[Federal Register Volume 86, Number 2 (Tuesday, January 5, 2021)]
[Notices]
[Pages 344-350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-29132]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90811; File No. SR-MIAX-2020-41]


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 Increase the Number 
of Additional Limited Service MIAX Express Interface Ports Available to 
Market Makers

December 29, 2020.
    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 December 21, 2020, Miami International Securities Exchange, LLC 
(``MIAX Options'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'') the 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 increase the number of 
additional Limited Service MIAX Express Interface (``MEI'') Ports 
available to Market Makers.\3\ The Exchange does not propose to amend 
the fees for additional Limited Service MEI Ports.
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    \3\ 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.
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings, 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 to offer two (2) 
additional Limited Service MEI Ports to Market Makers. The Exchange 
does not propose to amend the fees charged for the additional Limited 
Service MEI Ports.
    The Exchange initially filed the proposal to increase the number of 
Limited Service MEI Ports available to Market Makers on June 30, 2020, 
with no change to the actual fee amounts being charged.\4\ The First 
Proposed Rule

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Change was published for comment in the Federal Register on July 20, 
2020.\5\ The Exchange notes that the First Proposed Rule Change did not 
receive any comment letters. Nonetheless, the Exchange withdrew the 
First Proposed Rule Change on August 24, 2020.\6\ On August 25, 2020, 
the Exchange refiled its proposal to increase the number of Limited 
Service MEI Ports available to Market Makers (without increasing the 
actual fee amounts) to provide further clarification regarding the 
Exchange's annual cost for providing additional Limited Service MEI 
Ports.\7\ The Second Proposed Rule Change was published for comment in 
the Federal Register on September 11, 2020.\8\ Like the First Proposed 
Rule Change, the Second Proposed Rule Change did not receive any 
comment letters. Nonetheless, the Exchange withdrew the Second Proposed 
Rule Change on October 23, 2020.\9\
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    \4\ See Securities Exchange Act Release No. 89317 (July 14, 
2020), 85 FR 43918 (July 20, 2020) (SR-MIAX-2020-23) (the ``First 
Proposed Rule Change'').
    \5\ Id.
    \6\ See Comment Letter from Christopher Solgan, VP, Senior 
Counsel, the Exchange, dated August 24, 2020, notifying the 
Commission that the Exchange would withdraw the First Proposed Rule 
Change.
    \7\ See Securities Exchange Act Release No. 89769 (September 4, 
2020), 85 FR 55905 (September 10, 2020) (SR-MIAX-2020-29) (the 
``Second Proposed Rule Change'').
    \8\ Id.
    \9\ See Comment Letter from Christopher Solgan, VP, Senior 
Counsel, the Exchange, dated October 19, 2020, notifying the 
Commission that the Exchange would withdraw the Second Proposed Rule 
Change.
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    On October 23, 2020, the Exchange refiled its proposal to increase 
the number of Limited Service MEI Ports available to Market Makers 
(without increasing the actual fee amounts) to provide further 
clarification regarding the Exchange's revenues, costs, and 
profitability for the two additional Limited Service MEI Ports 
(including information regarding the Exchange's methodology for 
determining the costs and revenues for the two additional Limited 
Service MEI Ports).\10\ The Third Proposed Rule Change was published 
for comment in the Federal Register on November 12, 2020.\11\ Like the 
First and Second Proposed Rule Changes, the Third Proposed Rule Change 
did not receive any comment letters. Nonetheless, the Exchange withdrew 
the Third Proposed Rule Change on December 21, 2020.\12\
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    \10\ See Securities Exchange Act Release No. 90354 (November 5, 
2020), 85 FR 71958 (November 12, 2020) (SR-MIAX-2020-34) (the 
``Third Proposed Rule Change'').
    \11\ Id.
    \12\ See Comment Letter from Christopher Solgan, VP, Senior 
Counsel, the Exchange, dated December 18, 2020, notifying the 
Commission that the Exchange would withdraw the Third Proposed Rule 
Change.
