[Federal Register Volume 89, Number 86 (Thursday, May 2, 2024)]
[Notices]
[Pages 35879-35891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-09477]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100042; File No. SR-EMERALD-2024-15]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Increase Fees for the ToM Market Data Product and Establish Fees for 
the cToM Market Data Product

April 26, 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 April 18, 2024, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Emerald Fee 
Schedule (the ``Fee Schedule'') to (i) amend the fees for the MIAX 
Emerald Top of Market (``ToM'') data feed; and (ii) establish fees for 
the MIAX Emerald Complex Top of Market (``cToM'') data feed.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings, at MIAX Emerald'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

[[Page 35880]]

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: (i) amend the fees for ToM; and (ii) 
establish fees for cToM. The ToM data feed contains top of book 
quotations based on options orders \3\ and quotes \4\ resting on the 
Exchange's Simple Order Book \5\ as well as administrative messages.\6\ 
The cToM data feed includes the same types of information as ToM, but 
for Complex Orders \7\ on the Exchange's Strategy Book.\8\ This 
information includes the Exchange's best bid and offer for a complex 
strategy,\9\ with aggregate size, based on displayable orders in the 
complex strategy. The cToM data feed also provides subscribers with the 
following information: (i) the identification of the complex strategies 
currently trading on the Exchange; (ii) complex strategy last sale 
information; and (iii) the status of securities underlying the complex 
strategy (e.g., halted, open, or resumed). ToM subscribers are not 
required to subscribe to cToM, and cToM subscribers are not required to 
subscribe to ToM.
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    \3\ The term ``order'' means a firm commitment to buy or sell 
option contracts. See Exchange Rule 100.
    \4\ The term ``quote'' or ``quotation'' means a bid or offer 
entered by a Market Maker that is firm and may update the Market 
Maker's previous quote, if any. The Rules of the Exchange provide 
for the use of different types of quotes, including Standard quotes 
and eQuotes, as more fully described in Rule 517. A Market Maker 
may, at times, choose to have multiple types of quotes active in an 
individual option. See Exchange Rule 100.
    \5\ The term ``Simple Order Book'' means the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
    \6\ See Fee Schedule, Section 6)a).
    \7\ In sum, a ``Complex Order'' is ``any order involving the 
concurrent purchase and/or sale of two or more different options in 
the same underlying security (the `legs' or `components' of the 
complex order), for the same account . . . .'' See Exchange Rule 
518(a)(5).
    \8\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \9\ The term ``complex strategy'' means a particular combination 
of components and their ratios to one another. New complex 
strategies can be created as the result of the receipt of a complex 
order or by the Exchange for a complex strategy that is not 
currently in the System. The Exchange may limit the number of new 
complex strategies that may be in the System at a particular time 
and will communicate this limitation to Members via Regulatory 
Circular. See Exchange Rule 518(a)(6)
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    The Exchange notes that there is no requirement that any Member 
\10\ or market participant subscribe to either the ToM or cToM data 
feeds. Instead, a Member may choose to maintain subscriptions to ToM or 
cToM based on their trading strategies and individual business 
decisions. Moreover, persons (including broker-dealers) who subscribe 
to any exchange proprietary data feed must also have equivalent access 
to consolidated Options Information \11\ from the Options Price 
Reporting Authority (``OPRA'') for the same classes or series of 
options that are included in the proprietary data feed (including for 
exclusively listed products), and proprietary data feeds cannot be used 
to meet that particular requirement. The proposed fees described below 
would not apply differently based upon the size or type of firm, but 
rather based upon the type of subscription a firm has to ToM or cToM 
and their use thereof, which are based upon factors deemed relevant by 
each firm. The proposed pricing for ToM and cToM is set forth 
below.\12\
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    \10\ 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.
    \11\ The term ``consolidated Options Information'' means 
``consolidated Last Sale Reports combined with either consolidated 
Quotation Information or the BBO furnished by OPRA . . .'' Access to 
consolidated Options Information is deemed ``equivalent'' if both 
kinds of information are equally accessible on the same terminal or 
work station. See Limited Liability Company Agreement of Options 
Price Reporting Authority, LLC (``OPRA Plan''), Section 5.2(c)(iii). 
The Exchange notes that this requirement under the OPRA Plan is also 
reiterated under the Cboe Global Markets Global Data Agreement and 
Cboe Global Markets North American Data Policies, which subscribers 
to any exchange proprietary product must sign and are subject to, 
respectively. Additionally, the Exchange's Data Order Form (used for 
requesting the Exchange's market data products) requires 
confirmation that the requesting market participant receives data 
from OPRA.
    \12\ The Exchange first filed the proposed fee change on 
December 28, 2022. See Securities Exchange Act Release No. 96625 
(January 10, 2023), 88 FR 2688 (January 17, 2023) (SR-EMERALD-2022-
37). After serval withdrawals and re-filings, the Commission Staff 
suspended the proposed fees on August 3, 2023. See Securities 
Exchange Act Release No. 98051 (August 3, 2023), 88 FR 53937 (August 
9, 2023) (SR-EMERALD-2023-13). On January 17, 2024, the Exchange 
withdrew the suspended proposed fee change. See Securities Exchange 
Act Release No. 99407 (January 22, 2024), 89 FR 5273 (January 26, 
2024).
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ToM
    The Exchange currently charges a monthly fee of $1,250 to Internal 
Distributors \13\ and $1,750 to External Distributors. The Exchange 
proposes to charge a monthly fee of $2,000 to Internal Distributors and 
$3,000 to External Distributors. The proposed fee increases are 
intended to cover the Exchange's increasing costs with compiling and 
producing the ToM data feed described in the Exchange's Cost Analysis 
detailed below. The Exchange does not currently charge, nor does it now 
propose to charge any additional fees based on a Distributor's use of 
the ToM and cToM data feeds (e.g., displayed versus non-displayed use), 
redistribution fees, or individual per user fees.
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    \13\ A ``Distributor'' of MIAX Emerald data is any entity that 
receives a feed or file of data either directly from MIAX Emerald or 
indirectly through another entity and then distributes it either 
internally (within that entity) or externally (outside that entity). 
All Distributors are required to execute a MIAX Emerald Distributor 
Agreement. See Fee Schedule, Section 6)a).
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cToM
    The Exchange previously adopted rules governing the trading of 
Complex Orders on the MIAX Emerald System in 2018,\14\ ahead of the 
Exchange's planned launch, which took place on March 1, 2019. Shortly 
thereafter, the Exchange adopted the cToM data feed product and 
expressly waived fees for cToM to incentivize market participants to 
subscribe.\15\ In the five years since the Exchange launched operations 
and adopted Complex Order functionality, the Exchange has grown its 
monthly complex market share from 0% to 3.53% of the total electronic 
complex non-index volume executed on exchanges offering electronic 
complex functionality based on the month of January 2024.\16\ During 
that same period, the Exchange experienced a steady increase in the 
number of cToM subscribers. Until the Exchange initially filed to adopt 
cToM fees in July of 2021,\17\ the Exchange did not charge fees

