58378 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

25 15 U.S.C. 78s(b)(3)(A)(iii). 

26 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

the proposed rule change at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this 

requirement. 

27 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The 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. 

4The MIAX Express Interface (‘‘MEI’’) is a 

connection to MIAX systems that enables Market 

Makers to submit simple and complex electronic 

quotes to MIAX. See Fee Schedule, note 26. 

5The term ‘‘Market Makers’’ refers to Lead Market 

Makers (‘‘LMMs’’), Primary Lead Market Makers 

(‘‘PLMMs’’), and Registered Market Makers 

(‘‘RMMs’’) collectively. See Exchange Rule 100. For 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to section 

19(b)(3)(A)(iii) of the Act 25 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.26

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. 

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 rule-comments@

sec.gov. Please include file number SR– 

BX–2023–019 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–BX–2023–019. 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–BX–2023–019 and should be 

submitted on or before September 15, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.27

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–18301 Filed 8–24–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98173; File No. SR–MIAX– 

2023–30] 

Self-Regulatory Organizations; Miami 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend the Fee Schedule 

To Modify Certain Connectivity and 

Port Fees 

August 21, 2023. 

Pursuant to section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on August 8, 

2023, Miami International Securities 

Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) a 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

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 Options Exchange Fee 

Schedule (‘‘Fee Schedule’’) to amend 

certain connectivity and port fees. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://www.miaxoptions.com/rulefilings, at MIAX’s principal office, and 

at the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend the 

Fee Schedule as follows: (1) increase the 

fees for a 10 gigabit (‘‘Gb’’) ultra-low 

latency (‘‘ULL’’) fiber connection for 

Members 3 and non-Members; and (2) 

amend the fees for Limited Service 

MIAX Express Interface (‘‘MEI’’) Ports 4

available to Market Makers.5 The 


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purposes of Limit Service MEI Ports, Market Makers 

also include firms that engage in other types of 

liquidity activity, such as seeking to remove resting 

liquidity from the Exchange’s Book. 

6See Securities Exchange Act Release No. 90980 

(January 25, 2021), 86 FR 7602 (January 29, 2021) 

(SR–MIAX–2021–02). 

7See Securities Exchange Act Release No. 90981 

(January 25, 2021), 86 FR 7582 (January 29, 2021) 

(SR–PEARL–2021–01). 

8See id. 

9See MIAX Options and MIAX Pearl Options— 

Announce planned network changes related to 

shared 10G ULL extranet, issued August 12, 2022, 

available at https://www.miaxglobal.com/alert/ 

2022/08/12/miax-options-and-miax-pearl-optionsannounce-planned-network-changes-0. The 

Exchange will continue to provide access to both 

the Exchange and MIAX Pearl over a single shared 

1Gb connection. See Securities Exchange Act 

Release Nos. 96553 (December 20, 2022), 87 FR 

79379 (December 27, 2022) (SR–PEARL–2022–60); 

96545 (December 20, 2022) 87 FR 79393 (December 

27, 2022) (SR–MIAX–2022–48). 

10For example, the New York Stock Exchange, 

Inc.’s (‘‘NYSE’’) Secure Financial Transaction 

Infrastructure (‘‘SFTI’’) network, which contributes 

to the Exchange’s connectivity cost, increased its 

fees by approximately 9% since 2021. Similarly, 

since 2021, the Exchange, and its affiliates, 

experienced an increase in data center costs of 

approximately 17% and an increase in hardware 

and software costs of approximately 19%. These 

percentages are based on the Exchange’s actual 

2021 and proposed 2023 budgets. 

11The Exchange notes that MIAX Pearl Options 

will make a similar filing to increase its 10Gb ULL 

connectivity fees. 

12See Securities Exchange Act Release No. 96629 

(January 10, 2023), 88 FR 2729 (January 17, 2023) 

(SR–MIAX–2022–50). 

13See Securities Exchange Act Release No. 97081 

(March 8, 2023), 88 FR 15782 (March 14, 2023) (SR– 

MIAX–2023–08). 

14See Securities Exchange Act Release No. 97419 

(May 2, 2023), 88 FR 29777 (May 8, 2023) (SR– 

MIAX–2023–18). 

15The Exchange met with Commission Staff to 

discuss the Third Proposal during which the 

Commission Staff provided feedback and requested 

additional information, including, most recently, 

information about total costs related to certain third 

party vendors. Such vendor cost information is 

subject to confidentiality restrictions. The Exchange 

provided this information to Commission Staff 

under separate cover with a request for 

confidentiality. While the Exchange will continue 

to be responsive to Commission Staff’s information 

requests, the Exchange believes that the 

Commission should, at this point, issue 

substantially more detailed guidance for exchanges 

to follow in the process of pursuing a cost-based 

approach to fee filings, and that, for the purposes 

of fair competition, detailed disclosures by 

exchanges, such as those that the Exchange is 

providing now, should be consistent across all 

exchanges, including for those that have resisted a 

cost-based approach to fee filings, in the interests 

of fair and even disclosure and fair competition. See 

Securities Exchange Act Release No. 97814 (June 

27, 2023), 88 FR 42844 (July 3, 2023) (SR–MIAX– 

2023–25). 

16The term ‘‘MIAX Emerald’’ means MIAX 

Emerald, LLC. See Exchange Rule 100. 

17See Susquehanna International Group, LLP v. 

Securities & Exchange Commission, 866 F.3d 442 

(D.C. Circuit 2017) (the ‘‘Susquehanna Decision’’). 

Exchange and its affiliate, MIAX 

PEARL, LLC (‘‘MIAX Pearl’’) operated 

10Gb ULL connectivity (for MIAX 

Pearl’s options market) on a single 

shared network that provided access to 

both exchanges via a single 10Gb ULL 

connection. The Exchange last increased 

fees for 10Gb ULL connections from 

$9,300 to $10,000 per month on January 

1, 2021.6 At the same time, MIAX Pearl 

also increased its 10Gb ULL 

connectivity fee from $9,300 to $10,000 

per month.7 The Exchange and MIAX 

Pearl shared a combined cost analysis in 

those filings due to the single shared 

10Gb ULL connectivity network for both 

exchanges. In those filings, the 

Exchange and MIAX Pearl allocated a 

combined total of $17.9 million in 

expenses to providing 10Gb ULL 

connectivity.8

Beginning in late January 2023, the 

Exchange also recently determined a 

substantial operational need to no 

longer operate 10Gb ULL connectivity 

on a single shared network with MIAX 

Pearl. The Exchange bifurcated 10Gb 

ULL connectivity due to ever-increasing 

capacity constraints and to enable it to 

continue to satisfy the anticipated 

access needs for Members and other 

market participants.9 Since the time of 

the 2021 increase discussed above, the 

Exchange experienced ongoing 

increases in expenses, particularly 

internal expenses.10 As discussed more 

fully below, the Exchange recently 

calculated increased annual aggregate 

costs of $12,034,554 for providing 10Gb 

ULL connectivity on a single unshared 

network (an overall increase over its 

prior cost to provide 10Gb ULL 

connectivity on a shared network with 

MIAX Pearl) and $2,157,178 for 

providing Limited Service MEI Ports. 

Much of the cost relates to monitoring 

and analysis of data and performance of 

the network via the subscriber’s 

connection with nanosecond 

granularity, and continuous 

improvements in network performance 

with the goal of improving the 

subscriber’s experience. The costs 

associated with maintaining and 

enhancing a state-of-the-art network is a 

significant expense for the Exchange, 

and thus the Exchange believes that it 

is reasonable and appropriate to help 

offset those increased costs by amending 

fees for connectivity services. 

Subscribers expect the Exchange to 

provide this level of support so they 

continue to receive the performance 

they expect. This differentiates the 

Exchange from its competitors. 

The Exchange now proposes to amend 

the Fee Schedule to amend the fees for 

10Gb ULL connectivity and Limited 

Service MEI Ports in order to recoup 

cost related to bifurcating 10Gb 

connectivity to the Exchange and MIAX 

Pearl as well as the ongoing costs and 

increase in expenses set forth below in 

the Exchange’s cost analysis.11 The 

Exchange proposes to implement the 

changes to the Fee Schedule pursuant to 

this proposal immediately. The 

Exchange initially filed the proposal on 

December 30, 2022 (SR–MIAX–2022– 

50) (the ‘‘Initial Proposal’’).12 On 

February 23, 2023, the Exchange 

withdrew the Initial Proposal and 

replaced it with a revised proposal (SR– 

MIAX–2023–08) (the ‘‘Second 

Proposal’’).13 On April 20, 2023, the 

Exchange withdrew the Second 

Proposal and replaced it with a revised 

proposal (SR–MIAX–2023–18) (the 

‘‘Third Proposal’’).14 On June 16, 2023, 

the Exchange withdrew the Third 

Proposal and replaced it with a revised 

proposal (SR–MIAX–2023–25) (the 

‘‘Fourth Proposal’’).15 On August 8, 

2023, the Exchange withdrew the 

Fourth Proposal and replaced it with 

this further revised proposal (SR– 

MIAX–2023–30). 

The Exchange previously included a 

cost analysis in the Initial, Second, 

Third, and Fourth Proposals. As 

described more fully below, the 

Exchange provides an updated cost 

analysis that includes, among other 

things, additional descriptions of how 

the Exchange allocated costs among it 

and its affiliated exchanges (MIAX Pearl 

(separately among MIAX Pearl Options 

and MIAX Pearl Equities) and MIAX 

Emerald 16 (together with MIAX Pearl 

Options and MIAX Pearl Equities, the 

‘‘affiliated markets’’)) to ensure no cost 

was allocated more than once, as well 

as additional detail supporting its cost 

allocation processes and explanations as 

to why a cost allocation in this proposal 

may differ from the same cost allocation 

in a similar proposal submitted by one 

of its affiliated markets. Although the 

baseline cost analysis used to justify the 

proposed fees was made in the Initial, 

Second, Third, and Fourth Proposals, 

the fees themselves have not changed 

since the Initial, Second, Third, or 

Fourth Proposals and the Exchange still 

proposes fees that are intended to cover 

the Exchange’s cost of providing 10Gb 

ULL connectivity and Limited Service 

MEI Ports with a reasonable mark-up 

over those costs. 

* * * * * 

Starting in 2017, following the United 

States Court of Appeals for the District 

of Columbia’s Susquehanna Decision 17

and various other developments, the 

Commission began to undertake a 

heightened review of exchange filings, 

including non-transaction fee filings 

that was substantially and materially 

different from it prior review process 


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18 Id. 

19See Sec. Indus. & Fin. Mkts. Ass’n, Securities 

Exchange Act Release No. 84432, 2018 WL 5023228 

(October 16, 2018) (the ‘‘SIFMA Decision’’). 

20See Sec. Indus. & Fin. Mkts. Ass’n, Securities 

Exchange Act Release No. 84433, 2018 WL 5023230 

(Oct. 16, 2018). See 15 U.S.C. 78k–1, 78s; see also 

Rule 608(d) of Regulation NMS, 17 CFR 242.608(d) 

(asserted as an alternative basis of jurisdiction in 

some applications). 

21 Id. at page 2. 

22Sec. Indus. & Fin. Mkts. Ass’n, Securities 

Exchange Act Release No. 85802, 2019 WL 2022819 

(May 7, 2019) (the ‘‘Order Denying 

Reconsideration’’). 

23Order Denying Reconsideration, 2019 WL 

2022819, at *13. 

24See Securities Exchange Act Release No. 85459 

(March 29, 2019), 84 FR 13363 (April 4, 2019) (SR– 

BOX–2018–24, SR–BOX–2018–37, and SR–BOX– 

2019–04) (Order Disapproving Proposed Rule 

Changes to Amend the Fee Schedule on the BOX 

Market LLC Options Facility to Establish BOX 

Connectivity Fees for Participants and NonParticipants Who Connect to the BOX Network). 

The Commission noted in the BOX Order that it 

‘‘historically applied a ‘market-based’ test in its 

assessment of market data fees, which [the 

Commission] believe[s] present similar issues as the 

connectivity fees proposed herein.’’ Id. at page 16. 

Despite this admission, the Commission 

disapproved BOX’s proposal to begin charging 

$5,000 per month for 10Gb connections (while 

allowing legacy exchanges to charge rates equal to 

3–4 times that amount utilizing ‘‘market-based’’ fee 

filings from years prior). 

25See Staff Guidance on SRO Rule Filings 

Relating to Fees (May 21, 2019), available at https:// 

www.sec.gov/tm/staff-guidance-sro-rule-filings-fees 

(the ‘‘Staff Guidance’’). 

26 Id. 

27 Id. 

28NASDAQ Stock Mkt., LLC v. SEC, No 18–1324, 

--- Fed. App’x ----, 2020 WL 3406123 (D.C. Cir. June 

5, 2020). The court’s mandate was issued on August 

6, 2020. 

29Nasdaq v. SEC, 961 F.3d 421, at 424, 431 (D.C. 

Cir. 2020). The court’s mandate issued on August 

6, 2020. The D.C. Circuit held that Exchange Act 

‘‘Section 19(d) is not available as a means to 

challenge the reasonableness of generallyapplicable fee rules.’’ Id. The court held that ‘‘for 

a fee rule to be challengeable under Section 19(d), 

it must, at a minimum, be targeted at specific 

individuals or entities.’’ Id. Thus, the court held 

that ‘‘Section 19(d) is not an available means to 

challenge the fees at issue’’ in the SIFMA Decision. 

Id. 

30 Id. at *2; see also id. (‘‘[T]he sole purpose of 

the challenged remand has disappeared.’’). 

31Sec. Indus. & Fin. Mkts. Ass’n, Securities 

Exchange Act Release No. 89504, 2020 WL 4569089 

(August 7, 2020) (the ‘‘Order Vacating Prior Order 

and Requesting Additional Briefs’’). 

32 Id. 

33Sec. Indus. & Fin. Mkts. Ass’n, Securities 

Exchange Act Release No. 90087 (October 5, 2020). 

34See supra note 29, at page 2. 

(hereinafter referred to as the ‘‘Revised 

Review Process’’). In the Susquehanna 

Decision, the D.C. Circuit Court stated 

that the Commission could not maintain 

a practice of ‘‘unquestioning reliance’’ 

on claims made by a self-regulatory 

organization (‘‘SRO’’) in the course of 

filing a rule or fee change with the 

Commission.18 Then, on October 16, 

2018, the Commission issued an 

opinion in Securities Industry and 

Financial Markets Association finding 

that exchanges failed both to establish 

that the challenged fees were 

constrained by significant competitive 

forces and that these fees were 

consistent with the Act.19 On that same 

day, the Commission issued an order 

remanding to various exchanges and 

national market system (‘‘NMS’’) plans 

challenges to over 400 rule changes and 

plan amendments that were asserted in 

57 applications for review (the ‘‘Remand 

Order’’).20 The Remand Order directed 

the exchanges to ‘‘develop a record,’’ 

and to ‘‘explain their conclusions, based 

on that record, in a written decision that 

is sufficient to enable us to perform our 

review.’’ 21 The Commission denied 

requests by various exchanges and plan 

participants for reconsideration of the 

Remand Order.22 However, the 

Commission did extend the deadlines in 

the Remand Order ‘‘so that they d[id] 

not begin to run until the resolution of 

the appeal of the SIFMA Decision in the 

D.C. Circuit and the issuance of the 

court’s mandate.’’ 23 Both the Remand 

Order and the Order Denying 

Reconsideration were appealed to the 

D.C. Circuit. 

While the above appeal to the D.C. 

Circuit was pending, on March 29, 2019, 

the Commission issued an order 

disapproving a proposed fee change by 

BOX Exchange LLC (‘‘BOX’’) to 

establish connectivity fees (the ‘‘BOX 

Order’’), which significantly increased 

the level of information needed for the 

Commission to believe that an 

exchange’s filing satisfied its obligations 

under the Act with respect to changing 

a fee.24 Despite approving hundreds of 

access fee filings in the years prior to 

the BOX Order (described further 

below) utilizing a ‘‘market-based’’ test, 

the Commission changed course and 

disapproved BOX’s proposal to begin 

charging connectivity at one-fourth the 

rate of competing exchanges’ pricing. 

Also while the above appeal was 

pending, on May 21, 2019, the 

Commission Staff issued guidance ‘‘to 

assist the national securities exchanges 

and FINRA . . . in preparing Fee Filings 

that meet their burden to demonstrate 

that proposed fees are consistent with 

the requirements of the Securities 

Exchange Act.’’ 25 In the Staff Guidance, 

the Commission Staff states that, ‘‘[a]s 

an initial step in assessing the 

reasonableness of a fee, staff considers 

whether the fee is constrained by 

significant competitive forces.’’ 26 The 

Staff Guidance also states that, ‘‘. . . 

even where an SRO cannot demonstrate, 

or does not assert, that significant 

competitive forces constrain the fee at 

issue, a cost-based discussion may be an 

alternative basis upon which to show 

consistency with the Exchange Act.’’ 27

Following the BOX Order and Staff 

Guidance, on August 6, 2020, the D.C. 

Circuit vacated the Commission’s 

SIFMA Decision in NASDAQ Stock 

Market, LLC v. SEC28 and remanded for 

further proceedings consistent with its 

opinion.29 That same day, the D.C. 

Circuit issued an order remanding the 

Remand Order to the Commission for 

reconsideration in light of NASDAQ. 

The court noted that the Remand Order 

required the exchanges and NMS plan 

participants to consider the challenges 

that the Commission had remanded in 

light of the SIFMA Decision. The D.C. 

Circuit concluded that because the 

SIFMA Decision ‘‘has now been 

vacated, the basis for the [Remand 

Order] has evaporated.’’ 30 Accordingly, 

on August 7, 2020, the Commission 

vacated the Remand Order and ordered 

the parties to file briefs addressing 

whether the holding in NASDAQ v. SEC 

that Exchange Act section 19(d) does 

not permit challenges to generally 

applicable fee rules requiring dismissal 

of the challenges the Commission 

previously remanded.31 The 

Commission further invited ‘‘the parties 

to submit briefing stating whether the 

challenges asserted in the applications 

for review . . . should be dismissed, 

and specifically identifying any 

challenge that they contend should not 

be dismissed pursuant to the holding of 

Nasdaq v. SEC.’’ 32 Without resolving 

the above issues, on October 5, 2020, the 

Commission issued an order granting 

SIFMA and Bloomberg’s request to 

withdraw their applications for review 

and dismissed the proceedings.33

As a result of the Commission’s loss 

of the NASDAQ vs. SEC case noted 

above, the Commission never followed 

through with its intention to subject the 

over 400 fee filings to ‘‘develop a 

record,’’ and to ‘‘explain their 

conclusions, based on that record, in a 

written decision that is sufficient to 

enable us to perform our review.’’ 34 As 

such, all of those fees remained in place 

and amounted to a baseline set of fees 

for those exchanges that had the benefit 

of getting their fees in place before the 

Commission Staff’s fee review process 

materially changed. The net result of 

this history and lack of resolution in the 

D.C. Circuit Court resulted in an uneven 

competitive landscape where the 

Commission subjects all new nontransaction fee filings to the new 

Revised Review Process, while allowing 

the previously challenged fee filings, 

mostly submitted by incumbent 


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35Commission Chair Gary Gensler recently 

reiterated the Commission’s mandate to ensure 

competition in the equities markets. See ‘‘Statement 

on Minimum Price Increments, Access Fee Caps, 

Round Lots, and Odd-Lots’’, by Chair Gary Gensler, 

dated December 14, 2022 (stating ‘‘[i]n 1975, 

Congress tasked the Securities and Exchange 

Commission with responsibility to facilitate the 

establishment of the national market system and 

enhance competition in the securities markets, 

including the equity markets’’ (emphasis added)). 

