
other cost drivers and is due to nuances in exchange architecture that 
require different initial allocation amount under the first step of the 
2023 budget process described above. Thus, non-significant differences 
in percentage allocation amounts in a smaller cost driver create the 
appearance of a significant difference, even though the actual 
difference in dollar amounts is small. For instance, despite the 
difference in cost allocation percentages for the internet Services and 
External Market Data cost driver across the Exchange and MIAX Emerald, 
the actual dollar amount difference is approximately only $4,000 per 
month, a non-significant amount.
Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide physical connectivity in the third-party data centers 
where it maintains its equipment (such as dedicated space, security 
services, cooling and power). The Exchange notes that it does not own 
the Primary Data Center or the Secondary Data Center, but instead, 
leases space in data centers operated by third parties. The Exchange 
has allocated a high percentage of the Data Center cost (60.6%) to 
physical 10Gb ULL connectivity because the third-party data centers and 
the Exchange's physical equipment contained therein is the most direct 
cost in providing physical access to the Exchange. In other words, for 
the Exchange to operate in a dedicated space with connectivity by 
market participants to a physical trading platform, the data centers 
are a very tangible cost, and in turn, if the Exchange did not maintain 
such a presence then physical connectivity would be of no value to 
market participants.
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software 
licenses used to operate and monitor physical assets necessary to offer 
physical connectivity to the Exchange.\125\
---------------------------------------------------------------------------

    \125\ This expense may be less than the Exchange's affiliated 
markets, specifically MIAX Pearl (the options and equities markets), 
because, unlike the Exchange, MIAX Pearl (the options and equities 
markets) maintains an additional gateway to accommodate its member's 
access and connectivity needs. This added gateway contributes to the 
difference in allocations between the Exchange and MIAX Pearl. This 
expense also differs in dollar amount among the Exchange, MIAX Pearl 
(options and equities), and MIAX Emerald because each market may 
maintain and utilize a different amount of hardware and software 
based on its market model and infrastructure needs. The Exchange 
allocated a percentage of the overall cost based on actual amounts 
of hardware and software utilized by that market, which resulted in 
different cost allocations and dollar amounts.
---------------------------------------------------------------------------

Depreciation
    All physical assets, software, and hardware used to provide 10Gb 
ULL connectivity, which also 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. 
Thus, the depreciation cost primarily relates to servers necessary to 
operate the Exchange, some of which are owned by the Exchange and some 
of which are leased by the Exchange in order to allow efficient 
periodic technology refreshes. The Exchange also included in the 
Depreciation cost driver certain budgeted improvements that the 
Exchange intends to capitalize and depreciate with respect to 10Gb ULL 
connectivity in the near-term. As with the other allocated costs in the 
Exchange's updated Cost Analysis, the Depreciation cost was therefore 
narrowly tailored to depreciation related to 10Gb ULL connectivity. As 
noted above, the Exchange allocated 61.6% of its allocated depreciation 
costs to providing physical 10Gb ULL connectivity.
    The Exchange also notes that this allocation differs from its 
affiliated markets due to a number of factors, such as the age of 
physical assets and software (e.g., older physical assets and software 
were previously depreciated and removed from the allocation), or 
certain system enhancements that required new physical assets and 
software, thus providing a higher contribution to the depreciated cost. 
For example, the percentages the Exchange and its affiliate, MIAX 
Emerald, allocated to the depreciation of hardware and software used to 
provide 10Gb ULL connectivity are nearly identical. However, the 
Exchange's dollar amount is greater than that of MIAX Emerald by 
approximately $32,000 per month due to two factors: first, the Exchange 
has undergone a technology refresh since the time MIAX Emerald launched 
in February 2019, leading to it having more hardware that software that 
is subject to depreciation. Second, the Exchange maintains 24 matching 
engines while MIAX Emerald maintains only 12 matching engines. This 
also results in more of the Exchange's hardware and software being 
subject to depreciation than MIAX Emerald's hardware and software due 
to the greater amount of equipment and software necessary to support 
the greater number of matching engines on the Exchange.

[[Page 42859]]

Allocated Shared Expenses
    Finally, a limited portion of general shared expenses was allocated 
to overall physical connectivity costs because without these general 
shared costs the Exchange would not be able to operate in the manner 
that it does and provide physical connectivity. The costs included in 
general shared expenses include general expenses of the Exchange, 
including office space and office expenses (e.g., occupancy and 
overhead expenses), utilities, recruiting and training, marketing and 
advertising costs, professional fees for legal, tax and accounting 
services (including external and internal audit expenses), and 
telecommunications costs. Similarly, the cost of paying directors to 
serve on the Exchange's Board of Directors is also included in the 
Exchange's general shared expense cost driver.\126\ The Exchange notes 
that the 49.1% allocation of general shared expenses for physical 10Gb 
ULL connectivity is higher than that allocated to general shared 
expenses for Limited Service MEI Ports based on its allocation 
methodology that weighted costs attributable to each core service based 
on an understanding of each area. While physical connectivity has 
several areas where certain tangible costs are heavily weighted towards 
providing such service (e.g., Data Center, as described above), Limited 
Service MEI Ports do not require as many broad or indirect resources as 
other core services.
---------------------------------------------------------------------------

    \126\ The Exchange notes that MEMX allocated a precise amount of 
10% of the overall cost for directors to providing physical 
connectivity. The Exchange does not calculate is expenses at that 
granular a level. Instead, director costs are included as part of 
the overall general allocation.
---------------------------------------------------------------------------

* * * * *
Approximate Cost per 10Gb ULL Connection per Month
    After determining the approximate allocated monthly cost related to 
10Gb connectivity, the total monthly cost for 10Gb ULL connectivity of 
$1,002,880 was divided by the number of physical 10Gb ULL connections 
the Exchange maintained at the time that proposed pricing was 
determined (93), to arrive at a cost of approximately $10,784 per 
month, per physical 10Gb ULL connection. Due to the nature of this 
particular cost, this allocation methodology results in an allocation 
among the Exchange and its affiliated markets based on set quantifiable 
criteria, i.e., actual number of 10Gb ULL connections.
* * * * *
Costs Related to Offering Limited Service MEI Ports
    The following chart details the individual line-item costs 
considered by the Exchange to be related to offering Limited Service 
MEI Ports as well as the percentage of the Exchange's overall costs 
such costs represent for such area (e.g., as set forth below, the 
Exchange allocated approximately 5.8% of its overall Human Resources 
cost to offering Limited Service MEI Ports).
---------------------------------------------------------------------------

    \127\ See supra note 122 (describing rounding of Annual Costs).
    \128\ See supra note 123 (describing rounding of Monthly Costs 
based on Annual Costs).