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    The Exchange now submits this proposed rule change to increase the 
number of additional Limited Service MEI Ports available to Market 
Makers (without increasing the actual fee amounts) to provide 
additional information regarding the Exchange's cost analysis for the 
two additional Limited Service MEI Ports.
    Currently, MIAX assesses monthly MEI Port Fees on Market Makers 
based upon the number of MIAX matching engines \13\ used by the Market 
Maker. Market Makers are allocated two (2) Full Service MEI Ports \14\ 
and two (2) Limited Service MEI Ports \15\ per matching engine to which 
they connect. The Full Service MEI Ports, Limited Service MEI Ports, 
and the additional Limited Service MEI Ports all include access to 
MIAX's primary and secondary data centers and its disaster recovery 
center. Market Makers may request additional Limited Service MEI Ports 
for which they will be assessed the existing $100 monthly fee for each 
additional port they request. This fee has been unchanged since 
2016.\16\
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    \13\ 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.
    \14\ 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.
    \15\ 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.
    \16\ See Securities Exchange Act Release No. 79666 (December 22, 
2016), 81 FR 96133 (December 29, 2016) (SR-MIAX-2016-47).
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    The Exchange originally added the Limited Service MEI Ports to 
enhance the MEI Port connectivity made available to Market Makers, and 
has subsequently made additional Limited Service MEI Ports available to 
Market Makers.\17\ Limited Service MEI Ports have been well received by 
Market Makers since their addition. The Exchange now proposes to offer 
to Market Makers the ability to purchase an additional two (2) Limited 
Service MEI Ports per matching engine over and above the current six 
(6) additional Limited Service MEI Ports per matching engine that are 
available for purchase by Market Makers. The Exchange proposes making a 
corresponding change to footnote 30 of the Exchange's Fee Schedule to 
specify that Market Makers will now be limited to purchasing eight (8) 
additional Limited Service MEI Ports per matching engine, for a total 
of ten (10) per matching engine. All fees related to MEI Ports shall 
remain unchanged and Market Makers that voluntarily purchase the 
additional Limited Service MEI Ports will remain subject to the 
existing $100 monthly fee per port.
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    \17\ See Securities Exchange Act Release Nos. 70137 (August 8, 
2013), 78 FR 49586 (August 14, 2013) (SR-MIAX-2013-39); 70903 
(November 20, 2013), 78 FR 70615 (November 26, 2013) (SR-MIAX-2013-
52); 78950 (September 27, 2016), 81 FR 68084 (October 3, 2016) (SR-
MIAX-2016-33); and 79198 (October 31, 2016), 81 FR 76988 (November 
4, 2016) (SR-MIAX-2016-37).
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    The Exchange is increasing the number of additional Limited Service 
MEI Ports because the Exchange is expanding its network. This network 
expansion is necessary due to increased customer demand and increased 
volatility in the marketplace, both of which have translated into 
increased message traffic rates across the network. Consequently, this 
network expansion, which increases the number of switches supporting 
customer facing systems, is necessary in order to provide sufficient 
access to new and existing Members,\18\ to maintain a sufficient amount 
of network capacity head-room, and to continue to provide the same 
level of service across the Exchange's low-latency, high-throughput 
technology environment.
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    \18\ 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.
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    Currently, the Exchange has 8 network switches that support the 
entire customer base of MIAX. The Exchange plans to increase this to 10 
switches, which will increase the number of available customer ports by 
25%. This increase in the number of available customer ports will 
enable the Exchange to continue to provide sufficient and equal access 
to MIAX Systems to all Members. Absent the proposed increase in 
available MEI Ports, the Exchange projects that its current inventory 
will be depleted and it will lack sufficient capacity to continue to 
meet Members' access needs.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is

[[Page 346]]