In that same statement, Chair Gary Gensler cited the 

five objectives laid out by Congress in 11A of the 

Exchange Act (15 U.S.C. 78k–1), including ensuring 

‘‘fair competition among brokers and dealers, 

among exchange markets, and between exchange 

markets and markets other than exchange markets 

. . .’’ (emphasis added). Id. at note 1. See also 

Securities Acts Amendments of 1975, available at 

https://www.govtrack.us/congress/bills/94/s249. 

36This timeframe also includes challenges to over 

400 rule filings by SIFMA and Bloomberg discussed 

above. Sec. Indus. & Fin. Mkts. Ass’n, Securities 

Exchange Act Release No. 84433, 2018 WL 5023230 

(Oct. 16, 2018). Those filings were left to stand, 

while at the same time, blocking newer exchanges 

from the ability to establish competitive access and 

market data fees. See The Nasdaq Stock Market, 

LLC v. SEC, Case No. 18–1292 (D.C. Cir. June 5, 

2020). The expectation at the time of the litigation 

was that the 400 rule flings challenged by SIFMA 

and Bloomberg would need to be justified under 

revised review standards. 

37See, e.g., Securities Exchange Act Release Nos. 

74417 (March 3, 2015), 80 FR 12534 (March 9, 

2015) (SR–ISE–2015–06); 83016 (April 9, 2018), 83 

FR 16157 (April 13, 2018) (SR–PHLX–2018–26); 

70285 (August 29, 2013), 78 FR 54697 (September 

5, 2013) (SR–NYSEMKT–2013–71); 76373 

(November 5, 2015), 80 FR 70024 (November 12, 

2015) (SR–NYSEMKT–2015–90); 79729 (January 4, 

2017), 82 FR 3061 (January 10, 2017) (SR– 

NYSEARCA–2016–172). 

38The Exchange has filed, and subsequently 

withdrawn, various forms of this proposed fee 

change numerous times since August 2021 with 

each proposal containing hundreds of cost and 

revenue disclosures never previously disclosed by 

legacy exchanges in their access and market data fee 

filings prior to 2019. 

39According to Cboe’s 2021 Form 1 Amendment, 

access and capacity fees represent fees assessed for 

the opportunity to trade, including fees for tradingrelated functionality. See Cboe 2021 Form 1 

Amendment, available at https://www.sec.gov/ 

Archives/edgar/vprr/2100/21000465.pdf. 

40See Cboe 2022 Form 1 Amendment, available 

at https://www.sec.gov/Archives/edgar/vprr/2200/

22001155.pdf. 

41See C2 2021 Form 1 Amendment, available at 

https://www.sec.gov/Archives/edgar/vprr/2100/ 

21000469.pdf. 

42See C2 2022 Form 1 Amendment, available at 

https://www.sec.gov/Archives/edgar/vprr/2200/

22001156.pdf. 

43See BZX 2021 Form 1 Amendment, available 

at https://www.sec.gov/Archives/edgar/vprr/2100/ 

21000465.pdf. 

44See BZX 2022 Form 1 Amendment, available 

at https://www.sec.gov/Archives/edgar/vprr/2200/

22001152.pdf. 

45See EDGX 2021 Form 1 Amendment, available 

at https://www.sec.gov/Archives/edgar/vprr/2100/ 

21000467.pdf. 

46See EDGX 2022 Form 1 Amendment, available 

at https://www.sec.gov/Archives/edgar/vprr/2200/

22001154.pdf. 

47According to PHLX, ‘‘Trade Management 

Services’’ includes ‘‘a wide variety of alternatives 

for connectivity to and accessing [the PHLX] 

markets for a fee. These participants are charged 

monthly fees for connectivity and support in 

accordance with [PHLX’s] published fee 

schedules.’’ See PHLX 2020 Form 1 Amendment, 

available at https://www.sec.gov/Archives/edgar/ 

vprr/2001/20012246.pdf. 

exchanges prior to 2019, to remain in 

effect and not subject to the ‘‘record’’ or 

‘‘review’’ earlier intended by the 

Commission. 

While the Exchange appreciates that 

the Staff Guidance articulates an 

important policy goal of improving 

disclosures and requiring exchanges to 

justify that their market data and access 

fee proposals are fair and reasonable, 

the practical effect of the Revised 

Review Process, Staff Guidance, and the 

Commission’s related practice of 

continuous suspension of new fee 

filings, is anti-competitive, 

discriminatory, and has put in place an 

un-level playing field, which has 

negatively impacted smaller, nascent, 

non-legacy exchanges (‘‘non-legacy 

exchanges’’), while favoring larger, 

incumbent, entrenched, legacy 

exchanges (‘‘legacy exchanges’’).35 The 

legacy exchanges all established a 

significantly higher baseline for access 

and market data fees prior to the 

Revised Review Process. From 2011 

until the issuance of the Staff Guidance 

in 2019, national securities exchanges 

filed, and the Commission Staff did not 

abrogate or suspend (allowing such fees 

to become effective), at least 92 filings 36

to amend exchange connectivity or port 

fees (or similar access fees). The support 

for each of those filings was a simple 

statement by the relevant exchange that 

the fees were constrained by 

competitive forces.37 These fees remain 

in effect today. 

The net result is that the non-legacy 

exchanges are effectively now blocked 

by the Commission Staff from adopting 

or increasing fees to amounts 

comparable to the legacy exchanges 

(which were not subject to the Revised 

Review Process and Staff Guidance), 

despite providing enhanced disclosures 

and rationale to support their proposed 

fee changes that far exceed any such 

support provided by legacy exchanges. 

Simply put, legacy exchanges were able 

to increase their non-transaction fees 

during an extended period in which the 

Commission applied a ‘‘market-based’’ 

test that only relied upon the assumed 

presence of significant competitive 

forces, while exchanges today are 

subject to a cost-based test requiring 

extensive cost and revenue disclosures, 

a process that is complex, inconsistently 

applied, and rarely results in a 

successful outcome, i.e., nonsuspension. The Revised Review 

Process and Staff Guidance changed 

decades-long Commission Staff 

standards for review, resulting in unfair 

discrimination and placing an undue 

burden on inter-market competition 

between legacy exchanges and nonlegacy exchanges. 

Commission Staff now require 

exchange filings, including from nonlegacy exchanges such as the Exchange, 

to provide detailed cost-based analysis 

in place of competition-based arguments 

to support such changes. However, even 

with the added detailed cost and 

expense disclosures, the Commission 

Staff continues to either suspend such 

filings and institute disapproval 

proceedings, or put the exchanges in the 

unenviable position of having to 

repeatedly withdraw and re-file with 

additional detail in order to continue to 

charge those fees.38 By impeding any 

path forward for non-legacy exchanges 

to establish commensurate nontransaction fees, or by failing to provide 

any alternative means for smaller 

markets to establish ‘‘fee parity’’ with 

legacy exchanges, the Commission is 

stifling competition: non-legacy 

exchanges are, in effect, being deprived 

of the revenue necessary to compete on 

a level playing field with legacy 

exchanges. This is particularly harmful, 

given that the costs to maintain 

exchange systems and operations 

continue to increase. The Commission 

Staff’s change in position impedes the 

ability of non-legacy exchanges to raise 

revenue to invest in their systems to 

compete with the legacy exchanges who 

already enjoy disproportionate nontransaction fee based revenue. For 

example, the Cboe Exchange, Inc. 

(‘‘Cboe’’) reported ‘‘access and capacity 

fee’’ revenue of $70,893,000 for 2020 39

and $80,383,000 for 2021.40 Cboe C2 

Exchange, Inc. (‘‘C2’’) reported ‘‘access 

and capacity fee’’ revenue of 

$19,016,000 for 2020 41 and $22,843,000 

for 2021.42 Cboe BZX Exchange, Inc. 

(‘‘BZX’’) reported ‘‘access and capacity 

fee’’ revenue of $38,387,000 for 2020 43

and $44,800,000 for 2021.44 Cboe EDGX 

Exchange, Inc. (‘‘EDGX’’) reported 

‘‘access and capacity fee’’ revenue of 

$26,126,000 for 2020 45 and $30,687,000 

for 2021.46 For 2021, the affiliated Cboe, 

C2, BZX, and EDGX (the four largest 

exchanges of the Cboe exchange group) 

reported $178,712,000 in ‘‘access and 

capacity fees’’ in 2021. NASDAQ Phlx, 

LLC (‘‘NASDAQ Phlx’’) reported ‘‘Trade 

Management Services’’ revenue of 

$20,817,000 for 2019.47 The Exchange 

notes it is unable to compare ‘‘access 

fee’’ revenues with NASDAQ Phlx (or 

other affiliated NASDAQ exchanges) 

because after 2019, the ‘‘Trade 

Management Services’’ line item was 

bundled into a much larger line item in 


ddrumheller on DSK120RN23PROD with NOTICES1
58382 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

48See PHLX 2021 Form 1 Amendment, available 

at https://www.sec.gov/Archives/edgar/vprr/2100/ 

21000475.pdf. The Exchange notes that this type of 

Form 1 accounting appears to be designed to 

obfuscate the true financials of such exchanges and 

has the effect of perpetuating fee and revenue 

advantages of legacy exchanges. 

49See, e.g., CNBC Debuts New Set on NYSE Floor, 

available at https://www.cnbc.com/id/46517876. 

50See supra note 25, at note 1. 

51See Securities Exchange Act Release Nos. 

94890 (May 11, 2022), 87 FR 29945 (May 17, 2022) 

(SR–MIAX–2022–20); 94720 (April 14, 2022), 87 FR 

23586 (April 20, 2022) (SR–MIAX–2022–16); 94719 

(April 14, 2022), 87 FR 23600 (April 20, 2022) (SR– 

MIAX–2022–14); 94259 (February 15, 2022), 87 FR 

9747 (February 22, 2022) (SR–MIAX–2022–08); 

94256 (February 15, 2022), 87 FR9711 (February 22, 

2022) (SR–MIAX–2022–07); 93771 (December 14, 

2021), 86 FR 71940 (December 20, 2021) (SR– 

MIAX–2021–60); 93775 (December 14, 2021), 86 FR 

71996 (December 20, 2021) (SR–MIAX–2021–59); 

93185 (September 29, 2021), 86 FR 55093 (October 

5, 2021) (SR–MIAX–2021–43); 93165 (September 

28, 2021), 86 FR 54750 (October 4, 2021) (SR– 

MIAX–2021–41); 92661 (August 13, 2021), 86 FR 

46737 (August 19, 2021) (SR–MIAX–2021–37); 

92643 (August 11, 2021), 86 FR 46034 (August 17, 

2021) (SR–MIAX–2021–35). 

52 15 U.S.C. 78f(b)(4). 

53To the extent that the cost-based standard 

includes Commission Staff making determinations 

as to the appropriateness of certain profit margins, 

the Exchange believes that Staff should be clear as 

to what they determine is an appropriate profit 

margin. 

54 In light of the arguments above regarding 

disparate standards of review for historical legacy 

non-transaction fees and current non-transaction 

fees for non-legacy exchanges, a fee parity 

alternative would be one possible way to avoid the 

current unfair and discriminatory effect of the Staff 

Guidance and Revised Review Process. See, e.g., 

CSA Staff Consultation Paper 21–401, Real-Time 

Market Data Fees, available at https://

www.bcsc.bc.ca/-/media/PWS/Resources/ 

Securities_Law/Policies/Policy2/21401_Market_

Data_Fee_CSA_Staff_Consulation_Paper.pdf. 

55The Exchange’s costs have clearly increased 

and continue to increase, particularly regarding 

capital expenditures, as well as employee benefits 

provided by third parties (e.g., healthcare and 

insurance). Yet, practically no fee change proposed 

by the Exchange to cover its ever-increasing costs 

has been acceptable to the Commission Staff since 

2021. The only other fair and reasonable alternative 

would be to require the numerous fee filings 

unquestioningly approved before the Staff Guidance 

and Revised Review Process to ‘‘develop a record,’’ 

and to ‘‘explain their conclusions, based on that 

record, in a written decision that is sufficient to 

PHLX’s Form 1, simply titled ‘‘Market 

services.’’ 48

The much higher non-transaction fees 

charged by the legacy exchanges 

provides them with two significant 

competitive advantages. First, legacy 

exchanges are able to use their 

additional non-transaction revenue for 

investments in infrastructure, vast 

marketing and advertising on major 

media outlets,49 new products and other 

innovations. Second, higher nontransaction fees provide the legacy 

exchanges with greater flexibility to 

lower their transaction fees (or use the 

revenue from the higher non-transaction 

fees to subsidize transaction fee rates), 

which are more immediately impactful 

in competition for order flow and 

market share, given the variable nature 

of this cost on member firms. The 

prohibition of a reasonable path forward 

denies the Exchange (and other nonlegacy exchanges) this flexibility, 

eliminates the ability to remain 

competitive on transaction fees, and 

hinders the ability to compete for order 

flow and market share with legacy 

exchanges. While one could debate 

whether the pricing of non-transaction 

fees are subject to the same market 

forces as transaction fees, there is little 

doubt that subjecting one exchange to a 

materially different standard than that 

historically applied to legacy exchanges 

for non-transaction fees leaves that 

exchange at a disadvantage in its ability 

to compete with its pricing of 

transaction fees. 

While the Commission has clearly 

noted that the Staff Guidance is merely 

guidance and ‘‘is not a rule, regulation 

or statement of the . . . Commission 

. . . the Commission has neither 

approved nor disapproved its content 

. . .’’,50 this is not the reality 

experienced by exchanges such as 

MIAX. As such, non-legacy exchanges 

are forced to rely on an opaque costbased justification standard. However, 

because the Staff Guidance is devoid of 

detail on what must be contained in 

cost-based justification, this standard is 

nearly impossible to meet despite 

repeated good-faith efforts by the 

Exchange to provide substantial amount 

of cost-related details. For example, the 

Exchange has attempted to increase fees 

using a cost-based justification 

numerous times, having submitted over 

six filings.51 However, despite 

providing 100+ page filings describing 

in extensive detail its costs associated 

with providing the services described in 

the filings, Commission Staff continues 

to suspend such filings, with the 

rationale that the Exchange has not 

provided sufficient detail of its costs 

and without ever being precise about 

what additional data points are 

required. The Commission Staff appears 

to be interpreting the reasonableness 

standard set forth in section 6(b)(4) of 

the Act 52 in a manner that is not 

possible to achieve. This essentially 

nullifies the cost-based approach for 

exchanges as a legitimate alternative as 

laid out in the Staff Guidance. By 

refusing to accept a reasonable costbased argument to justify nontransaction fees (in addition to refusing 

to accept a competition-based argument 

as described above), or by failing to 

provide the detail required to achieve 

that standard, the Commission Staff is 

effectively preventing non-legacy 

exchanges from making any nontransaction fee changes, which benefits 

the legacy exchanges and is 

anticompetitive to the non-legacy 

exchanges. This does not meet the 

fairness standard under the Act and is 

discriminatory. 

Because of the un-level playing field 

created by the Revised Review Process 

and Staff Guidance, the Exchange 

believes that the Commission Staff, at 

this point, should either (a) provide 

sufficient clarity on how its cost-based 

standard can be met, including a clear 

and exhaustive articulation of required 

data and its views on acceptable 

margins,53 to the extent that this is 

pertinent; (b) establish a framework to 

provide for commensurate nontransaction based fees among competing 

exchanges to ensure fee parity; 54 or (c) 

accept that certain competition-based 

arguments are applicable given the 

linkage between non-transaction fees 

and transaction fees, especially where 

non-transaction fees among exchanges 

are based upon disparate standards of 

review, lack parity, and impede fair 

competition. Considering the absence of 

any such framework or clarity, the 

Exchange believes that the Commission 

does not have a reasonable basis to deny 

the Exchange this change in fees, where 

the proposed change would result in 

fees meaningfully lower than 

comparable fees at competing exchanges 

and where the associated nontransaction revenue is meaningfully 

lower than competing exchanges. 

In light of the above, disapproval of 

this would not meet the fairness 

standard under the Act, would be 

discriminatory and places a substantial 

burden on competition. The Exchange 

would be uniquely disadvantaged by 

not being able to increase its access fees 

to comparable levels (or lower levels 

than current market rates) to those of 

other options exchanges for 

connectivity. If the Commission Staff 

were to disapprove this proposal, that 

action, and not market forces, would 

substantially affect whether the 

Exchange can be successful in its 

competition with other options 

exchanges. Disapproval of this filing 

could also be viewed as an arbitrary and 

capricious decision should the 

Commission Staff continue to ignore its 

past treatment of non-transaction fee 

filings before implementation of the 

Revised Review Process and Staff 

Guidance and refuse to allow such 

filings to be approved despite 

significantly enhanced arguments and 

cost disclosures.55

* * * * * 


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Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58383 

enable us to perform our review,’’ and to ensure a 

comparable review process with the Exchange’s 

filing. 

56See supra note 9. 

57 Id. 

58The Exchange’s system networks consist of the 

Exchange’s extranet, internal network, and external 

network. 

59Market participants that purchase additional 

10Gb ULL connections as a result of this change 

will not be subject to the Exchange’s Member 

Network Connectivity Testing and Certification Fee 

under Section 4)c) of the Exchange’s fee schedule. 

See Section 4)c) of the Exchange’s Fee Schedule 

available at https://www.miaxglobal.com/markets/ 

us-options/miax-options/fees (providing that 

‘‘Network Connectivity Testing and Certification 

Fees will not be assessed in situations where the 

Exchange initiates a mandatory change to the 

Exchange’s system that requires testing and 

certification. Member Network Connectivity Testing 

and Certification Fees will not be assessed for 

testing and certification of connectivity to the 

Exchange’s Disaster Recovery Facility.’’). 

60Full 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. 

61Limited 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. 

62A ‘‘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. 

63See Securities Exchange Act Release No. 79666 

(December 22, 2016), 81 FR 96133 (December 29, 

2016) (SR–MIAX–2016–47). 

10Gb ULL Connectivity Fee Change 

The Exchange filed a proposal to no 

longer operate 10Gb connectivity to the 

Exchange on a single shared network 

with its affiliate, MIAX Pearl Options. 

This change is an operational necessity 

due to ever-increasing capacity 

constraints and to accommodate 

anticipated access needs for Members 

and other market participants.56 This 

proposal: (i) sets forth the applicable 

fees for the bifurcated 10Gb ULL 

network; (ii) removes provisions in the 

Fee Schedule that provide for a shared 

10Gb ULL network; and (iii) specifies 

that market participants may continue 

to connect to both the Exchange and 

MIAX Pearl Options via the 1Gb 

network. 