------------------------------------------------------------------------
                                    Allocated    Allocated
           Cost drivers            annual cost    monthly      % Of all
                                      \127\      cost \128\
------------------------------------------------------------------------
Human Resources..................     $898,480      $74,873          5.8
Connectivity (external fees,             4,435          370          3.8
 cabling, switches, etc.)........
Internet Services and External          41,601        3,467          7.2
 Market Data.....................
Data Center......................       85,214        7,101          7.2
Hardware and Software Maintenance      104,859        8,738          7.2
 and Licenses....................
Depreciation.....................      237,335       19,778          6.3
Allocated Shared Expenses........      785,254       65,438          9.8
                                  --------------------------------------
    Total........................    2,157,178      179,765          7.1
------------------------------------------------------------------------

    Below are additional details regarding each of the line-item costs 
considered by the Exchange to be related to offering Limited Service 
MEI Ports. While some costs were attempted to be allocated as equally 
as possible among the Exchange and its affiliated markets, the Exchange 
notes that some of its cost allocation percentages for certain cost 
drivers differ when compared to the same cost drivers for the 
Exchange's affiliated markets in their similar proposed fee changes for 
connectivity and ports. This is because the Exchange's cost allocation 
methodology utilizes the actual projected costs of the Exchange (which 
are specific to the Exchange, and are independent of the costs 
projected and utilized by the Exchange's affiliated markets) to 
determine its actual costs, which may vary across the Exchange and its 
affiliated markets based on factors that are unique to each 
marketplace. The Exchange provides additional explanation below 
(including the reason for the deviation) for the significant 
differences.
Human Resources
    With respect to Limited Service MEI Ports, the Exchange calculated 
Human Resources cost by taking an allocation of employee time for 
employees whose functions include providing Limited Service MEI Ports 
and maintaining performance thereof (including a broader range of 
employees such as technical operations personnel, market operations 
personnel, and software engineering personnel) as well as a limited 
subset of personnel with ancillary functions related to maintaining 
such connectivity (such as sales, membership, and finance personnel). 
Just as described above for 10Gb ULL connectivity, the estimates of 
Human Resources cost were again determined by consulting with 
department leaders, determining which employees are involved in tasks 
related to providing Limited Service MEI Ports and maintaining 
performance thereof, and confirming that the proposed allocations were 
reasonable based on an understanding of the percentage of their time 
such employees devote to tasks related to providing Limited Service MEI 
Ports and maintaining performance thereof. The Exchange notes that 
senior level executives were allocated Human Resources costs to the 
extent they are involved in overseeing tasks specifically related to 
providing Limited Service MEI Ports.\129\ This includes personnel from 
the following Exchange departments that are predominately involved in 
providing Limited Service

[[Page 42860]]

MEI Ports: Business Systems Development, Trading Systems Development, 
Systems Operations and Network Monitoring, Network and Data Center 
Operations, Listings, Trading Operations, and Project Management. 
Senior level executives were only allocated Human Resources costs to 
the extent that they are involved in managing personnel responsible for 
tasks integral to providing and maintaining Limited Service MEI Ports. 
The Human Resources cost was again calculated using a blended rate of 
compensation reflecting salary, equity and bonus compensation, 
benefits, payroll taxes, and 401(k) matching contributions.
---------------------------------------------------------------------------

    \129\ The Exchange notes that while 3.0 FTEs were allocated in 
this filing to the Exchange and a similar number of FTEs in a 
similar filing by the Exchange's affiliate, MIAX Emerald (2.5 FTEs), 
the overall cost percentage allocated for each differs due to the 
individual level of compensation for each employee assigned to work 
on projects for the exchanges.
---------------------------------------------------------------------------

Connectivity (External Fees, Cabling, Switches, etc.)
    The Connectivity cost includes external fees paid to connect to 
other exchanges and cabling and switches, as described above.
Internet Services and External Market Data
    The next cost driver consists of internet services and external 
market data. Internet services includes third-party service providers 
that provide the internet, fiber and bandwidth connections between the 
Exchange's networks, primary and secondary data centers, and office 
locations in Princeton and Miami. For purposes of Limited Service MEI 
Ports, the Exchange also includes a portion of its costs related to 
external market data. External market data includes fees paid to third 
parties, including other exchanges, to receive and consume market data 
from other markets. The Exchange includes external market data costs 
towards the provision of Limited Service MEI Ports because such market 
data is necessary (in addition to physical connectivity) to offer 
certain services related to such ports, such as validating orders on 
entry against the NBBO and checking for other conditions (e.g., halted 
securities).\130\ Thus, since market data from other exchanges is 
consumed at the Exchange's Limited Service MEI Port level in order to 
validate orders, before additional processing occurs with respect to 
such orders, the Exchange believes it is reasonable to allocate a small 
amount of such costs to Limited Service MEI Ports.
---------------------------------------------------------------------------

    \130\ The Exchange notes that MEMX separately allocated 7.5% of 
its external market data costs to providing physical connectivity.
---------------------------------------------------------------------------

    The Exchange notes that the allocation for the internet Services 
and External Market Data cost driver is greater than that of its 
affiliate, MIAX Pearl Options, as MIAX allocated 7.2% of its internet 
Services and External Market Data expense towards Limited Service MEI 
Ports, while MIAX Pearl Options allocated 1.4% to its Full Service MEO 
Ports for the same cost driver. The allocation percentages set forth 
above differ because they directly correspond with the number of 
applicable ports utilized on each exchange. For March 2023, MIAX Market 
Makers utilized 1,782 Limited Service MEI ports and MIAX Emerald Market 
Makers utilized 1,028 Limited Service MEI ports. When compared to Full 
Service Port (Bulk and Single) usage, for March 2023, MIAX Pearl 
Options Members utilized only 432 Full Service MEO Ports (Bulk and 
Single), far fewer than number of Limited Service MEI Ports utilized by 
Market Makers on MIAX and MIAX Emerald, thus resulting in a smaller 
cost allocation. There is increased cost associated with supporting a 
higher number of ports (requiring more hardware and other technical 
infrastructure and internet Service), thus the Exchange allocates a 
higher percentage of expense than MIAX Pearl Options, which has a lower 
port count.
Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide Limited Service MEI Ports in the third-party data 
centers where it maintains its equipment as well as related costs for 
market data to then enter the Exchange's system via Limited Service MEI 
Ports (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).
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software 
licenses used to monitor the health of the order entry services 
provided by the Exchange, as described above.
    The Exchange notes that this allocation is greater than its 
affiliate, MIAX Pearl Options, as MIAX allocated 7.2% of its Hardware 
and Software Maintenance and License expense towards Limited Service 
MEI Ports, while MIAX Pearl Options allocated 1.4% to its Full Service 
MEO Ports (Bulk and Single) for the same category of expense. The 
allocation percentages set forth above differ because they correspond 
with the number of applicable ports utilized on each exchange. For 
March 2023, MIAX Market Makers utilized 1,782 Limited Service MEI ports 
and MIAX Emerald Market Makers utilized 1,028 Limited Service MEI 
Ports. When compared to Full Service Port (Bulk and Single) usage, for 
March 2023, MIAX Pearl Options Members utilized only 432 Full Service 
MEO Ports (Bulk and Single), far fewer than number of Limited Service 
MEI Ports utilized by Market Makers on MIAX and MIAX Emerald, thus 
resulting in a smaller cost allocation. There is increased cost 
associated with supporting a higher number of ports (requiring more 
hardware and other technical infrastructure), thus the Exchange 
allocates a higher percentage of expense than MIAX Pearl Options, which 
has a lower port count.
Depreciation
    The vast majority of the software the Exchange uses to provide 
Limited Service MEI Ports has been developed in-house and the cost of 
such development, which takes place over an extended period of time and 
includes not just development work, but also quality assurance and 
testing to ensure the software works as intended, is depreciated over 
time once the software is activated in the production environment. 
Hardware used to provide Limited Service MEI Ports includes equipment 
used for testing and monitoring of order entry infrastructure and other 
physical equipment the Exchange purchased and is also depreciated over 
time. All hardware and software, were valued at cost, depreciated or 
leased over periods ranging from three to five years. Thus, the 
depreciation cost primarily relates to servers necessary to operate the 
Exchange, some of which is owned by the Exchange and some of which is 
leased by the Exchange in order to allow efficient periodic technology 
refreshes. The Exchange allocated 6.3% of all depreciation costs to 
providing Limited Service MEI Ports. The Exchange allocated 
depreciation costs for depreciated software necessary to operate the 
Exchange because such software is related to the provision of Limited 
Service MEI Ports. As with the other allocated costs in the Exchange's 
updated Cost Analysis, the Depreciation cost driver was therefore 
narrowly tailored to depreciation related to Limited Service MEI Ports.
    The Exchange notes that this allocation differs from its affiliated 
markets due to a number of factors, such as the age of physical assets 
and software (e.g., older physical assets and software were previously 
depreciated and removed from the allocation), or certain system 
enhancements that required new physical assets and software, thus 
providing a higher