consistent with Section 6(b) of the Act \19\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act \20\ in that it is 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general to protect investors and the 
public interest and is not designed to permit unfair discrimination 
between customers, issuers, brokers and dealers.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal is consistent with the 
objectives of Section 6(b)(5) of the Act \21\ because the proposed 
additional Limited Service MEI Ports will be available to all Market 
Makers and the current fees for the additional Limited Service MEI 
Ports apply equally to all Market Makers regardless of type, and access 
to the Exchange is offered on terms that are not unfairly 
discriminatory. The Exchange is proposing to increase the number of 
available Limited Service MEI Ports because the Exchange is expanding 
its network. This network expansion is necessary due to increased 
customer demand and increased volatility in the marketplace, both of 
which have translated into increased message traffic rates across the 
network. Consequently, this network expansion, which increases the 
number of switches supporting customer facing systems, is necessary in 
order to provide sufficient and equal access to new and existing 
Members, to maintain a sufficient amount of network capacity head-room, 
and to continue to provide the same level of service across the 
Exchange's low-latency, high-throughput technology environment.
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    \21\ 15 U.S.C. 78f(b)(5).
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    Currently, the Exchange has 8 network switches that support the 
entire customer base of MIAX. The Exchange plans to increase this to 10 
switches, which will increase the number of available customer ports by 
25%. This increase in the number of available customer ports will 
enable the Exchange to continue to provide sufficient and equal access 
to MIAX Systems for all Members. Absent the proposed increase in 
available MEI Ports, the Exchange projects that its current inventory 
will be depleted and it will lack sufficient capacity to continue to 
meet Members' access needs. Further, the Exchange notes the decision of 
whether to purchase two additional Limited Service MEI Ports is 
completely optional and it is a business decision for each Market Maker 
to determine whether the additional Limited Service MEI Ports are 
necessary to meet their business requirements.
    The Exchange further believes that the availability of the 
additional Limited Service MEI Ports is equitable and not unfairly 
discriminatory because it will enable Market Makers to maintain 
uninterrupted access to the MIAX System and consequently enhance the 
marketplace by helping Market Makers to better manage risk, thus 
preserving the integrity of the MIAX markets, all to the benefit of and 
protection of investors and the public as a whole.
    The Exchange also believes that its proposal is consistent with 
Section 6(b)(4) of the Act because only Market Makers that voluntarily 
purchase the two additional Limited Service MEI Ports will be charged 
the existing $100 monthly fee per port, which has been unchanged since 
2016.\22\ The Exchange does not propose to amend the fees applicable to 
additional Limited Service MEI Ports which have been previously filed 
with the Commission and become effective after notice and public 
comment.\23\ As stated above, the Exchange proposes to expand its 
network by making available two additional Limit Service MEI Ports due 
to increased customer demand and increased volatility in the 
marketplace, both of which have translated into increased message 
traffic rates across the network. The cost to expand the network in 
this manner is greater than the revenue the Exchange anticipates the 
additional Limited Service MEI Ports will generate. Specifically, the 
Exchange estimates it will incur a one-time cost of approximately 
$175,000 in capital expenditures (``CapEx'') on hardware, software, and 
other items to expand the network to make available the two additional 
Limited Service MEI Ports. This estimated cost also includes expense 
associated with providing the necessary engineering and support 
personnel to transition those Market Makers who wish to acquire the two 
additional Limited Service MEI Ports.
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    \22\ See supra note 16.
    \23\ See supra notes 16 and 17.
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    The Exchange projects that approximately six to seven Market Makers 
will purchase the additional Limited Service MEI Ports, which will be 
subject to the existing monthly fee of $100 per port. Accordingly, the 
Exchange projects that the annualized revenue from the two additional 
Limited Service MEI Ports will be approximately $16,800 (assuming seven 
Market Makers purchase the two additional Limited Service MEI Ports). 
Therefore, the Exchange's upfront cost in expanding its network to 
provide its Members with the two additional Limited Service MEI Ports--
approximately $175,000--is significant relative to the anticipated 
annualized revenue the Exchange expects to bring in from the two 
additional Limited Service MEI Ports--approximately $16,800. Further, 
the Exchange anticipates it will incur approximately $100,371 in 
annualized ongoing operating expense (``OpEx'') in order to support the 
expanded network and the two additional Limited Service MEI Ports. 
Thus, even excluding the upfront CapEx of $175,000, the Exchange is not 
generating a supra-competitive profit from the provision of these two 
additional Limited Service MEI Ports. In fact, even excluding the one-
time CapEx cost of $175,000, the Exchange anticipates generating an 
annual loss from the provision of these two additional Limited Service 
MEI Ports of ($83,571)--that is, $16,800 in revenue minus $100,371 in 
expense equates to a loss of ($83,571) to support the additional ports 
annually.
    The Exchange conducted an extensive cost review in which the 
Exchange analyzed every expense item in the Exchange's general expense 
ledger (this includes over 150 separate and distinct expense items) to 
determine whether each such expense relates to the additional Limited 
Service MEI Ports, and, if such expense did so relate, what portion (or 
percentage) of such expense actually supports the additional Limited 
Service MEI Ports, and thus bears a relationship that is, ``in nature 
and closeness,'' directly related to those services. The sum of all 
such portions of expenses represents the total cost of the Exchange to 
provide services associated with the two additional Limited Service MEI 
Ports. For the avoidance of doubt, none of the expenses included herein 
relating to the services associated with providing the two additional 
Limited Service MEI Ports also relate to the provision of any other 
services offered by the Exchange. Stated differently, no expense amount 
of the Exchange is allocated twice. The Exchange notes that it made 
certain representations in a previous filing \24\ regarding its expense 
allocation for the provision of network connectivity services. The 
Exchange represents that none of the expenses allocated to the 
provision of network connectivity services are also allocated to the 
provision of ports--that is, there is no overlap of any such expenses 
that are