[[Page 35881]]

for subscriptions to the cToM data feed. The objective of this approach 
was to eliminate any fee-based barriers for Members when the Exchange 
first launched Complex Order functionality, which the Exchange believed 
was necessary to attract order flow as a relatively new exchange at 
that time. During that time, the Exchange absorbed all costs associated 
with compiling and disseminating the cToM data feed. The Exchange now 
proposes to establish fees for the cToM data feed to recoup its ongoing 
costs going forward, as described below.
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    \14\ See Securities Exchange Act Release Nos. 84891 (December 
20, 2018), 83 FR 67421 (December 28, 2018) (In the Matter of the 
Application of MIAX EMERALD, LLC for Registration as a National 
Securities Exchange; Findings, Opinion, and Order of the 
Commission); and 85345 (March 18, 2019), 84 FR 10848 (March 22, 
2019) (SR-EMERALD-2019-13) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518, 
Complex Orders).
    \15\ See Securities Exchange Act Release No. 85207 (February 27, 
2019), 84 FR 7963 (March 5, 2019) (SR-EMERALD-2019-09) (providing a 
complete description of the cToM data feed).
    \16\ The Exchange notes that it receives complex market data for 
all U.S. options exchanges that offer complex functionality from 
direct feeds from OPRA.
    \17\ See Securities Exchange Act Release Nos. 92358 (July 9, 
2021), 86 FR 37361 (July 15, 2021) (SR-EMERALD-2021-21); 98051 
(August 3, 2023), 88 FR 53937 (August 9, 2023) (SR-EMERALD-2023-13) 
(Suspension of and Order Instituting Proceedings To Determine 
Whether To Approve or Disapprove Proposed Rule Change To Increase 
Fees for the ToM Market Data Product and Establish Fees for the cToM 
Market Data Product).
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    The Exchange proposes to charge a monthly fee of $2,000 to Internal 
Distributors and $3,000 to External Distributors of the cToM data feed. 
The proposed fees are identical to those proposed herein for the ToM 
data feed. The Exchange proposes to assess Internal Distributors fees 
that are less than the fees assessed for External Distributors because 
External Distributors may monetize their receipt of the ToM and cToM 
data feeds by charging their customers fees for receipt of the 
Exchange's data. Internal Distributors do not have the same ability. 
Like the ToM data feed, the Exchange does not propose to adopt separate 
redistribution fees for the cToM data feed. However, the recipient of 
cToM data would be required to become a Distributor and would be 
subject to the applicable Distribution fees. Also like the ToM data 
feed, the Exchange does not propose to charge individual per user fees 
or any additional fees based on a subscriber's use of the cToM data 
feed (e.g., displayed versus non-displayed use).
    The Exchange proposes to assess cToM fees to Internal and External 
Distributors in the same manner as it currently does for the ToM data 
feed. Each Distributor would be charged for each month it is 
credentialed to receive cToM in the Exchange's production environment. 
Also, fees for cToM will be reduced for new mid-month Distributors for 
the first month they subscribe. New mid-month cToM Distributors would 
be assessed a pro-rata percentage of the applicable Distribution fee 
based on the percentage of the number of trading days remaining in the 
affected calendar month as of the date on which they have been first 
credentialed to receive cToM in the production environment, divided by 
the total number of trading days in the affected calendar month.
Minor, Non-Substantive Changes
    The Exchange also proposes to amend the paragraph below the table 
of fees for ToM and cToM in Section 6)a) of the Fee Schedule to make a 
minor, non-substantive correction by deleting the phrase ``(as 
applicable)'' in the first sentence following the table of fees for ToM 
and cToM. The purpose of this proposed change is to remove unnecessary 
text from the Fee Schedule. This proposed change does not alter the 
operation of either fee.
Implementation
    The proposed fee changes are immediately effective.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \18\ of the Act in general, and 
furthers the objectives of Section 6(b)(4) \19\ of the Act, in 
particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees and other charges among its Members 
and other persons using its facilities. Additionally, the Exchange 
believes that the proposed fees are consistent with the objectives of 
Section 6(b)(5) \20\ of the Act in that they are designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to a free and open market and 
national market system, and, in general, to protect investors and the 
public interest, and, particularly, are not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(4).
    \20\ 15 U.S.C. 78f(b)(5).
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    In 2019, Commission staff published guidance suggesting the types 
of information that self-regulatory organizations (``SROs'') may use to 
demonstrate that their fee filings comply with the standards of the 
Exchange Act (the ``Staff Guidance'').\21\ While the Exchange 
understands that the Staff Guidance does not create new legal 
obligations on SROs, the Staff Guidance is consistent with the 
Exchange's view about the type and level of transparency that exchanges 
should meet to demonstrate compliance with their existing obligations 
when they seek to charge new fees. The Staff Guidance provides that in 
assessing the reasonableness of a fee, the Staff would consider whether 
the fee is constrained by significant competitive forces. To determine 
whether a proposed fee is constrained by significant competitive 
forces, the Staff Guidance further provides that the Staff would 
consider whether the evidence provided by an SRO in a Fee Filing 
proposal demonstrates (i) that there are reasonable substitutes for the 
product or service that is the subject of a proposed fee; (ii) that 
``platform'' competition constrains the fee; and/or (iii) that the 
revenue and cost analysis provided by the SRO otherwise demonstrates 
that the proposed fee would not result in the SRO taking supra-
competitive profits.\22\ The Exchange provides sufficient evidence 
below to support the findings that the proposed fees are reasonable 
because the projected revenue and cost analysis contained herein 
demonstrates that the proposed fees would not result in the Exchange 
taking supra-competitive profits.
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    \21\ 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.
    \22\ Id.
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    As noted above, the Exchange also adopted the cToM data feed and 
expressly waived fees over two years to incentivize market participants 
to subscribe and make the Exchange's cToM data more widely 
available.\23\ In the five years since the Exchange launched operations 
and adopted Complex Order functionality, the Exchange has grown its 
monthly complex market share from 0% to 3.53% of the total electronic 
complex non-index volume executed on U.S. options exchanges offering 
complex functionality for the month of January 2024. One of the primary 
objectives of the Exchange is to provide competition and to reduce 
fixed costs imposed upon the industry. Consistent with this objective, 
the Exchange believes that this proposal reflects a simple, 
competitive, reasonable, and equitable pricing structure.
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    \23\ See supra note 15.
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Cost Analysis
    In general, 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 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.