[[Page 42861]]

contribution to the depreciated cost. For example, the Exchange notes 
that the percentages it and its affiliate, MIAX Emerald, allocated to 
the depreciation cost driver for Limited Service MEI Ports differ by 
only 2.6%. However, the Exchange's approximate dollar amount is greater 
than that of MIAX Emerald by approximately $10,000 per month. This is 
due to two primary factors. First, the Exchange has under gone a 
technology refresh since the time MIAX Emerald launched in February 
2019, leading to it having more hardware that software that is subject 
to depreciation. Second, the Exchange maintains 24 matching engines 
while MIAX Emerald maintains only 12 matching engines. This also 
results in more of the Exchange's hardware and software being subject 
to depreciation than MIAX Emerald's hardware and software due to the 
greater amount of equipment and software necessary to support the 
greater number of matching engines on the Exchange.
Allocated Shared Expenses
    Finally, a limited portion of general shared expenses was allocated 
to overall Limited Service MEI Ports costs as without these general 
shared costs the Exchange would not be able to operate in the manner 
that it does and provide Limited Service MEI Ports. The costs included 
in general shared expenses include general expenses of the Exchange, 
including office space and office expenses (e.g., occupancy and 
overhead expenses), utilities, recruiting and training, marketing and 
advertising costs, professional fees for legal, tax and accounting 
services (including external and internal audit expenses), and 
telecommunications costs. The Exchange again notes that the cost of 
paying directors to serve on its Board of Directors is included in the 
calculation of Allocated Shared Expenses, and thus a portion of such 
overall cost amounting to less than 10% of the overall cost for 
directors was allocated to providing Limited Service MEI Ports. The 
Exchange notes that the 9.8% allocation of general shared expenses for 
Limited Service MEI Ports is lower than that allocated to general 
shared expenses for physical connectivity based on its allocation 
methodology that weighted costs attributable to each Core Service based 
on an understanding of each area. While Limited Service MEI Ports have 
several areas where certain tangible costs are heavily weighted towards 
providing such service (e.g., Data Center, as described above), 10Gb 
ULL connectivity requires a broader level of support from Exchange 
personnel in different areas, which in turn leads to a broader general 
level of cost to the Exchange.
    Lastly, the Exchange notes that this allocation is greater than its 
affiliate, MIAX Pearl Options, as MIAX allocated 9.8% of its Allocated 
Shared Expense towards Limited Service MEI Ports, while MIAX Pearl 
Options allocated 3.6% to its Full Service MEO Ports (Bulk and Single) 
for the same category of expense. The allocation percentages set forth 
above differ because they correspond with the number of applicable 
ports utilized on each exchange. For March 2023, MIAX Market Makers 
utilized 1,782 Limited Service MEI Ports and MIAX Emerald Market Makers 
utilized 1,028 Limited Service MEI ports. When compared to Full Service 
Port (Bulk and Single) usage, for March 2023, MIAX Pearl Options 
Members utilized only 432 Full Service MEO Ports (Bulk and Single), far 
fewer than number of Limited Service MEI Ports utilized by Market 
Makers on MIAX, thus resulting in a smaller cost allocation. There is 
increased cost associated with supporting a higher number of ports 
(requiring more hardware and other technical infrastructure), thus the 
Exchange allocates a higher percentage of expense than MIAX Pearl 
Options which has a lower port count.\131\
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    \131\ The Exchange allocated a slightly lower amount (9.8%) of 
this cost as compared to MIAX Emerald (10.3%). This is not a 
significant difference. However, both allocations resulted in an 
identical cost amount of $0.8 million, despite the Exchange having a 
higher number of Limited Service MEI Ports. MIAX Emerald was 
allocated a higher cost per Limited Service MEI Port due to the 
additional resources and expenditures associated with maintaining 
its recently enhanced low latency network.
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* * * * *
Approximate Cost per Limited Service MEI Port per Month
    The total monthly cost allocated to Limited Service MEI Ports of 
$179,765 was divided by the number of chargeable Limited Service MEI 
Ports (excluding the two free Limited Service MEI Ports per matching 
engine that each Member receives) the Exchange maintained at the time 
that proposed pricing was determined (1303), to arrive at a cost of 
approximately $138 per month, per charged Limited Service MEI Port.
* * * * *
Cost Analysis--Additional Discussion
    In conducting its Cost Analysis, the Exchange did not allocate any 
of its expenses in full to any core services (including physical 
connectivity or Limited Service MEI Ports) and did not double-count any 
expenses. Instead, as described above, the Exchange allocated 
applicable cost drivers across its core services and used the same Cost 
Analysis to form the basis of this proposal and the filings the 
Exchange submitted proposing fees for proprietary data feeds offered by 
the Exchange. For instance, in calculating the Human Resources expenses 
to be allocated to physical connections based upon the above described 
methodology, the Exchange has a team of employees dedicated to network 
infrastructure and with respect to such employees the Exchange 
allocated network infrastructure personnel with a high percentage of 
the cost of such personnel (42%) given their focus on functions 
necessary to provide physical connections. The salaries of those same 
personnel were allocated only 8.4% to Limited Service MEI Ports and the 
remaining 49.6% was allocated to 1Gb connectivity, other port services, 
transaction services, membership services and market data. The Exchange 
did not allocate any other Human Resources expense for providing 
physical connections to any other employee group, outside of a smaller 
allocation of 17.8% for 10Gb ULL connectivity or 18.2% for the entire 
network, of the cost associated with certain specified personnel who 
work closely with and support network infrastructure personnel. In 
contrast, the Exchange allocated much smaller percentages of costs (5% 
or less) across a wider range of personnel groups in order to allocate 
Human Resources costs to providing Limited Service MEI Ports. This is 
because a much wider range of personnel are involved in functions 
necessary to offer, monitor and maintain Limited Service MEI Ports but 
the tasks necessary to do so are not a primary or full-time function.
    In total, the Exchange allocated 25.6% of its personnel costs to 
providing 10Gb ULL and 1Gb ULL connectivity and 5.8% of its personnel 
costs to providing Limited Service MEI Ports, for a total allocation of 
31.4% Human Resources expense to provide these specific connectivity 
and port services. In turn, the Exchange allocated the remaining 68.6% 
of its Human Resources expense to membership services, transaction 
services, other port services and market data. Thus, again, the 
Exchange's allocations of cost across core services were based on real 
costs of operating the Exchange and were not double-counted across the 
core services or their associated revenue streams.
    As another example, the Exchange allocated depreciation expense to 
all core services, including physical connections and Limited Service 
MEI

[[Page 42862]]

