[Federal Register Volume 89, Number 60 (Wednesday, March 27, 2024)]
[Notices]
[Pages 21337-21362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06449]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99822; File No. SR-MIAX-2024-16]


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

March 21, 2024.
    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 March 11, 2024, 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 proposes to amend the MIAX Options Exchange Fee 
Schedule (the ``Fee Schedule'') to amend certain connectivity and port 
fees.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/miax-options/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 
monthly port fee for additional 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.
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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\ The MIAX Express Interface (``MEI'') 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. For 
purposes of Limit Service MEI Ports, Market Makers also include 
firms that engage in other types of liquidity activity, such as 
seeking to remove resting liquidity from the Exchange's Book.
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    Beginning in January 2023, the Exchange 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.\6\ The Exchange has experienced ongoing 
increases in expenses in recent years. As discussed more fully below, 
the Exchange recently calculated annual aggregate costs of

[[Page 21338]]

$14,410,793 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 $2,399,192 for 
providing Limited Service MEI Ports.
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    \6\ 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).
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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.\7\ While the proposed 
fee changes are immediately effective, the Exchange notes that a 
version of the proposed fee changes has been effective since January 1, 
2023 pursuant to the Exchange's initially filed proposal on December 
30, 2022 (the ``Initial Proposal'').\8\ On February 23, 2023, the 
Exchange withdrew the Initial Proposal and replaced it with a revised 
proposal (the ``Second Proposal'').\9\ On April 20, 2023, the Exchange 
withdrew the Second Proposal and replaced it with a revised proposal 
(the ``Third Proposal'').\10\ On June 16, 2023, the Exchange withdrew 
the Third Proposal and replaced it with a revised proposal (the 
``Fourth Proposal'').\11\ On August 8, 2023, the Exchange withdrew the 
Fourth Proposal and replaced it with a revised proposal (the ``Fifth 
Proposal'').\12\ Since a U.S. government shutdown was avoided, on 
October 2, 2023, the Exchange withdrew the Fifth Proposal and replaced 
it with a revised proposal (the ``Sixth Proposal'').\13\ On November 
27, the Exchange withdrew the Sixth Proposal and replaced it with a 
revised proposal (the ``Seventh Proposal'').\14\ On January 25, 2024, 
the Exchange withdrew the Seventh Proposal and replaced it with a 
further revised proposal (the ``Eighth Proposal'').\15\ On March 11, 
2024, the Exchange withdrew the Eighth Proposal and replaced it with 
this further revised proposal (the ``Ninth Proposal'').
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    \7\ The Exchange notes that MIAX Pearl Options will make a 
similar filing to increase its 10Gb ULL connectivity fees.
    \8\ See Securities Exchange Act Release No. 96629 (January 10, 
2023), 88 FR 2729 (January 17, 2023) (SR-MIAX-2022-50).
    \9\ See Securities Exchange Act Release No. 97081 (March 8, 
2023), 88 FR 15782 (March 14, 2023) (SR-MIAX-2023-08).
    \10\ See Securities Exchange Act Release No. 97419 (May 2, 
2023), 88 FR 29777 (May 8, 2023) (SR-MIAX-2023-18).
    \11\ 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 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. See Securities Exchange Act Release 
No. 97814 (June 27, 2023), 88 FR 42844 (July 3, 2023) (SR-MIAX-2023-
25).
    \12\ See Securities Exchange Act Release No. 98173 (August 21, 
2023), 88 FR 58378 (August 25, 2023) (SR-MIAX-2023-30). Due to the 
prospect of a U.S. government shutdown, the Commission suspended the 
Fifth Proposal on September 29, 2023. See Securities Exchange Act 
Release No. 98657 (September 29, 2023) (SR-MIAX-2023-30).
    \13\ See Securities Exchange Act Release No. 98752 (October 13, 
2023), 88 FR 72117 (October 19, 2023) (SR-MIAX-2023-39).
    \14\ See Securities Exchange Act Release No. 99137 (December 11, 
2023), 88 FR 86983 (December 15, 2023) (SR-MIAX-2023-48).
    \15\ See Securities Exchange Act Release No. 99476 (February 5, 
2024), 89 FR 9194 (February 9, 2024) (SR-MIAX-2024-06).
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    The Exchange previously included a cost analysis in the Initial, 
Second, Third, Fourth, Fifth, Sixth, Seventh and Eighth 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 markets. The Exchange 
continues to propose 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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    The cost analysis included in prior filings was based on the 
Exchange's 2023 fiscal year of operations and projected expenses. In 
its Initial Proposal filed on December 30, 2022, the Exchange committed 
to conduct an annual review after implementation of these fees. The 
Exchange recently completed its 2024 fiscal year budget process, which 
included its annual review of these fees and the projected costs to 
provide these services, based on its approved 2024 expense budget. 
Therefore, the Cost Analysis included in this proposal is based on the 
Exchange's 2024 fiscal year of operations and projected expenses. The 
Exchange believes it reasonable to now use costs from its 2024 fiscal 
year budget because they reflect the Exchange's current cost base. The 
Exchange also notes that expenses included in its 2024 fiscal year 
budget and this proposal are generally higher than its 2023 fiscal year 
budget and Cost Analysis included in prior filings. As more fully 
described below and throughout this filing, this is due to a number of 
factors, such as, critical vendors and suppliers increasing costs they 
charge the Exchange, significant exchange staff headcount increases, 
increased data center costs from the Exchange's data center providers 
in multiple locations and facilities, higher technology and 
communications costs, planned hardware refreshes, and system capacity 
upgrades that increase depreciation expense. Specifically, with regard 
to employee compensation, the 2024 fiscal year budget includes 
additional expenses related to increased headcount and new hires that 
are needed to support the Exchange as it continues to grow (the 
Exchange and its affiliated companies are projected to hire over 60 
additional staff in 2024). Hardware and software expenses have also 
increased primarily due to price increases from critical vendors and 
equipment suppliers. Further, the Exchange budgeted for additional 
hardware and software needs to support the Exchange's continued growth 
and expansion. Depreciation and amortization have likewise increased 
due to recent and planned refreshes in Exchange hardware and software. 
This new equipment and software then becomes depreciable, as described

[[Page 21339]]

below. Data center costs have also increased due the following: the 
Exchange expanding its footprint within its data center; and the data 
center vendor increasing the costs it charges the Exchange. Lastly, 
allocated shared expenses have increased due to the overall budgeted 
increase in costs from 2023 to 2024 necessary to operate and support 
the Exchange as described below.
    Consequently, these increased costs included in the 2024 budget 
result in lower projected profit margins for 10Gb ULL connectivity and 
Limited Service MEI Ports, versus the profit margins included in prior 
filings that proposed the same fee levels for 10Gb ULL connectivity and 
Limited Service MEI Ports based on 2023 costs. The Exchange believes it 
is reasonable and appropriate to now use expenses from its 2024 budget 
because those expenses amounts are the most current and more accurately 
reflect the Exchange's current expense base and projected revenues for 
the 2024 fiscal year. Continuing to use 2023 budget numbers would 
result in the Exchange's Cost Analysis to be based on stale data which 
would not reflect the Exchanges most recent cost estimates and 
projected margins.
* * * * *
    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 ``BOX Order''). 
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 
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

[[Page 21340]]

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 vs. 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 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

[[Page 21341]]