The Exchange bifurcated the 

Exchange and MIAX Pearl Options 10Gb 

ULL networks on January 23, 2023. The 

Exchange issued an alert on August 12, 

2022 publicly announcing the planned 

network change and implementation 

plan and dates to provide market 

participants adequate time to prepare.57

Upon bifurcation of the 10Gb ULL 

network, subscribers need to purchase 

separate connections to the Exchange 

and MIAX Pearl Options at the 

applicable rate. The Exchange’s 

proposed amended rate for 10Gb ULL 

connectivity is described below. Prior to 

the bifurcation of the 10Gb ULL 

networks, subscribers to 10Gb ULL 

connectivity would be able to connect to 

both the Exchange and MIAX Pearl 

Options at the applicable rate set forth 

below. 

The Exchange, therefore, proposes to 

amend the Fee Schedule to increase the 

fees for Members and non-Members to 

access the Exchange’s system 

networks 58 via a 10Gb ULL fiber 

connection and to specify that this fee 

is for a dedicated connection to the 

Exchange and no longer provides access 

to MIAX Pearl Options. Specifically, the 

Exchange proposes to amend Sections 

5)a)–b) of the Fee Schedule to increase 

the 10Gb ULL connectivity fee for 

Members and non-Members from 

$10,000 per month to $13,500 per 

month (‘‘10Gb ULL Fee’’).59 The 

Exchange also proposes to amend the 

Fee Schedule to reflect the bifurcation 

of the 10Gb ULL network and specify 

that only the 1Gb network provides 

access to both the Exchange and MIAX 

Pearl Options. 

The Exchange proposes to make the 

following changes to reflect the 

bifurcated 10Gb ULL network for the 

Exchange and MIAX Pearl Options. The 

Exchange proposes to amend the 

explanatory paragraphs below the 

network connectivity fee tables in 

Sections 5)a)–b) of the Fee Schedule to 

specify that, with the bifurcated 10Gb 

ULL network, Members (and nonMembers) utilizing the MENI to connect 

to the trading platforms, market data 

systems, test systems, and disaster 

recovery facilities of the Exchange and 

MIAX Pearl Options via a single, can 

only do so via a shared 1Gb connection. 

The Exchange will continue to assess 

monthly Member and non-Member 

network connectivity fees for 

connectivity to the primary and 

secondary facilities in any month the 

Member or non-Member is credentialed 

to use any of the Exchange APIs or 

market data feeds in the production 

environment. The Exchange will 

continue to pro-rate the fees when a 

Member or non-Member makes a change 

to the connectivity (by adding or 

deleting connections) with such prorated fees based on the number of 

trading days that the Member or nonMember has been credentialed to utilize 

any of the Exchange APIs or market data 

feeds in the production environment 

through such connection, divided by the 

total number of trading days in such 

month multiplied by the applicable 

monthly rate. 

Limited Service MEI Ports 

Background 

The Exchange also proposes to amend 

Section 5)d) of the Fee Schedule to 

adopt a tiered-pricing structure for 

Limited Service MEI Ports available to 

Market Makers. The Exchange allocates 

two (2) Full Service MEI Ports 60 and 

two (2) Limited Service MEI Ports 61 per 

matching engine 62 to which each 

Market Maker connects. Market Makers 

may also request additional Limited 

Service MEI Ports for each matching 

engine to which they connect. The Full 

Service MEI Ports and Limited Service 

MEI Ports all include access to the 

Exchange’s primary and secondary data 

centers and its disaster recovery center. 

Market Makers may request additional 

Limited Service MEI Ports. Currently, 

Market Makers are assessed a $100 

monthly fee for each Limited Service 

MEI Port for each matching engine 

above the first two Limited Service MEI 

Ports that are included for free. This fee 

was unchanged since 2016.63

Limited Service MEI Port Fee Changes 

The Exchange now proposes to move 

from a flat monthly fee per Limited 

Service MEI Port for each matching 

engine to a tiered-pricing structure for 

Limited Service MEI Ports for each 

matching engine under which the 

monthly fee would vary depending on 

the number of Limited Service MEI 

Ports each Market Maker elects to 

purchase. Specifically, the Exchange 

will continue to provide the first and 

second Limited Service MEI Ports for 

each matching engine free of charge. For 

Limited Service MEI Ports, the 

Exchange proposes to adopt the 

following tiered-pricing structure: (i) the 

third and fourth Limited Service MEI 

Ports for each matching engine will 

increase from the current flat monthly 

fee of $100 to $150 per port; (ii) the fifth 

and sixth Limited Service MEI Ports for 

each matching engine will increase from 

the current flat monthly fee of $100 to 

$200 per port; and (iii) the seventh or 

more Limited Service MEI Ports will 

increase from the current monthly flat 

fee of $100 to $250 per port. The 

Exchange believes a tiered-pricing 


ddrumheller on DSK120RN23PROD with NOTICES1
58384 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

64The term ‘‘System’’ means the automated 

trading system used by the Exchange for the trading 

of securities. See Exchange Rule 100. 

65See 15 U.S.C. 78f(b). The Exchange may offer 

access on terms that are not unfairly discriminatory 

among its Members, and ensure sufficient capacity 

and headroom in the System. The Exchange 

monitors the System’s performance and makes 

adjustments to its System based on market 

conditions and Member demand. 

66 17 CFR 240.17a–1 (recordkeeping rule for 

national securities exchanges, national securities 

associations, registered clearing agencies and the 

Municipal Securities Rulemaking Board). 

67See Securities Exchange Act Release No. 79666 

(December 22, 2016), 81 FR 96133 (December 29, 

2016) (SR–MIAX–2016–47). 

68 15 U.S.C. 78f(b). 

69 15 U.S.C. 78f(b)(4). 

70 15 U.S.C. 78f(b)(5). 

71See supra note 24. 

72See supra note 25. 

structure will encourage Market Makers 

to be more efficient when determining 

how to connect to the Exchange. This 

should also enable the Exchange to 

better monitor and provide access to the 

Exchange’s network to ensure sufficient 

capacity and headroom in the System 64

in accordance with its fair access 

requirements under section 6(b)(5) of 

the Act.65

The Exchange offers various types of 

ports with differing prices because each 

port accomplishes different tasks, are 

suited to different types of Members, 

and consume varying capacity amounts 

of the network. For instance, Market 

Makers who take the maximum amount 

of Limited Service MEI Ports account for 

approximately greater than 99% of 

message traffic over the network, while 

Market Makers with fewer Limited 

Service MEI Ports account for 

approximately less than 1% of message 

traffic over the network. In the 

Exchange’s experience, Market Makers 

who only utilize the two free Limited 

Service MEI Ports do not have a 

business need for the high performance 

network solutions required by Market 

Makers who take the maximum amount 

of Limited Service MEI Ports. The 

Exchange’s high performance network 

solutions and supporting infrastructure 

(including employee support), provides 

unparalleled system throughput and the 

capacity to handle approximately 18 

million quote messages per second. 

Based on May 2023 trading results, the 

Exchange handles more than 12.3 

billion quotes on an average day, and 

more than 271 billion quotes over the 

entire month. Of that total, Market 

Makers with the maximum amount of 

Limited Service MEI Ports generated 

more than 156 billion quotes (and more 

than 7 billion quotes on an average day), 

and Market Makers who utilized only 

the two free Limited Service MEI Ports 

generated approximately 78 billion 

quotes (and approximately 3.5 billion 

quotes on an average day). Also for May 

2023, Market Makers who utilized 7 to 

9 Limited Service MEI ports submitted 

an average of 1.3 billion quotes per day 

and Market Makers who utilized 5–6 

Limited Service MEI Ports submitted an 

average of 356 million quotes on an 

average day. In May 2023, the Exchange 

did not have any Market Makers that 

utilized only 3–4 Limited Service MEI 

Ports. 

To achieve a consistent, premium 

network performance, the Exchange 

must build out and maintain a network 

that has the capacity to handle the 

message rate requirements of its most 

heavy network consumers. These 

billions of messages per day consume 

the Exchange’s resources and 

significantly contribute to the overall 

network connectivity expense for 

storage and network transport 

capabilities. The Exchange must also 

purchase additional storage capacity on 

an ongoing basis to ensure it has 

sufficient capacity to store these 

messages as part of it surveillance 

program and to satisfy its record 

keeping requirements under the 

Exchange Act.66 Thus, as the number of 

connections a Market Maker has 

increases, certain other costs incurred 

by the Exchange that are correlated to, 

though not directly affected by, 

connection costs (e.g., storage costs, 

surveillance costs, service expenses) 

also increase. The Exchange sought to 

design the proposed tiered-pricing 

structure to set the amount of the fees 

to relate to the number of connections 

a firm purchases. The more connections 

purchased by a Market Maker likely 

results in greater expenditure of 

Exchange resources and increased cost 

to the Exchange. With this in mind, the 

Exchange proposes no fee or lower fees 

for those Market Makers who receive 

fewer Limited Service MEI Ports since 

those Market Makers generally tend to 

send the least amount of orders and 

messages over those connections. Given 

this difference in network utilization 

rate, the Exchange believes that it is 

reasonable, equitable, and not unfairly 

discriminatory that Market Makers who 

take the most Limited Service MEI Ports 

pay for the vast majority of the shared 

network resources from which all 

Member and non-Member users benefit, 

but is designed and maintained from a 

capacity standpoint to specifically 

handle the message rate and 

performance requirements of those 

Market Makers. 

The Exchange proposes to increase its 

monthly Limited Service MEI Port fees 

since it has not done so since 2016,67

which is designed to recover a portion 

of the costs associated with directly 

accessing the Exchange. 

Implementation 

The proposed fee changes are 

immediately effective. 

2. Statutory Basis 

The Exchange believes that the 

proposed fees are consistent with 

section 6(b) of the Act 68 in general, and 

furthers the objectives of section 6(b)(4) 

of the Act 69 in particular, in that it 

provides for the equitable allocation of 

reasonable dues, fees and other charges 

among Members and other persons 

using any facility or system which the 

Exchange operates or controls. The 

Exchange also believes the proposed 

fees further the objectives of section 

6(b)(5) of the Act 70 in that they are 

designed to promote just and equitable 

principles of trade, remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general protect investors and the public 

interest and are not designed to permit 

unfair discrimination between 

customers, issuers, brokers and dealers. 

The Exchange believes that the 

information provided to justify the 

proposed fees meets or exceeds the 

amount of detail required in respect of 

proposed fee changes under the Revised 

Review Process and as set forth in 

recent Staff Guidance. Based on both the 

BOX Order 71 and the Staff Guidance,72

the Exchange believes that the proposed 

fees are consistent with the Act because 

they are: (i) reasonable, equitably 

allocated, not unfairly discriminatory, 

and not an undue burden on 

competition; (ii) comply with the BOX 

Order and the Staff Guidance; and (iii) 

supported by evidence (including 

comprehensive revenue and cost data 

and analysis) that they are fair and 

reasonable and will not result in 

excessive pricing or supra-competitive 

profit. 

The Exchange believes that 

exchanges, in setting fees of all types, 

should meet high standards of 

transparency to demonstrate why each 

new fee or fee amendment meets the 

requirements of the Act that fees be 

reasonable, equitably allocated, not 

unfairly discriminatory, and not create 

an undue burden on competition among 

market participants. The Exchange 

believes this high standard is especially 

important when an exchange imposes 

various fees for market participants to 

access an exchange’s marketplace. 


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Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58385 

73 Id. 

74 Id. 

75 Id. 

76See Securities Exchange Act Release No. 68415 

(December 12, 2012), 77 FR 74905 (December 18, 

2012) (SR–MIAX–2012–01). 

77See Securities Exchange Act Release No. 94894 

(May 11, 2022), 87 FR 29987 (May 17, 2022) (SR– 

BOX–2022–17) (stating, ‘‘[t]he Exchange established 

this lower (when compared to other options 

exchanges in the industry) Participant Fee in order 

to encourage market participants to become 

Participants of BOX . . .’’). See also Securities 

Exchange Act Release No. 90076 (October 2, 2020), 

85 FR 63620 (October 8, 2020) (SR–MEMX–2020– 

10) (proposing to adopt the initial fee schedule and 

stating that ‘‘[u]nder the initial proposed Fee 

Schedule, the Exchange proposes to make clear that 

it does not charge any fees for membership, market 

data products, physical connectivity or application 

sessions.’’). MEMX’s market share has increased 

and recently proposed to adopt numerous nontransaction fees, including fees for membership, 

market data, and connectivity. See Securities 

Exchange Act Release Nos. 93927 (January 7, 2022), 

87 FR 2191 (January 13, 2022) (SR–MEMX–2021– 

19) (proposing to adopt membership fees); 96430 

(December 1, 2022), 87 FR 75083 (December 7, 

2022) (SR–MEMX–2022–32) and 95936 (September 

27, 2022), 87 FR 59845 (October 3, 2022) (SR– 

MEMX–2022–26) (proposing to adopt fees for 

connectivity). See also, e.g., Securities Exchange 

Act Release No. 88211 (February 14, 2020), 85 FR 

9847 (February 20, 2020) (SR–NYSENAT–2020–05), 

available at https://www.nyse.com/publicdocs/ 

nyse/markets/nyse-national/rule-filings/filings/ 

2020/SR-NYSENat-2020-05.pdf (initiating market 

data fees for the NYSE National exchange after 

initially setting such fees at zero). 

78The Exchange experienced a monthly average 

equity options trading volume of 1.87% for the 

month of November 2013. See the ‘‘Market Share’’ 

section of the Exchange’s website, available at 

https://www.miaxglobal.com/. 

79See Securities Exchange Act Release No. 70903 

(November 20, 2013), 78 FR 70615 (November 26, 

2013) (SR–MIAX–2013–52). 

80See Securities Exchange Act Release No. 90980 

(January 25, 2021), 86 FR 7602 (January 29, 2021) 

(SR–MIAX–2021–02). 

81See NetCoalition, 615 F.3d at 539 (D.C. Cir. 

2010) (quoting Securities Exchange Act Release No. 

59039 (December 2, 2008), 73 FR 74770, 74782–83 

(December 9, 2008) (SR–NYSEArca–2006–21)). 

In the Staff Guidance, the 

Commission Staff states that, ‘‘[a]s an 

initial step in assessing the 

reasonableness of a fee, staff considers 

whether the fee is constrained by 

significant competitive forces.’’ 73 The 

Staff Guidance further states that, ‘‘. . . 

even where an SRO cannot demonstrate, 

or does not assert, that significant 

competitive forces constrain the fee at 

issue, a cost-based discussion may be an 

alternative basis upon which to show 

consistency with the Exchange Act.’’ 74

In the Staff Guidance, the Commission 

Staff further states that, ‘‘[i]f an SRO 

seeks to support its claims that a 

proposed fee is fair and reasonable 

because it will permit recovery of the 

SRO’s costs, . . . , specific information, 

including quantitative information, 

should be provided to support that 

argument.’’ 75

The proposed fees are reasonable 

because they promote parity among 

exchange pricing for access, which 

promotes competition, including in the 

Exchanges’ ability to competitively 

price transaction fees, invest in 

infrastructure, new products and other 

innovations, all while allowing the 

Exchange to recover its costs to provide 

dedicated access via 10Gb ULL 

connectivity (driven by the bifurcation 

of the 10Gb ULL network) and Limited 

Service MEI Ports. As discussed above, 

the Revised Review Process and Staff 

Guidance have created an uneven 

playing field between legacy and nonlegacy exchanges by severely restricting 

non-legacy exchanges from being able to 

increase non-transaction related fees to 

provide them with additional necessary 

revenue to better compete with legacy 

exchanges, which largely set fees prior 

to the Revised Review Process. The 

much higher non-transaction fees 

charged by the legacy exchanges 

provides them with two significant 

competitive advantages: (i) additional 

non-transaction revenue that may be 

used to fund areas other than the nontransaction service related to the fee, 

such as investments in infrastructure, 

advertising, new products and other 

innovations; and (ii) greater flexibility to 

lower their transaction fees by using the 

revenue from the higher non-transaction 

fees to subsidize transaction fee rates. 

The latter is more immediately 

impactful in competition for order flow 

and market share, given the variable 

nature of this cost on Member firms. 

The absence of a reasonable path 

forward to increase non-transaction fees 

to comparable (or lower rates) limits the 

Exchange’s flexibility to, among other 

things, make additional investments in 

infrastructure and advertising, 

diminishes the ability to remain 

competitive on transaction fees, and 

hinders the ability to compete for order 

flow and market share. Again, while one 

could debate whether the pricing of 

non-transaction fees are subject to the 

same market forces as transaction fees, 

there is little doubt that subjecting one 

exchange to a materially different 

standard than that applied to other 

exchanges for non-transaction fees 

leaves that exchange at a disadvantage 

in its ability to compete with its pricing 

of transaction fees. 

The Proposed Fees Ensure Parity 

Among Exchange Access Fees, Which 

Promotes Competition 

The Exchange commenced operations 

in 2012 and adopted its initial fee 

schedule, with all connectivity and port 

fees set at $0.00 (the Exchange originally 

had a non-ULL 10Gb connectivity 

option, which it has since removed).76

As a new exchange entrant, the 

Exchange chose to offer connectivity 

and ports free of charge to encourage 

market participants to trade on the 

Exchange and experience, among things, 

the quality of the Exchange’s technology 

and trading functionality. This practice 

is not uncommon. New exchanges often 

do not charge fees or charge lower fees 

for certain services such as 

memberships/trading permits to attract 

order flow to an exchange, and later 

amend their fees to reflect the true value 

of those services, absorbing all costs to 

provide those services in the meantime. 

Allowing new exchange entrants time to 

build and sustain market share through 

various pricing incentives before 

increasing non-transaction fees 

encourages market entry and fee parity, 

which promotes competition among 

exchanges. It also enables new 

exchanges to mature their markets and 

allow market participants to trade on 

the new exchanges without fees serving 

as a potential barrier to attracting 

memberships and order flow.77

Later in 2013, as the Exchange’s 

market share increased,78 the Exchange 

adopted a nominal $10 fee for each 

additional Limited Service MEI Port.79

The Exchange last increased the fees for 

its 10Gb ULL fiber connections from 

$9,300 to $10,000 per month on January 

1, 2021.80 The Exchange balanced 

business and competitive concerns with 

the need to financially compete with the 

larger incumbent exchanges that charge 

higher fees for similar connectivity and 

use that revenue to invest in their 

technology and other service offerings. 

The proposed changes to the Fee 

Schedule are reasonable in several 

respects. As a threshold matter, the 

Exchange is subject to significant 

competitive forces, which constrains its 

pricing determinations for transaction 

fees as well as non-transaction fees. The 

fact that the market for order flow is 

competitive has long been recognized by 

the courts. In NetCoalition v. Securities 

and Exchange Commission, the D.C. 

Circuit stated, ‘‘[n]o one disputes that 

competition for order flow is ‘fierce.’ 

. . . As the SEC explained, ‘[i]n the U.S. 

national market system, buyers and 

sellers of securities, and the brokerdealers that act as their order-routing 

agents, have a wide range of choices of 

where to route orders for execution’; 

[and] ‘no exchange can afford to take its 

market share percentages for granted’ 

because ‘no exchange possesses a 

monopoly, regulatory or otherwise, in 

the execution of order flow from broker 

dealers’. . . .’’ 81


ddrumheller on DSK120RN23PROD with NOTICES1
58386 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

82See Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) 

(‘‘Regulation NMS Adopting Release’’). 

83See NetCoalition, 615 F.3d at 534–35; see also 

H.R. Rep. No. 94–229 at 92 (1975) (‘‘[I]t is the intent 

of the conferees that the national market system 

evolve through the interplay of competitive forces 

as unnecessary regulatory restrictions are 

removed.’’). 