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included in the costs associated with services the Exchange provides 
for connectivity and for the services the Exchange provides for ports.
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    \24\ See Securities Exchange Act Release No. 87875 (December 31, 
2019), 85 FR 770 (January 7, 2020) (SR-MIAX-2019-51).
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    Specifically, utilizing 2019 expense figures, total third-party 
expense, relating to fees paid by the Exchange to third-parties for 
certain products and services for the Exchange to be able to provide 
the two additional Limited Service MEI Ports, was approximately 
$12,393. This includes, but is not limited to, a portion of the fees 
paid to: (1) Equinix, for data center services, for the primary, 
secondary, and disaster recovery locations of the Exchange's trading 
system infrastructure; (2) Zayo Group Holdings, Inc. (``Zayo'') for 
network services (fiber and bandwidth products and services) linking 
the Exchange's office locations in Princeton, NJ and Miami, FL to all 
data center locations; (3) Secure Financial Transaction Infrastructure 
(``SFTI''),\25\ which supports network feeds for the entire U.S. 
options industry; (4) various other services providers (including 
Thompson Reuters, NYSE, Nasdaq, and Internap), which provide content, 
network services, and infrastructure services for critical components 
of options network services; and (5) various other hardware and 
software providers (including Dell and Cisco, which support the 
production environment in which Members and non-Members connect to the 
network to trade, receive market data, etc.).
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    \25\ In fact, on October 22, 2019, the Exchange was notified by 
SFTI that it is again raising its fees charged to the Exchange by 
approximately 11%, without having to show that such fee change 
complies with the Act by being reasonable, equitably allocated, and 
not unfairly discriminatory. It is unfathomable to the Exchange 
that, given the critical nature of the infrastructure services 
provided by SFTI, that its fees are not required to be rule-filed 
with the Commission pursuant to Section 19(b)(1) of the Act and Rule 
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, 
respectively.
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    For clarity, only a portion of all fees paid to such third-parties 
is included in the third-party expense herein, and no expense amount is 
allocated twice. Accordingly, the Exchange does not allocate its entire 
information technology and communication costs to the services 
associated with providing the two additional Limited Service MEI Ports.
    The Exchange believes it is reasonable to allocate such third-party 
expense described above towards the total cost to the Exchange to 
provide the services associated with the two additional Limited Service 
MEI Ports. In particular, the Exchange believes it is reasonable to 
allocate the identified portion of the Equinix expense because Equinix 
operates the data centers (primary, secondary, and disaster recovery) 
that host the Exchange's network infrastructure. This includes, among 
other things, the necessary storage space, which continues to expand 
and increase in cost, power to operate the network infrastructure, and 
cooling apparatuses to ensure the Exchange's network infrastructure 
maintains stability. Without these services from Equinix, the Exchange 
would not be able to operate and support the network and provide the 
services associated with the two additional Limited Service MEI Ports 
to its Members and non-Members and their customers. The Exchange did 
not allocate all of the Equinix expense toward the cost of providing 
the services associated with the two additional Limited Service MEI 
Ports, only that portion which the Exchange identified as being 