[[Page 35882]]

    Accordingly, in proposing to charge fees for market data, 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--to 
ensure the fees 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 does not believe it 
needs to otherwise address questions about market competition in the 
context of this filing because the proposed fees are consistent with 
the Act based on its Cost Analysis. The Exchange also believes that 
this level of diligence and transparency is called for by the 
requirements of Section 19(b)(1) under the Act,\24\ and Rule 19b-4 
thereunder,\25\ with respect to the types of information SROs should 
provide when filing fee changes, and Section 6(b) of the Act,\26\ which 
requires, among other things, that exchange fees be reasonable and 
equitably allocated,\27\ not designed to permit unfair 
discrimination,\28\ and that they do not impose a burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.\29\ This proposal addresses those requirements, and the 
analysis and data in this section are designed to clearly and 
comprehensively show how they are met.
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    \24\ 15 U.S.C. 78s(b)(1).
    \25\ 17 CFR 240.19b-4.
    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(4).
    \28\ 15 U.S.C. 78f(b)(5).
    \29\ 15 U.S.C. 78f(b)(8).
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    In 2019, the Exchange completed a study of its aggregate costs to 
produce market data and connectivity (the ``Cost Analysis'').\30\ 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'').
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    \30\ 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.
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    As an initial step, the Exchange determined the total cost for the 
Exchange and its affiliated markets \31\ for each cost driver as part 
of its 2024 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,\32\ 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 cost 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.
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    \31\ The affiliated markets include Miami International 
Securities Exchange, LLC (``MIAX''); separately, the options and 
equities markets of MIAX PEARL, LLC (``MIAX Pearl''); and MIAX 
Emerald, LLC (``MIAX Emerald'').
    \32\ 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.
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    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 (for example, 61.9% of the 
data center total expense amount is allocated to 10Gb ULL 
connectivity), with smaller allocations to ToM and cToM (1.1% 
combined), and the remainder to the provision of other connectivity, 
ports, transaction execution, membership services and other market data 
services (37%). 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

[[Page 35883]]

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 cost-justified 
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 Cost Analysis, which was again 
recently further refined, the Exchange analyzed nearly every expense 
item in the Exchange's general expense ledger to determine whether each 
such expense relates to the provision of ToM and cToM data feeds, and, 
if such expense did so relate, what portion (or percentage) of such 
expense actually supports the provision of ToM and cToM data feeds, and 
thus bears a relationship that is, ``in nature and closeness,'' 
directly related to ToM and cToM data feeds. 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 ToM and cToM data 
feeds is $62,626 (the Exchange divided the annual cost for each of ToM 
and cToM by 12 months, then added both numbers together), as further 
detailed below.
Costs Related to Offering ToM and cToM Data Feeds
    The following chart details the individual line-item (annual) costs 
considered by the Exchange to be related to offering the ToM and cToM 
data feeds to its Members and other customers, as well as the 
percentage of the Exchange's overall costs that such costs represent 
for such area (e.g., as set forth below, the Exchange allocated 
approximately 2.3% of its overall Human Resources cost to offering ToM 
and cToM data feeds).