84See Securities Exchange Act Release No. 59039 

(December 2, 2008), 73 FR 74,770 (December 9, 

2008) (SR–NYSEArca–2006–21). 

85 Id. 

86See supra note 25. 

The Commission and the courts have 

repeatedly expressed their preference 

for competition over regulatory 

intervention to determine prices, 

products, and services in the securities 

markets. In Regulation NMS, while 

adopting a series of steps to improve the 

current market model, the Commission 

highlighted the importance of market 

forces in determining prices and SRO 

revenues, and also recognized that 

current regulation of the market system 

‘‘has been remarkably successful in 

promoting market competition in its 

broader forms that are most important to 

investors and listed companies.’’ 82

Congress directed the Commission to 

‘‘rely on ‘competition, whenever 

possible, in meeting its regulatory 

responsibilities for overseeing the SROs 

and the national market system.’ ’’ 83 As 

a result, and as evidenced above, the 

Commission has historically relied on 

competitive forces to determine whether 

a fee proposal is equitable, fair, 

reasonable, and not unreasonably or 

unfairly discriminatory. ‘‘If competitive 

forces are operative, the self-interest of 

the exchanges themselves will work 

powerfully to constrain unreasonable or 

unfair behavior.’’ 84 Accordingly, ‘‘the 

existence of significant competition 

provides a substantial basis for finding 

that the terms of an exchange’s fee 

proposal are equitable, fair, reasonable, 

and not unreasonably or unfairly 

discriminatory.’’ 85 In the Revised 

Review Process and Staff Guidance, 

Commission Staff indicated that they 

would look at factors beyond the 

competitive environment, such as cost, 

only if a ‘‘proposal lacks persuasive 

evidence that the proposed fee is 

constrained by significant competitive 

forces.’’ 86

The Exchange believes the competing 

exchanges’ 10Gb connectivity and port 

fees are useful examples of alternative 

approaches to providing and charging 

for access and demonstrating how such 

fees are competitively set and 

constrained. To that end, the Exchange 

believes the proposed fees are 

competitive and reasonable because the 

proposed fees are similar to or less than 

fees charged for similar connectivity 

and port access provided by other 

options exchanges with comparable 

market shares. As such, the Exchange 

believes that denying its ability to 

institute fees that allow the Exchange to 

recoup its costs with a reasonable 

margin in a manner that is closer to 

parity with legacy exchanges, in effect, 

impedes its ability to compete, 

including in its pricing of transaction 

fees and ability to invest in competitive 

infrastructure and other offerings. 

The following table shows how the 

Exchange’s proposed fees remain 

similar to or less than fees charged for 

similar connectivity and port access 

provided by other options exchanges 

with similar market share. Each of the 

connectivity or port rates in place at 

competing options exchanges were filed 

with the Commission for immediate 

effectiveness and remain in place today. 

Exchange Type of connection or port Monthly fee 

(per connection or per port) 

MIAX (as proposed) (equity options market share of 6.60% for the 

month of May 2023) a.

10Gb ULL connection ....................

Limited Service MEI Ports .............

$13,500. 

1–2 ports: FREE (not changed in 

this proposal). 

3–4 ports: $150 each. 

5–6 ports: $200 each. 

7 or more ports: $250 each. 

NASDAQ b (equity options market share of 6.59% for the month of 

May 2023) c.

10Gb Ultra fiber connection ..........

SQF Port d .....................................

$15,000 per connection. 

1–5 ports: $1,500 per port. 

6–20 ports: $1,000 per port. 

21 or more ports: $500 per port. 

NASDAQ ISE LLC (‘‘ISE’’) e (equity options market share of 6.18% for 

the month of May 2023)f.

10Gb Ultra fiber connection ..........

SQF Port ........................................

$15,000 per connection. 

$1,100 per port. 

NYSE American LLC (‘‘NYSE American’’) g (equity options market 

share of 7.34% for the month of May 2023) h.

10Gb LX LCN connection .............

Order/Quote Entry Port .................

$22,000 per connection. 

1–40 ports: $450 per port. 

41 or more ports: $150 per port. 

NASDAQ GEMX, LLC (‘‘GEMX’’)i (equity options market share of 

2.00% for the month of May 2023)j.

10Gb Ultra connection ...................

SQF Port ........................................

$15,000 per connection. 

$1,250 per port. 

aSee the ‘‘Market Share’’ section of the Exchange’s website, available at https://www.miaxglobal.com/. bSee NASDAQ Pricing Schedule, Options 7, Section 3, Ports and Other Services and NASDAQ Rules, General 8: Connectivity, Section 1. CoLocation Services. cSee supra note a. dSimilar to the Exchange’s MEI Ports, SQF ports are primarily utilized by Market Makers. 

eSee ISE Pricing Schedule, Options 7, Section 7, Connectivity Fees and ISE Rules, General 8: Connectivity. fSee supra note a. gSee NYSE American Options Fee Schedule, Section V.A. Port Fees and Section V.B. Co-Location Fees. hSee supra note a. iSee GEMX Pricing Schedule, Options 7, Section 6, Connectivity Fees and GEMX Rules, General 8: Connectivity. 

jSee supra note a. 

There is no requirement, regulatory or 

otherwise, that any broker-dealer 

connect to and access any (or all of) the 

available options exchanges. Market 

participants may choose to become a 

member of one or more options 

exchanges based on the market 

participant’s assessment of the business 

opportunity relative to the costs of the 

Exchange. With this, there is elasticity 

of demand for exchange membership. 

As an example, the Exchange’s affiliate, 

MIAX Pearl Options, experienced a 

decrease in membership as the result of 

similar fees proposed herein. One MIAX 

Pearl Options Market Maker terminated 

their MIAX Pearl Options membership 

effective January 1, 2023, as a direct 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58387 

87BOX recently adopted an electronic market 

maker trading permit fee. See Securities Exchange 

Release No. 94894 (May 11, 2022), 87 FR 29987 

(May 17, 2022) (SR–BOX–2022–17). In that 

proposal, BOX stated that, ‘‘. . . it is not aware of 

any reason why Market Makers could not simply 

drop their access to an exchange (or not initially 

access an exchange) if an exchange were to 

establish prices for its non-transaction fees that, in 

the determination of such Market Maker, did not 

make business or economic sense for such Market 

Maker to access such exchange. [BOX] again notes 

that no market makers are required by rule, 

regulation, or competitive forces to be a Market 

Maker on [BOX].’’ Also in 2022, MEMX established 

a monthly membership fee. See Securities Exchange 

Act Release No. 93927 (January 7, 2022), 87 FR 

2191 (January 13, 2022) (SR–MEMX–2021–19). In 

that proposal, MEMX reasoned that that there is 

value in becoming a member of the exchange and 

stated that it believed that the proposed 

membership fee ‘‘is not unfairly discriminatory 

because no broker-dealer is required to become a 

member of the Exchange’’ and that ‘‘neither the 

trade-through requirements under Regulation NMS 

nor broker-dealers’ best execution obligations 

require a broker-dealer to become a member of 

every exchange.’’ 

88Service Bureaus may obtain ports on behalf of 

Members. 

89See Securities Exchange Act Release No. 94894 

(May 11, 2022), 87 FR 29987 (May 17, 2022) (SR– 

BOX–2022–17) (Notice of Filing and Immediate 

Effectiveness of a Proposed Rule Change to Amend 

the Fee Schedule on the BOX Options Market LLC 

Facility To Adopt Electronic Market Maker Trading 

Permit Fees). The Exchange believes that BOX’s 

observation demonstrates that market making firms 

can, and do, select which exchanges they wish to 

access, and, accordingly, options exchanges must 

take competitive considerations into account when 

setting fees for such access. 

90See Options Order Protection and Locked/ 

Crossed Market Plan (August 14, 2009), available at 

https://www.theocc.com/getmedia/7fc629d9-4e54- 

4b99-9f11-c0e4db1a2266/options_order_protection_

plan.pdf. 

91See Exchange Rule 100. 

92Members may elect to not route their orders by 

utilizing the Do Not Route order type. See Exchange 

Rule 516(g). 

93Service Bureaus provide access to market 

participants to submit and execute orders on an 

exchange. On the Exchange, a Service Bureau may 

be a Member. Some Members utilize a Service 

Bureau for connectivity and that Service Bureau 

may not be a Member. Some market participants 

utilize a Service Bureau who is a Member to submit 

orders. 

94Sponsored Access is an arrangement whereby 

a Member permits its customers to enter orders into 

an exchange’s system that bypass the Member’s 

trading system and are routed directly to the 

Exchange, including routing through a service 

bureau or other third-party technology provider. 

95This may include utilizing a floor broker and 

submitting the trade to one of the five options 

trading floors. 

96See, e.g., Nasdaq Price List—U.S. Direct 

Connection and Extranet Fees, available at, U.S. 

Continued 

result of the proposed connectivity and 

port fee changes proposed by MIAX 

Pearl Options. 

It is not a requirement for market 

participants to become members of all 

options exchanges; in fact, certain 

market participants conduct an options 

business as a member of only one 

options market.87 A very small number 

of market participants choose to become 

a member of all sixteen options 

exchanges. Most firms that actively 

trade on options markets are not 

currently Members of the Exchange and 

do not purchase connectivity or port 

services at the Exchange. Connectivity 

and ports are only available to Members 

or service bureaus, and only a Member 

may utilize a port.88

One other exchange recently noted in 

a proposal to amend their own trading 

permit fees that of the 62 market making 

firms that are registered as Market 

Makers across Cboe, MIAX, and BOX, 

42 firms access only one of the three 

exchanges.89 The Exchange and its 

affiliated options markets, MIAX Pearl 

Options and MIAX Emerald, have a total 

of 46 members. Of those 46 total 

members, 37 are members of all three 

affiliated options markets, two are 

members of only two affiliated options 

markets, and seven are members of only 

one affiliated options market. The 

Exchange also notes that no firm is a 

Member of the Exchange only. The 

above data evidences that a brokerdealer need not have direct connectivity 

to all options exchanges, let alone the 

Exchange and its two affiliates, and 

broker-dealers may elect to do so based 

on their own business decisions and 

need to directly access each exchange’s 

liquidity pool. 

Not only is there not an actual 

regulatory requirement to connect to 

every options exchange, the Exchange 

believes there is also no ‘‘de facto’’ or 

practical requirement as well, as further 

evidenced by the broker-dealer 

membership analysis of the options 

exchanges discussed above. As noted 

above, this is evidenced by the fact that 

one MIAX Pearl Options Market Maker 

terminated their MIAX Pearl Options 

membership effective January 1, 2023 as 

a direct result of the proposed 

connectivity and port fee changes on 

MIAX Pearl Options (which are similar 

to the changes proposed herein). Indeed, 

broker-dealers choose if and how to 

access a particular exchange and 

because it is a choice, the Exchange 

must set reasonable pricing, otherwise 

prospective members would not connect 

and existing members would disconnect 

from the Exchange. The decision to 

become a member of an exchange, 

particularly for registered market 

makers, is complex, and not solely 

based on the non-transactional costs 

assessed by an exchange. As noted 

herein, specific factors include, but are 

not limited to: (i) an exchange’s 

available liquidity in options series; (ii) 

trading functionality offered on a 

particular market; (iii) product offerings; 

(iv) customer service on an exchange; 

and (v) transactional pricing. Becoming 

a member of the exchange does not 

‘‘lock’’ a potential member into a market 

or diminish the overall competition for 

exchange services. 

In lieu of becoming a member at each 

options exchange, a market participant 

may join one exchange and elect to have 

their orders routed in the event that a 

better price is available on an away 

market. Nothing in the Order Protection 

Rule requires a firm to become a 

Member at—or establish connectivity 

to—the Exchange.90 If the Exchange is 

not at the national best bid or offer 

(‘‘NBBO’’) 91, the Exchange will route an 

order to any away market that is at the 

NBBO to ensure that the order was 

executed at a superior price and prevent 

a trade-through.92

With respect to the submission of 

orders, Members may also choose not to 

purchase any connection from the 

Exchange, and instead rely on the port 

of a third party to submit an order. For 

example, a third-party broker-dealer 

Member of the Exchange may be 

utilized by a retail investor to submit 

orders into an exchange. An 

institutional investor may utilize a 

broker-dealer, a service bureau,93 or 

request sponsored access 94 through a 

member of an exchange in order to 

submit a trade directly to an options 

exchange.95 A market participant may 

either pay the costs associated with 

becoming a member of an exchange or, 

in the alternative, a market participant 

may elect to pay commissions to a 

broker-dealer, pay fees to a service 

bureau to submit trades, or pay a 

member to sponsor the market 

participant in order to submit trades 

directly to an exchange. 

Non-Member third-parties, such as 

service bureaus and extranets, resell the 

Exchange’s connectivity. This indirect 

connectivity is another viable 

alternative for market participants to 

trade on the Exchange without 

connecting directly to the Exchange 

(and thus not pay the Exchange’s 

connectivity fees), which alternative is 

already being used by non-Members and 

further constrains the price that the 

Exchange is able to charge for 

connectivity and other access fees to its 

market. The Exchange notes that it 

could, but chooses not to, preclude 

market participants from reselling its 

connectivity. Unlike other exchanges, 

the Exchange also does not currently 

assess fees on third-party resellers on a 

per customer basis (i.e., fees based on 

the number of firms that connect to the 

Exchange indirectly via the thirdparty).96 Indeed, the Exchange does not 


ddrumheller on DSK120RN23PROD with NOTICES1
58388 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

Direct-Extranet Connection (nasdaqtrader.com); and 

Securities Exchange Act Release Nos. 74077 

(January 16, 2022), 80 FR 3683 (January 23, 2022) 

(SR–NASDAQ–2015–002); and 82037 (November 8, 

2022), 82 FR 52953 (November 15, 2022) (SR– 

NASDAQ–2017–114). 

97The Exchange notes that resellers, such as 

SFTI, are not required to publicize, let alone justify 

or file with the Commission their fees, and as such 

could charge the market participant any fees it 

deems appropriate (including connectivity fees 

higher than the Exchange’s connectivity fees), even 

if such fees would otherwise be considered 

potentially unreasonable or uncompetitive fees. 

98See Securities Exchange Act Release No. 80061 

(February 17, 2017), 82 FR 11676 (February 24, 

2017) (establishing MIAX Pearl Fee Schedule and 

establishing that the MENI can also be configured 

to provide network connectivity to the trading 

platforms, market data systems, test systems, and 

disaster recovery facility of the MIAX Pearl’s 

affiliate, MIAX, via a single, shared connection). 

99See Securities Exchange Act Release Nos. 

96553 (December 20, 2022), 87 FR 79379 (December 

27, 2022) (SR–PEARL–2022–60); 96545 (December 

20, 2022) 87 FR 79393 (December 27, 2022) (SR– 

MIAX–2022–48). 

100Currently, the Exchange maintains sufficient 

headroom to meet ongoing and future requests for 

1Gb connectivity. Therefore, the Exchange did not 

propose to alter 1Gb connectivity and continues to 

provide 1Gb connectivity over a shared network. 

receive any connectivity revenue when 

connectivity is resold by a third-party, 

which often is resold to multiple 

customers, some of whom are agency 

broker-dealers that have numerous 

customers of their own.97 Particularly, 

in the event that a market participant 

views the Exchange’s direct 

connectivity and access fees as more or 

less attractive than competing markets, 

that market participant can choose to 

connect to the Exchange indirectly or 

may choose not to connect to the 

Exchange and connect instead to one or 

more of the other 15 options markets. 

Accordingly, the Exchange believes that 

the proposed fees are fair and 

reasonable and constrained by 

competitive forces. 

The Exchange is obligated to regulate 

its Members and secure access to its 

environment. In order to properly 

regulate its Members and secure the 

trading environment, the Exchange 

takes measures to ensure access is 

monitored and maintained with various 

controls. Connectivity and ports are 

methods utilized by the Exchange to 

grant Members secure access to 

communicate with the Exchange and 

exercise trading rights. When a market 

participant elects to be a Member, and 

is approved for membership by the 

Exchange, the Member is granted 

trading rights to enter orders and/or 

quotes into Exchange through secure 

connections. 

Again, there is no legal or regulatory 

requirement that a market participant 

become a Member of the Exchange. This 

is again evidenced by the fact that one 

MIAX Pearl Options Market Maker 

terminated their MIAX Pearl Options 

membership effective January 1, 2023 as 

a direct result of the proposed 

connectivity and port fee changes on 

MIAX Pearl Options. If a market 

participant chooses to become a 

Member, they may then choose to 

purchase connectivity beyond the one 

connection that is necessary to quote or 

submit orders on the Exchange. 

Members may freely choose to rely on 

one or many connections, depending on 

their business model. 

Bifurcation of 10Gb ULL Connectivity 

and Related Fees 

The Exchange began to operate on a 

single shared network with MIAX Pearl 

Options when MIAX Pearl commenced 

operations as a national securities 

exchange on February 7, 2017.98 The 

Exchange and MIAX Pearl Options 

operated on a single shared network to 

provide Members with a single 

convenient set of access points for both 

exchanges. Both the Exchange and 

MIAX Pearl Options offer two methods 

of connectivity, 1Gb and 10Gb ULL 

connections. The 1Gb connection 

services are supported by a discrete set 

of switches providing 1Gb access ports 

to Members. The 10Gb ULL connection 

services are supported by a second and 

mutually exclusive set of switches 

providing 10Gb ULL access ports to 

Members. Previously, both the 1Gb and 

10Gb ULL shared extranet ports allowed 

Members to use one connection to 

access both exchanges, namely their 

trading platforms, market data systems, 

test systems, and disaster recovery 

facilities. 

The Exchange stresses that bifurcating 

the 10Gb ULL connectivity between the 

Exchange and MIAX Pearl Options was 

not designed with the objective to 

generate an overall increase in access 

fee revenue. Rather, the proposed 

change was necessitated by 10Gb ULL 

connectivity experiencing a significant 

decrease in port availability mostly 

driven by connectivity demands of 

latency sensitive Members that seek to 

maintain multiple 10Gb ULL 

connections on every switch in the 

network. Operating two separate 

national securities exchanges on a single 

shared network provided certain 

benefits, such as streamlined 

connectivity to multiple exchanges, and 

simplified exchange infrastructure. 

However, doing so was no longer 

sustainable due to ever-increasing 

capacity constraints and current system 

limitations. The network is not an 

unlimited resource. As described more 

fully in the proposal to bifurcate the 

10Gb ULL network,99 the connectivity 

needs of Members and market 

participants has increased every year 

since the launch of MIAX Pearl Options 

and the operations of the Exchange and 

MIAX Pearl Options on a single shared 

10Gb ULL network is no longer feasible. 

This required constant System 

expansion to meet Member demand for 

additional ports and 10Gb ULL 

connections has resulted in limited 

available System headroom, which 

eventually became operationally 

problematic for both the Exchange and 

its customers. 

As stated above, the shared network is 

not an unlimited resource and its 

expansion was constrained by MIAX’s 

and MIAX Pearl Options’ ability to 

provide fair and equitable access to all 

market participants of both markets. 