$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 2021 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),\50\ 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. 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.
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    \49\ See, e.g., CNBC Debuts New Set on NYSE Floor, available at 
https://www.cnbc.com/id/46517876.
    \50\ See, e.g., Cboe Fee Schedule, Page 4, Affiliate Volume 
Plan, available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (providing that if a market maker or its 
affiliate receives a credit under Cboe's Volume Incentive Program 
(``VIP''), the market maker will receive an access credit on their 
BOE Bulk Ports corresponding to the VIP tier reached and the market 
maker will receive a transaction fee credit on their sliding scale 
market maker transaction fees) and NYSE American Options Fee 
Schedule, Section III, E, Floor Broker Incentive and Rebate 
Programs, available at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf (providing 
floor brokers the opportunity to prepay certain non-transaction fees 
for the following calendar year by achieving certain amounts of 
volume executed on NYSE American).
---------------------------------------------------------------------------

    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 . . .'',\51\ 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.\52\ 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 \53\ 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.
---------------------------------------------------------------------------

    \51\ See supra note 25, at note 1.
    \52\ 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 FR 9711 (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).
    \53\ 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 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,\54\ 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; \55\ or (c) accept that 
certain competition-based arguments are applicable given the

[[Page 21342]]

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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    \54\ 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.
    \55\ 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.\56\
---------------------------------------------------------------------------

    \56\ 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 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.\57\ 
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.
---------------------------------------------------------------------------

    \57\ See supra note 6.
---------------------------------------------------------------------------

    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.\58\ 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.
---------------------------------------------------------------------------

    \58\ 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 \59\ 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'').\60\ 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.
---------------------------------------------------------------------------

    \59\ The Exchange's system networks consist of the Exchange's 
extranet, internal network, and external network.
    \60\ 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 Fee Schedule. See Fee Schedule, Section 
4)c), 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.
Limited Service MEI Ports
Background
    The Exchange also proposes to amend Section 5)d) of the Fee 
Schedule to amend the monthly port fee for Limited Service MEI Ports 
available to Market Makers.\61\ The Exchange currently allocates two 
(2) Full Service MEI Ports \62\ and two (2) Limited Service MEI

[[Page 21343]]

Ports \63\ per matching engine \64\ 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. 
Market Makers were previously 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 (before the proposals to adopt a tiered fee 
structure).\65\
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    \61\ The Exchange notes that in its prior filings (the Initial, 
Second, Third, Fourth and Fifth Proposals), the Exchange proposed to 
adopt a tiered-pricing structure for Limited Service MEI Ports.
    \62\ 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.
    \63\ 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.
    \64\ 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.
    \65\ 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 amend the monthly fee per Limited 
Service MEI Port and increase the number of free Limited Service MEI 
Ports per matching engine from two (2) to four (4). Specifically, the 
Exchange will now provide the first, second, third, and fourth Limited 
Service MEI Ports for each matching engine free of charge. For 
additional Limited Service MEI Ports after the first four ports per 
matching engine that are provided for free (i.e., beginning with the 
fifth Limited Service MEI Port), the Exchange proposes to increase the 
monthly fee from $100 to $275 per Limited Service MEI Port per matching 
engine.
    Market Makers that elect to purchase more than the number of 
Limited Service Ports that are provide for free do so due to the nature 
of their business and their perceived need for numerous ports to access 
the Exchange. Meanwhile, Market Makers who utilize the free Limited 
Service MEI Ports do so based on their business needs.
    The Exchange notes that it last proposed to increase its monthly 
Limited Service MEI Port fees in 2016 (other than the prior proposals 
to adopt a tiered fee structure for Limited Service MEI Ports),\66\ and 
such increase proposed herein is designed to recover a portion of the 
ever increasing costs associated with directly accessing the Exchange.
---------------------------------------------------------------------------

    \66\ 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 \67\ in general, and furthers the objectives of 
Section 6(b)(4) of the Act \68\ 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 \69\ 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.
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78f(b).
    \68\ 15 U.S.C. 78f(b)(4).
    \69\ 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 \70\ and 
the Staff Guidance,\71\ 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.
---------------------------------------------------------------------------

    \70\ See supra note 24.
    \71\ 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.'' 
\72\ 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.'' \73\ 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.'' \74\
---------------------------------------------------------------------------

    \72\ Id.
    \73\ Id.
    \74\ 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

[[Page 21344]]

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, 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.
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.\75\ 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.
---------------------------------------------------------------------------

    \75\ 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 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 10Gb ULL network,\76\ 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 \77\ 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.
---------------------------------------------------------------------------

    \76\ 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).
    \77\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
---------------------------------------------------------------------------

    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.\78\
---------------------------------------------------------------------------

    \78\ 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

[[Page 21345]]

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.\79\ Beginning August 12, 2022, 
the Exchange worked with the then-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 
when the 10Gb ULL network was bifurcated. 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.
---------------------------------------------------------------------------

    \79\ See supra note 6.
---------------------------------------------------------------------------

    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 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,\80\ and Rule 19b-4 
thereunder,\81\ with respect to the types of information exchanges 
should provide when filing fee changes, and Section 6(b) of the 
Act,\82\ which requires, among other things, that exchange fees be 
reasonable and equitably allocated,\83\ not designed to permit unfair 
discrimination,\84\ and that they not impose a burden on competition 
not necessary or appropriate in furtherance of the purposes of the 
Act.\85\ 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.\86\ 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.
---------------------------------------------------------------------------

    \80\ 15 U.S.C. 78s(b)(1).
    \81\ 17 CFR 240.19b-4.
    \82\ 15 U.S.C. 78f(b).
    \83\ 15 U.S.C. 78f(b)(4).
    \84\ 15 U.S.C. 78f(b)(5).
    \85\ 15 U.S.C. 78f(b)(8).
    \86\ 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 $14,410,793 (or approximately $1,200,900 per month, rounded 
to the nearest dollar when dividing the annual cost by 12 months) and 
its aggregate annual costs for providing Limited Service MEI Ports at 
$2,399,193 (or approximately $199,933 per month, rounded 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 \87\) 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 amend the monthly fee for 
additional Limited Service MEI Ports and provide two additional ports 
free of charge for a total of four free Limited Service MEI Ports per 
matching engine to which each Member connects.
---------------------------------------------------------------------------

    \87\ 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'').\88\ 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'').
---------------------------------------------------------------------------

    \88\ 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 
2024

[[Page 21346]]

budget review process. The 2024 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,\89\ 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.
---------------------------------------------------------------------------

    \89\ For example, MIAX 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 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 (59% of total expense amount 
allocated to 10Gb ULL connectivity), with smaller allocations to 
additional Limited Service MEI Ports (5.5%), and the remainder to the 
provision of other connectivity, other ports, transaction execution, 
membership services and market data services (35.5%). 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 $1,400,833 (utilizing the rounded numbers when dividing the annual 
cost for 10Gb ULL

[[Page 21347]]

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 
22.4% of its overall Human Resources cost to offering 10Gb ULL physical 
connectivity).

----------------------------------------------------------------------------------------------------------------
                                                                     Allocated       Allocated
                          Cost drivers                              annual cost    monthly cost      % of all
                                                                        \a\             \b\
----------------------------------------------------------------------------------------------------------------
Human Resources.................................................      $5,097,079        $424,757            22.4
Connectivity (external fees, cabling, switches, etc.)...........          55,020           4,585            59.0
Internet Services and External Market Data......................         551,120          45,927            71.3
Data Center.....................................................         881,177         $73,431            59.0
Hardware and Software Maintenance and Licenses..................         991,378          82,615            48.5
Depreciation....................................................       2,573,534         214,461            58.3
Allocated Shared Expenses.......................................       4,261,485         355,124            48.1
                                                                 -----------------------------------------------
    Total.......................................................      14,410,793       1,200,900            35.6
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ 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.