specifically mapped to providing the services associated with the two 
additional Limited Service MEI Ports, approximately 0.5% of the total 
Equinix expense. The Exchange believes this allocation is reasonable 
because it represents the Exchange's actual cost to provide the 
services associated with the two additional Limited Service MEI Ports, 
and not any other service, as supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portion of the Zayo expense because Zayo provides the internet, fiber 
and bandwidth connections with respect to the network, linking the 
Exchange with its affiliates, MIAX PEARL and MIAX Emerald, as well as 
the data center and disaster recovery locations. As such, all of the 
trade data, including the billions of messages each day per exchange, 
flow through Zayo's infrastructure over the Exchange's network. Without 
these services from Zayo, the Exchange would not be able to operate and 
support the network and provide the services associated with the two 
additional Limited Service MEI Ports. The Exchange did not allocate all 
of the Zayo expense toward the cost of providing the services 
associated with the two additional Limited Service MEI Ports, only the 
portion which the Exchange identified as being specifically mapped to 
providing the two additional Limited Service MEI Ports, approximately 
0.4% of the total Zayo expense. The Exchange believes this allocation 
is reasonable because it represents the Exchange's actual cost to 
provide the services associated with the two additional Limited Service 
MEI Ports, and not any other service, as supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portions of the SFTI expense and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense 
because those entities provide connectivity and feeds for the entire 
U.S. options industry, as well as the content, network services, and 
infrastructure services for critical components of the network. Without 
these services from SFTI and various other service providers, the 
Exchange would not be able to operate and support the network and 
provide access to its Members and non-Members and their customers. The 
Exchange did not allocate all of the SFTI and other service providers' 
expense toward the cost of providing the services associated with the 
two additional Limited Service MEI Ports, only the portions which the 
Exchange identified as being specifically mapped to providing the 
services associated with the two additional Limited Service MEI Ports, 
approximately 0.5% of the total SFTI and other service providers' 
expense. The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the services 
associated with the two additional Limited Service MEI Ports.
    The Exchange believes it is reasonable to allocate the identified 
portion of the other hardware and software provider expense because 
this includes costs for dedicated hardware licenses for switches and 
servers, as well as dedicated software licenses for security monitoring 
and reporting across the network. Without this hardware and software, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and non-Members and their customers. The 
Exchange did not allocate all of the hardware and software provider 
expense toward the cost of providing the services associated with the 
two additional Limited Service MEI Ports, only the portions which the 
Exchange identified as being specifically mapped to providing the 
services associated with the two additional Limited Service MEI Ports, 
approximately 0.3% of the total hardware and software provider expense. 
The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the services 
associated with the two additional Limited Service MEI Ports.
    For 2019, total internal expense, relating to the internal costs of 
the Exchange to provide the services associated with the two additional 
Limited Service MEI Ports was $87,978. This includes, but is not 
limited to, costs associated with: (1) Employee compensation and 
benefits for full-time