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                                                                                     Allocted
                          Cost drivers                              Allocated      monthly cost      % of all
                                                                 annual cost \a\        \b\
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Human Resources................................................         $509,350         $42,446             2.3
Connectivity (external fees, cabling, switches, etc.)..........            1,011              84             1.1
Internet Services and External Market Data.....................             0.00            0.00             0.0
Data Center....................................................           16,624           1,385             1.1
Hardware and Software Maintenance & Licenses...................           18,958           1,580             1.1
Depreciation...................................................           17,853           1,488             0.5
Allocated Shared Expenses......................................          187,711          15,643             2.1
                                                                ------------------------------------------------
    Total......................................................          751,507          62,626             2.0
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\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 ToM and cToM. 
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 
market, MIAX, in its similar proposed fee change for ToM and cToM. 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, if any.
    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. 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

[[Page 35884]]

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.
Human Resources
    The Exchange notes that it and its affiliated markets anticipate 
that by year-end 2024, there will be 289 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 ToM and cToM data feeds and performance 
thereof (primarily the Exchange's network infrastructure team, which 
spends a portion of their time performing functions necessary to 
provide market data). 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 market data. From that portion 
allocated to the Exchange that applied to market data, the Exchange 
then allocated a weighted average of 2.1% of each employee's time from 
the above group to ToM and cToM data feeds (which excludes an 
allocation for the recently hired Head of Data Services for the 
Exchange and its affiliates).
    The Exchange also allocated Human Resources costs to provide ToM 
and cToM to a limited subset of personnel with ancillary functions 
related to establishing and maintaining such market data feeds (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 
market data feeds) and then applied a smaller allocation to such 
employees' time to ToM and cToM (less than 1.6%, which includes an 
allocation for the Head of Data Services). This other group of 
personnel with a smaller allocation of Human Resources costs also have 
a direct nexus to providing ToM and cToM, whether it is a sales person 
selling a market data feed, finance personnel billing for market data 
feeds or providing budget analysis, or information security ensuring 
that such market data feeds are 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 market data feeds, 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 ToM and cToM data feeds: 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 2.1% of each of their employee's time assigned to the 
Exchange for ToM and cToM, as stated above. Employees from these 
departments perform numerous functions to support ToM and cToM data 
feeds, such as the configuration and maintenance of the hardware 
necessary to support the ToM and cToM data feeds. 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 ToM and cToM data feeds 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 ToM and 
cToM, 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 ToM and cToM related Human Resources costs to the 
extent that they are involved in overseeing tasks related to providing 
market data. 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.) \33\
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    \33\ This cost driver was titled ``Network Infrastructure'' in 
prior proposals. The Exchange has updated this section to now be in 
line with its similar cost analysis and cost driver descriptions for 
other non-transaction fee filings. See, e.g., Securities Exchange 
Act Release No. 99475 (February 5, 2024), 89 FR 9223 (February 9, 
2024) (SR-EMERALD-2024-03).
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    The Connectivity cost driver includes cabling and switches required 
to generate and disseminate the ToM and cToM data feeds and operate the 
Exchange. The Connectivity cost driver is more narrowly focused on 
technology used to complete Member subscriptions to ToM and cToM and 
the servers used at the Exchange's primary and back-up data centers 
specifically for the ToM and cToM data feeds. Further, as certain 
servers are only partially utilized to generate and disseminate the ToM 
and cToM data feeds, only the percentage of such servers devoted to 
generating and disseminating the ToM and cToM data feeds was included 
(i.e., the capacity of such servers allocated to the ToM and cToM data 
feeds).\34\
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    \34\ The Exchange understands that the Investors Exchange, Inc. 
(``IEX'') and MEMX LLC (``MEMX'') both allocated a percentage of 
their servers to the production and dissemination of market data to 
support proposed market data fees. See Securities Exchange Act 
Release Nos. 94630 (April 7, 2022), 87 FR 21945, at page 21949 
(April 13, 2022) (SR-IEX-2022-02) and 97130 (March 13, 2023), 88 FR 
16491 (March 17, 2023) (SR-MEMX-2023-04). The Exchange does not have 
insight into either MEMX's or IEX's technology infrastructure or 
what their determinations were based on. However, the Exchange 
reviewed its own technology infrastructure and believes based on its 
design, it is more appropriate for the Exchange to allocate a 
portion of its Connectivity cost driver to market data based on a 
percentage of overall cost, not on a per server basis.

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[[Page 35885]]

Internet Services and External Market Data
    The next cost driver consists of internet services and external 
market data. Internet services includes third-party service providers 
that provide the internet, fiber and bandwidth connections between the 
Exchange's networks, primary and secondary data centers, and office 
locations in Princeton and Miami. External market data includes fees 
paid to third parties, including other exchanges, to receive market 
data. The Exchange allocate any costs associated with internet services 
or external market data to the ToM and cToM data feeds.
Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide ToM and cToM in the third-party data centers where it 
maintains its equipment (such as dedicated space, security services, 
cooling and power). 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. As the Data Center costs are primarily for 
space, power, and cooling of servers, the Exchange allocated 1.1% to 
the applicable Data Center costs for the ToM and cToM data feeds. The 
Exchange believes it is reasonable to apply the same proportionate 
percentage of Data Center costs to that of the Connectivity cost 
driver.
Hardware and Software Maintenance and Licenses
    Hardware and Software Maintenance and Licenses includes hardware 
and software licenses used to operate and monitor physical assets 
necessary to offer the ToM and cToM data feeds.\35\ Because the 
hardware and software license fees are correlated to the servers used 
by the Exchange, the Exchange again applied an allocation of 1.1% of 
its costs for Hardware and Software Maintenance and Licenses to the ToM 
and cToM data feeds. The Exchange notes that this allocation is less 
than MIAX as MIAX allocated 1.3% of its Hardware and Software 
Maintenance and License expense to ToM and cToM, while MIAX Emerald 
allocated 1.1% of its Hardware and Software Maintenance and License 
expense to ToM and cToM. MIAX's allocation results in a slightly higher 
dollar amount of $8,000 per year (or approximately $667 per month, when 
dividing the annual cost difference by 12 months and rounding to the 
nearest dollar) compared to the annual cost of MIAX Emerald for its 
Hardware and Software Maintenance and License cost driver. This is 
because MIAX 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, including dissemination 
of ToM and cToM. At the time of this filing, MIAX 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, MIAX has a slightly higher expense than MIAX Emerald.
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    \35\ This expense may be less than the Exchange's affiliated 
markets, specifically MIAX. This is 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.
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Depreciation
    All physical assets, software, and hardware used to provide ToM and 
cToM, which also includes assets used for testing and monitoring of 
Exchange infrastructure to provide market data, 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 vast majority of the 
software the Exchange uses for its operations to generate and 
disseminate the ToM and cToM data feeds has been developed in-house 
over an extended period. This software development also requires 
quality assurance and thorough testing to ensure the software works as 
intended. The Exchange also included in the Depreciation cost driver 
certain budgeted improvements that the Exchange intends to capitalize 
and depreciate with respect to ToM and cToM 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 ToM and cToM. As noted above, the Exchange allocated 0.5% of 
its allocated depreciation costs to providing ToM and cToM.
    The Exchange notes that this allocation differs from its affiliated 
market, MIAX, 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, allocated to the depreciation of software and hardware used to 
generate and disseminate their respective ToM and cToM data feeds are 
similar (0.8% for MIAX and 0.5% for MIAX Emerald). However, MIAX's 
dollar amount is greater than that of MIAX Emerald by approximately 
$17,000 per year (albeit a relatively small amount of approximately 
$1,415 per month, when rounding to the nearest dollar). This is due to 
two primary factors. First, MIAX has undergone a technology refresh 
since the time MIAX Emerald launched in February 2019, leading to it 
having more hardware and software that is subject to depreciation. 
Second, MIAX maintains 24 matching engines while MIAX Emerald maintains 
only 12 matching engines. This also results in more of MIAX'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 MIAX.
Allocated Shared Expenses
    Finally, as with other exchange products and services, a portion of 
general shared expenses was allocated to the provision of ToM and cToM 
data feeds. These general shared costs are integral to exchange 
operations, including its ability to provide ToM and cToM. 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.\36\ 
These