Ports, but in different amounts. The Exchange believes it is reasonable 
to allocate the identified portion of such expense because such expense 
includes the actual cost of the computer equipment, such as dedicated 
servers, computers, laptops, monitors, information security appliances 
and storage, and network switching infrastructure equipment, including 
switches and taps that were purchased to operate and support the 
network. Without this equipment, the Exchange would not be able to 
operate the network and provide connectivity services to its Members 
and non-Members and their customers. However, the Exchange did not 
allocate all of the depreciation and amortization expense toward the 
cost of providing connectivity services, but instead allocated 
approximately 67.9% of the Exchange's overall depreciation and 
amortization expense to connectivity services (61.6% attributed to 10Gb 
ULL physical connections and 6.3% to Limited Service MEI Ports). The 
Exchange allocated the remaining depreciation and amortization expense 
(approximately 32.1%) toward the cost of providing transaction 
services, membership services, other port services and market data.
    The Exchange notes that its revenue estimates are based on 
projections across all potential revenue streams and will only be 
realized to the extent such revenue streams actually produce the 
revenue estimated. The Exchange does not yet know whether such 
expectations will be realized. For instance, in order to generate the 
revenue expected from connectivity, the Exchange will have to be 
successful in retaining existing clients that wish to maintain physical 
connectivity and/or Limited Service MEI Ports or in obtaining new 
clients that will purchase such services. Similarly, the Exchange will 
have to be successful in retaining a positive net capture on 
transaction fees in order to realize the anticipated revenue from 
transaction pricing.
    The Exchange notes that the Cost Analysis is based on the 
Exchange's 2023 fiscal year of operations and projections. It is 
possible, however, that actual costs may be higher or lower. To the 
extent the Exchange sees growth in use of connectivity services it will 
receive additional revenue to offset future cost increases. However, if 
use of connectivity services is static or decreases, the Exchange might 
not realize the revenue that it anticipates or needs in order to cover 
applicable costs. Accordingly, the Exchange is committing to conduct a 
one-year review after implementation of these fees. The Exchange 
expects that it may propose to adjust fees at that time, to increase 
fees in the event that revenues fail to cover costs and a reasonable 
mark-up of such costs. Similarly, the Exchange may propose to decrease 
fees in the event that revenue materially exceeds our current 
projections. In addition, the Exchange will periodically conduct a 
review to inform its decision making on whether a fee change is 
appropriate (e.g., to monitor for costs increasing/decreasing or 
subscribers increasing/decreasing, etc. in ways that suggest the then-
current fees are becoming dislocated from the prior cost-based 
analysis) and would propose to increase fees in the event that revenues 
fail to cover its costs and a reasonable mark-up, or decrease fees in 
the event that revenue or the mark-up materially exceeds our current 
projections. In the event that the Exchange determines to propose a fee 
change, the results of a timely review, including an updated cost 
estimate, will be included in the rule filing proposing the fee change. 
More generally, the Exchange believes that it is appropriate for an 
exchange to refresh and update information about its relevant costs and 
revenues in seeking any future changes to fees, and the Exchange 
commits to do so.
Projected Revenue \132\
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    \132\ For purposes of calculating revenue for 10Gb ULL 
connectivity, the Exchange used revenues for February 2023, the 
first full month for which it provided dedicated 10Gb ULL 
connectivity to the Exchange and ceased operating a shared 10Gb ULL 
network with MIAX Pearl Options.
---------------------------------------------------------------------------

    The proposed fees will allow the Exchange to cover certain costs 
incurred by the Exchange associated with providing and maintaining 
necessary hardware and other network infrastructure as well as network 
monitoring and support services; without such hardware, infrastructure, 
monitoring and support the Exchange would be unable to provide the 
connectivity and port services. Much of the cost relates to monitoring 
and analysis of data and performance of the network via the 
subscriber's connection(s). The above cost, namely those associated 
with hardware, software, and human capital, enable the Exchange to 
measure network performance with nanosecond granularity. These same 
costs are also associated with time and money spent seeking to 
continuously improve the network performance, improving the 
subscriber's experience, based on monitoring and analysis activity. The 
Exchange routinely works to improve the performance of the network's 
hardware and software. The costs associated with maintaining and 
enhancing a state-of-the-art exchange network is a significant expense 
for the Exchange, and thus the Exchange believes that it is reasonable 
and appropriate to help offset those costs by amending fees for 
connectivity services. Subscribers, particularly those of 10Gb ULL 
connectivity, expect the Exchange to provide this level of support to 
connectivity so they continue to receive the performance they expect. 
This differentiates the Exchange from its competitors. As detailed 
above, the Exchange has five primary sources of revenue that it can 
potentially use to fund its operations: transaction fees, fees for 
connectivity services, membership and regulatory fees, and market data 
fees. Accordingly, the Exchange must cover its expenses from these five 
primary sources of revenue.
    The Exchange's Cost Analysis estimates the annual cost to provide 
10Gb ULL connectivity services will equal $12,034,554. Based on current 
10Gb ULL connectivity services usage, the Exchange would generate 
annual revenue of approximately $15,066,000. The Exchange believes this 
represents a modest profit of 20% when compared to the cost of 
providing 10Gb ULL connectivity services, which could decrease over 
time.\133\
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    \133\ Assuming the U.S. inflation rate continues at its current 
rate, the Exchange believes that the projected profit margins in 
this proposal will decrease; however, the Exchange cannot predict 
with any certainty whether the U.S. inflation rate will continue at 
its current rate or its impact on the Exchange's future profits or 
losses. See, e.g., https://www.usinflationcalculator.com/inflation/current-inflation-rates/ (last visited June 13, 2023).
---------------------------------------------------------------------------

    The Exchange's Cost Analysis estimates the annual cost to provide 
Limited Service MEI Port services will equal $2,157,178. Based on 
current Limited Service MEI Port services usage, the Exchange would 
generate annual revenue of approximately $3,300,600. The Exchange 
believes this would result in an estimated profit margin of 35% after 
calculating the cost of providing Limited Service MEI Port services, 
which profit margin could decrease over time.\134\ The Exchange notes 
that the cost to provide Limited Service MEI Ports is higher than the 
cost for the Exchange's affiliate, MIAX Pearl Options, to provide Full 
Service MEO Ports due to the substantially higher number of Limited 
Service MEI Ports used by Exchange Members. For example, MIAX Market 
Makers are currently allocated 1,782 Limited Service MEI Ports compared 
to only 432 Full Service MEO Ports (Bulk and

[[Page 42863]]

Single combined) allocated to MIAX Pearl Options members.
---------------------------------------------------------------------------

    \134\ Id.
---------------------------------------------------------------------------