    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 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.
    The Exchange also notes that expenses included in its 2024 fiscal 
year budget and this proposal are generally higher than its 2023 fiscal 
year budget and Cost Analysis included in prior filings. As more fully 
described below and throughout this filing, this is due to a number of 
factors, such as, critical vendors and suppliers increasing costs they 
charge the Exchange, significant exchange staff headcount increases, 
increased data center costs from the Exchange's data center providers 
in multiple locations and facilities, higher technology and 
communications costs, planned hardware refreshes, and system capacity 
upgrades that increase depreciation expense. Specifically, with regard 
to employee compensation, the 2024 fiscal year budget includes 
additional expenses related to increased headcount and new hires that 
are needed to support the Exchange as it continues to grow (the 
Exchange and its affiliated companies are projected to hire over 60 
additional staff in 2024). Hardware and software expenses have also 
increased primarily due to price increases from critical vendors and 
equipment suppliers. Further, the Exchange budgeted for additional 
hardware and software needs to support the Exchange's continued growth 
and expansion. Depreciation and amortization have likewise increased 
due to recent and planned refreshes in Exchange hardware and software. 
This new equipment and software then becomes depreciable, as described 
below. Data center costs have also increased due the following: the 
Exchange expanding its footprint within its data center; and the data 
center vendor increasing the costs it charges the Exchange. Lastly, 
allocated shared expenses have increased due to the overall budgeted 
increase in costs from 2023 to 2024 necessary to operate and support 
the Exchange as described below.
    The updated Cost Analysis using projected 2024 expenses caused some 
allocation percentages in this filing to differ slightly (<=3.5%) from 
past filings that relied on projected 2023 expenses. This is due to 
various reasons. For example, the slight differences in allocation 
percentage for the Human Resources cost driver is due to both changes 
in headcount in 2024 and also changes to the percentage of employee 
time allocated to these services based on changing projects and 
initiatives in 2024 versus 2023. For example, the Exchange recently 
hired a Head of Data Services whose time is entirely allocated to the 
market data cost driver. These types of changes in the Human Resources 
cost driver impact the final percentage amount of total cost allocated 
towards overall connectivity, including 10Gb ULL connectivity. There 
are no changes to the overall percentage allocation amounts applied to 
the product groups (e.g., network connectivity) for each of the non-
Human Resources cost drivers in the current filing based on 2024 
expense versus the prior 2023 filings. However, within each of those 
product groups, slight changes to the amount of usage of the individual 
products within that group (in 2024 versus 2023) will have an impact on 
the individual product's percentage allocation within that entire 
product group. For example, a decrease in 1Gb connectivity lines in 
2024 versus 2023 will have an impact on the percentage allocation of 
costs to 1Gb lines in 2024 versus 2023, which will also impact the 
individual percentage allocation of costs to 10Gb ULL lines, within the 
entire product group. Despite these minor shifts in product usage and 
changes in headcount and employee mix which resulted in non-material 
changes in percentage allocation amounts, the Exchange applied the same 
rules and principles to its 2024 Cost Analysis versus its 2023 Cost 
Analysis.
Human Resources
    The Exchange notes that it and its affiliated markets anticipate 
that by year-end 2024, there will be 289

[[Page 21348]]

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.
    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). As described more fully above, the Exchange's parent 
company allocates costs to the Exchange and its affiliated markets and 
then a portion of the Human Resources costs allocated to the Exchange 
is then allocated to connectivity. From that portion allocated to the 
Exchange that applied to connectivity, the Exchange then allocated a 
weighted average of 46% of each employee's time from the above group to 
10Gb ULL connectivity.
    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). 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' time to 10Gb ULL connectivity (less than 
16%). This other group of personnel with a smaller allocation of Human 
Resources costs also have a direct nexus to 10Gb ULL connectivity, 
whether it is a sales person selling a connection, finance personnel 
billing for connectivity or providing budget analysis, or information 
security ensuring that such connectivity is secure and adequately 
defended from an outside intrusion.
    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 time such employees devote to those 
tasks. 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. Again, the 
Exchange allocated 46% of each of their employee's time assigned to the 
Exchange for 10Gb ULL connectivity, as stated above. Employees from 
these departments perform numerous functions to support 10Gb ULL 
connectivity, such as the installation, re-location, configuration, and 
maintenance of 10Gb ULL connections and the hardware they access. This 
hardware includes servers, routers, switches, firewalls, and monitoring 
devices. These employees also perform software upgrades, vulnerability 
assessments, remediation and patch installs, equipment configuration 
and hardening, as well as performance and capacity management. These 
employees also engage in research and development analysis for 
equipment and software supporting 10Gb ULL connectivity and design, and 
support the development and on-going maintenance of internally-
developed applications as well as data capture and analysis, and Member 
and internal Exchange reports related to network and system 
performance. The above list of employee functions is not exhaustive of 
all the functions performed by Exchange employees to support 10Gb ULL 
connectivity, but illustrates the breath of functions those employees 
perform in support of the above cost and time allocations.
    Lastly, the Exchange notes that senior level executives' time was 
only allocated to the 10Gb ULL connectivity related 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.
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.

[[Page 21349]]

    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 an 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 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 2024 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, and MIAX Pearl Options allocated 84.8%, 71.3%, and 
74.8%, 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 2024 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 2024 
budget process is lower than its affiliated markets.
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 (59.0%) 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.\90\ The Exchange notes that this 
allocation is less than MIAX Pearl Options by a significant amount, and 
slightly less than MIAX Emerald, as MIAX Pearl Options allocated 59.8% 
of its Hardware and Software Maintenance and License expense towards 
10Gb ULL connectivity, while MIAX and MIAX Emerald allocated 48.5% and 
50.9%, respectively, to the same category of expense. This is because 
MIAX Pearl Options is in the process of replacing and upgrading various 
hardware and software used to operate its options trading platform in 
order to maintain premium network performance. At the time of this 
filing, MIAX Pearl Options is undergoing a major hardware refresh, 
replacing older hardware with new hardware. This hardware includes 
servers, network switches, cables, optics, protocol data units, and 
cabinets, to maintain a state-of-the-art technology platform. Because 
of the timing of the hardware refresh with the timing of this filing, 
the Exchange has materially higher expense than its affiliates.
---------------------------------------------------------------------------

    \90\ This expense may be less than the Exchange's affiliated 
markets, specifically MIAX Pearl Options because, unlike the 
Exchange, MIAX Pearl Options 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 Options. This expense also differs in dollar 
amount among the Exchange, MIAX Pearl Options, 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 58.3% 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

[[Page 21350]]

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 similar. However, the Exchange's 
dollar amount is greater than that of MIAX Emerald by approximately 
$35,508 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 than 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, as with other exchange products and services, a portion of 
general shared expenses was allocated to overall physical connectivity 
costs. These general shared costs are integral to exchange operations, 
including its ability to provide physical connectivity. Costs included 
in general shared expenses include 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. 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.\91\ 
These general shared expenses are incurred by the Exchange's parent 
company, MIH, as a direct result of operating the Exchange and its 
affiliated markets.
---------------------------------------------------------------------------

    \91\ The Exchange notes that MEMX allocated a precise amount of 
10% of the overall cost for directors to providing physical 
connectivity. See Securities Exchange Act Release No. 95936 
(September 27, 2022), 87 FR 59845 (October 3, 2022) (SR-MEMX-2022-
26). The Exchange does not calculate is expenses at that granular a 
level. Instead, director costs are included as part of the overall 
general allocation.
---------------------------------------------------------------------------