Due to the ever-increasing connectivity 

demands, the Exchange found it 

necessary to bifurcate 10Gb ULL 

connectivity to the Exchange’s and 

MIAX Pearl Options’ Systems and 

networks to be able to continue to meet 

ongoing and future 10Gb ULL 

connectivity and access demands.100

Unlike the switches that provide 1Gb 

connectivity, the availability for 

additional 10Gb ULL connections on 

each switch had significantly decreased. 

This was mostly driven by the 

connectivity demands of latency 

sensitive Members (e.g., Market Makers 

and liquidity removers) that sought to 

maintain connectivity across multiple 

10Gb ULL switches. Based on the 

Exchange’s experience, such Members 

did not typically use a shared 10Gb ULL 

connection to reach both the Exchange 

and MIAX Pearl Options due to related 

latency concerns. Instead, those 

Members maintain dedicated separate 

10Gb ULL connections for the Exchange 

and separate dedicated 10Gb ULL 

connections for MIAX Pearl Options. 

This resulted in a much higher 10Gb 

ULL usage per switch by those Members 

on the shared 10Gb ULL network than 

would otherwise be needed if the 

Exchange and MIAX Pearl Options had 

their own dedicated 10Gb ULL 

networks. Separation of the Exchange 

and MIAX Pearl Options 10Gb ULL 

networks naturally lends itself to 

reduced 10Gb ULL port consumption on 

each switch and, therefore, increased 

10Gb ULL port availability for current 

Members and new Members. 

Prior to bifurcating the 10Gb ULL 

network, the Exchange and MIAX Pearl 

Options continued to add switches to 

meet ongoing demand for 10Gb ULL 

connectivity. That was no longer 

sustainable because simply adding 

additional switches to expand the 


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101See supra note 9. 

102 15 U.S.C. 78s(b)(1). 

103 17 CFR 240.19b–4. 

104 15 U.S.C. 78f(b). 

105 15 U.S.C. 78f(b)(4). 

106 15 U.S.C. 78f(b)(5). 

107 15 U.S.C. 78f(b)(8). 

108See supra note 25. 

109Types of market participants that obtain 

connectivity services from the Exchange but are not 

Members include service bureaus and extranets. 

Service bureaus offer technology-based services to 

other companies for a fee, including order entry 

services, and thus, may access Limited Service MEI 

Ports on behalf of one or more Members. Extranets 

offer physical connectivity services to Members and 

non-Members. 

current shared 10Gb ULL network 

would not adequately alleviate the issue 

of limited available port connectivity. 

While it would have resulted in a gain 

in overall port availability, the existing 

switches on the shared 10Gb ULL 

network in use would have continued to 

suffer from lack of port headroom given 

many latency sensitive Members’ needs 

for a presence on each switch to reach 

both the Exchange and MIAX Pearl 

Options. This was because those latency 

sensitive Members sought to have a 

presence on each switch to maximize 

the probability of experiencing the best 

network performance. Those Members 

routinely decide to rebalance orders 

and/or messages over their various 

connections to ensure each connection 

is operating with maximum efficiency. 

Simply adding switches to the extranet 

would not have resolved the port 

availability needs on the shared 10Gb 

ULL network since many of the latency 

sensitive Members were unwilling to 

relocate their connections to a new 

switch due to the potential detrimental 

performance impact. As such, the 

impact of adding new switches and 

rebalancing ports would not have been 

effective or responsive to customer 

needs. The Exchange has found that 

ongoing and continued rebalancing once 

additional switches are added has had, 

and would have continued to have had, 

a diminishing return on increasing 

available 10Gb ULL connectivity. 

Based on its experience and expertise, 

the Exchange found the most practical 

way to increase connectivity availability 

on its switches was to bifurcate the 

existing 10Gb ULL networks for the 

Exchange and MIAX Pearl Options by 

migrating the exchanges’ connections 

from the shared network onto their own 

set of switches. Such changes 

accordingly necessitated a review of the 

Exchange’s previous 10Gb ULL 

connectivity fees and related costs. The 

proposed fees are necessary to allow the 

Exchange to cover ongoing costs related 

to providing and maintaining such 

connectivity, described more fully 

below. The ever increasing connectivity 

demands that necessitated this change 

further support that the proposed fees 

are reasonable because this demand 

reflects that Members and non-Members 

believe they are getting value from the 

10Gb ULL connections they purchase. 

The Exchange announced on August 

12, 2022 the planned network change 

and the January 23, 2023 

implementation date to provide market 

participants adequate time to 

prepare.101 Since August 12, 2022, the 

Exchange has worked with current 10Gb 

ULL subscribers to address their 

connectivity needs ahead of the January 

23, 2023 date. Based on those 

interactions and subscriber feedback, 

the Exchange experienced a minimal net 

increase of six (6) overall 10Gb ULL 

connectivity subscriptions across the 

Exchange and MIAX Pearl Options. This 

immaterial increase in overall 

connections reflects a minimal fee 

impact for all types of subscribers and 

reflects that subscribers elected to 

reallocate existing 10Gb ULL 

connectivity directly to the Exchange or 

MIAX Pearl Options, or choose to 

decrease or cease connectivity as a 

result of the change. 

Should the Commission Staff 

disapprove such fees, it would 

effectively dictate how an exchange 

manages its technology and would 

hamper the Exchange’s ability to 

continue to invest in and fund access 

services in a manner that allows it to 

meet existing and anticipated access 

demands of market participants. 

Disapproval could also have the adverse 

effect of discouraging an exchange from 

optimizing its operations and deploying 

innovative technology to the benefit of 

market participants if it believes the 

Commission would later prevent that 

exchange from covering its costs and 

monetizing operational enhancements, 

thus adversely impacting competition. 

Also, as noted above, the economic 

consequences of not being able to better 

establish fee parity with other 

exchanges for non-transaction fees 

hampers the Exchange’s ability to 

compete on transaction fees. 

Cost Analysis 

In general, the Exchange believes that 

exchanges, in setting fees of all types, 

should meet very high standards of 

transparency to demonstrate why each 

new fee or fee increase meets the 

Exchange Act requirements that fees be 

reasonable, equitably allocated, not 

unfairly discriminatory, and not create 

an undue burden on competition among 

members and markets. In particular, the 

Exchange believes that each exchange 

should take extra care to be able to 

demonstrate that these fees are based on 

its costs and reasonable business needs. 

In proposing to charge fees for 

connectivity and port services, the 

Exchange is especially diligent in 

assessing those fees in a transparent way 

against its own aggregate costs of 

providing the related service, and in 

carefully and transparently assessing the 

impact on Members—both generally and 

in relation to other Members, i.e., to 

assure the fee will not create a financial 

burden on any participant and will not 

have an undue impact in particular on 

smaller Members and competition 

among Members in general. The 

Exchange believes that this level of 

diligence and transparency is called for 

by the requirements of section 19(b)(1) 

under the Act,102 and Rule 19b–4 

thereunder,103 with respect to the types 

of information exchanges should 

provide when filing fee changes, and 

section 6(b) of the Act,104 which 

requires, among other things, that 

exchange fees be reasonable and 

equitably allocated,105 not designed to 

permit unfair discrimination,106 and 

that they not impose a burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.107 This rule change 

proposal addresses those requirements, 

and the analysis and data in each of the 

sections that follow are designed to 

clearly and comprehensively show how 

they are met.108 The Exchange reiterates 

that the legacy exchanges with whom 

the Exchange vigorously competes for 

order flow and market share, were not 

subject to any such diligence or 

transparency in setting their baseline 

non-transaction fees, most of which 

were put in place before the Revised 

Review Process and Staff Guidance. 

As detailed below, the Exchange 

recently calculated its aggregate annual 

costs for providing physical 10Gb ULL 

connectivity to the Exchange at 

$12,034,554 (or approximately 

$1,002,880 per month, rounded up to 

the nearest dollar when dividing the 

annual cost by 12 months) and its 

aggregate annual costs for providing 

Limited Service MEI Ports at $2,157,178 

(or approximately $179,765 per month, 

rounded down to the nearest dollar 

when dividing the annual cost by 12 

months). In order to cover the aggregate 

costs of providing connectivity to its 

users (both Members and nonMembers 109) going forward and to make 

a modest profit, as described below, the 

Exchange proposes to modify its Fee 

Schedule to charge a fee of $13,500 per 

month for each physical 10Gb ULL 

connection and to remove language 

providing for a shared 10Gb ULL 


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110The 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. 

111For example, the Exchange maintains 24 

matching engines, MIAX Pearl Options maintains 

12 matching engines, MIAX Pearl Equities 

maintains 24 matching engines, and MIAX Emerald 

maintains 12 matching engines. 

network between the Exchange and 

MIAX Pearl Options. The Exchange also 

proposes to modify its Fee Schedule to 

charge tiered rates for additional 

Limited Service MEI Ports. 

In 2019, the Exchange completed a 

study of its aggregate costs to produce 

market data and connectivity (the ‘‘Cost 

Analysis’’).110 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’’). 

As an initial step, the Exchange 

determined the total cost for the 

Exchange and the affiliated markets for 

each cost driver as part of its 2023 

budget review process. The 2023 budget 

review is a company-wide process that 

occurs over the course of many months, 

includes meetings among senior 

management, department heads, and the 

Finance Team. Each department head is 

required to send a ‘‘bottom up’’ budget 

to the Finance Team allocating costs at 

the profit and loss account and vendor 

levels for the Exchange and its affiliated 

markets based on a number of factors, 

including server counts, additional 

hardware and software utilization, 

current or anticipated functional or nonfunctional development projects, 

capacity needs, end-of-life or end-ofservice intervals, number of members, 

market model (e.g., price time or prorata, simple only or simple and complex 

markets, auction functionality, etc.), 

which may impact message traffic, 

individual system architectures that 

impact platform size,111 storage needs, 

dedicated infrastructure versus shared 

infrastructure allocated per platform 

based on the resources required to 

support each platform, number of 

available connections, and employees 

allocated time. All of these factors result 

in different allocation percentages 

among the Exchange and its affiliated 

markets, i.e., the different percentages of 

the overall cost driver allocated to the 

Exchange and its affiliated markets will 

cause the dollar amount of the overall 

cost allocated among the Exchange and 

its affiliated markets to also differ. 

Because the Exchange’s parent company 

currently owns and operates four 

separate and distinct marketplaces, the 

Exchange must determine the costs 

associated with each actual market—as 

opposed to the Exchange’s parent 

company simply concluding that all 

costs drivers are the same at each 

individual marketplace and dividing 

total cost by four (4) (evenly for each 

marketplace). Rather, the Exchange’s 

parent company determines an accurate 

cost for each marketplace, which results 

in different allocations and amounts 

across exchanges for the same cost 

drivers, due to the unique factors of 

each marketplace as described above. 

This allocation methodology also 

ensures that no cost would be allocated 

twice or double-counted between the 

Exchange and its affiliated markets. The 

Finance Team then consolidates the 

budget and sends it to senior 

management, including the Chief 

Financial Officer and Chief Executive 

Officer, for review and approval. Next, 

the budget is presented to the Board of 

Directors and the Finance and Audit 

Committees for each exchange for their 

approval. The above steps encompass 

the first step of the cost allocation 

process. 

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 (60.6% of total 

expense amount allocated to 10Gb ULL 

connectivity), with smaller allocations 

to additional Limited Service MEI Ports 

(7.2%), and the remainder to the 

provision of other connectivity, other 

ports, transaction execution, 

membership services and market data 

services (32.3%). This next level of the 

allocation methodology at the 

individual exchange level also took into 

account factors similar to those set forth 

under the first step of the allocation 

methodology process described above, 

to determine the appropriate allocation 

to connectivity or market data versus 

allocations for other services. This 

allocation methodology was developed 

through an assessment of costs with 

senior management intimately familiar 

with each area of the Exchange’s 

operations. After adopting this 

allocation methodology, the Exchange 

then applied an allocation of each cost 

driver to each core service, resulting in 

the cost allocations described below. 

Each of the below cost allocations is 

unique to the Exchange and represents 

a percentage of overall cost that was 

allocated to the Exchange pursuant to 

the initial allocation described above. 

By allocating segmented costs to each 

core service, the Exchange was able to 

estimate by core service the potential 

margin it might earn based on different 

fee models. The Exchange notes that as 

a non-listing venue it has five primary 

sources of revenue that it can 

potentially use to fund its operations: 

transaction fees, fees for connectivity 

and port services, membership fees, 

regulatory fees, and market data fees. 

Accordingly, the Exchange must cover 

its expenses from these five primary 

sources of revenue. The Exchange also 

notes that as a general matter each of 

these sources of revenue is based on 

services that are interdependent. For 

instance, the Exchange’s system for 

executing transactions is dependent on 

physical hardware and connectivity; 

only Members and parties that they 

sponsor to participate directly on the 

Exchange may submit orders to the 

Exchange; many Members (but not all) 

consume market data from the Exchange 

in order to trade on the Exchange; and, 

the Exchange consumes market data 

from external sources in order to 

comply with regulatory obligations. 

Accordingly, given this 

interdependence, the allocation of costs 

to each service or revenue source 

required judgment of the Exchange and 

was weighted based on estimates of the 

Exchange that the Exchange believes are 

reasonable, as set forth below. While 

there is no standardized and generally 

accepted methodology for the allocation 

of an exchange’s costs, the Exchange’s 

methodology is the result of an 

extensive review and analysis and will 

be consistently applied going forward 

for any other potential fee proposals. In 


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the absence of the Commission 

attempting to specify a methodology for 

the allocation of exchanges’ 

interdependent costs, the Exchange will 

continue to be left with its best efforts 

to attempt to conduct such an allocation 

in a thoughtful and reasonable manner. 

Through the Exchange’s extensive 

updated Cost Analysis, which was again 

recently further refined, the Exchange 

analyzed every expense item in the 

Exchange’s general expense ledger to 

determine whether each such expense 

relates to the provision of connectivity 

and port services, and, if such expense 

did so relate, what portion (or 

percentage) of such expense actually 

supports the provision of connectivity 

and port services, and thus bears a 

relationship that is, ‘‘in nature and 

closeness,’’ directly related to network 

connectivity and port services. In turn, 

the Exchange allocated certain costs 

more to physical connectivity and 

others to ports, while certain costs were 

only allocated to such services at a very 

low percentage or not at all, using 

consistent allocation methodologies as 

described above. Based on this analysis, 

the Exchange estimates that the 

aggregate monthly cost to provide 10Gb 

ULL connectivity and Limited Service 

MEI Port services, including both 

physical 10Gb connections and Limited 

Service MEI Ports, is $1,182,645 

(utilizing the rounded numbers when 

dividing the annual cost for 10Gb ULL 

connectivity and annual cost for 

Limited Service MEI Ports by 12 

months, then adding both numbers 

together), as further detailed below. 

Costs Related to Offering Physical 10Gb 

ULL Connectivity 

The following chart details the 

individual line-item costs considered by 

the Exchange to be related to offering 

physical dedicated 10Gb ULL 

connectivity via an unshared network as 

well as the percentage of the Exchange’s 

overall costs that such costs represent 

for each cost driver (e.g., as set forth 

below, the Exchange allocated 

approximately 25.6% of its overall 

Human Resources cost to offering 

physical connectivity). 

Cost drivers Allocated 

annual cost k

Allocated 

monthly cost l % of all 

Human Resources ....................................................................................................................... $3,867,297 $322,275 25 

Connectivity (external fees, cabling, switches, etc.) ................................................................... 70,163 5,847 60.6 

Internet Services and External Market Data ............................................................................... 424,584 35,382 73.3 

Data Center ................................................................................................................................. 718,950 59,912 60.6 

Hardware and Software Maintenance and Licenses .................................................................. 727,734 60,645 49.8 

Depreciation ................................................................................................................................. 2,310,898 192,575 61.6 

Allocated Shared Expenses ........................................................................................................ 3,914,928 326,244 49.1 

Total ...................................................................................................................................... 12,034,554 1,002,880 39.4 

kThe Annual Cost includes figures rounded to the nearest dollar. 

lThe Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and rounding up or down to the nearest dollar. 

Below are additional details regarding 

each of the line-item costs considered 

by the Exchange to be related to offering 

physical 10Gb ULL connectivity. While 

some costs were attempted to be 

allocated as equally as possible among 

the Exchange and its affiliated markets, 

the Exchange notes that some of its cost 

allocation percentages for certain cost 

drivers differ when compared to the 

same cost drivers for the Exchange’s 

affiliated markets in their similar 

proposed fee changes for connectivity 

and ports. This is because the 

Exchange’s cost allocation methodology 

utilizes the actual projected costs of the 

Exchange (which are specific to the 

Exchange and are independent of the 

costs projected and utilized by the 

Exchange’s affiliated markets) to 

determine its actual costs, which may 

vary across the Exchange and its 

affiliated markets based on factors that 

are unique to each marketplace. The 

Exchange provides additional 

explanation below (including the reason 

for the deviation) for the significant 

differences. 

Human Resources 

The Exchange notes that it and its 

affiliated markets have 184 employees 

(excluding employees at non-options/ 

equities exchange subsidiaries of Miami 

International Holdings, Inc. (‘‘MIH’’), 

the holding company of the Exchange 

and its affiliated markets), and each 

department leader has direct knowledge 

of the time spent by each employee with 

respect to the various tasks necessary to 

operate the Exchange. Specifically, 

twice a year, and as needed with 

additional new hires and new project 

initiatives, in consultation with 

employees as needed, managers and 

department heads assign a percentage of 

time to every employee and then 

allocate that time amongst the Exchange 

and its affiliated markets to determine 

each market’s individual Human 

Resources expense. Then, managers and 

department heads assign a percentage of 

each employee’s time allocated to the 

Exchange into buckets including 

network connectivity, ports, market 

data, and other exchange services. This 

process ensures that every employee is 

100% allocated, ensuring there is no 

double counting between the Exchange 

and its affiliated markets. 

For personnel costs (Human 

Resources), the Exchange calculated an 

allocation of employee time for 

employees whose functions include 

providing and maintaining physical 

connectivity and performance thereof 

(primarily the Exchange’s network 

infrastructure team, which spends most 

of their time performing functions 

necessary to provide physical 

connectivity). As described more fully 

above, the Exchange’s parent company 

allocates costs to the Exchange and its 

affiliated markets and then a portion of 

the Human Resources costs allocated to 

the Exchange is then allocated to 

connectivity. From that portion 

allocated to the Exchange that applied 

to connectivity, the Exchange then 

allocated a weighted average of 42% of 

each employee’s time from the above 

group. The Exchange also allocated 

Human Resources costs to provide 

physical connectivity to a limited subset 

of personnel with ancillary functions 

related to establishing and maintaining 

such connectivity (such as information 

security, sales, membership, and finance 

personnel). The Exchange allocated cost 

on an employee-by-employee basis (i.e., 

only including those personnel who 

support functions related to providing 

physical connectivity) and then applied 

a smaller allocation to such employees 

(less than 18%). 

The estimates of Human Resources 

cost were therefore determined by 

consulting with such department 

leaders, determining which employees 


ddrumheller on DSK120RN23PROD with NOTICES1
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are involved in tasks related to 

providing physical connectivity, and 

confirming that the proposed allocations 

were reasonable based on an 

understanding of the percentage of time 

such employees devote to those tasks. 