    Based on the above discussion, the Exchange believes that even if 
the Exchange earns the above revenue or incrementally more or less, the 
proposed fees are fair and reasonable because they will not result in 
pricing that deviates from that of other exchanges or a supra-
competitive profit, when comparing the total expense of the Exchange 
associated with providing 10Gb ULL connectivity and Limited Service MEI 
Port services versus the total projected revenue of the Exchange 
associated with network 10Gb ULL connectivity and Limited Service MEI 
Port services.
    The Exchange also notes that this the resultant profit margin 
differs slightly from the profit margins set forth in similar fee 
filings by its affiliated markets. This is not atypical among exchanges 
and is due to a number of factors that differ between these four 
markets, including: different market models, market structures, and 
product offerings (equities, options, price-time, pro-rata, simple, and 
complex); different pricing models; different number of market 
participants and connectivity subscribers; different maintenance and 
operations costs, as described in the cost allocation methodology 
above; different technical architecture (e.g., the number of matching 
engines per exchange, i.e., the Exchange maintains 24 matching engines 
while MIAX Emerald maintains only 12 matching engines); and different 
maturity phase of the Exchange and its affiliated markets (i.e., start-
up versus growth versus more mature). All of these factors contribute 
to a unique and differing level of profit margin per exchange.
    Further, the Exchange proposes to charge rates that are comparable 
to, or lower than, similar fees for similar products charged by 
competing exchanges. For example, for 10Gb ULL connectivity, the 
Exchange proposes a lower fee than the fee charged by Nasdaq for its 
comparable 10Gb Ultra fiber connection ($13,500 per month for the 
Exchange vs. $15,000 per month for Nasdaq).\135\ NYSE American charges 
even higher fees for its comparable 10GB LX LCN connection than the 
Exchange's proposed fees ($13,500 for the Exchange vs. $22,000 per 
month for NYSE American).\136\ Accordingly, the Exchange believes that 
comparable and competitive pricing are key factors in determining 
whether a proposed fee meets the requirements of the Act, regardless of 
whether that same fee across the Exchange's affiliated markets leads to 
slightly different profit margins due to factors outside of the 
Exchange's control (i.e., more subscribers to 10Gb ULL connectivity on 
the Exchange than its affiliated markets or vice versa).
---------------------------------------------------------------------------

    \135\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports 
and Other Services and NASDAQ Rules, General 8: Connectivity, 
Section 1. Co-Location Services.
    \136\ See NYSE American Options Fee Schedule, Section V.A. Port 
Fees and Section V.B. Co-Location Fees.
---------------------------------------------------------------------------

* * * * *
    The Exchange has operated at a cumulative net annual loss since it 
launched operations in 2012.\137\ This is due to a number of factors, 
one of which is choosing to forgo revenue by offering certain products, 
such as low latency connectivity, 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 does not believe that it 
should now be penalized for seeking to raise its fees as it now needs 
to upgrade its technology and absorb increased costs. Therefore, the 
Exchange believes the proposed fees are reasonable because they are 
based on both relative costs to the Exchange to provide dedicated 10Gb 
ULL connectivity and Limited Service MEI Ports, 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 objective to make access to its 
Systems broadly available to market participants. The Exchange also 
believes the proposed fees are reasonable because they are designed to 
generate annual revenue to recoup the Exchange's costs of providing 
dedicated 10Gb ULL connectivity and Limited Service MEI Ports.
---------------------------------------------------------------------------

    \137\ The Exchange has incurred a cumulative loss of $121 
million since its inception in 2012 through full year 2021. See 
Exchange's Form 1/A, Application for Registration or Exemption from 
Registration as a National Securities Exchange, filed June 29, 2022, 
available at https://www.sec.gov/Archives/edgar/vprr/2200/22001163.pdf.
---------------------------------------------------------------------------

    The Exchange notes that its revenue estimate is based on 
projections and will only be realized to the extent customer activity 
produces the revenue estimated. As a competitor in the hyper-
competitive exchange environment, and an exchange focused on driving 
competition, the Exchange does not yet know whether such projections 
will be realized. For instance, in order to generate the revenue 
expected from 10Gb ULL connectivity and Limited Service MEI Ports, the 
Exchange will have to be successful in retaining existing clients that 
wish to utilize 10Gb ULL connectivity and Limited Service MEI Ports 
and/or obtaining new clients that will purchase such access. To the 
extent the Exchange is successful in encouraging new clients to utilize 
10Gb ULL connectivity and Limited Service MEI Ports, the Exchange does 
not believe it should be penalized for such success. To the extent the 
Exchange has mispriced and experiences a net loss in connectivity 
clients or in transaction activity, the Exchange could experience a net 
reduction in revenue. While the Exchange is supportive of transparency 
around costs and potential margins (applied across all exchanges), as 
well as periodic review of revenues and applicable costs (as discussed 
below), 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--or seeking to 
earn--supra-competitive profits. The Exchange believes the Cost 
Analysis and related projections in this filing demonstrate this fact.
    The Exchange is owned by a holding company that is the parent 
company of four exchange markets and, therefore, the Exchange and its 
affiliated markets must allocate shared costs across all of those 
markets accordingly, pursuant to the above-described allocation 
methodology. In contrast, the Investors Exchange LLC (``IEX'') and 
MEMX, which are currently each operating only one exchange, in their 
recent non-transaction fee filings allocate the entire amount of that 
same cost to a single exchange. This can result in lower profit margins 
for the non-transaction fees proposed by IEX and MEMX because the 
single allocated cost does not experience the efficiencies and 
synergies that result from sharing costs across multiple platforms. The 
Exchange and its affiliated markets often share a single cost, which 
results in cost efficiencies that can cause a broader gap between the 
allocated cost amount and projected revenue, even though the fee levels 
being proposed are lower or competitive with competing markets (as 
described above). To the extent that the application of a cost-based 
standard results in Commission Staff making determinations as to the 
appropriateness of certain profit margins, the Exchange believes that 
Commission Staff should also consider whether the proposed fee level is 
comparable to, or competitive with, the same fee charged by competing 
exchanges and how different cost allocation methodologies (such as 
across multiple markets) may result in different profit margins for 
comparable fee levels. Further, if Commission Staff

[[Page 42864]]

is making determinations as to appropriate profit margins in their 
approval of exchange fees, the Exchange believes that the Commission 
should be clear to all market participants as to what they have 
determined is an appropriate profit margin and should apply such 
determinations consistently and, in the case of certain legacy 
exchanges, retroactively, if such standards are to avoid having a 
discriminatory effect.
    Further, as is reflected in the proposal, the Exchange continuously 
and aggressively works to control its costs as a matter of good 
business practice. A potential profit margin should not be evaluated 
solely on its size; that assessment should also consider cost 
management and whether the ultimate fee reflects the value of the 
services provided. For example, a profit margin on one exchange should 
not be deemed excessive where that exchange has been successful in 
controlling its costs, but not excessive on another exchange where that 
exchange is charging comparable fees but has a lower profit margin due 
to higher costs. Doing so could have the perverse effect of not 
incentivizing cost control where higher costs alone could be used to 
justify fees increases.
The Proposed Pricing Is Not Unfairly Discriminatory and Provides for 
the Equitable Allocation of Fees, Dues, and Other Charges
    The Exchange believes that the proposed fees are reasonable, fair, 
equitable, and not unfairly discriminatory because they are designed to 
align fees with services provided and will apply equally to all 
subscribers.
10Gb ULL Connectivity
    The Exchange believes that the proposed fees are equitably 
allocated among users of the network connectivity and port 
alternatives, as the users of 10Gb ULL connections consume 
substantially more bandwidth and network resources than users of 1Gb 
ULL connection. Specifically, the Exchange notes that 10Gb ULL 
connection users account for more than 99% of message traffic over the 
network, driving other costs that are linked to capacity utilization, 
as described above, while the users of the 1Gb ULL connections account 
for less than 1% of message traffic over the network. In the Exchange's 
experience, users of the 1Gb connections do not have the same business 
needs for the high-performance network as 10Gb ULL users.
    The Exchange's high-performance network and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput with the network ability to support access to several 
distinct options markets. To achieve a consistent, premium network 
performance, the Exchange must build out and maintain a network that 
has the capacity to handle the message rate requirements of its most 
heavy network consumers. These billions of messages per day consume the 
Exchange's resources and significantly contribute to the overall 
network connectivity expense for storage and network transport 
capabilities. The Exchange must also purchase additional storage 
capacity on an ongoing basis to ensure it has sufficient capacity to 
store these messages to satisfy its record keeping requirements under 
the Exchange Act.\138\ Thus, as the number of messages an entity 
increases, certain other costs incurred by the Exchange that are 
correlated to, though not directly affected by, connection costs (e.g., 
storage costs, surveillance costs, service expenses) also increase. 
Given this difference in network utilization rate, the Exchange 
believes that it is reasonable, equitable, and not unfairly 
discriminatory that the 10Gb ULL users pay for the vast majority of the 
shared network resources from which all market participants' benefit.
---------------------------------------------------------------------------