    The Exchange employed a process to determine a reasonable 
percentage to allocate general shared expenses to 10Gb ULL connectivity 
pursuant to its multi-layered allocation process. First, general 
expenses were allocated among the Exchange and affiliated markets as 
described above. Then, the general shared expense assigned to the 
Exchange was allocated across core services of the Exchange, including 
connectivity. Then, these costs were further allocated to sub-
categories within the final categories, i.e., 10Gb ULL connectivity as 
a sub-category of connectivity. In determining the percentage of 
general shared expenses allocated to connectivity that ultimately apply 
to 10Gb ULL connectivity, the Exchange looked at the percentage 
allocations of each of the cost drivers and determined a reasonable 
allocation percentage. The Exchange also held meetings with senior 
management, department heads, and the Finance Team to determine the 
proper amount of the shared general expense to allocate to 10Gb ULL 
connectivity. The Exchange, therefore, believes it is reasonable to 
assign an allocation, in the range of allocations for other cost 
drivers, while continuing to ensure that this expense is only allocated 
once. Again, the general shared expenses are incurred by the Exchange's 
parent company as a result of operating the Exchange and its affiliated 
markets and it is therefore reasonable to allocate a percentage of 
those expenses to the Exchange and ultimately to specific product 
offerings such as 10Gb ULL connectivity.
    Again, a portion of all shared expenses were allocated to the 
Exchange (and its affiliated markets) which, in turn, allocated a 
portion of that overall allocation to all physical connectivity on the 
Exchange. The Exchange then allocated 48.1% of the portion allocated to 
physical connectivity to 10Gb ULL connectivity. The Exchange believes 
this allocation percentage is reasonable because, while the overall 
dollar amount may be higher than other cost drivers, the 48.1% is based 
on and in line with the percentage allocations of each of the 
Exchange's other cost drivers. The percentage allocated to 10Gb ULL 
connectivity also reflects its importance to the Exchange's strategy 
and necessity towards the nature of the Exchange's overall operations, 
which is to provide a resilient, highly deterministic trading system 
that relies on faster 10Gb ULL connectivity than the Exchange's 
competitors to maintain premium performance. This allocation reflects 
the Exchange's focus on providing and maintaining high performance 
network connectivity, of which 10Gb ULL connectivity is a main 
contributor. The Exchange differentiates itself by offering a 
``premium-product'' network experience, as an operator of a high 
performance, ultra-low latency network with unparalleled system 
throughput, which system networks can support access to three distinct 
options markets and multiple competing market-makers having affirmative 
obligations to continuously quote over 1,100,000 distinct trading 
products (per exchange), and the capacity to handle approximately 18 
million quote messages per second. The ``premium-product'' network 
experience enables users of 10Gb ULL connections to receive the network 
monitoring and reporting services for those approximately 1,100,000 
distinct trading products. These value add services are part of the 
Exchange's strategy for offering a high performance trading system, 
which utilizes 10Gb ULL connectivity.
    The Exchange notes that the 48.1% allocation of general shared 
expenses for physical 10Gb ULL connectivity is higher than that 
allocated to general shared expenses for Limited Service MEI Ports. 
This is based on its allocation methodology that weighted costs 
attributable to each core service. 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.
* * * * *
Approximate Cost per 10Gb ULL Connection per Month
    After determining the approximate allocated monthly cost related to 
10Gb ULL connectivity, the total monthly cost for 10Gb ULL connectivity 
of $1,200,900 was divided by the number of physical 10Gb ULL 
connections the Exchange maintained in December 2023 (93), to arrive at 
a cost of approximately $12,913 per month (rounded up to the nearest 
dollar), 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 5.7% of its

[[Page 21351]]

overall Human Resources cost to offering Limited Service MEI Ports).

----------------------------------------------------------------------------------------------------------------
                                                                     Allocated       Allocated
                          Cost drivers                              annual cost    monthly cost      % of all
                                                                        \c\             \d\
----------------------------------------------------------------------------------------------------------------
Human Resources.................................................      $1,297,498        $108,125             5.7
Connectivity (external fees, cabling, switches, etc.)...........           2,730             228             2.9
Internet Services and External Market Data......................          42,377           3,531             5.5
Data Center.....................................................          81,963           6,830             5.5
Hardware and Software Maintenance and Licenses..................         112,103           9,342             5.5
Depreciation....................................................         217,699          18,142             4.9
Allocated Shared Expenses.......................................         644,822          53,735             7.3
                                                                 -----------------------------------------------
    Total.......................................................       2,399,192         199,933             5.9
----------------------------------------------------------------------------------------------------------------
\c\ See supra note a (describing rounding of Annual Costs).
\d\ See supra note b (describing rounding of Monthly Costs based on Annual Costs).

    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.
    The Exchange also notes that expenses included in its 2024 fiscal 
year budget and this proposal are generally higher than its 2023 fiscal 
year budget and Cost Analysis included in prior filings. As more fully 
described below and throughout this filing, this is due to a number of 
factors, such as, critical vendors and suppliers increasing costs they 
charge the Exchange, significant exchange staff headcount increases, 
increased data center costs from the Exchange's data center providers 
in multiple locations and facilities, higher technology and 
communications costs, planned hardware refreshes, and system capacity 
upgrades that increase depreciation expense. Specifically, with regard 
to employee compensation, the 2024 fiscal year budget includes 
additional expenses related to increased headcount and new hires that 
are needed to support the Exchange as it continues to grow (the 
Exchange and its affiliated companies are projected to hire over 60 
additional staff in 2024). Hardware and software expenses have also 
increased primarily due to price increases from critical vendors and 
equipment suppliers. Further, the Exchange budgeted for additional 
hardware and software needs to support the Exchange's continued growth 
and expansion. Depreciation and amortization have likewise increased 
due to recent and planned refreshes in Exchange hardware and software. 
This new equipment and software then becomes depreciable, as described 
below. Data center costs have also increased due the following: the 
Exchange expanding its footprint within its data center; and the data 
center vendor increasing the costs it charges the Exchange. Lastly, 
allocated shared expenses have increased due to the overall budgeted 
increase in costs from 2023 to 2024 necessary to operate and support 
the Exchange as described below.
    The updated Cost Analysis using projected 2024 expenses caused some 
allocation percentages in this filing to differ slightly (<=3.5%) from 
past filings that relied on projected 2023 expenses. This is due to 
various reasons. For example, the slight differences in allocation 
percentage for the Human Resources cost driver is due to both changes 
in headcount in 2024 and also changes to the percentage of employee 
time allocated to these services based on changing projects and 
initiatives in 2024 versus 2023. For example, the Exchange recently 
hired a Head of Data Services whose time is entirely allocated to the 
market data cost driver. These types of changes in the Human Resources 
cost driver impact the final percentage amount of total cost allocated 
towards overall connectivity, including Limited Service MEI Ports. 
There are no changes to the overall percentage allocation amounts 
applied to the product groups (e.g., network connectivity) for each of 
the non-Human Resources cost drivers in the current filing based on 
2024 expense versus the prior 2023 filings. However, within each of 
those product groups, slight changes to the amount of usage of the 
individual products within that group (in 2024 versus 2023) will have 
an impact on the individual product's percentage allocation within that 
entire product group. For example, a decrease in Limited Service MEI 
Port usage in 2024 versus 2023 will have an impact on the percentage 
allocation of costs to those same Limited Service MEI Ports in 2024 
versus 2023, which will also impact the individual percentage 
allocation of costs to other ports offered by the Exchange, within the 
entire product group (e.g., FIX Ports, Full Service MEI Ports, Purge 
Ports, Clearing Trade Drop Ports, and FIX Drop Copy Ports). Despite 
these minor shifts in product usage and changes in headcount and 
employee mix which resulted in non-material changes in percentage 
allocation amounts, the Exchange applied the same rules and principles 
to its 2024 Cost Analysis versus its 2023 Cost Analysis.
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

[[Page 21352]]

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. This includes personnel from the following Exchange 
departments that are predominately involved in providing Limited 
Service MEI Ports: Business Systems Development, Trading Systems 
Development, Systems Operations and Network Monitoring, Network and 
Data Center Operations, Listings, Trading Operations, and Project 
Management. 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. 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.
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).\92\ 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.
---------------------------------------------------------------------------