This includes personnel from the 

Exchange departments that are 

predominately involved in providing 

1Gb and 10Gb ULL connectivity: 

Business Systems Development, Trading 

Systems Development, Systems 

Operations and Network Monitoring, 

Network and Data Center Operations, 

Listings, Trading Operations, and 

Project Management. Again, the 

Exchange allocated 42% of each of their 

employee’s time assigned to the 

Exchange for 10Gb ULL connectivity, as 

stated above. Employees from these 

departments perform numerous 

functions to support 10Gb ULL 

connectivity, such as the installation, relocation, configuration, and 

maintenance of 10Gb ULL connections 

and the hardware they access. This 

hardware includes servers, routers, 

switches, firewalls, and monitoring 

devices. These employees also perform 

software upgrades, vulnerability 

assessments, remediation and patch 

installs, equipment configuration and 

hardening, as well as performance and 

capacity management. These employees 

also engage in research and 

development analysis for equipment 

and software supporting 10Gb ULL 

connectivity and design, and support 

the development and on-going 

maintenance of internally-developed 

applications as well as data capture and 

analysis, and Member and internal 

Exchange reports related to network and 

system performance. The above list of 

employee functions is not exhaustive of 

all the functions performed by Exchange 

employees to support 10Gb ULL 

connectivity, but illustrates the breath of 

functions those employees perform in 

support of the above cost and time 

allocations. 

Lastly, the Exchange notes that senior 

level executives’ time was only 

allocated to the 10Gb ULL connectivity 

related Human Resources costs to the 

extent that they are involved in 

overseeing tasks related to providing 

physical connectivity. The Human 

Resources cost was calculated using a 

blended rate of compensation reflecting 

salary, equity and bonus compensation, 

benefits, payroll taxes, and 401(k) 

matching contributions. 

Connectivity (External Fees, Cabling, 

Switches, Etc.) 

The Connectivity cost driver includes 

external fees paid to connect to other 

exchanges and third parties, cabling and 

switches required to operate the 

Exchange. The Connectivity cost driver 

is more narrowly focused on technology 

used to complete connections to the 

Exchange and to connect to external 

markets. The Exchange notes that its 

connectivity to external markets is 

required in order to receive market data 

to run the Exchange’s matching engine 

and basic operations compliant with 

existing regulations, primarily 

Regulation NMS. 

The Exchange relies on various 

connectivity providers for connectivity 

to the entire U.S. options industry, and 

infrastructure services for critical 

components of the network that are 

necessary to provide and maintain its 

System Networks and access to its 

System Networks via 10Gb ULL 

connectivity. Specifically, the Exchange 

utilizes connectivity providers to 

connect to other national securities 

exchanges and the Options Price 

Reporting Authority (‘‘OPRA’’). The 

Exchange understands that these service 

providers provide services to most, if 

not all, of the other U.S. exchanges and 

other market participants. Connectivity 

provided by these service providers is 

critical to the Exchanges daily 

operations and performance of its 

System Networks to which market 

participants connect to via 10Gb ULL 

connectivity. Without these services 

providers, the Exchange would not be 

able to connect to other national 

securities exchanges, market data 

providers or OPRA and, therefore, 

would not be able to operate and 

support its System Networks. The 

Exchange does not employ a separate 

fee to cover its connectivity provider 

expense and recoups that expense, in 

part, by charging for 10Gb ULL 

connectivity. 

Internet Services and External Market 

Data 

The next cost driver consists of 

internet Services and external market 

data. Internet services includes thirdparty service providers that provide the 

internet, fiber and bandwidth 

connections between the Exchange’s 

networks, primary and secondary data 

centers, and office locations in 

Princeton and Miami. 

External market data includes fees 

paid to third parties, including other 

exchanges, to receive market data. The 

Exchange includes external market data 

fee costs towards the provision of 10Gb 

ULL connectivity because such market 

data is necessary for certain services 

related to connectivity, including pretrade risk checks and checks for other 

conditions (e.g., re-pricing of orders to 

avoid locked or crossed markets and 

trading collars). Since external market 

data from other exchanges is consumed 

at the Exchange’s matching engine level, 

(to which 10Gb ULL connectivity 

provides access) in order to validate 

orders before additional orders enter the 

matching engine or are executed, the 

Exchange believes it is reasonable to 

allocate an amount of such costs to 

10Gb ULL connectivity. 

The Exchange relies on various 

content service providers for data feeds 

for the entire U.S. options industry, as 

well as content for critical components 

of the network that are necessary to 

provide and maintain its System 

Networks and access to its System 

Networks via 10Gb ULL connectivity. 

Specifically, the Exchange utilizes 

content service providers to receive 

market data from OPRA, other 

exchanges and market data providers. 

The Exchange understands that these 

service providers provide services to 

most, if not all, of the other U.S. 

exchanges and other market 

participants. Market data provided these 

service providers is critical to the 

Exchanges daily operations and 

performance of its System Networks to 

which market participants connect to 

via 10Gb ULL connectivity. Without 

these services providers, the Exchange 

would not be able to receive market data 

and, therefore, would not be able to 

operate and support its System 

Networks. The Exchange does not 

employ a separate fee to cover its 

content service provider expense and 

recoups that expense, in part, by 

charging for 10Gb ULL connectivity. 

Lastly, the Exchange notes that the 

actual dollar amounts allocated as part 

of the second step of the 2023 budget 

process differ among the Exchange and 

its affiliated markets for the internet 

Services and External Market Data cost 

driver, even though but for MIAX 

Emerald, the allocation percentages are 

generally consistent across markets (e.g., 

MIAX Emerald, MIAX, MIAX Pearl 

Options and MIAX Pearl Equities 

allocated 84.8%, 73.3%, 73.3% and 

72.5%, respectively, to the same cost 

driver). This is because: (i) a different 

percentage of the overall internet 

Services and External Market Data cost 

driver was allocated to MIAX Emerald 

and its affiliated markets due to the 

factors set forth under the first step of 

the 2023 budget review process 

described above (unique technical 

architecture, market structure, and 

business requirements of each 

marketplace); and (ii) MIAX Emerald 

itself allocated a larger portion of this 

cost driver to 10Gb ULL connectivity 

because of recent initiatives to improve 

the latency and determinism of its 


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112This expense may be less than the Exchange’s 

affiliated markets, specifically MIAX Pearl (the 

options and equities markets), because, unlike the 

Exchange, MIAX Pearl (the options and equities 

markets) maintains an additional gateway to 

accommodate its member’s access and connectivity 

needs. This added gateway contributes to the 

difference in allocations between the Exchange and 

MIAX Pearl. This expense also differs in dollar 

amount among the Exchange, MIAX Pearl (options 

and equities), and MIAX Emerald because each 

market may maintain and utilize a different amount 

of hardware and software based on its market model 

and infrastructure needs. The Exchange allocated a 

percentage of the overall cost based on actual 

amounts of hardware and software utilized by that 

market, which resulted in different cost allocations 

and dollar amounts. 

systems. The Exchange notes while the 

percentage MIAX Emerald allocated to 

the internet Services and External 

Market Data cost driver is greater than 

the Exchange and its other affiliated 

markets, the overall dollar amount 

allocated to the Exchange under the 

initial step of the 2023 budget process 

is lower than its affiliated markets. 

However, the Exchange believes that 

this is not, in dollar amounts, a 

significant difference. This is because 

the total dollar amount of expense 

covered by this cost driver is relatively 

small compared to other cost drivers 

and is due to nuances in exchange 

architecture that require different initial 

allocation amount under the first step of 

the 2023 budget process described 

above. Thus, non-significant differences 

in percentage allocation amounts in a 

smaller cost driver create the 

appearance of a significant difference, 

even though the actual difference in 

dollar amounts is small. For instance, 

despite the difference in cost allocation 

percentages for the internet Services and 

External Market Data cost driver across 

the Exchange and MIAX Emerald, the 

actual dollar amount difference is 

approximately only $4,000 per month, a 

non-significant amount. 

Data Center 

Data Center costs includes an 

allocation of the costs the Exchange 

incurs to provide physical connectivity 

in the third-party data centers where it 

maintains its equipment (such as 

dedicated space, security services, 

cooling and power). The Exchange notes 

that it does not own the Primary Data 

Center or the Secondary Data Center, 

but instead, leases space in data centers 

operated by third parties. The Exchange 

has allocated a high percentage of the 

Data Center cost (60.6%) to physical 

10Gb ULL connectivity because the 

third-party data centers and the 

Exchange’s physical equipment 

contained therein is the most direct cost 

in providing physical access to the 

Exchange. In other words, for the 

Exchange to operate in a dedicated 

space with connectivity by market 

participants to a physical trading 

platform, the data centers are a very 

tangible cost, and in turn, if the 

Exchange did not maintain such a 

presence then physical connectivity 

would be of no value to market 

participants. 

Hardware and Software Maintenance 

and Licenses 

Hardware and Software Licenses 

includes hardware and software licenses 

used to operate and monitor physical 

assets necessary to offer physical 

connectivity to the Exchange.112 The 

Exchange notes that this allocation is 

less than MIAX Pearl Options by a 

significant amount, and slightly less 

than MIAX Emerald, as MIAX Pearl 

Options allocated 58.6% of its Hardware 

and Software Maintenance and License 

expense towards 10Gb ULL 

connectivity, while MIAX and MIAX 

Emerald allocated 49.8% and 50.9%, 

respectively, to the same category of 

expense. This is because MIAX Pearl 

Options is in the process of replacing 

and upgrading various hardware and 

software used to operate its options 

trading platform in order to maintain 

premium network performance. At the 

time of this filing, MIAX Pearl Options 

is undergoing a major hardware refresh, 

replacing older hardware with new 

hardware. This hardware includes 

servers, network switches, cables, 

optics, protocol data units, and cabinets, 

to maintain a state-of-the-art technology 

platform. Because of the timing of the 

hardware refresh with the timing of this 

filing, the Exchange has materially 

higher expense than its affiliates. Also, 

MIAX Pearl Equities allocated a higher 

percentage of the same category of 

expense (58%) towards its Hardware 

and Software Maintenance and License 

expense for 10Gb ULL connectivity, 

which MIAX Pearl Equities explains in 

its own proposal to amend its 10Gb ULL 

connectivity fees. 

Depreciation 

All physical assets, software, and 

hardware used to provide 10Gb ULL 

connectivity, which also includes assets 

used for testing and monitoring of 

Exchange infrastructure, were valued at 

cost, and depreciated or leased over 

periods ranging from three to five years. 

Thus, the depreciation cost primarily 

relates to servers necessary to operate 

the Exchange, some of which are owned 

by the Exchange and some of which are 

leased by the Exchange in order to allow 

efficient periodic technology refreshes. 

The Exchange also included in the 

Depreciation cost driver certain 

budgeted improvements that the 

Exchange intends to capitalize and 

depreciate with respect to 10Gb ULL 

connectivity in the near-term. As with 

the other allocated costs in the 

Exchange’s updated Cost Analysis, the 

Depreciation cost was therefore 

narrowly tailored to depreciation related 

to 10Gb ULL connectivity. As noted 

above, the Exchange allocated 61.6% of 

its allocated depreciation costs to 

providing physical 10Gb ULL 

connectivity. 

The Exchange also notes that this 

allocation differs from its affiliated 

markets due to a number of factors, such 

as the age of physical assets and 

software (e.g., older physical assets and 

software were previously depreciated 

and removed from the allocation), or 

certain system enhancements that 

required new physical assets and 

software, thus providing a higher 

contribution to the depreciated cost. For 

example, the percentages the Exchange 

and its affiliate, MIAX Emerald, 

allocated to the depreciation of 

hardware and software used to provide 

10Gb ULL connectivity are nearly 

identical. However, the Exchange’s 

dollar amount is greater than that of 

MIAX Emerald by approximately 

$32,000 per month due to two factors: 

first, the Exchange has undergone a 

technology refresh since the time MIAX 

Emerald launched in February 2019, 

leading to it having more hardware that 

software that is subject to depreciation. 

Second, the Exchange maintains 24 

matching engines while MIAX Emerald 

maintains only 12 matching engines. 

This also results in more of the 

Exchange’s hardware and software being 

subject to depreciation than MIAX 

Emerald’s hardware and software due to 

the greater amount of equipment and 

software necessary to support the 

greater number of matching engines on 

the Exchange. 

Allocated Shared Expenses 

Finally, as with other exchange 

products and services, a portion of 

general shared expenses was allocated 

to overall physical connectivity costs. 

These general shared costs are integral 

to exchange operations, including its 

ability to provide physical connectivity. 

Costs included in general shared 

expenses include office space and office 

expenses (e.g., occupancy and overhead 

expenses), utilities, recruiting and 

training, marketing and advertising 

costs, professional fees for legal, tax and 

accounting services (including external 

and internal audit expenses), and 

telecommunications. Similarly, the cost 

of paying directors to serve on the 

Exchange’s Board of Directors is also 


ddrumheller on DSK120RN23PROD with NOTICES1
58394 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

113The Exchange notes that MEMX allocated a 

precise amount of 10% of the overall cost for 

directors to providing physical connectivity. The 

Exchange does not calculate is expenses at that 

granular a level. Instead, director costs are included 

as part of the overall general allocation. 

included in the Exchange’s general 

shared expense cost driver.113 These 

general shared expenses are incurred by 

the Exchange’s parent company, MIH, as 

a direct result of operating the Exchange 

and its affiliated markets. 

The Exchange employed a process to 

determine a reasonable percentage to 

allocate general shared expenses to 

10Gb ULL connectivity pursuant to its 

multi-layered allocation process. First, 

general expenses were allocated among 

the Exchange and affiliated markets as 

described above. Then, the general 

shared expense assigned to the 

Exchange was allocated across core 

services of the Exchange, including 

connectivity. Then, these costs were 

further allocated to sub-categories 

within the final categories, i.e., 10Gb 

ULL connectivity as a sub-category of 

connectivity. In determining the 

percentage of general shared expenses 

allocated to connectivity that ultimately 

apply to 10Gb ULL connectivity, the 

Exchange looked at the percentage 

allocations of each of the cost drivers 

and determined a reasonable allocation 

percentage. The Exchange also held 

meetings with senior management, 

department heads, and the Finance 

Team to determine the proper amount of 

the shared general expense to allocate to 

10Gb ULL connectivity. The Exchange, 

therefore, believes it is reasonable to 

assign an allocation, in the range of 

allocations for other cost drivers, while 

continuing to ensure that this expense is 

only allocated once. Again, the general 

shared expenses are incurred by the 

Exchange’s parent company as a result 

of operating the Exchange and its 

affiliated markets and it is therefore 

reasonable to allocate a percentage of 

those expenses to the Exchange and 

ultimately to specific product offerings 

such as 10Gb ULL connectivity. 

The Exchange notes that the 49.1% 

allocation of general shared expenses for 

physical 10Gb ULL connectivity is 

higher than that allocated to general 

shared expenses for Limited Service 

MEI Ports. This is based on its 

allocation methodology that weighted 

costs attributable to each core service. 

While physical connectivity has several 

areas where certain tangible costs are 

heavily weighted towards providing 

such service (e.g., Data Center, as 

described above), Limited Service MEI 

Ports do not require as many broad or 

indirect resources as other core services. 

* * * * * 

Approximate Cost per 10Gb ULL 

Connection per Month 

After determining the approximate 

allocated monthly cost related to 10Gb 

connectivity, the total monthly cost for 

10Gb ULL connectivity of $1,002,880 

was divided by the number of physical 

10Gb ULL connections the Exchange 

maintained at the time that proposed 

pricing was determined (93), to arrive at 

a cost of approximately $10,784 per 

month, per physical 10Gb ULL 

connection. Due to the nature of this 

particular cost, this allocation 

methodology results in an allocation 

among the Exchange and its affiliated 

markets based on set quantifiable 

criteria, i.e., actual number of 10Gb ULL 

connections. 

* * * * * 

Costs Related To Offering Limited 

Service MEI Ports 

The following chart details the 

individual line-item costs considered by 

the Exchange to be related to offering 

Limited Service MEI Ports as well as the 

percentage of the Exchange’s overall 

costs such costs represent for such area 

(e.g., as set forth below, the Exchange 

allocated approximately 5.8% of its 

overall Human Resources cost to 

offering Limited Service MEI Ports). 

Cost drivers Allocated 

annual cost m

Allocated 

monthly 

cost n

% of all 

Human Resources ....................................................................................................................... $898,480 $74,873 5.8 

Connectivity (external fees, cabling, switches, etc.) ................................................................... 4,435 370 3.8 

Internet Services and External Market Data ............................................................................... 41,601 3,467 7.2 

Data Center ................................................................................................................................. 85,214 7,101 7.2 

Hardware and Software Maintenance and Licenses .................................................................. 104,859 8,738 7.2 

Depreciation ................................................................................................................................. 237,335 19,778 6.3 

Allocated Shared Expenses ........................................................................................................ 785,254 65,438 9.8 

Total ...................................................................................................................................... 2,157,178 179,765 7.1 

m See supra note k (describing rounding of Annual Costs). nSee supra note l (describing rounding of Monthly Costs based on Annual Costs). 

Below are additional details regarding 

each of the line-item costs considered 

by the Exchange to be related to offering 

Limited Service MEI Ports. While some 

costs were attempted to be allocated as 

equally as possible among the Exchange 

and its affiliated markets, the Exchange 

notes that some of its cost allocation 

percentages for certain cost drivers 

differ when compared to the same cost 

drivers for the Exchange’s affiliated 

markets in their similar proposed fee 

changes for connectivity and ports. This 

is because the Exchange’s cost 

allocation methodology utilizes the 

actual projected costs of the Exchange 

(which are specific to the Exchange, and 

are independent of the costs projected 

and utilized by the Exchange’s affiliated 

markets) to determine its actual costs, 

which may vary across the Exchange 

and its affiliated markets based on 

factors that are unique to each 

marketplace. The Exchange provides 

additional explanation below (including 

the reason for the deviation) for the 

significant differences. 

Human Resources 

With respect to Limited Service MEI 

Ports, the Exchange calculated Human 

Resources cost by taking an allocation of 

employee time for employees whose 

functions include providing Limited 

Service MEI Ports and maintaining 

performance thereof (including a 

broader range of employees such as 

technical operations personnel, market 

operations personnel, and software 

engineering personnel) as well as a 

limited subset of personnel with 

ancillary functions related to 

maintaining such connectivity (such as 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58395 

114The Exchange notes that MEMX separately 

allocated 7.5% of its external market data costs to 

providing physical connectivity. 

sales, membership, and finance 

personnel). Just as described above for 

10Gb ULL connectivity, the estimates of 

Human Resources cost were again 

determined by consulting with 

department leaders, determining which 

employees are involved in tasks related 

to providing Limited Service MEI Ports 

and maintaining performance thereof, 

and confirming that the proposed 

allocations were reasonable based on an 

understanding of the percentage of their 

time such employees devote to tasks 

related to providing Limited Service 

MEI Ports and maintaining performance 

thereof. This includes personnel from 

the following Exchange departments 

that are predominately involved in 

providing Limited Service MEI Ports: 

Business Systems Development, Trading 

Systems Development, Systems 

Operations and Network Monitoring, 

Network and Data Center Operations, 

Listings, Trading Operations, and 

Project Management. The Exchange 

notes that senior level executives were 

allocated Human Resources costs to the 

extent they are involved in overseeing 

tasks specifically related to providing 

Limited Service MEI Ports. Senior level 

executives were only allocated Human 

Resources costs to the extent that they 

are involved in managing personnel 

responsible for tasks integral to 

providing and maintaining Limited 

Service MEI Ports. The Human 

Resources cost was again calculated 

using a blended rate of compensation 

reflecting salary, equity and bonus 

compensation, benefits, payroll taxes, 

and 401(k) matching contributions. 