    \138\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

Limited Service MEI Ports
    The Exchange believes that the proposed fees are equitably 
allocated among users of the network connectivity alternatives, as the 
users of the Limited Service MEI Ports consume the most bandwidth and 
resources of the network. Specifically, as noted above for 10Gb ULL 
connectivity, Market Makers who take the maximum amount of Limited 
Service MEI Ports account for greater than 99% of message traffic over 
the network, while Market Makers with fewer Limited Service MEI Ports 
account for less than 1% of message traffic over the network. In the 
Exchange's experience, Market Makers who only utilize the two free 
Limited Service MEI Ports do not have a business need for the high 
performance network solutions required by Market Makers who take the 
maximum amount of Limited Service MEI Ports.
    The Exchange's high performance network solutions and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput and the capacity to handle approximately 18 million 
quote messages per second. Based on May 2023 trading results, the 
Exchange handles more than 12.3 billion quotes on an average day, and 
more than 271 billion quotes over the entire month. Of that total, 
Market Makers with the maximum amount of Limited Service MEI Ports 
generated more than 156 billion quotes (and more than 7 billion quotes 
on an average day), and Market Makers who utilized only the two free 
Limited Service MEI Ports generated approximately 78 billion quotes 
(and approximately 3.5 billion quotes on an average day). Also for May 
2023, Market Makers who utilized 7 to 9 Limited Service MEI ports 
submitted an average of 1.3 billion quotes per day and Market Makers 
who utilized 5-6 Limited Service MEI Ports submitted an average of 356 
million quotes on an average day. In May 2023, the Exchange did not 
have any Market Makers that utilized only 3-4 Limited Service MEI 
Ports.
    To achieve a consistent, premium network performance, the Exchange 
must build out and maintain a network that has the capacity to handle 
the message rate requirements of its most heavy network consumers 
during anticipated peak market conditions. The need to support billions 
of messages per day consume the Exchange's resources and significantly 
contribute to the overall network connectivity expense for storage and 
network transport capabilities. The Exchange must also purchase 
additional storage capacity on an ongoing basis to ensure it has 
sufficient capacity to store these messages as part of it surveillance 
program and to satisfy its record keeping requirements under the 
Exchange Act.\139\ Thus, as the number of connections a Market Maker 
has increases, certain other costs incurred by the Exchange that are 
correlated to, though not directly affected by, connection costs (e.g., 
storage costs, surveillance costs, service expenses) also increase. The 
Exchange sought to design the proposed tiered-pricing structure to set 
the amount of the fees to relate to the number of connections a firm 
purchases. The more connections purchased by a Market Maker likely 
results in greater expenditure of Exchange resources and increased cost 
to the Exchange. With this in mind, the Exchange proposes no fee or 
lower fees for those Market Makers who receive fewer Limited Service 
MEI Ports since those Market Makers generally tend to

[[Page 42865]]

send the least amount of orders and messages over those connections.
---------------------------------------------------------------------------

    \139\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    Meanwhile, the Exchange proposes incrementally higher fees for 
those that purchase additional Limited Service MEI Ports because those 
with the greatest number of Limited Service MEI Ports generate a 
disproportionate amount of messages and order traffic, usually billions 
per day across the Exchange. The firms that purchase numerous Limited 
Service MEI Ports do so for competitive reasons and based on their 
business needs, which include a desire to access the market more 
quickly using the lowest latency connections. These firms are generally 
engaged in sending liquidity removing orders to the Exchange and may 
require more connections as they compete to access resting liquidity.
    Consider the following example: a Member has just sent numerous 
messages and/or orders over one of their Limited Service MEI Ports that 
are now in queue to be processed. That same Member then seeks to enter 
an order to remove liquidity from the Exchange's Book. That Member may 
choose to send that order over another Limited Service MEI Port it 
maintains with less message traffic to help ensure that their liquidity 
taking order accesses the Exchange more quickly because that 
connection's queue is shorter.
    In addition, Members frequently add and drop connections mid-month 
to determine which connections have the least latency (and engage in 
the same practice with Limited Service MEI Ports). This results in 
increased costs to the Exchange to frequently make changes in the data 
center (or its network) and provide the additional technical and 
personnel support necessary to satisfy these requests. Given the 
difference in network utilization and technical support provided, the 
Exchange believes that it is reasonable, equitable, and not unfairly 
discriminatory that Market Makers who utilize the most Limited Service 
MEI Ports pay for the vast majority of the shared network resources 
from which all Member and non-Member users benefit, because the network 
is largely designed and maintained to specifically handle the message 
rate, capacity and performance requirements of those Market Makers.
    To achieve a consistent, premium network performance, the Exchange 
must build out and maintain a network that has the capacity to handle 
the message rate requirements of its most heavy network consumers. 
Billions of messages per day consume the Exchange's resources and 
significantly contribute to the overall network connectivity expense 
for storage and network transport capabilities. The Exchange must also 
purchase and maintain additional storage capacity on an ongoing basis 
to ensure it has sufficient capacity to store these messages as part of 
it surveillance program and to satisfy its record keeping requirements 
under the Exchange Act.\140\ Thus, as the number of connections a 
Market Maker has increases, the related demand on Exchange resources 
also increases. The Exchange sought to design the proposed tiered-
pricing structure to set the amount of the fees to relate to the number 
of connections a firm purchases. The more connections purchased by a 
Market Maker likely results in greater expenditure of Exchange 
resources and increased cost to the Exchange.
---------------------------------------------------------------------------

    \140\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

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 10Gb 
ULL connectivity and Limited Service MEI Ports at below market rates to 
market participants since the Exchange launched operations. As 
described above, the Exchange has operated at a cumulative net annual 
loss since it launched operations in 2012 \141\ 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 lower fee, 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. Examples of 
this are 10Gb ULL connectivity and Limited Service MEI Ports, for which 
the Exchange only now seeks to adopt fees at a level similar to or 
lower than those of other options exchanges.
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    \141\ See supra note 137.
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    Further, the Exchange does not believe that the proposed fee 
increase for the 10Gb ULL connection change would place certain market 
participants at the Exchange at a relative disadvantage compared to 
other market participants or affect the ability of such market 
participants to compete. As is the case with the current proposed flat 
fee, the proposed fee would apply uniformly to all market participants 
regardless of the number of connections they choose to purchase. The 
proposed fee does not favor certain categories of market participants 
in a manner that would impose an undue burden on competition.
    The Exchange does not believe that the proposed rule change would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete. In particular, Exchange 
personnel has been informally discussing potential fees for 
connectivity services with a diverse group of market participants that 
are connected to the Exchange (including large and small firms, firms 
with large connectivity service footprints and small connectivity 
service footprints, as well as extranets and service bureaus) for 
several months leading up to that time. The Exchange does not believe 
the proposed fees for connectivity services would negatively impact the 
ability of Members, non-Members (extranets or service bureaus), third-
parties that purchase the Exchange's connectivity and resell it, and 
customers of those resellers to compete with other market participants 
or that they are placed at a disadvantage.
    The Exchange does anticipate, however, that some market 
participants may reduce or discontinue use of connectivity services 
provided directly by the Exchange in response to the proposed fees. In 
fact, as mentioned above, one MIAX Pearl Options Market Maker 
terminated their MIAX Pearl Options membership on January 1, 2023 as a 
direct result of the similar proposed fee changes by MIAX Pearl 
Options.\142\