    \92\ The Exchange notes that MEMX separately allocated 7.5% of 
its external market data costs to providing physical connectivity. 
See Securities Exchange Act Release No. 95936 (September 27, 2022), 
87 FR 59845 (October 3, 2022) (SR-MEMX-2022-26).
---------------------------------------------------------------------------

    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 5.5% of its Internet 
Services and External Market Data expense towards Limited Service MEI 
Ports, while MIAX Pearl Options allocated 1.1% 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 December 2023, MIAX 
Market Makers utilized 1,785 Limited Service MEI ports and MIAX Emerald 
Market Makers utilized 1,070 Limited Service MEI ports. When compared 
to Full Service Port (Bulk and Single) usage, for December 2023, MIAX 
Pearl Options Members utilized only 360 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 5.5% of its Hardware 
and Software Maintenance and License expense towards Limited Service 
MEI Ports, while MIAX Pearl Options allocated 1.1% 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 
December 2023, MIAX Market Makers utilized 1,785 Limited Service MEI 
ports and MIAX Emerald Market Makers utilized 1,070 Limited Service MEI 
Ports. When compared to Full Service Port (Bulk and Single) usage, for 
December 2023, MIAX Pearl Options Members utilized only 360 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, which also includes assets used for 
testing and monitoring of order entry infrastructure, 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 4.9% of 
all depreciation costs

[[Page 21353]]

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 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 1.7%. However, the Exchange's approximate 
dollar amount is greater than that of MIAX Emerald by approximately 
$8,773 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 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 7.3% 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 7.3% of its Allocated 
Shared Expense towards Limited Service MEI Ports, while MIAX Pearl 
Options allocated 3.0% 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 December 2023, MIAX Market Makers 
utilized 1,785 Limited Service MEI Ports and MIAX Emerald Market Makers 
utilized 1,070 Limited Service MEI ports. When compared to Full Service 
Port (Bulk and Single) usage, for December 2023, MIAX Pearl Options 
Members utilized only 360 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.\93\
---------------------------------------------------------------------------

    \93\ The Exchange allocated a slightly lower amount (7.3%) of 
this cost as compared to MIAX Emerald (8.7%). This is not a 
significant difference. However, both allocations resulted in a 
similar cost amount (approximately $0.6 million for MIAX and $0.8 
million for MIAX Emerald), 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.
---------------------------------------------------------------------------

* * * * *
Approximate Cost per Limited Service MEI Port per Month
    Based on projected 2024 data, the total monthly cost allocated to 
Limited Service MEI Ports of $199,933 was divided by the total number 
of Limited Service MEI Ports utilized by Members in December, which was 
1,785 (and includes free and charged ports), resulting in an 
approximate cost of $112 per port per month (when rounding to the 
nearest dollar). The Exchange used the total number of Limited Service 
MEI Ports it maintained in December for all Members and included free 
and charged ports. However, in prior filings, the Exchange did not 
include the expense of maintaining the two free Limited Service MEI 
Ports per matching engine that each Member receives when the Exchange 
discussed the approximate cost per port per month, but did include the 
two free Limited Service MEI Ports in the total expense amounts. As 
described herein, the Exchange changed its proposed fee structure since 
past filings to now offer four free Limited Service MEI Ports per 
matching engine to which each Member connects. After the first four 
free Limited Service MEI Ports, the Exchange proposes to charge $275 
per Limited Service MEI Port per matching engine, up to a total of 
twelve (12) Limited Service MEI Ports per matching engine.
    For the sake of clarity, if a Member wanted to connect to all 24 of 
the Exchange's matching engines and utilize the maximum number of 
Limited Service MEI Ports on each matching engine (i.e., 12), that 
Member would have a total of 288 Limited Service MEI Ports (24 matching 
engines multiplied by 12 Limited Service MEI Ports per matching 
engine). With the proposed increase to now provide four Limited Service 
MEI Ports for free on each matching engine, that particular Member 
would receive 96 free Limited Service MEI Ports (4 free Limited Service 
MEI Ports multiplied by 24 matching engines), and be charged for the 
remaining 192 Limited Service MEI Ports (288 total Limited Service MEI 
Ports across all matching engines minus 96 free Limited Service MEI 
Ports across all matching engines).
    As mentioned above, Members utilized a total of 1,785 Limited 
Service MEI Ports in the month of December 2023 (free and charged ports 
combined). Using December 2023 data to extrapolate out after the 
proposed changes herein go into effect, the total number of Limited 
Service MEI Ports that the Exchange would not charge for as a result of 
this increase in free ports is 942 (meaning the Exchange would

[[Page 21354]]

charge for only 843 ports) and amounts to a total expense of $105,504 
per month to the Exchange ($112 per port multiplied by 942 free Limited 
Service MEI Ports).
* * * * *
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 (46%) given their focus on functions 
necessary to provide 10Gb ULL physical connections. The salaries of 
those same personnel were allocated only 7.2% to Limited Service MEI 
Ports and the remaining 52.2% 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 15% for 10Gb ULL connectivity or 15.8% 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 (4% 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 23.5% of its personnel costs to 
providing 10Gb ULL and 1Gb ULL connectivity and 5.7% of its personnel 
costs to providing Limited Service MEI Ports, for a total allocation of 
29.2% Human Resources expense to provide these specific connectivity 
and port services. In turn, the Exchange allocated the remaining 70.8% 
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 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 63.2% of the Exchange's overall depreciation and 
amortization expense to connectivity services (58.3% attributed to 10Gb 
ULL physical connections and 4.9% to Limited Service MEI Ports). The 
Exchange allocated the remaining depreciation and amortization expense 
(approximately 36.8%) toward the cost of providing transaction 
services, membership services, other port services, 1Gb connectivity, 
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 2024 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 \94\
---------------------------------------------------------------------------

    \94\ For purposes of calculating projected 2024 revenue for 10Gb 
ULL connectivity, the Exchange used revenues for the most recently 
completed full month.
---------------------------------------------------------------------------

    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

[[Page 21355]]

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 $14,410,793. Based on current 
10Gb ULL connectivity services usage, the Exchange would generate 
annual revenue of approximately $14,518,284. The Exchange believes this 
represents a modest profit of 0.7% when compared to the cost of 
providing 10Gb ULL connectivity services.
    The Exchange's Cost Analysis estimates the annual cost to provide 
Limited Service MEI Port services will equal $2,399,193. Based on 
December 2023 data for Limited Service MEI Port usage and counting for 
the proposed increase in free Limited Service MEI Ports and proposed 
increase in the monthly fee from $100 to $275 per port, the Exchange 
would generate annual revenue of approximately $2,768,700. The Exchange 
believes this would result in an estimated profit margin of 13.3% after 
calculating the cost of providing Limited Service MEI Port services. 
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, utilizing December 2023 data, MIAX Market Makers utilized 
1,785 Limited Service MEI Ports compared to only 360 Full Service MEO 
Ports (Bulk and Single combined) allocated to MIAX Pearl Options 
members.
    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).\95\ 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).\96\ 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).
---------------------------------------------------------------------------

    \95\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports 
and Other Services and NASDAQ Rules, General 8: Connectivity, 
Section 1. Co-Location Services.
    \96\ 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.\97\ 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.
---------------------------------------------------------------------------

    \97\ The Exchange has incurred a cumulative loss of $71 million 
since its inception in 2012 through full year 2022. See Exchange's 
Form 1/A, Application for Registration or Exemption from 
Registration as a National Securities Exchange, filed June 26, 2023, 
available at https://www.sec.gov/Archives/edgar/vprr/2300/23007741.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

[[Page 21356]]

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 exchanges. 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 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.\98\ 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.
---------------------------------------------------------------------------