[[Page 35886]]

general shared expenses are incurred by the Exchange's parent company, 
MIH, as a direct result of operating the Exchange and its affiliated 
markets.
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    \36\ The Exchange notes that MEMX allocated a precise amount of 
10% of the overall cost for directors in a similar non-transaction 
fee filing. See Securities Exchange Act Release No. 97130 (March 13, 
2023), 88 FR 16491 (March 17, 2023) (SR-MEMX-2023-04). The Exchange 
does not calculate is expenses at that granular a level. Instead, 
director costs are included as part of the overall general 
allocation.
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    The Exchange employed a process to determine a reasonable 
percentage to allocate general shared expenses to ToM and cToM 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 market data. Then, 
these costs were further allocated to sub-categories within the final 
categories, i.e., ToM and cToM as sub-categories of market data. In 
determining the percentage of general shared expenses allocated to 
market data that ultimately apply to ToM and cToM, 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 ToM and cToM. 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 ToM and cToM.
    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 market data products offered 
by the Exchange. The Exchange then allocated 2.1% of the portion 
allocated to market data to ToM and cToM. The Exchange believes this 
allocation percentage is reasonable because, while the overall dollar 
amount may be higher than other cost drivers, the 2.1% is based on and 
in line with the percentage allocations of each of the Exchange's other 
cost drivers. The percentage allocated to ToM and cToM 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 
market data feeds than the Exchange's competitors to maintain premium 
performance. This allocation reflects the Exchange's focus on providing 
and maintaining high performance market data services, of which ToM and 
cToM are main contributors.
    The Exchange notes that this allocation differs from its affiliated 
market, MIAX, due to a number of factors, such as the increase in 
overall headcount, thus providing a higher contribution on MIAX to the 
depreciated cost. The Exchange notes that the percentages it and its 
affiliate, MIAX, allocated to this cost driver are similar (2.5% for 
MIAX and 2.1% for MIAX Emerald). However, MIAX's dollar amount is 
greater than that of MIAX Emerald by $38,096 per year (albeit a 
relatively small amount of approximately $3,174 per month, when 
rounding to the nearest dollar). This is due primarily to significant 
exchange staff headcount increases.\37\ As mentioned above, 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 (with a projected 60 additional staff in 2024). 
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 and its affiliated markets.
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    \37\ The Exchange notes that this reference to increased 
headcount is used here to explain why MIAX's dollar amount of its 
allocated shared expense is greater than that of MIAX Emerald. A 
similar reference is not included in the above discussion of the 
Human Resources cost driver because the description of that cost 
driver does not include a similar comparison.
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* * * * *
Approximate Cost for ToM and cToM per Month
    After determining the approximate allocated monthly cost related to 
ToM and cToM combined, the total monthly cost for ToM and cToM of 
$62,626 was divided by the number of total subscribers to ToM and cToM 
that the Exchange maintained in August 2023 (29 Internal Distributors + 
5 External Distributors = 34 total Distributors),\38\ to arrive at a 
cost of approximately $1,842 per month per subscription (rounded to the 
nearest dollar). 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 ToM and cToM subscribers.
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    \38\ The used August 2023 subscription data because that was the 
last full month the fees proposed herein for ToM and cToM were 
charged, before the Exchange's prior filing to adopt the same fees 
was suspended by the Commission. See supra note 12. While there has 
been no material overall change to the number of subscriptions since 
August 2023, the Exchange notes that the number of subscriptions may 
fluctuate and demand may change when fees are removed and 
reinstated. Accordingly, the Exchange believes that, in order to 
obtain an accurate measure of actual demand for fee-liable 
subscriptions, the Exchange looked to the last month that the fees 
were in place prior to suspension, which was August 2023.
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Cost Analysis--Additional Discussion
    In conducting its Cost Analysis, the Exchange did not allocate any 
of its expenses in full to any core service (including market data) 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 recently submitted proposing fees for certain 
connectivity and ports offered by the Exchange. For instance, in 
calculating the Human Resources expenses to be allocated to market data 
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 commensurate percentage of the cost of such personnel (5.9%) given 
their focus on functions necessary to provide market data. The salaries 
of those same personnel were allocated only 2.1% to ToM and cToM and 
the remaining 97.9% was allocated to other market data products offered 
by the Exchange (MOR, AIS, etc.), connectivity services, port services, 
transaction services, and membership services. The Exchange did not 
allocate any other Human Resources expense for providing market data to 
any other employee group, outside of a smaller allocation of 1.6% for 
ToM and cToM of the cost associated with certain specified personnel 
who work closely with and support network infrastructure personnel.
    In total, the Exchange allocated 2.3% of its personnel costs (Human 
Resources) to providing ToM and cToM. In turn, the Exchange allocated 
the remaining 97.7% of its Human Resources expense to membership 
services, transaction services, connectivity services, port services 
and other market data products. Thus, again, the Exchange's allocations 
of cost across core services were based on real costs of operating the 
Exchange and were not