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employees that support the services associated with providing the two 
additional Limited Service MEI Ports, including staff in network 
operations, trading operations, development, system operations, 
business, as well as staff in general corporate departments (such as 
legal, regulatory, and finance) that support those employees and 
functions (including an increase as a result of the higher determinism 
project); (2) depreciation and amortization of hardware and software 
used to provide the services associated with the two additional Limited 
Service MEI Ports, including equipment, servers, cabling, purchased 
software and internally developed software used in the production 
environment to support the network for trading; and (3) occupancy costs 
for leased office space for staff that provide the services associated 
with the two additional Limited Service MEI Ports. The breakdown of 
these costs is more fully-described below. For clarity, only a portion 
of all such internal expenses are included in the internal expense 
herein, and no expense amount is allocated twice. Accordingly, the 
Exchange does not allocate its entire costs contained in those items to 
the services associated with providing the two additional Limited 
Service MEI Ports.
    The Exchange believes it is reasonable to allocate such internal 
expense described above towards the total cost to the Exchange to 
provide the services associated with the two additional Limited Service 
MEI Ports. In particular, the Exchange's employee compensation and 
benefits expense relating to providing the services associated with the 
two additional Limited Service MEI Ports was approximately $58,870, 
which is only a portion of the $9,811,685 total expense for employee 
compensation and benefits. The Exchange believes it is reasonable to 
allocate the identified portion of such expense because this includes 
the time spent by employees of several departments, including 
Technology, Back Office, Systems Operations, Networking, Business 
Strategy Development (who create the business requirement documents 
that the Technology staff use to develop network features and 
enhancements), Trade Operations, Finance (who provide billing and 
accounting services relating to the network), and Legal (who provide 
legal services relating to the network, such as rule filings and 
various license agreements and other contracts). As part of the 
extensive cost review conducted by the Exchange, the Exchange reviewed 
the amount of time spent by each employee on matters relating to the 
provision of services associated with the two additional Limited 
Service MEI Ports. Without these employees, the Exchange would not be 
able to provide the services associated with the two additional Limited 
Service MEI Ports to its Members and non-Members and their customers. 
The Exchange did not allocate all of the employee compensation and 
benefits expense toward the cost of the services associated with 
providing the two additional Limited Service MEI Ports, only the 
portions which the Exchange identified as being specifically mapped to 
providing the services associated with the two additional Limited 
Service MEI Ports, approximately 0.6% of the total employee 
compensation and benefits expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the services associated with the two additional Limited 
Service MEI Ports, and not any other service, as supported by its cost 
review.
    The Exchange's depreciation and amortization expense relating to 
providing the services associated with the two additional Limited 
Service MEI Ports was $26,362, which is only a portion of the 
$5,272,469 total expense for depreciation and amortization. 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 and provide the 
services associated with the two additional Limited Service MEI Ports. 
Without this equipment, the Exchange would not be able to operate the 
network and provide the services associated with the two additional 
Limited Service MEI Ports to its Members and non-Members and their 
customers. The Exchange did not allocate all of the depreciation and 
amortization expense toward the cost of providing the services 
associated with the two additional Limited Service MEI Ports, only the 
portion which the Exchange identified as being specifically mapped to 
providing the services associated with the two additional Limited 
Service MEI Ports, approximately 0.5% of the total depreciation and 
amortization expense, as these services would not be possible without 
relying on such equipment. The Exchange believes this allocation is 
reasonable because it represents the Exchange's actual cost to provide 
the services associated with the two additional Limited Service MEI 
Ports, and not any other service, as supported by its cost review.
    The Exchange's occupancy expense relating to providing the services 
associated with providing the two additional Limited Service MEI Ports 
was approximately $2,746, which is only a portion of the $686,437 total 
expense for occupancy. The Exchange believes it is reasonable to 
allocate the identified portion of such expense because such expense 
represents the portion of the Exchange's cost to rent and maintain a 
physical location for the Exchange's staff who operate and support the 
network, including providing the services associated with the two 
additional Limited Service MEI Ports. This amount consists primarily of 
rent for the Exchange's Princeton, NJ office, as well as various 
related costs, such as physical security, property management fees, 
property taxes, and utilities. The Exchange operates its Network 
Operations Center (``NOC'') and Security Operations Center (``SOC'') 
from its Princeton, New Jersey office location. A centralized office 
space is required to house the staff that operates and supports the 
network. The Exchange currently has approximately 160 employees. 
Approximately two-thirds of the Exchange's staff are in the Technology 
department, and the majority of those staff have some role in the 
operation and performance of the services associated with providing the 
two additional Limited Service MEI Ports. Without this office space, 
the Exchange would not be able to operate and support the network and 
provide the services associated with the two additional Limited Service 
MEI Ports to its Members and non-Members and their customers. 
Accordingly, the Exchange believes it is reasonable to allocate the 
identified portion of its occupancy expense because such amount 
represents the Exchange's actual cost to house the equipment and 
personnel who operate and support the Exchange's network infrastructure 
and the services associated with the two additional Limited Service MEI 
Ports. The Exchange did not allocate all of the occupancy expense 
toward the cost of providing the services associated with the two 
additional Limited Service MEI Ports, only the portion which the 
Exchange identified as being specifically mapped to operating and 
supporting the network, approximately 0.4% of the total occupancy 
expense. The Exchange believes this allocation is reasonable because it 
represents the