    \98\ 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 proposed changes to the monthly fee for Limited Service MEI 
Ports is not unfairly discriminatory because it would apply to all 
Market Makers equally. All Market Makers would now be eligible to 
receive four (4) free Limited Service MEI Ports and those that elect to 
purchase more would be subject to the same monthly rate regardless of 
the number of additional Limited Service MEI Ports they purchase. 
Certain market participants choose to purchase additional Limited 
Service MEI Ports based on their own particular trading/quoting 
strategies and feel they need a certain number of connections to the 
Exchange to execute on those strategies. Other market participants may 
continue to choose to only utilize the free Limited Service MEI Ports 
to accommodate their own

[[Page 21357]]

trading or quoting strategies, or other business models. All market 
participants elect to receive or purchase the amount of Limited Service 
MEI Ports they require based on their own business decisions and all 
market participants would be subject to the same fee structure and flat 
fee. Every market participant may receive up to four (4) free Limited 
Service MEI Ports and those that choose to purchase additional Limited 
Service MEI Ports may elect to do so based on their own business 
decisions and would continue to be subject to the same flat fee. The 
Exchange notes that it filed to amend this fee in 2016 and that filing 
contained the same fee structure, i.e., a certain number of free 
Limited Service MEI Ports coupled with a flat fee for additional 
Limited Service MEI Ports.\99\ At that time, the Commission did not 
find the structure to be unfairly discriminatory by virtue of that 
proposal surviving the 60-day suspension period. Therefore, the 
proposed changes to the fees for Limited Service MEI Ports is not 
unfairly discriminatory because it would continue to apply to all 
market participants equally and provides a fee structure that includes 
four free Limited Service MEI Ports for one monthly rate that was 
previously in place and filed with the Commission.
---------------------------------------------------------------------------

    \99\ See Securities Exchange Act Release No. 79666 (December 22, 
2016), 81 FR 96133 (December 29, 2016) (SR-MIAX-2016-47).
---------------------------------------------------------------------------

    The Exchange believes that its proposed fee for Limited Service MEI 
Ports is reasonable, fair and equitable, and not unfairly 
discriminatory because it is designed to align fees with services 
provided, will apply equally to all Members that are assigned Limited 
Service MEI Ports (either directly or through a Service Bureau), and 
will minimize barriers to entry by now providing all Members with four, 
instead of the prior two, free Limited Service MEI Ports.\100\ As a 
result of the proposed fee structure, a significant majority of Members 
will not be subject to any fee, and only six Members will potentially 
be subject to a fee for Limited Service MEI Ports in excess of four per 
month, based on current usage. In contrast, other exchanges generally 
charge in excess of $450 per port without providing any free 
ports.\101\ Even for Members that choose to maintain more than four 
Limited Service MEI Ports, the Exchange believes that the cost-based 
fee proposed herein is low enough that it will not operate to restrain 
any Member's ability to maintain the number of Limited Service MEI 
Ports that it determines are consistent with its business objectives. 
The small number of Members projected to be subject to the highest fees 
will still pay considerably less than competing exchanges charge.\102\ 
Further, the number of assigned Limited Service MEI Ports will continue 
to be based on decisions by each Member, including the ability to 
reduce fees by discontinuing unused Limited Service MEI Ports.
---------------------------------------------------------------------------

    \100\ The following rationale to support providing a certain 
number of Limited Service MEI Ports for free prior to applying a fee 
is similar to that used by the IEX in a 2020 proposal to do the same 
as proposed herein. See Securities Exchange Act Release No. 86626 
(August 9, 2019), 84 FR 41793 (August 15, 2019) (SR-IEX-2019-07).
    \101\ See See NASDAQ Pricing Schedule, Options 7, Section 3, 
Ports and Other Services and NASDAQ Rules, General 8: Connectivity, 
Section 1. Co-Location Services (similar to the Exchange's MEI 
Ports, SQF ports are primarily utilized by Market Makers); ISE 
Pricing Schedule, Options 7, Section 7, Connectivity Fees and ISE 
Rules, General 8: Connectivity; NYSE American Options Fee Schedule, 
Section V.A. Port Fees and Section V.B. Co-Location Fees; GEMX 
Pricing Schedule, Options 7, Section 6, Connectivity Fees and GEMX 
Rules, General 8: Connectivity.
    \102\ Assuming a Member selects five Limited Service MEI Ports 
based on their business needs, that Member on MIAX would be charged 
only for the fifth Limited Service MEI Port and pay only the $275 
monthly fee, as the first four Limited Service Ports would be free. 
Meanwhile, a Member that purchases five ports on NYSE Arca Options 
would pay $450 per port per month, resulting in a total charge of 
$2,250 per month. On Cboe BZX Options, that same member would pay 
$750 per port per month, resulting in a total charge of $3,750 per 
months for five ports. See NYSE Arca Options Fees and Charges, dated 
March 1, 2024, available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf and Cboe BZX 
Options Fee Schedule available at https://www.cboe.com/us/options/membership/fee_schedule/.
---------------------------------------------------------------------------

    The Exchange believes that providing four free Limited Service MEI 
Ports is fair and equitable, and not unfairly discriminatory because it 
will enable Members (and more Members than when the Exchange previously 
provided two free Limited Service MEI Ports) to access the Exchange on 
this basis without having to pay for Limited Service MEI Ports, thereby 
encouraging order flow and liquidity from a diverse set of market 
participants, facilitating price discovery and the interaction of 
orders. The Exchange believes that four Limited Service MEI Ports is an 
appropriate number to provide for free because it aligns with the 
maximum number of such ports currently maintained by a substantial 
majority of Members. Based on a review of Limited Service MEI Port 
usage, 39 of 45 connected Members are not projected to be subject to 
any Limited Service MEI Port fees under the proposed fee. In 
determining the appropriate number of Limited Service MEI Ports to 
provide for free, the Exchange considered several factors. First, the 
Exchange believes that, with respect to Limited Service MEI Port usage, 
Members prefer at least two Limited Service MEI Ports, for redundancy 
purposes. Second, from a review of the number of Limited Service MEI 
Ports currently requested and assigned to each Member, the median 
number of ports per Member that utilizes Limited Service MEI Ports is 
four. Thus, the Exchange believes that having four ports appears to be 
reasonably sufficient for the majority of Members to access the 
Exchange. On that basis, the Exchange chose four Limited Service MEI 
Ports as the maximum number of ports for which it will not charge to 
access the Exchange. The Exchange notes that some Members use more 
Limited Service MEI Ports than other Members (and the four provided for 
free), which is driven by the nature and volume of the business they 
conduct on the Exchange, and the choices they make in segmenting that 
business across different Limited Service MEI Ports. Allowing for this 
expansive use of Exchange capacity represents an aggregate cost that 
the Exchange seeks to recover through charging for ports five and 
higher.
    The proposed change is also designed to encourage Members to be 
efficient with their Limited Service MEI Port usage, thereby resulting 
in a corresponding increase in the efficiency that the Exchange would 
be able to realize in managing its aggregate costs for providing 
Limited Service MEI Ports. There is no requirement that any Member 
maintain a specific number of Limited Service MEI Ports and a Member 
may choose to maintain as many or as few of such ports as each Member 
deems appropriate.
    The Exchange assessed the proposed fee change's impact on all 
Members. The Exchange believes that the proposed fee change is fair and 
equitably allocated across all Members. As a threshold matter, the fee 
does not by design apply differently to different types or sizes of 
Members. Nonetheless, the Exchange assessed whether there would be any 
differences in the amount of the projected fee that correlates to the 
type and/or size of different Members. This assessment revealed that 
the number of assigned Limited Service MEI Ports, and thus projected 
fees, correlates closely to a Member's inbound message volume to the 
Exchange. Specifically, as inbound message volume increases per Member, 
the number of requested and assigned Limited Service MEI Ports 
increases. The following table presents data from December 2023 
evidencing the correlation between a Member's inbound message volume 
and the

[[Page 21358]]

number of Limited Service MEI Port assigned to the Member as of 
December 31, 2023.