[[Page 35887]]

double-counted across the core services or their associated revenue 
streams.
    As another example, the Exchange allocated depreciation expense to 
all core services, including market data, 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 ToM and cToM data feeds to its Members and their customers. 
However, the Exchange did not allocate all of the depreciation and 
amortization expense toward the cost of providing ToM and cToM, but 
instead allocated approximately 0.5% of the Exchange's overall 
depreciation and amortization expense to ToM and cToM combined. The 
Exchange allocated the remaining depreciation and amortization expense 
(99.5%) toward the cost of providing transaction services, membership 
services, connectivity services, port services, and other market data 
products.
    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 ToM and cToM, the Exchange will have to be 
successful in retaining existing clients that wish to maintain 
subscriptions to those market data feeds 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 market data services it will 
receive additional revenue to offset future cost increases. However, if 
use of market data 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 \39\
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    \39\ For purposes of calculating projected annualized 2024 
revenue for ToM and cToM, the Exchange used monthly revenues for 
August 2023, the last month the Exchange billed at the proposed 
rates before the Commission suspended the earlier filing. Id.
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    The proposed fees will allow the Exchange to cover certain costs 
incurred by the Exchange associated with creating, generating, and 
disseminating the ToM and cToM data feeds and the fact that the 
Exchange will need to fund future expenditures (increased costs, 
improvements, etc.). 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 market data subscribers. Subscribers, 
particularly those of ToM and cToM, 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. 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 
ToM and cToM will equal $751,507. Based on current ToM and cToM 
subscribers, the Exchange would generate annual revenue of 
approximately $872,880 for ToM and cToM combined.\40\ The Exchange 
believes this represents a modest profit of 13.9% when compared to the 
cost of providing ToM and cToM data feeds.
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    \40\ The Exchange notes that the total revenue number of 
$872,880 does not equal the full monthly fee multiplied by the total 
number of Distributors, due to a new Distributor first purchasing a 
ToM and cToM data feed mid-month and having their first month's 
fee(s) pro-rated for External Distribution, pursuant to Section 6)a) 
of the Exchange Fee Schedule.
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    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 ToM and cToM data feeds versus the total 
projected revenue of the Exchange associated with ToM and cToM.
    The Exchange also notes that the resultant profit margin differs 
slightly from the profit margins set forth in a similar fee filing by 
its affiliated market, MIAX. This is not atypical among exchanges and 
is due to a number of factors that differ between these two markets, 
including: different market models, market structures, and product 
offerings (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., MIAX maintains 24 matching engines while MIAX Emerald 
maintains only 12 matching engines); and different maturity phase of 
MIAX 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, MIAX and MIAX Emerald propose to charge the same rates for 
their respective ToM and cToM data feeds, which are comparable to, or 
lower than, similar fees for similar products

[[Page 35888]]

charged by competing exchanges. For example, for Internal Distributors 
of ToM and cToM, the Exchange proposes a lower fee than the fee charged 
by ISE for ISE's Top Quote Feed ($2,000 for the Exchange vs. $3,000 for 
ISE).\41\ NYSE Arca charges even higher fees for the NYSE Arca Options 
Top Feed than the Exchange's proposed fees ($2,000 for the Exchange vs. 
$3,000 per month plus an additional $2,000 for redistribution on NYSE 
Arca).\42\ 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 ToM and/or cToM on MIAX or MIAX 
Emerald and vice versa).
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    \41\ See ISE Options 7 Pricing Schedule, Section 10, H., 
available at Https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207 (assessing Professional internal and external 
distributors $3,000 per month, plus $20 per month per controlled 
device for ISE's Top Quote Feed).
    \42\ Fees for the NYSE Arca Options Top Feed, which is the 
comparable product to ToM, are $3,000 per month for access (internal 
use) and an additional $2,000 per month for redistribution (external 
distribution), compared to the Exchange's proposed fees of $2,000 
and $3,000 for Internal and External Distributors, respectively. In 
addition, for its NYSE Arca Options Top Feed, NYSE Arca charges for 
three different categories of non-display usage, and user fees, both 
of which the Exchange does not propose to charge, causing the 
overall cost of NYSE Arca Options Top Feed to far exceed the 
Exchange's proposed rates. See NYSE Arca Options Proprietary Market 
Data Fees, available at: Https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
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    The Exchange also reiterates that prior to July of 2021, the month 
in which it first proposed to adopt fees for cToM, the Exchange did not 
charge any fees for cToM and its allocation of costs to cToM was part 
of a holistic allocation that also allocated costs to other core 
services without double-counting any expenses. 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, IEX and MEMX, 
which are currently each operating only one exchange, in their recent 
non-transaction fee filings allocate the entire amount of that same 
cost to a single exchange. This can result in lower profit margins for 
the non-transaction fees proposed by IEX and MEMX because the single 
allocated cost does not experience the efficiencies and synergies that 
result from sharing costs across multiple platforms.\43\ 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 Commission Staff should 
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. If Commission Staff is making determinations as to appropriate 
profit margins, 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, the proposal reflects the Exchange's efforts to 
control its costs, which the Exchange does on an ongoing basis as a 
matter of good business practice. A potential profit margin should not 
be judged alone based on its size, but is also indicative of costs 
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 where 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 are used to 
justify fees increases.
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    \43\ 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, e.g., supra note 34. The Exchange 
does not believe a similar analysis would be useful here because it 
is amending existing fees, not proposing to charge a new fee where 
existing subscribers may terminate connections because they are no 
longer enjoying the service at no cost.
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    Accordingly, 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 standard set forth in the Staff 
Guidance. The Exchange believes the Cost Analysis and related 
projections in this filing demonstrate this fact.
Reasonableness
    Overall. With regard to reasonableness, the Exchange understands 
that the Commission has traditionally taken a market-based approach to 
examine whether the exchange making the fee proposal was subject to 
significant competitive forces in setting the terms of the proposal. 
The Exchange understands that in general the analysis considers whether 
the exchange has demonstrated in its filing that (i) there are 
reasonable substitutes for the product or service; (ii) ``platform'' 
competition constrains the ability to set the fee; and/or (iii) revenue 
and cost analysis shows the fee would not result in the exchange taking 
supra-competitive profits. If the exchange demonstrates that the fee is 
subject to significant competitive forces, the Exchange understands 
that in general the analysis will next consider whether there is any 
substantial countervailing basis to suggest the fee's terms fail to 
meet one or more standards under the Exchange Act. The Exchange further 
understands that if the filing fails to demonstrate that the fee is 
constrained by competitive forces, the exchange must provide a 
substantial basis, other than competition, to show that it is 
consistent with the Exchange Act, which may include production of 
relevant revenue and cost data pertaining to the product or service.
    The Exchange has not determined its proposed overall market data 
fees based on assumptions about market competition, instead relying 
upon a cost-plus model to determine a reasonable fee structure that is 
informed by the Exchange's understanding of different uses of the 
products by different types of participants. In this context, the 
Exchange believes the proposed fees overall are fair and reasonable as 
a form of cost recovery plus the possibility of a reasonable return for 
the Exchange's aggregate costs