[[Page 349]]

Exchange's cost to provide the services associated with the two 
additional Limited Service MEI Ports, and not any other service, as 
supported by its cost review.
    Accordingly, based on the facts and circumstances presented, the 
Exchange believes that its provision of the services associated with 
the two additional Limited Service MEI Ports will not result in 
excessive pricing or supra-competitive profit.
    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to allocate the respective percentages of each expense 
category described above towards the total cost to the Exchange of 
operating and supporting the network, including providing the services 
associated with the two additional Limited Service MEI Ports because 
the Exchange performed a line-by-line item analysis of all the expenses 
of the Exchange, and has determined the expenses that directly relate 
to operation and support of the network. Further, the Exchange notes 
that, without the specific third-party and internal items listed above, 
the Exchange would not be able to operate and support the network, 
including providing the services associated with the two additional 
Limited Service MEI Ports to its Members and non-Members and their 
customers. Each of these expense items, including physical hardware, 
software, employee compensation and benefits, occupancy costs, and the 
depreciation and amortization of equipment, have been identified 
through a line-by-line item analysis to be integral to the operation 
and support of the network. Providing the two additional Limited 
Service MEI Ports at the existing rates is intended to recover the 
Exchange's costs of operating and supporting the network.
    Accordingly, the Exchange believes that providing the two 
additional Limited Service MEI Ports at the existing rate is fair and 
reasonable because it does not result in excessive pricing or supra-
competitive profit, when comparing the actual network operation and 
support costs to the Exchange versus the projected annual revenue from 
providing the two additional Limited Service MEI Ports.
    Further, subjecting the two additional Limited Service MEI Ports to 
the existing $100 monthly fee per port is also designed to encourage 
Market Makers to be efficient with their 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 the 
two additional ports. There is no requirement that any Market Maker 
maintain a specific number of Limited Service MEI Ports and a Market 
Maker may choose to maintain as many or as few of such ports as each 
Market Maker deems appropriate.
    Finally, subjecting the two additional Limited Service MEI Ports to 
the existing $100 monthly 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'').\26\ 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.\27\ By encouraging Members 
to be efficient with their usage of Limited MEI Ports, the current fee 
that will continue to apply to the proposed two (2) additional Limited 
Service MEI Ports will support the Exchange's Reg. SCI obligations in 
this regard by ensuring that unused ports are available to be allocated 
based on individual Members needs and as the Exchange's overall order 
and trade volumes increase.
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    \26\ 17 CFR 242.1000-1007.
    \27\ 17 CFR 242.1001(a).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    MIAX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. The proposed rule 
change will not impose a burden on competition but will benefit 
competition by enhancing the Exchange's ability to compete by providing 
additional services to market participants. It is not intended to 
address a competitive issue. Rather, the proposed increase in the 
number of additional Limited Service MEI Ports available per Market 
Maker is intended to allow the Exchange to increase its inventory of 
MEI Ports to meet increased Member demand. The Exchange is increasing 
the number of available additional Limited Service MEI Ports in 
response to Market Maker demand for increased connectivity to the MIAX 
System. The Exchange's current inventory may soon be insufficient to 
meet those needs. Again, the Exchange is not proposing to amend the 
fees for MEI Ports, just to increase the number of MEI Ports available 
per Market Maker. The Exchange also does not believe that the proposed 
rule change will impose a burden on intramarket competition because the 
two additional Limited Service MEI Ports will be available to all 
Market Makers on an equal basis. It is a business decision of each 
Market Maker whether to pay for the additional Limited Service MEI 
Ports.

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,\28\ and Rule 19b-4(f)(2) \29\ 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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    \28\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \29\ 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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3341465f561e505c5e5e565d4740734056501d545c45"><span class="__cf_email__" data-cfemail="fe8c8b929bd39d9193939b908a8dbe8d9b9dd0999188">[email protected]</span></a>. Please include 
File Number SR-MIAX-2020-41 on the subject line.

Paper Comments

    <bullet> 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-2020-41. 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

[[Page 350]]

only one method. The Commission will post all comments on the 
Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MIAX-2020-41, and should be submitted on 
or before January 26, 2021.
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    \30\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-29132 Filed 1-4-21; 8:45 am]
BILLING CODE 8011-01-P


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