Connectivity (External Fees, Cabling, 

Switches, etc.) 

The Connectivity cost includes 

external fees paid to connect to other 

exchanges and cabling and switches, as 

described above. 

Internet Services and External Market 

Data 

The next cost driver consists of 

internet services and external market 

data. Internet services includes thirdparty service providers that provide the 

internet, fiber and bandwidth 

connections between the Exchange’s 

networks, primary and secondary data 

centers, and office locations in 

Princeton and Miami. For purposes of 

Limited Service MEI Ports, the 

Exchange also includes a portion of its 

costs related to external market data. 

External market data includes fees paid 

to third parties, including other 

exchanges, to receive and consume 

market data from other markets. The 

Exchange includes external market data 

costs towards the provision of Limited 

Service MEI Ports because such market 

data is necessary (in addition to 

physical connectivity) to offer certain 

services related to such ports, such as 

validating orders on entry against the 

NBBO and checking for other conditions 

(e.g., halted securities).114 Thus, since 

market data from other exchanges is 

consumed at the Exchange’s Limited 

Service MEI Port level in order to 

validate orders, before additional 

processing occurs with respect to such 

orders, the Exchange believes it is 

reasonable to allocate a small amount of 

such costs to Limited Service MEI Ports. 

The Exchange notes that the 

allocation for the internet Services and 

External Market Data cost driver is 

greater than that of its affiliate, MIAX 

Pearl Options, as MIAX allocated 7.2% 

of its internet Services and External 

Market Data expense towards Limited 

Service MEI Ports, while MIAX Pearl 

Options allocated 1.4% to its Full 

Service MEO Ports for the same cost 

driver. The allocation percentages set 

forth above differ because they directly 

correspond with the number of 

applicable ports utilized on each 

exchange. For May 2023, MIAX Market 

Makers utilized 1,770 Limited Service 

MEI ports and MIAX Emerald Market 

Makers utilized 1,017 Limited Service 

MEI ports. When compared to Full 

Service Port (Bulk and Single) usage, for 

May 2023, MIAX Pearl Options 

Members utilized only 384 Full Service 

MEO Ports (Bulk and Single), far fewer 

than number of Limited Service MEI 

Ports utilized by Market Makers on 

MIAX and MIAX Emerald, thus 

resulting in a smaller cost allocation. 

There is increased cost associated with 

supporting a higher number of ports 

(requiring more hardware and other 

technical infrastructure and internet 

Service), thus the Exchange allocates a 

higher percentage of expense than 

MIAX Pearl Options, which has a lower 

port count. 

Data Center 

Data Center costs includes an 

allocation of the costs the Exchange 

incurs to provide Limited Service MEI 

Ports in the third-party data centers 

where it maintains its equipment as 

well as related costs for market data to 

then enter the Exchange’s system via 

Limited Service MEI Ports (the 

Exchange does not own the Primary 

Data Center or the Secondary Data 

Center, but instead, leases space in data 

centers operated by third parties). 

Hardware and Software Maintenance 

and Licenses 

Hardware and Software Licenses 

includes hardware and software licenses 

used to monitor the health of the order 

entry services provided by the 

Exchange, as described above. 

The Exchange notes that this 

allocation is greater than its affiliate, 

MIAX Pearl Options, as MIAX allocated 

7.2% of its Hardware and Software 

Maintenance and License expense 

towards Limited Service MEI Ports, 

while MIAX Pearl Options allocated 

1.4% to its Full Service MEO Ports 

(Bulk and Single) for the same category 

of expense. The allocation percentages 

set forth above differ because they 

correspond with the number of 

applicable ports utilized on each 

exchange. For May 2023, MIAX Market 

Makers utilized 1,770 Limited Service 

MEI ports and MIAX Emerald Market 

Makers utilized 1,017 Limited Service 

MEI Ports. When compared to Full 

Service Port (Bulk and Single) usage, for 

May 2023, MIAX Pearl Options 

Members utilized only 384 Full Service 

MEO Ports (Bulk and Single), far fewer 

than number of Limited Service MEI 

Ports utilized by Market Makers on 

MIAX and MIAX Emerald, thus 

resulting in a smaller cost allocation. 

There is increased cost associated with 

supporting a higher number of ports 

(requiring more hardware and other 

technical infrastructure), thus the 

Exchange allocates a higher percentage 

of expense than MIAX Pearl Options, 

which has a lower port count. 

Depreciation 

The vast majority of the software the 

Exchange uses to provide Limited 

Service MEI Ports has been developed 

in-house and the cost of such 

development, which takes place over an 

extended period of time and includes 

not just development work, but also 

quality assurance and testing to ensure 

the software works as intended, is 

depreciated over time once the software 

is activated in the production 

environment. Hardware used to provide 

Limited Service MEI Ports includes 

equipment used for testing and 

monitoring of order entry infrastructure 

and other physical equipment the 

Exchange purchased and is also 

depreciated over time. 

All hardware and software, which 

also includes assets used for testing and 

monitoring of order entry infrastructure, 

were valued at cost, depreciated or 

leased over periods ranging from three 

to five years. Thus, the depreciation cost 

primarily relates to servers necessary to 

operate the Exchange, some of which is 


ddrumheller on DSK120RN23PROD with NOTICES1
58396 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

115The Exchange allocated a slightly lower 

amount (9.8%) of this cost as compared to MIAX 

Emerald (10.3%). This is not a significant 

difference. However, both allocations resulted in an 

identical cost amount of $0.8 million, despite the 

Exchange having a higher number of Limited 

Service MEI Ports. MIAX Emerald was allocated a 

higher cost per Limited Service MEI Port due to the 

additional resources and expenditures associated 

with maintaining its recently enhanced low latency 

network. 

owned by the Exchange and some of 

which is leased by the Exchange in 

order to allow efficient periodic 

technology refreshes. The Exchange 

allocated 6.3% of all depreciation costs 

to providing Limited Service MEI Ports. 

The Exchange allocated depreciation 

costs for depreciated software necessary 

to operate the Exchange because such 

software is related to the provision of 

Limited Service MEI Ports. As with the 

other allocated costs in the Exchange’s 

updated Cost Analysis, the Depreciation 

cost driver was therefore narrowly 

tailored to depreciation related to 

Limited Service MEI Ports. 

The Exchange notes that this 

allocation differs from its affiliated 

markets due to a number of factors, such 

as the age of physical assets and 

software (e.g., older physical assets and 

software were previously depreciated 

and removed from the allocation), or 

certain system enhancements that 

required new physical assets and 

software, thus providing a higher 

contribution to the depreciated cost. For 

example, the Exchange notes that the 

percentages it and its affiliate, MIAX 

Emerald, allocated to the depreciation 

cost driver for Limited Service MEI 

Ports differ by only 2.6%. However, the 

Exchange’s approximate dollar amount 

is greater than that of MIAX Emerald by 

approximately $10,000 per month. This 

is due to two primary factors. First, the 

Exchange has under gone a technology 

refresh since the time MIAX Emerald 

launched in February 2019, leading to it 

having more hardware that software that 

is subject to depreciation. Second, the 

Exchange maintains 24 matching 

engines while MIAX Emerald maintains 

only 12 matching engines. This also 

results in more of the Exchange’s 

hardware and software being subject to 

depreciation than MIAX Emerald’s 

hardware and software due to the 

greater amount of equipment and 

software necessary to support the 

greater number of matching engines on 

the Exchange. 

Allocated Shared Expenses 

Finally, a portion of general shared 

expenses was allocated to overall 

Limited Service MEI Ports costs as 

without these general shared costs the 

Exchange would not be able to operate 

in the manner that it does and provide 

Limited Service MEI Ports. The costs 

included in general shared expenses 

include general expenses of the 

Exchange, including office space and 

office expenses (e.g., occupancy and 

overhead expenses), utilities, recruiting 

and training, marketing and advertising 

costs, professional fees for legal, tax and 

accounting services (including external 

and internal audit expenses), and 

telecommunications costs. The 

Exchange again notes that the cost of 

paying directors to serve on its Board of 

Directors is included in the calculation 

of Allocated Shared Expenses, and thus 

a portion of such overall cost amounting 

to less than 10% of the overall cost for 

directors was allocated to providing 

Limited Service MEI Ports. The 

Exchange notes that the 9.8% allocation 

of general shared expenses for Limited 

Service MEI Ports is lower than that 

allocated to general shared expenses for 

physical connectivity based on its 

allocation methodology that weighted 

costs attributable to each Core Service 

based on an understanding of each area. 

While Limited Service MEI Ports have 

several areas where certain tangible 

costs are heavily weighted towards 

providing such service (e.g., Data 

Center, as described above), 10Gb ULL 

connectivity requires a broader level of 

support from Exchange personnel in 

different areas, which in turn leads to a 

broader general level of cost to the 

Exchange. 

Lastly, the Exchange notes that this 

allocation is greater than its affiliate, 

MIAX Pearl Options, as MIAX allocated 

9.8% of its Allocated Shared Expense 

towards Limited Service MEI Ports, 

while MIAX Pearl Options allocated 

3.6% to its Full Service MEO Ports 

(Bulk and Single) for the same category 

of expense. The allocation percentages 

set forth above differ because they 

correspond with the number of 

applicable ports utilized on each 

exchange. For May 2023, MIAX Market 

Makers utilized 1,770 Limited Service 

MEI Ports and MIAX Emerald Market 

Makers utilized 1,017 Limited Service 

MEI ports. When compared to Full 

Service Port (Bulk and Single) usage, for 

May 2023, MIAX Pearl Options 

Members utilized only 384 Full Service 

MEO Ports (Bulk and Single), far fewer 

than number of Limited Service MEI 

Ports utilized by Market Makers on 

MIAX, thus resulting in a smaller cost 

allocation. There is increased cost 

associated with supporting a higher 

number of ports (requiring more 

hardware and other technical 

infrastructure), thus the Exchange 

allocates a higher percentage of expense 

than MIAX Pearl Options which has a 

lower port count.115

* * * * * 

Approximate Cost per Limited Service 

MEI Port per Month 

Based on May 2023 data, the total 

monthly cost allocated to Limited 

Service MEI Ports of $179,765 was 

divided by the total number of Limited 

Service MEI Ports (including the two 

free Limited Service MEI Ports per 

matching engine that each Member 

receives) the Exchange maintained at 

the time that proposed pricing was 

determined (1,770), to arrive at a cost of 

approximately $102 per month, per 

charged Limited Service MEI Port. In 

the prior filings, the Exchange did not 

include the expense of maintaining the 

two free Limited Service MEI Ports per 

matching engine that each Member 

receives in this paragraph but did 

include them in the total expense 

amounts. The total number of Limited 

Service MEI Ports that the Exchange 

does not charge for is 1,146 and 

amounts to a total expense of $116,892 

per month to the Exchange. 

* * * * * 

Cost Analysis—Additional Discussion 

In conducting its Cost Analysis, the 

Exchange did not allocate any of its 

expenses in full to any core services 

(including physical connectivity or 

Limited Service MEI Ports) and did not 

double-count any expenses. Instead, as 

described above, the Exchange allocated 

applicable cost drivers across its core 

services and used the same Cost 

Analysis to form the basis of this 

proposal and the filings the Exchange 

submitted proposing fees for proprietary 

data feeds offered by the Exchange. For 

instance, in calculating the Human 

Resources expenses to be allocated to 

physical connections based upon the 

above described methodology, the 

Exchange has a team of employees 

dedicated to network infrastructure and 

with respect to such employees the 

Exchange allocated network 

infrastructure personnel with a high 

percentage of the cost of such personnel 

(42%) given their focus on functions 

necessary to provide physical 

connections. The salaries of those same 

personnel were allocated only 8.4% to 

Limited Service MEI Ports and the 

remaining 49.6% was allocated to 1Gb 

connectivity, other port services, 

transaction services, membership 

services and market data. The Exchange 

did not allocate any other Human 

Resources expense for providing 

physical connections to any other 

employee group, outside of a smaller 

allocation of 17.8% for 10Gb ULL 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58397 

116For purposes of calculating revenue for 10Gb 

ULL connectivity, the Exchange used revenues for 

February 2023, the first full month for which it 

provided dedicated 10Gb ULL connectivity to the 

Exchange and ceased operating a shared 10Gb ULL 

network with MIAX Pearl Options. 

connectivity or 18.2% for the entire 

network, of the cost associated with 

certain specified personnel who work 

closely with and support network 

infrastructure personnel. In contrast, the 

Exchange allocated much smaller 

percentages of costs (5% or less) across 

a wider range of personnel groups in 

order to allocate Human Resources costs 

to providing Limited Service MEI Ports. 

This is because a much wider range of 

personnel are involved in functions 

necessary to offer, monitor and maintain 

Limited Service MEI Ports but the tasks 

necessary to do so are not a primary or 

full-time function. 

In total, the Exchange allocated 25.6% 

of its personnel costs to providing 10Gb 

ULL and 1Gb ULL connectivity and 

5.8% of its personnel costs to providing 

Limited Service MEI Ports, for a total 

allocation of 31.4% Human Resources 

expense to provide these specific 

connectivity and port services. In turn, 

the Exchange allocated the remaining 

68.6% of its Human Resources expense 

to membership services, transaction 

services, other port services and market 

data. Thus, again, the Exchange’s 

allocations of cost across core services 

were based on real costs of operating the 

Exchange and were not double-counted 

across the core services or their 

associated revenue streams. 

As another example, the Exchange 

allocated depreciation expense to all 

core services, including physical 

connections and Limited Service MEI 

Ports, but in different amounts. The 

Exchange believes it is reasonable to 

allocate the identified portion of such 

expense because such expense includes 

the actual cost of the computer 

equipment, such as dedicated servers, 

computers, laptops, monitors, 

information security appliances and 

storage, and network switching 

infrastructure equipment, including 

switches and taps that were purchased 

to operate and support the network. 

Without this equipment, the Exchange 

would not be able to operate the 

network and provide connectivity 

services to its Members and nonMembers and their customers. However, 

the Exchange did not allocate all of the 

depreciation and amortization expense 

toward the cost of providing 

connectivity services, but instead 

allocated approximately 67.9% of the 

Exchange’s overall depreciation and 

amortization expense to connectivity 

services (61.6% attributed to 10Gb ULL 

physical connections and 6.3% to 

Limited Service MEI Ports). The 

Exchange allocated the remaining 

depreciation and amortization expense 

(approximately 32.1%) toward the cost 

of providing transaction services, 

membership services, other port 

services and market data. 

The Exchange notes that its revenue 

estimates are based on projections 

across all potential revenue streams and 

will only be realized to the extent such 

revenue streams actually produce the 

revenue estimated. The Exchange does 

not yet know whether such expectations 

will be realized. For instance, in order 

to generate the revenue expected from 

connectivity, the Exchange will have to 

be successful in retaining existing 

clients that wish to maintain physical 

connectivity and/or Limited Service 

MEI Ports or in obtaining new clients 

that will purchase such services. 

Similarly, the Exchange will have to be 

successful in retaining a positive net 

capture on transaction fees in order to 

realize the anticipated revenue from 

transaction pricing. 

The Exchange notes that the Cost 

Analysis is based on the Exchange’s 

2023 fiscal year of operations and 

projections. It is possible, however, that 

actual costs may be higher or lower. To 

the extent the Exchange sees growth in 

use of connectivity services it will 

receive additional revenue to offset 

future cost increases. However, if use of 

connectivity services is static or 

decreases, the Exchange might not 

realize the revenue that it anticipates or 

needs in order to cover applicable costs. 

Accordingly, the Exchange is 

committing to conduct a one-year 

review after implementation of these 

fees. The Exchange expects that it may 

propose to adjust fees at that time, to 

increase fees in the event that revenues 

fail to cover costs and a reasonable 

mark-up of such costs. Similarly, the 

Exchange may propose to decrease fees 

in the event that revenue materially 

exceeds our current projections. In 

addition, the Exchange will periodically 

conduct a review to inform its decision 

making on whether a fee change is 

appropriate (e.g., to monitor for costs 

increasing/decreasing or subscribers 

increasing/decreasing, etc. in ways that 

suggest the then-current fees are 

becoming dislocated from the prior costbased 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 116

The proposed fees will allow the 

Exchange to cover certain costs incurred 

by the Exchange associated with 

providing and maintaining necessary 

hardware and other network 

infrastructure as well as network 

monitoring and support services; 

without such hardware, infrastructure, 

monitoring and support the Exchange 

would be unable to provide the 

connectivity and port services. Much of 

the cost relates to monitoring and 

analysis of data and performance of the 

network via the subscriber’s 

connection(s). The above cost, namely 

those associated with hardware, 

software, and human capital, enable the 

Exchange to measure network 

performance with nanosecond 

granularity. These same costs are also 

associated with time and money spent 

seeking to continuously improve the 

network performance, improving the 

subscriber’s experience, based on 

monitoring and analysis activity. The 

Exchange routinely works to improve 

the performance of the network’s 

hardware and software. The costs 

associated with maintaining and 

enhancing a state-of-the-art exchange 

network is a significant expense for the 

Exchange, and thus the Exchange 

believes that it is reasonable and 

appropriate to help offset those costs by 

amending fees for connectivity services. 

Subscribers, particularly those of 10Gb 

ULL connectivity, expect the Exchange 

to provide this level of support to 

connectivity so they continue to receive 

the performance they expect. This 

differentiates the Exchange from its 

competitors. As detailed above, the 

Exchange has five primary sources of 

revenue that it can potentially use to 

fund its operations: transaction fees, 

fees for connectivity services, 

membership and regulatory fees, and 

market data fees. Accordingly, the 

Exchange must cover its expenses from 

these five primary sources of revenue. 

The Exchange’s Cost Analysis 

estimates the annual cost to provide 

10Gb ULL connectivity services will 

equal $12,034,554. Based on current 

10Gb ULL connectivity services usage, 

the Exchange would generate annual 

revenue of approximately $15,066,000. 

The Exchange believes this represents a 

modest profit of 20% when compared to 


ddrumheller on DSK120RN23PROD with NOTICES1
58398 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

117Assuming the U.S. inflation rate continues at 

its current rate, the Exchange believes that the 

projected profit margins in this proposal will 

decrease; however, the Exchange cannot predict 

with any certainty whether the U.S. inflation rate 

will continue at its current rate or its impact on the 

Exchange’s future profits or losses. See, e.g., https:// 

www.usinflationcalculator.com/inflation/currentinflation-rates/ (last visited August 4, 2023). 

118 Id. 

119See NASDAQ Pricing Schedule, Options 7, 

Section 3, Ports and Other Services and NASDAQ 

Rules, General 8: Connectivity, Section 1. CoLocation Services. 

120See NYSE American Options Fee Schedule, 

Section V.A. Port Fees and Section V.B. CoLocation Fees. 