[[Page 35889]]

of offering the ToM and cToM data feeds. The Exchange believes the 
proposed fees are reasonable because they are designed to generate 
annual revenue to recoup some or all of Exchange's annual costs of 
providing ToM and cToM data with a reasonable mark-up. As discussed in 
the Purpose section, the Exchange estimates this fee filing will result 
in annual revenue of approximately $872,880, representing a potential 
mark-up of just 13.9% over the cost of providing ToM and cToM data. 
Accordingly, the Exchange believes that this fee methodology is 
reasonable because it allows the Exchange to recoup all of its expenses 
for providing the ToM and cToM data products (with any additional 
revenue representing no more than what the Exchange believes to be a 
reasonable rate of return). The Exchange also believes that the 
proposed fees are reasonable because they are generally less than the 
fees charged by competing options exchanges for comparable market data 
products, notwithstanding that the competing exchanges may have 
different system architectures that may result in different cost 
structures for the provision of market data.
    The Exchange believes the proposed fees for the ToM and cToM data 
feeds are reasonable when compared to fees for comparable products, 
compared to which the Exchange's proposed fees are generally lower, as 
well as other comparable data feeds priced significantly higher than 
the Exchange's proposed fees for the ToM and cToM data feeds.
    Internal Distribution Fees. The Exchange believes that it is 
reasonable to charge fees to access the ToM and cToM data feeds for 
Internal Distribution because of the value of such data to subscribers 
in their profit-generating activities. The Exchange also believes that 
the proposed monthly Internal Distribution fee for cToM is reasonable 
as it is similar to the amount charged by at least one other exchange 
of comparable size for comparable data products, and lower than the 
fees charged by other exchange for comparable data products.\44\
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    \44\ See supra notes 41 and 42.
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    External Distribution Fees. The Exchange believes that it is 
reasonable to charge External Distribution fees for the ToM and cToM 
data feeds because vendors receive value from redistributing the data 
in their business products provided to their customers. The Exchange 
believes that charging External Distribution fees is reasonable because 
the vendors that would be charged such fees profit by re-transmitting 
the Exchange's market data to their customers. These fees would be 
charged only once per month to each vendor account that redistributes 
any ToM and cToM data feeds, regardless of the number of customers to 
which that vendor redistributes the data.
    For all of the foregoing reasons, the Exchange believes that the 
proposed fees for the ToM and cToM data feeds are reasonable.
Equitable Allocation
    Overall. The Exchange believes that its proposed fees are 
reasonable, fair, and equitable, and not unfairly discriminatory 
because they are designed to align fees with services provided. The 
Exchange believes the proposed fees for the ToM and cToM data feeds are 
allocated fairly and equitably among the various categories of users of 
the feeds, and any differences among categories of users are justified 
and appropriate.
    The Exchange believes that the proposed fees are equitably 
allocated because they will apply uniformly to all data recipients that 
choose to subscribe to the ToM and cToM data feeds. Any subscriber or 
vendor that chooses to subscribe to the ToM and cToM data feeds is 
subject to the same Fee Schedule, regardless of what type of business 
they operate, and the decision to subscribe to one or more ToM and cToM 
data feeds is based on objective differences in usage of ToM and cToM 
data feeds among different Members, which are still ultimately in the 
control of any particular Member. The Exchange believes the proposed 
pricing of the ToM and cToM data feeds is equitably allocated because 
it is based, in part, upon the amount of information contained in each 
data feed and the value of that information to market participants.
    Internal Distribution Fees. The Exchange believes the proposed 
monthly fees for Internal Distribution of the ToM and cToM data feeds 
are equitably allocated and not unfairly discriminatory because they 
would be charged on an equal basis to all data recipients that receive 
the ToM and cToM data feeds for internal distribution, regardless of 
what type of business they operate.
    External Distribution Fees. The Exchange believes the proposed 
monthly fees for External Distribution of the ToM and cToM data feeds 
are equitably allocated and not unfairly discriminatory because they 
would be charged on an equal basis to all data recipients that receive 
the ToM and cToM data feeds that choose to redistribute the feeds 
externally, regardless of what business they operate. The Exchange also 
believes that the proposed monthly fees for External Distribution are 
equitably allocated when compared to lower proposed fees for Internal 
Distribution because data recipients that are externally distributing 
ToM and cToM data feeds are able to monetize such distribution and 
spread such costs amongst multiple third party data recipients, whereas 
the Internal Distribution fee is applicable to use by a single data 
recipient (and its affiliates).
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to assess Internal Distributors fees that are 
less than the fees assessed for External Distributors for subscriptions 
to the ToM and cToM data feeds because Internal Distributors have 
limited, restricted usage rights to the market data, as compared to 
External Distributors, which have more expansive usage rights. All 
Members and non-Members that decide to receive any market data feed of 
the Exchange (or its affiliates, MIAX Pearl and MIAX), must first 
execute, among other things, the MIAX Exchange Group Exchange Data 
Agreement (the ``Exchange Data Agreement'').\45\ Pursuant to the 
Exchange Data Agreement, Internal Distributors are restricted to the 
``internal use'' of any market data they receive. This means that 
Internal Distributors may only distribute the Exchange's market data to 
the recipient's officers and employees and its affiliates.\46\ External 
Distributors may distribute the Exchange's market data to persons who 
are not officers, employees or affiliates of the External 
Distributor,\47\ and may charge their own fees for the redistribution 
of such market data. External Distributors may monetize their receipt 
of the ToM and cToM data feeds by charging their customers fees for 
receipt of the Exchange's ToM and cToM data. Internal Distributors do 
not have the same ability to monetize the Exchange's ToM and cToM data 
feeds. Accordingly, the Exchange believes it is fair, reasonable and 
not unfairly discriminatory to assess External Distributors a higher 
fee for the Exchange's ToM and cToM data feeds as External Distributors 
have greater usage rights to commercialize such market data and can 
adjust their own fee structures if necessary.
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    \45\ See Exchange Data Agreement, available at https://www.miaxglobal.com/markets/us-options/all-options/market-data-vendor-agreements.
    \46\ See id.
    \47\ See id.
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    The Exchange also utilizes more resources to support External