----------------------------------------------------------------------------------------------------------------
                                                                                              Overall percentage
                   Number of ports                       Average daily       Total message      of all message
                                                        message traffic         traffic        traffic for month
----------------------------------------------------------------------------------------------------------------
1-4.................................................       3,847,597,203      76,951,944,054               22.99
5 or more...........................................      12,891,271,595     257,825,431,896               77.01
----------------------------------------------------------------------------------------------------------------

    Members with relatively higher inbound message volume are projected 
to pay higher fees because they have requested more Limited Service MEI 
Ports. For example, the six Members that subscribe to five or more 
Limited Service MEI Ports and are subject to the proposed monthly fee 
on average account for 77.01% of December 2023 inbound messages over 
Limited Service MEI Ports. The 39 Members that, based on their December 
2023 Limited Service MEI Port usage are not projected to be subject to 
any Limited Service MEI Port fees, on average account for only 22.99% 
of December 2023 inbound messages over Limited Service MEI Ports. 
Overall, no Member experienced a fee increase as a result of the 
proposed fee change and increase in the number of free ports. Three 
Members experienced a modest and proportionate fee decrease. All other 
Members saw no change in fees as a result of the proposed changes. On 
balance, based on the above data, the Exchange believes that the 
proposed fee structure changes (including moving from two free ports to 
four free ports) is fair and equitably allocated across all Members, 
and the impact of such proposed fee structure changes is consistent 
among Members based on Exchange access and usage.
    The Exchange believes that the variance between projected fees and 
Limited Service MEI Ports usage is not unfairly discriminatory because 
it is based on objective differences in Limited Service MEI Port usage 
among different Members. The Exchange notes that the distribution of 
total inbound message volume is concentrated in relatively few Members, 
which consume a much larger proportionate share of the Exchange's 
resources (compared to the majority of Members that send substantially 
fewer inbound order messages). This distribution of inbound message 
volume requires the Exchange to maintain sufficient Limited Service MEI 
Port capacity to accommodate the higher existing and anticipated 
message volume of higher volume Members. Thus, the Exchange's 
incremental aggregate costs for all Limited Service MEI Ports are 
disproportionately related to volume from the highest inbound message 
volume Members. For these reasons, the Exchange believes it is not 
unfairly discriminatory for the Members with the highest inbound 
message volume to pay a higher share of the total Limited Service MEI 
Ports fees.
    While Limited Service MEI Port usage is concentrated in a few 
relatively larger Members, the number of such ports requested is not 
based on the size or type of Member but rather correlates to a Member's 
inbound message volume to the Exchange. Further, Members with 
relatively higher inbound message volume also request (and are 
assigned) more Limited Service MEI Ports than other Members, which in 
turn means they account for a disproportionate share of the Exchange's 
aggregate costs for providing Limited Service MEI Ports.\103\ 
Therefore, the Exchange believes it is not unfairly discriminatory for 
the Members with higher inbound message volume to pay a modestly higher 
proportionate share of the Limited Service MEI Port fees.
---------------------------------------------------------------------------

    \103\ See Securities Exchange Act Release No. 86626 (August 9, 
2019), 84 FR 41793 (August 15, 2019) (SR-IEX-2019-07) (justifying 
providing 5 ports for free and charging a fee for every port 
purchased in excess of 5 ports based on the higher message traffic 
of subscribers with increased number of ports).
---------------------------------------------------------------------------

    To achieve consistent, premium network performance, the Exchange 
must build and maintain a network that has the capacity to handle the 
message rate requirements of its heaviest network consumers during 
anticipated peak market conditions. The resultant 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. This need also requires 
the Exchange to purchase additional storage capacity on an ongoing 
basis to ensure it has sufficient capacity to store these messages as 
part of it surveillance program and to satisfy its record keeping 
requirements under the Exchange Act.\104\ Thus, as the number of 
connections per Market Maker increases, other costs incurred by the 
Exchange also increase, e.g., storage costs, surveillance costs, 
service expenses.
---------------------------------------------------------------------------

    \104\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    Accordingly, the Exchange believes that the fee will be applied 
consistently with its specific purpose--to partially recover the 
Exchange's aggregate costs, encourage the efficient use of Limited 
Service MEI Ports, and align fees with Members' Limited Service MEI 
Port and system usage.
    The Exchange further believes that the proposed fees are 
reasonable, fair and equitable, and non-discriminatory because they 
will apply to all Members in the same manner and are not targeted at a 
specific type or category of market participant engaged in any 
particular trading strategy. All Members will receive four free Limited 
Service MEI Ports and pay the same proposed fee per Limited Service MEI 
Ports for each additional Limited Service MEI Port. Each Limited 
Service MEI Port is identical, providing connectivity to the Exchange 
on identical terms. While the proposed fee will result in a different 
effective ``per unit'' rate for different Members after factoring in 
the four free Limited Service MEI Ports, the Exchange does not believe 
that this difference is material given the overall low proposed fee per 
Limited Service MEI Port. Because the first four Limited Service MEI 
Ports are free of charge, each entity will have a ``per unit'' rate of 
less than the proposed fee. Further, the fee is not connected to volume 
based tiers. All Members will be subject to the same fee schedule, 
regardless of the volume sent to or executed on the Exchange. The fee 
also does not depend on any distinctions between Members, customers, 
broker-dealers, or any other entity. The fee will be assessed solely 
based on the number of Limited Service MEI Ports an entity selects and 
not on any other distinction applied by the Exchange. While entities 
that send relatively more inbound messages to the Exchange may select 
more Limited Service MEI Ports, thereby resulting in higher fees, that 
distinction is based on decisions made by each Member and the extent 
and nature of the Member's business on the Exchange rather than 
application of the fee by the Exchange. Members can determine how many 
Limited Service MEI Ports they need to

[[Page 21359]]

implement their trading strategies effectively. The Exchange proposes 
to offer additional Limited Service MEI Ports at a low fee to enable 
all Members to purchase as many Limited Service MEI Ports as their 
business needs dictate in order to optimize throughput and manage 
latency across the Exchange.
    Notwithstanding that Members with the highest number of Limited 
Service MEI Ports will pay a greater percentage of the total projected 
fees than is represented by their Limited Service MEI Port usage, the 
Exchange does not believe that the proposed fee is unfairly 
discriminatory. It is not possible to fully synchronize the Exchange's 
objective to provide four free Limited Service MEI Ports to all 
Members, thereby minimizing barriers to entry and incentivizing 
liquidity on the Exchange, with an approach that exactly aligns the 
projected per Member fee with each Member's number of requested Limited 
Service MEI Ports. As proposed, the Exchange is providing a reasonable 
increased number of Limited Service MEI Ports to each Member without 
charge. In fact, the Exchange proposes to provide more Limited Service 
MEI Ports for free by increasing the number of available Limited 
Service MEI Ports that are provided for free from two to four. Any 
variance between projected fees and Limited Service MEI Port usage is 
attributable to objective differences among Members in terms of the 
number of Limited Service MEI Ports they determine are appropriate 
based on their trading on the Exchange. Further, the Exchange believes 
that the low amount of the proposed fee (which in the aggregate is 
projected to only partially recover the Exchange's directly-related 
costs as described herein) mitigates any disparate impact.
    Further, the fee will help to encourage Limited Service MEI Port 
usage in a way that aligns with the Exchange's regulatory obligations. 
As a national securities exchange, the Exchange is subject to 
Regulation Systems Compliance and Integrity (``Reg SCI'').\105\ Reg SCI 
Rule 1001(a) requires that the Exchange establish, maintain, and 
enforce written policies and procedures reasonably designed to ensure 
(among other things) that its Reg SCI systems have levels of capacity 
adequate to maintain the Exchange's operational capability and promote 
the maintenance of fair and orderly markets.\106\ By encouraging 
Members to be efficient with their Limited Service MEI Ports usage, the 
proposed fee will support the Exchange's Reg SCI obligations in this 
regard by ensuring that unused Limited Service MEI Ports are available 
to be allocated based on individual Members needs and as the Exchange's 
overall order and trade volumes increase. Additionally, because the 
Exchange will continue not to charge connectivity testing and 
certification fees to its Disaster Recovery Facility or where the 
Exchange requires testing and certification, the proposed fee structure 
will further support the Exchange's Reg SCI compliance by reducing the 
potential impact of a disruption should the Exchange be required to 
switch to its Disaster Recovery Facility and encouraging Members to 
engage in any necessary system testing without incurring any port fee 
costs.\107\
---------------------------------------------------------------------------