[[Page 42866]]

The Exchange does not believe that the proposed fees for connectivity 
services place certain market participants at a relative disadvantage 
to other market participants because the proposed connectivity pricing 
is associated with relative usage of the Exchange by each market 
participant and does not impose a barrier to entry to smaller 
participants. The Exchange believes its proposed pricing is reasonable 
and, when coupled with the availability of third-party providers that 
also offer connectivity solutions, that participation on the Exchange 
is affordable for all market participants, including smaller trading 
firms. As described above, the connectivity services purchased by 
market participants typically increase based on their additional 
message traffic and/or the complexity of their operations. The market 
participants that utilize more connectivity services typically utilize 
the most bandwidth, and those are the participants that consume the 
most resources from the network. Accordingly, the proposed fees for 
connectivity services do not favor certain categories of market 
participants in a manner that would impose a burden on competition; 
rather, the allocation of the proposed connectivity fees reflects the 
network resources consumed by the various size of market participants 
and the costs to the Exchange of providing such connectivity services.
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    \142\ The Exchange acknowledges that IEX included in its 
proposal to adopt market data fees after offering market data for 
free an analysis of what its projected revenue would be if all of 
its existing customers continued to subscribe versus what its 
projected revenue would be if a limited number of customers 
subscribed due to the new fees. See Securities Exchange Act Release 
No. 94630 (April 7, 2022), 87 FR 21945 (April 13, 2022) (SR-IEX-
2022-02). MEMX did not include a similar analysis in either of its 
recent non-transaction fee proposals. See supra note 77. The 
Exchange does not believe a similar analysis would be useful here 
because it is amending existing fees, not proposing to charge a new 
fee where existing subscribers may terminate connections because 
they are no longer enjoying the service at no cost.
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    Lastly, the Exchange does not believe its proposal to implement 
incrementally higher fees for those that purchase more Limited Service 
MEI Ports will place certain market participants at a relative 
disadvantage to other market participants because those with the 
greatest number of Limited Service MEI Ports tend generate a 
disproportionate amount of messages and order traffic, usually billions 
per day across the Exchange, resulting in greater demands and 
additional burdens on Exchange resources (as described above). The 
firms that purchase numerous Limited Service MEI Ports do so for 
competitive reasons and choose to utilize numerous connections based on 
their business needs, which include a desire to attempt to access the 
market quicker using the lowest latency connections. These firms are 
generally engaged in sending liquidity removing orders to the Exchange 
and seek to add more connections to competitively access resting 
liquidity. All firms purchase the amount of Limited Service MEI Ports 
they require based on their own business decisions and similarly 
situated firms are subject to the same fees.
Inter-Market Competition
    The Exchange also does not believe that the proposed rule change 
and price increase will result in any burden on inter-market 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. As this is a fee increase, arguably if set too 
high, this fee would make it easier for other exchanges to compete with 
the Exchange. Only if this were a substantial fee decrease could this 
be considered a form of predatory pricing. In contrast, the Exchange 
believes that, without this fee increase, we are potentially at a 
competitive disadvantage to certain other exchanges that have in place 
higher fees for similar services. As we have noted, the Exchange 
believes that connectivity fees can be used to foster more competitive 
transaction pricing and additional infrastructure investment and there 
are other options markets of which market participants may connect to 
trade options at higher rates than the Exchange's. Accordingly, the 
Exchange does not believe its proposed fee changes impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
    The Exchange also believes that the proposed fees for 10Gb 
connectivity are appropriate and warranted and would not impose any 
burden on competition. This is a technology driven change designed to 
meet customer needs. The proposed fees would assist the Exchange in 
recovering costs related to providing dedicated 10Gb connectivity to 
the Exchange while enabling it to continue to meet current and 
anticipated demands for connectivity by its Members and other market 
participants. Separating its 10Gb network from MIAX Pearl Options 
enables the Exchange to better compete with other exchanges by ensuring 
it can continue to provide adequate connectivity to existing and new 
Members, which may increase in ability to compete for order flow and 
deepen its liquidity pool, improving the overall quality of its market. 
The proposed rates for 10Gb ULL connectivity are structured to enable 
the Exchange to bifurcate its 10Gb ULL network shared with MIAX Pearl 
Options so that it can continue to meet current and anticipated 
connectivity demands of all market participants.
    Similarly, and also in connection with a technology change, Cboe 
Exchange, Inc. (``Cboe'') amended its access and connectivity fees, 
including port fees.\143\ Specifically, Cboe adopted certain logical 
ports to allow for the delivery and/or receipt of trading messages--
i.e., orders, accepts, cancels, transactions, etc. Cboe established 
tiered pricing for BOE and FIX logical ports, tiered pricing for BOE 
Bulk ports, and flat prices for DROP, Purge Ports, GRP Ports and 
Multicast PITCH/Top Spin Server Ports. Cboe argued in its fee proposal 
that the proposed pricing more closely aligned its access fees to those 
of its affiliated exchanges as the affiliated exchanges offer 
substantially similar connectivity and functionality and are on the 
same platform that Cboe migrated to.\144\ Cboe justified its proposal 
by stating that, ``. . . the Exchange believes substitutable products 
and services are in fact available to market participants, including, 
among other things, other options exchanges a market participant may 
connect to in lieu of the Exchange, indirect connectivity to the 
Exchange via a third-party reseller of connectivity and/or trading of 
any options product, including proprietary products, in the Over-the-
Counter (OTC) markets.'' \145\ The Exchange concurs with the following 
statement by CBOE,
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    \143\ See Securities Exchange Act Release No. 90333 (November 4, 
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105). The 
Exchange notes that Cboe submitted this filing after the Staff 
Guidance and contained no cost based justification.
    \144\ Id. at 71676.
    \145\ Id.
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    The rule structure for options exchanges are also fundamentally 
different from those of equities exchanges. In particular, options 
market participants are not forced to connect to (and purchase market 
data from) all options exchanges. For example, there are many order 
types that are available in the equities markets that are not utilized 
in the options markets, which relate to mid-point pricing and pegged 
pricing which require connection to the SIPs and each of the equities 
exchanges in order to properly execute those orders in compliance with 
best execution obligations. Additionally, in the options markets, the 
linkage routing and trade through protection are handled by the 
exchanges, not by the individual members. Thus not connecting to an 
options exchange or disconnecting from an options exchange does not 
potentially subject a broker-dealer to violate order protection