[[Page 35890]]

Distributors versus Internal Distributors, as External Distributors 
have reporting and monitoring obligations that Internal Distributors do 
not have, thus requiring additional time and effort of Exchange staff. 
For example, External Distributors have monthly reporting requirements 
under the Exchange's Market Data Policies.\48\ Exchange staff must 
then, in turn, process and review information reported by External 
Distributors to ensure the External Distributors are redistributing 
cToM data in compliance with the Exchange's Market Data Agreement and 
Policies.
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    \48\ See Section 6 of the Exchange's Market Data Policies, 
available at Https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Exchange_Group_Market_Data_Policies_07202021.pdf.
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    The Exchange believes the proposed cToM fees are equitable and not 
unfairly discriminatory because the fee level results in a reasonable 
and equitable allocation of fees amongst subscribers for similar 
services, depending on whether the subscriber is an Internal or 
External Distributor. Moreover, the decision as to whether or not to 
purchase market data is entirely optional to all market participants. 
Potential purchasers are not required to purchase the market data, and 
the Exchange is not required to make the market data available. 
Purchasers may request the data at any time or may decline to purchase 
such data. The allocation of fees among users is fair and reasonable 
because, if market participants decide not to subscribe to the data 
feed, firms can discontinue their use of the cToM data.
    For all of the foregoing reasons, the Exchange believes that the 
proposed fees for the ToM and cToM data feeds are equitably allocated.

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

    In accordance with Section 6(b)(8) of the Act,\49\ the Exchange 
does not believe that the proposed rule change would impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act.
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    \49\ 15 U.S.C. 78f(b)(8).
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Intra-Market Competition
    The Exchange does not believe that the proposed fees place certain 
market participants at a relative disadvantage to other market 
participants because, as noted above, the proposed fees are associated 
with usage of the data feed by each market participant based on whether 
the market participant internally or externally distributes the 
Exchange data, which are still ultimately in the control of any 
particular Member, and such fees do not impose a barrier to entry to 
smaller participants. Accordingly, the proposed fees do not favor 
certain categories of market participants in a manner that would impose 
a burden on competition; rather, the allocation of the proposed fees 
reflects the types of data consumed by various market participants and 
their usage thereof.
Inter-Market Competition
    The Exchange does not believe the proposed fees place an undue 
burden on competition on other exchanges that is not necessary or 
appropriate. In particular, market participants are not forced to 
subscribe to either data feed, as described above. Additionally, other 
exchanges have similar market data fees with comparable rates in place 
for their participants.\50\ The proposed fees are based on actual costs 
and are designed to enable the Exchange to recoup its applicable costs 
with the possibility of a reasonable profit on its investment as 
described in the Purpose and Statutory Basis sections. Competing 
exchanges are free to adopt comparable fee structures subject to the 
Commission's rule filing process. Allowing the Exchange, or any new 
market entrant, to waive fees (as the Exchange did for cToM) for a 
period of time to allow it to become established encourages market 
entry and thereby ultimately promotes competition.
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    \50\ See supra notes 41 and 42.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. 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,\51\ and Rule 19b-4(f)(2) \52\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \51\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \52\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-EMERALD-2024-15 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-EMERALD-2024-15. 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-EMERALD-2024-15 and should 
be submitted on or before May 23, 2024.


[[Page 35891]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\53\
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    \53\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-09477 Filed 5-1-24; 8:45 am]
BILLING CODE 8011-01-P