    \105\ 17 CFR 242.1000-1007.
    \106\ 17 CFR 242.1001(a).
    \107\ By comparison, some other exchanges charge less to connect 
to their disaster recovery facilities, but still charge an amount 
that could both recoup costs and potentially be a source of profits. 
See, e.g., Nasdaq Stock Market LLC Equity 7, Section 115 (Ports and 
other Services).
---------------------------------------------------------------------------

    Finally, the Exchange believes that the proposed fee is consistent 
with Section 11A of the Exchange Act in that it is designed to 
facilitate the economically efficient execution of securities 
transactions, fair competition among brokers and dealers, exchange 
markets and markets other than exchange markets, and the practicability 
of brokers executing investors' orders in the best market. 
Specifically, the proposed low, cost-based fee will enable a broad 
range of the Exchange Members to continue to connect to the Exchange, 
thereby facilitating the economically efficient execution of securities 
transactions on the Exchange, fair competition between and among such 
Members, and the practicability of Members that are brokers executing 
investors' orders on the Exchange when it is the best market.

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 \108\ 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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    \108\ See supra note 97.
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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

[[Page 21360]]

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.\109\ 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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    \109\ 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 notes 91-92. 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.
---------------------------------------------------------------------------

    Lastly, the Exchange does not believe its proposed changes to the 
monthly rate for Limited Service MEI Ports will place certain market 
participants at a relative disadvantage to other market participants. 
All market participants would be eligible to receive four (4) free 
Limited Service MEI Ports and those that elect to purchase more would 
be subject to the same flat fee regardless of the number of additional 
Limited Service MEI Ports they purchase. 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 
amended its access and connectivity fees, including port fees.\110\ 
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,\111\ 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.\112\ 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.'' \113\ The Exchange concurs with the following statement by 
CBOE,
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    \110\ 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.
    \111\ See Cboe Fee Schedule, Page 12, Logical Connectivity Fees, 
available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (BOE/FIX logical monthly port fees of $750 per 
port for ports 1-5 and $800 per port for port 6 or more; and BOE 
Bulk logical monthly port fees of $1,500 per port for ports 1-5, 
$2,500 per port for ports 6-30, and $3,000 for port 31 or more).
    \112\ See supra note 110 at 71676.
    \113\ Id.

    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

[[Page 21361]]

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 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.\114\
---------------------------------------------------------------------------

    \114\ Id. at 71676.

    The Cboe proposal also referenced the National Market System Plan 
Governing the Consolidated Audit Trail (``CAT NMS Plan''),\115\ 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.\116\ 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.'' 
\117\ 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.\118\
---------------------------------------------------------------------------

    \115\ See Securities Exchange Act Release No. 86901 (September 
9, 2019), 84 FR 48458 (September 13, 2019) (File No. S7-13-19).
    \116\ Id.
    \117\ Id.
    \118\ Id.
---------------------------------------------------------------------------

    Cboe also filed to establish a monthly fee for Certification 
Logical Ports of $250 per Certification Logical Port.\119\ 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.\120\
---------------------------------------------------------------------------

    \119\ 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'').
    \120\ See Securities Exchange Act Release No. 94512 (March 24, 
2002), 87 FR 18425 (March 30, 2022) (SR-Cboe-2022-011).
---------------------------------------------------------------------------

    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.\121\ Cboe noted that 
other exchanges assess similar fees and cited to NASDAQ LLC and 
MIAX.\122\ 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.\123\ Finally, 
similar proposals to adopt a Certification Logical Port monthly fee 
were filed by Cboe BYX Exchange, Inc.,\124\ BZX,\125\ and Cboe EDGA 
Exchange, Inc.\126\
---------------------------------------------------------------------------

    \121\ Id. at 18426.
    \122\ Id.
    \123\ Id.
    \124\ See Securities Exchange Act Release No. 94507 (March 24, 
2002), 87 FR 18439 (March 30, 2022) (SR-CboeBYX-2022-004).
    \125\ See Securities Exchange Act Release No. 94511 (March 24, 
2002), 87 FR 18411 (March 30, 2022) (SR-CboeBZX-2022-021).
    \126\ See Securities Exchange Act Release No. 94517 (March 25, 
2002), 87 FR 18848 (March 31, 2022) (SR-CboeEDGA-2022-004).
---------------------------------------------------------------------------

    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, one comment letter on the 
Third Proposal, one comment letter on the Fourth Proposal, one comment 
letter on the Fifth Proposal, one comment letter on the Sixth Proposal, 
one comment letter on the Seventh Proposal, and one comment letter on 
the Eighth Proposal

[[Page 21362]]

all from the same commenter.\127\ In their letters, the commenters from 
SIG seek to incorporate comments submitted on previous Exchange 
proposals to which the Exchange has previously responded. In addition, 
one commenter states in their latest letter that ``the Exchanges are 
misleading in stating that their last increase in the 10Gb ULL 
connection was in 2021 while fully aware that the Exchanges have been 
charging members this increased rate since January 2023.'' \128\ The 
Exchange has clarified the references to the 2021 fee increase, and 
acknowledges that a version of this proposed fee change has been in 
effect since January 2023, all legally pursuant to the currently 
effective process set forth in Section 19(b) of the Exchange Act. The 
Exchange also received comment letters from a separate commenter on the 
Sixth and Seventh Proposals.\129\ The Exchange believes issues raised 
by each commenter are not germane to this proposal 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 filings. Among other things, the 
commenters are 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.
---------------------------------------------------------------------------

    \127\ See letter from Brian Sopinsky, General Counsel, 
Susquehanna International Group, LLP (``SIG''), to Vanessa 
Countryman, Secretary, Commission, dated February 7, 2023, letters 
from Gerald D. O'Connell, SIG, to Vanessa Countryman, Secretary, 
Commission, dated March 21, 2023, May 24, 2023, July 24, 2023 and 
September 18, 2023, and letters from John C. Pickford, SIG, to 
Vanessa Countryman, Secretary, Commission, dated January 4, 2024, 
and March 1, 2024.
    \128\ See letter from John C. Pickford, SIG, to Vanessa 
Countryman, Secretary, Commission, dated March 1, 2024.
    \129\ See letters from Thomas M. Merritt, Deputy General 
Counsel, Virtu Financial, Inc. (``Virtu''), to Vanessa Countryman, 
Secretary, Commission, dated November 8, 2023 and January 2, 2024.
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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,\130\ and Rule 19b-4(f)(2) \131\ 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.
---------------------------------------------------------------------------

    \130\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \131\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-MIAX-2024-16 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-2024-16. 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-2024-16 and should be 
submitted on or before April 17, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\132\
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    \132\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06449 Filed 3-26-24; 8:45 am]
BILLING CODE 8011-01-P