[[Page 42867]]

requirements. Gone are the days when the retail brokerage firms (such 
as Fidelity, Schwab, and eTrade) were members of the options 
exchanges--they are not members of the Exchange or its affiliates, they 
do not purchase connectivity to the Exchange, and they do not purchase 
market data from the Exchange. Accordingly, not only is there not an 
actual regulatory requirement to connect to every options exchange, the 
Exchange believes there is also no ``de facto'' or practical 
requirement as well, as further evidenced by the recent significant 
reduction in the number of broker-dealers that are members of all 
options exchanges.\146\
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    \146\ Id. at 71676.
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    The Cboe proposal also referenced the National Market System Plan 
Governing the Consolidated Audit Trail (``CAT NMS Plan''),\147\ wherein 
the Commission discussed the existence of competition in the 
marketplace generally, and particularly for exchanges with unique 
business models. The Commission acknowledged that, even if an exchange 
were to exit the marketplace due to its proposed fee-related change, it 
would not significantly impact competition in the market for exchange 
trading services because these markets are served by multiple 
competitors.\148\ Further, the Commission explicitly stated that 
``[c]onsequently, demand for these services in the event of the exit of 
a competitor is likely to be swiftly met by existing competitors.'' 
\149\ Finally, the Commission recognized that while some exchanges may 
have a unique business model that is not currently offered by 
competitors, a competitor could create similar business models if 
demand were adequate, and if a competitor did not do so, the Commission 
believes it would be likely that new entrants would do so if the 
exchange with that unique business model was otherwise profitable.\150\
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    \147\ See Securities Exchange Act Release No. 86901 (September 
9, 2019), 84 FR 48458 (September 13, 2019) (File No. S7-13-19).
    \148\ Id.
    \149\ Id.
    \150\ Id.
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    Cboe also filed to establish a monthly fee for Certification 
Logical Ports of $250 per Certification Logical Port.\151\ Cboe 
reasoned that purchasing additional Certification Logical Ports, beyond 
the one Certification Logical Port per logical port type offered in the 
production environment free of charge, is voluntary and not required in 
order to participate in the production environment, including live 
production trading on the Exchange.\152\
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    \151\ See Securities Exchange Act Release No. 94512 (March 24, 
2002), 87 FR 18425 (March 30, 2022) (SR-Cboe-2022-011). Cboe offers 
BOE and FIX Logical Ports, BOE Bulk Logical Ports, DROP Logical 
Ports, Purge Ports, GRP Ports and Multicast PITCH/Top Spin Server 
Ports. For each type of the aforementioned logical ports that are 
used in the production environment, the Exchange also offers 
corresponding ports which provide Trading Permit Holders and non-
TPHs access to the Exchange's certification environment to test 
proprietary systems and applications (i.e., ``Certification Logical 
Ports'').
    \152\ See Securities Exchange Act Release No. 94512 (March 24, 
2002), 87 FR 18425 (March 30, 2022) (SR-Cboe-2022-011).
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    In its statutory basis, Cboe justified the new port fee by stating 
that it believed the Certification Logical Port fee were reasonable 
because while such ports were no longer completely free, TPHs and non-
TPHs would continue to be entitled to receive free of charge one 
Certification Logical Port for each type of logical port that is 
currently offered in the production environment.\153\ Cboe noted that 
other exchanges assess similar fees and cited to NASDAQ LLC and 
MIAX.\154\ Cboe also noted that the decision to purchase additional 
ports is optional and no market participant is required or under any 
regulatory obligation to purchase excess Certification Logical Ports in 
order to access the Exchange's certification environment.\155\ Finally, 
similar proposals to adopt a Certification Logical Port monthly fee 
were filed by Cboe BYX Exchange, Inc.,\156\ BZX,\157\ and Cboe EDGA 
Exchange, Inc.\158\
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    \153\ Id. at 18426.
    \154\ Id.
    \155\ Id.
    \156\ See Securities Exchange Act Release No. 94507 (March 24, 
2002), 87 FR 18439 (March 30, 2022) (SR-CboeBYX-2022-004).
    \157\ See Securities Exchange Act Release No. 94511 (March 24, 
2002), 87 FR 18411 (March 30, 2022) (SR-CboeBZX-2022-021).
    \158\ See Securities Exchange Act Release No. 94517 (March 25, 
2002), 87 FR 18848 (March 31, 2022) (SR-CboeEDGA-2022-004).
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    The Cboe fee proposals described herein were filed subsequent to 
the D.C. Circuit decision in Susquehanna Int'l Grp., LLC v. SEC, 866 
F.3d 442 (D.C. Cir. 2017), meaning that such fee filings were subject 
to the same (and current) standard for SEC review and approval as this 
proposal. In summary, the Exchange requests the Commission apply the 
same standard of review to this proposal which was applied to the 
various Cboe and Cboe affiliated markets' filings with respect to non-
transaction fees. If the Commission were to apply a different standard 
of review to this proposal than it applied to other exchange fee 
filings it would create a burden on competition such that it would 
impair the Exchange's ability to make necessary technology driven 
changes, such as bifurcating its 10Gb ULL network, because it would be 
unable to monetize or recoup costs related to that change and compete 
with larger, non-legacy exchanges.
* * * * *
    In conclusion, as discussed thoroughly above, the Exchange 
regrettably believes that the application of the Revised Review Process 
and Staff Guidance has adversely affected inter-market competition 
among legacy and non-legacy exchanges by impeding the ability of non-
legacy exchanges to adopt or increase fees for their market data and 
access services (including connectivity and port products and services) 
that are on parity or commensurate with fee levels previously 
established by legacy exchanges. Since the adoption of the Revised 
Review Process and Staff Guidance, and even more so recently, it has 
become extraordinarily difficult to adopt or increase fees to generate 
revenue necessary to invest in systems, provide innovative trading 
products and solutions, and improve competitive standing to the benefit 
of non-legacy exchanges' market participants. Although the Staff 
Guidance served an important policy goal of improving disclosures and 
requiring exchanges to justify that their market data and access fee 
proposals are fair and reasonable, it has also negatively impacted non-
legacy exchanges in particular in their efforts to adopt or increase 
fees that would enable them to more fairly compete with legacy 
exchanges, despite providing enhanced disclosures and rationale under 
both competitive and cost basis approaches provided for by the Revised 
Review Process and Staff Guidance to support their proposed fee 
changes.

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

    The Exchange received one comment letter on the Initial Proposal, 
one comment letter on the Second Proposal, and one comment letter on 
the Third Proposal, all from the same commenter.\159\ In their letters, 
the sole commenter seeks to incorporate comments submitted on previous 
Exchange proposals to which the Exchange has previously responded. To 
the extent the sole commenter has attempted to raise new issues in its 
letters, the Exchange believes those issues are not germane to this 
proposal

[[Page 42868]]

in particular, but rather raise larger issues with the current 
environment surrounding exchange non-transaction fee proposals that 
should be addressed by the Commission through rule making, or Congress, 
more holistically and not through an individual exchange fee filing. 
Among other things, the commenter is requesting additional data and 
information that is both opaque and a moving target and would 
constitute a level of disclosure materially over and above that 
provided by any competitor exchanges.
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    \159\ See letter from Brian Sopinsky, General Counsel, 
Susquehanna International Group, LLP (``SIG''), to Vanessa 
Countryman, Secretary, Commission, dated February 7, 2023, and 
letters from Gerald D. O'Connell, SIG, to Vanessa Countryman, 
Secretary, Commission, dated March 21, 2023 and May 24, 2023.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\160\ and Rule 19b-4(f)(2) \161\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \160\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \161\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-MIAX-2023-25 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-MIAX-2023-25. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-MIAX-2023-25 and should be 
submitted on or before July 24, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\162\
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    \162\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2023-13999 Filed 6-30-23; 8:45 am]
BILLING CODE 8011-01-P