121The Exchange has incurred a cumulative loss 

of $71 million since its inception in 2012 through 

full year 2022. See Exchange’s Form 1/A, 

Application for Registration or Exemption from 

Registration as a National Securities Exchange, filed 

June 26, 2023, available at https://www.sec.gov/ 

Archives/edgar/vprr/2300/23007741.pdf. 

the cost of providing 10Gb ULL 

connectivity services, which could 

decrease over time.117

The Exchange’s Cost Analysis 

estimates the annual cost to provide 

Limited Service MEI Port services will 

equal $2,157,178. Based on current 

Limited Service MEI Port services usage, 

the Exchange would generate annual 

revenue of approximately $3,300,600. 

The Exchange believes this would result 

in an estimated profit margin of 35% 

after calculating the cost of providing 

Limited Service MEI Port services, 

which profit margin could decrease over 

time.118 The Exchange notes that the 

cost to provide Limited Service MEI 

Ports is higher than the cost for the 

Exchange’s affiliate, MIAX Pearl 

Options, to provide Full Service MEO 

Ports due to the substantially higher 

number of Limited Service MEI Ports 

used by Exchange Members. For 

example, MIAX Market Makers are 

currently allocated 1,770 Limited 

Service MEI Ports compared to only 384 

Full Service MEO Ports (Bulk and 

Single combined) allocated to MIAX 

Pearl Options members. 

Based on the above discussion, the 

Exchange believes that even if the 

Exchange earns the above revenue or 

incrementally more or less, the 

proposed fees are fair and reasonable 

because they will not result in pricing 

that deviates from that of other 

exchanges or a supra-competitive profit, 

when comparing the total expense of the 

Exchange associated with providing 

10Gb ULL connectivity and Limited 

Service MEI Port services versus the 

total projected revenue of the Exchange 

associated with network 10Gb ULL 

connectivity and Limited Service MEI 

Port services. 

The Exchange also notes that this the 

resultant profit margin differs slightly 

from the profit margins set forth in 

similar fee filings by its affiliated 

markets. This is not atypical among 

exchanges and is due to a number of 

factors that differ between these four 

markets, including: different market 

models, market structures, and product 

offerings (equities, options, price-time, 

pro-rata, simple, and complex); different 

pricing models; different number of 

market participants and connectivity 

subscribers; different maintenance and 

operations costs, as described in the cost 

allocation methodology above; different 

technical architecture (e.g., the number 

of matching engines per exchange, i.e., 

the Exchange maintains 24 matching 

engines while MIAX Emerald maintains 

only 12 matching engines); and different 

maturity phase of the Exchange and its 

affiliated markets (i.e., start-up versus 

growth versus more mature). All of 

these factors contribute to a unique and 

differing level of profit margin per 

exchange. 

Further, the Exchange proposes to 

charge rates that are comparable to, or 

lower than, similar fees for similar 

products charged by competing 

exchanges. For example, for 10Gb ULL 

connectivity, the Exchange proposes a 

lower fee than the fee charged by 

Nasdaq for its comparable 10Gb Ultra 

fiber connection ($13,500 per month for 

the Exchange vs. $15,000 per month for 

Nasdaq).119 NYSE American charges 

even higher fees for its comparable 

10GB LX LCN connection than the 

Exchange’s proposed fees ($13,500 for 

the Exchange vs. $22,000 per month for 

NYSE American).120 Accordingly, the 

Exchange believes that comparable and 

competitive pricing are key factors in 

determining whether a proposed fee 

meets the requirements of the Act, 

regardless of whether that same fee 

across the Exchange’s affiliated markets 

leads to slightly different profit margins 

due to factors outside of the Exchange’s 

control (i.e., more subscribers to 10Gb 

ULL connectivity on the Exchange than 

its affiliated markets or vice versa). 

* * * * * 

The Exchange has operated at a 

cumulative net annual loss since it 

launched operations in 2012.121 This is 

due to a number of factors, one of which 

is choosing to forgo revenue by offering 

certain products, such as low latency 

connectivity, at lower rates than other 

options exchanges to attract order flow 

and encourage market participants to 

experience the high determinism, low 

latency, and resiliency of the Exchange’s 

trading systems. The Exchange does not 

believe that it should now be penalized 

for seeking to raise its fees as it now 

needs to upgrade its technology and 

absorb increased costs. Therefore, the 

Exchange believes the proposed fees are 

reasonable because they are based on 

both relative costs to the Exchange to 

provide dedicated 10Gb ULL 

connectivity and Limited Service MEI 

Ports, the extent to which the product 

drives the Exchange’s overall costs and 

the relative value of the product, as well 

as the Exchange’s objective to make 

access to its Systems broadly available 

to market participants. The Exchange 

also believes the proposed fees are 

reasonable because they are designed to 

generate annual revenue to recoup the 

Exchange’s costs of providing dedicated 

10Gb ULL connectivity and Limited 

Service MEI Ports. 

The Exchange notes that its revenue 

estimate is based on projections and 

will only be realized to the extent 

customer activity produces the revenue 

estimated. As a competitor in the hypercompetitive exchange environment, and 

an exchange focused on driving 

competition, the Exchange does not yet 

know whether such projections will be 

realized. For instance, in order to 

generate the revenue expected from 

10Gb ULL connectivity and Limited 

Service MEI Ports, the Exchange will 

have to be successful in retaining 

existing clients that wish to utilize 10Gb 

ULL connectivity and Limited Service 

MEI Ports and/or obtaining new clients 

that will purchase such access. To the 

extent the Exchange is successful in 

encouraging new clients to utilize 10Gb 

ULL connectivity and Limited Service 

MEI Ports, the Exchange does not 

believe it should be penalized for such 

success. To the extent the Exchange has 

mispriced and experiences a net loss in 

connectivity clients or in transaction 

activity, the Exchange could experience 

a net reduction in revenue. While the 

Exchange is supportive of transparency 

around costs and potential margins 

(applied across all exchanges), as well 

as periodic review of revenues and 

applicable costs (as discussed below), 

the Exchange does not believe that these 

estimates should form the sole basis of 

whether or not a proposed fee is 

reasonable or can be adopted. Instead, 

the Exchange believes that the 

information should be used solely to 

confirm that an Exchange is not 

earning—or seeking to earn—supracompetitive profits. The Exchange 

believes the Cost Analysis and related 

projections in this filing demonstrate 

this fact. 

The Exchange is owned by a holding 

company that is the parent company of 

four exchange markets and, therefore, 

the Exchange and its affiliated markets 

must allocate shared costs across all of 

those markets accordingly, pursuant to 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58399 

122 17 CFR 240.17a-1 (recordkeeping rule for 

national securities exchanges, national securities 

associations, registered clearing agencies and the 

Municipal Securities Rulemaking Board). 

123The Exchange notes that those Members who 

purchase three or more Limited Service MEI Ports 

receive their first two Limited Service Ports for free. 

124Note that the firms that purchase numerous 

Limited Service MEI Ports do so for competitive 

reasons and based on their business needs, which 

include a desire to access the market more quickly 

using the lowest latency connections. These firms 

are generally engaged in sending liquidity removing 

orders to the Exchange and may require more 

connections as they compete to access resting 

liquidity. 

the above-described allocation 

methodology. In contrast, the Investors 

Exchange LLC (‘‘IEX’’) and MEMX, 

which are currently each operating only 

one exchange, in their recent nontransaction fee filings allocate the entire 

amount of that same cost to a single 

exchange. This can result in lower profit 

margins for the non-transaction fees 

proposed by IEX and MEMX because 

the single allocated cost does not 

experience the efficiencies and 

synergies that result from sharing costs 

across multiple platforms. The 

Exchange and its affiliated markets often 

share a single cost, which results in cost 

efficiencies that can cause a broader gap 

between the allocated cost amount and 

projected revenue, even though the fee 

levels being proposed are lower or 

competitive with competing markets (as 

described above). To the extent that the 

application of a cost-based standard 

results in Commission Staff making 

determinations as to the appropriateness 

of certain profit margins, the Exchange 

believes that Commission Staff should 

also consider whether the proposed fee 

level is comparable to, or competitive 

with, the same fee charged by 

competing exchanges and how different 

cost allocation methodologies (such as 

across multiple markets) may result in 

different profit margins for comparable 

fee levels. Further, if Commission Staff 

is making determinations as to 

appropriate profit margins in their 

approval of exchange fees, the Exchange 

believes that the Commission should be 

clear to all market participants as to 

what they have determined is an 

appropriate profit margin and should 

apply such determinations consistently 

and, in the case of certain legacy 

exchanges, retroactively, if such 

standards are to avoid having a 

discriminatory effect. 

Further, as is reflected in the 

proposal, the Exchange continuously 

and aggressively works to control its 

costs as a matter of good business 

practice. A potential profit margin 

should not be evaluated solely on its 

size; that assessment should also 

consider cost management and whether 

the ultimate fee reflects the value of the 

services provided. For example, a profit 

margin on one exchange should not be 

deemed excessive where that exchange 

has been successful in controlling its 

costs, but not excessive on another 

exchange where that exchange is 

charging comparable fees but has a 

lower profit margin due to higher costs. 

Doing so could have the perverse effect 

of not incentivizing cost control where 

higher costs alone could be used to 

justify fees increases. 

The Proposed Pricing Is Not Unfairly 

Discriminatory and Provides for the 

Equitable Allocation of Fees, Dues, and 

Other Charges 

The Exchange believes that the 

proposed fees are reasonable, fair, 

equitable, and not unfairly 

discriminatory because they are 

designed to align fees with services 

provided and will apply equally to all 

subscribers. 

10Gb ULL Connectivity 

The Exchange believes that the 

proposed fees are equitably allocated 

among users of the network connectivity 

and port alternatives, as the users of 

10Gb ULL connections consume 

substantially more bandwidth and 

network resources than users of 1Gb 

ULL connection. Specifically, the 

Exchange notes that 10Gb ULL 

connection users account for more than 

99% of message traffic over the network, 

driving other costs that are linked to 

capacity utilization, as described above, 

while the users of the 1Gb ULL 

connections account for less than 1% of 

message traffic over the network. In the 

Exchange’s experience, users of the 1Gb 

connections do not have the same 

business needs for the high-performance 

network as 10Gb ULL users. 

The Exchange’s high-performance 

network and supporting infrastructure 

(including employee support), provides 

unparalleled system throughput with 

the network ability to support access to 

several distinct options markets. To 

achieve a consistent, premium network 

performance, the Exchange must build 

out and maintain a network that has the 

capacity to handle the message rate 

requirements of its most heavy network 

consumers. These billions of messages 

per day consume the Exchange’s 

resources and significantly contribute to 

the overall network connectivity 

expense for storage and network 

transport capabilities. The Exchange 

must also purchase additional storage 

capacity on an ongoing basis to ensure 

it has sufficient capacity to store these 

messages to satisfy its record keeping 

requirements under the Exchange 

Act.122 Thus, as the number of messages 

an entity increases, certain other costs 

incurred by the Exchange that are 

correlated to, though not directly 

affected by, connection costs (e.g., 

storage costs, surveillance costs, service 

expenses) also increase. Given this 

difference in network utilization rate, 

the Exchange believes that it is 

reasonable, equitable, and not unfairly 

discriminatory that the 10Gb ULL users 

pay for the vast majority of the shared 

network resources from which all 

market participants’ benefit. 

Limited Service MEI Ports 

The Exchange designed the proposed 

tiered-pricing structure to link fees to 

the number of connections a firm 

purchases due to the strong correlation 

between number of connections and 

related cost burdens imposed upon the 

Exchange from the largest connection 

(Limited MEI Ports) users. This is 

explicitly designed to link fees to 

related costs imposed on the exchange. 

Market Makers that purchase more 

connections cause significantly greater 

costs and expenses to the Exchange, 

whereas the opposite is also true. With 

this in mind, the Exchange proposes (a) 

no fee or lower fees for Market Makers 

who utilize fewer Limited Service MEI 

Ports since those Market Makers 

generally tend to send the fewest 

number of orders and messages over 

those connections, imposing 

substantially lower costs; 123 and (b) 

incrementally higher fees for those that 

purchase additional Limited Service 

MEI Ports, because those with the 

greatest number of Limited Service MEI 

Ports generate a disproportionate 

amount of messages and order traffic, 

usually billions per day across the 

Exchange.124

The Exchange believes that the 

proposed fees are equitably allocated 

among users of the network connectivity 

alternatives because it is specifically 

designed to ensure that those users that 

create the highest costs burden on the 

Exchange pay the highest fees. As is 

discussed below, the cost burden 

associated with Market Makers that use 

the maximum number of Limited 

Service MEI ports is significantly higher 

than costs associated with Market 

Makers that use fewer of these ports. 

As noted above, users with the 

greatest number of Limited Service MEI 

Ports consume a disproportionate 

amount of bandwidth and network 

resources. Specifically, for 10Gb ULL 

connectivity, Market Makers who take 

the maximum number of Limited 

Service MEI Ports account for greater 


ddrumheller on DSK120RN23PROD with NOTICES1
58400 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

125 17 CFR 240.17a–1 (recordkeeping rule for 

national securities exchanges, national securities 

associations, registered clearing agencies and the 

Municipal Securities Rulemaking Board). 

126See id. 

127The Member and non-Member network 

connectivity testing and certification fee is 

unrelated to this practice. That fee is for the first 

time firms are credentialed to begin live-trading on 

the Exchange or when the firm makes an internal 

system change requiring it to re-test its system with 

the Exchange’s system. See Fee Schedule, Sections 

(4)(c)–(d). 

than 99% of message traffic over the 

network, while Market Makers with 

fewer Limited Service MEI Ports 

account for less than 1% of message 

traffic over the network. In the 

Exchange’s experience, Market Makers 

who only utilize the two free Limited 

Service MEI Ports do so primarily 

because of the trade-through 

requirements under Regulation NMS or 

best execution obligations and do not 

have the same business need for the 

high performance network solutions 

required by Market Makers who take the 

maximum amount of Limited Service 

MEI Ports. 

The Exchange’s high performance 

network solutions and supporting 

infrastructure (including employee 

support) provide increased system 

throughput and the capacity to handle 

approximately 18 million quote 

messages per second. This is important 

for the efficient operation of the 

Exchange and to ensure system 

resiliency in times of stress (abnormally 

high capacity demand). For example, 

based on May 2023 trading results, the 

Exchange handled more than 12.3 

billion quotes on an average day, and 

more than 271 billion quotes in an 

average month. Of that total, Market 

Makers with the maximum amount of 

Limited Service MEI Ports generated 

more than 156 billion quotes (and more 

than 7 billion quotes on an average day), 

and Market Makers who utilized only 

the two free Limited Service MEI Ports 

per matching engine generated 

approximately 78 billion quotes (and 

approximately 3.5 billion quotes on an 

average day). Also for May 2023, Market 

Makers who utilized 7 to 9 Limited 

Service MEI ports submitted an average 

of 1.3 billion quotes per day and Market 

Makers who utilized 5–6 Limited 

Service MEI Ports submitted an average 

of 356 million quotes on an average day. 

In May 2023, the Exchange did not have 

any Market Makers that utilized only 3– 

4 Limited Service MEI Ports. 

To achieve consistent, premium 

network performance, the Exchange 

must build and maintain a network that 

has the capacity to handle the message 

rate requirements of its heaviest 

network consumers during anticipated 

peak market conditions. The resultant 

need to support billions of messages per 

day consume the Exchange’s resources 

and significantly contribute to the 

overall network connectivity expense 

for storage and network transport 

capabilities. This need also requires the 

Exchange to purchase additional storage 

capacity on an ongoing basis to ensure 

it has sufficient capacity to store these 

messages as part of it surveillance 

program and to satisfy its record 

keeping requirements under the 

Exchange Act.125 Thus, as the number of 

connections per Market Maker 

increases, other costs incurred by the 

Exchange also increase, e.g., storage 

costs, surveillance costs, service 

expenses. 

According to the statistics provided 

above for May 2023, Market Makers 

with the maximum amount of Limited 

Service MEI Ports sent almost twice as 

many orders as those that utilize the 

minimal amount of Limited Service MEI 

Ports. Due to latency consideration, 

those Market Makers typically send the 

same order over multiple Limited 

Service MEI Ports to attempt to execute 

against the same contra-side order 

resting on the Book. This results in a 

disproportionate number of messages 

being returned to the Market Maker 

notifying them which order did or did 

not result in an execution. This results 

in an increased amount of message 

traffic generated by Market Makers who 

utilize the maximum amount of Limited 

Service MEI Ports. These Market Makers 

use a disproportionate amount of 

System capacity and, therefore, put 

greater strain on the Exchange’s network 

and other resources discussed below. 

This is due to higher order to trade 

ratios that results in increased message 

traffic that is not recouped via a separate 

Exchange fee based on each message 

sent by a Market Maker or other similar 

fee. The Exchange must purchase and 

maintain additional storage capacity on 

an ongoing basis to ensure it has 

sufficient capacity to store these 

messages as part of it surveillance 

program and to satisfy its record 

keeping requirements under the 

Exchange Act.126

The following presents another 

example of how the cost burden 

associated with Members that use the 

maximum number of Limited Service 

MEI ports is significantly higher than 

costs associated with Members that use 

fewer of these ports. Members with the 

maximum amount of Limited Service 

MEI Ports frequently add, drop, or 

rebalance connections mid-month to 

determine which connections have the 

least latency (and engage in the same 

practice with Limited Service MEI 

Ports). This requires constant System 

expansion to meet Market Maker 

demand for additional Limited Service 

MEI Ports and results in limited 

available System headroom, e.g., 

additional hardware to accommodate 

demand for additional Limited Service 

MEI Ports. This also results in increased 

costs and customer service resources for 

the Exchange to frequently make 

changes in the data center (or its 

network) and provide the additional 

technical and personnel support 

necessary to satisfy these requests. The 

Exchange does not charge a separate fee 

for these services for Limited Service 

MEI Ports.127 Given the difference in 

network utilization and technical 

support provided, the Exchange believes 

that it is reasonable, equitable, and not 

unfairly discriminatory that Market 

Makers who utilize the most Limited 

Service MEI Ports pay for the vast 

majority of the shared network 

resources from which all Member and 

non-Member users benefit, because the 

network is largely designed and 

maintained to specifically handle the 

message rate, capacity and performance 

requirements of those Market Makers. 

Finally, charging an incrementally 

higher fee (above the first two that are 

provided free of charge) to firms that 

choose to purchase more Limited 

Service MEI Ports does not provide 

those firms with any competitive 

advantage or incentivize firms to 

purchase additional Limited Service 

MEI Ports. Certain firms choose to 

purchase additional Limited Service 

MEI Ports based on their own particular 

trading/quoting strategies and, if 

anything, higher fees act as a 

disincentive for inefficient and 

excessive use of Exchange bandwidth 

and capacity. The Exchange notes that 

firms may continue to choose to only 

utilize the two free Limited Service MEI 

Ports to accommodate their own 

trading/quoting strategies, business 

models, and for Market Makers, to meet 

their quoting obligations. The proposed 

pricing structure is designed to address 

the above described increased pull on 

Exchange resources by firms that choose 

to purchase the maximum number of 

Limited Service MEI Ports and to 

incentivize efficient port usage. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58401 

128See supra note 121. 

129The Exchange acknowledges that IEX included 

in its proposal to adopt market data fees after 

offering market data for free an analysis of what its 

projected revenue would be if all of its existing 

customers continued to subscribe versus what its 

projected revenue would be if a limited number of 

customers subscribed due to the new fees. See 

Securities Exchange Act Release No. 94630 (April 

7, 2022), 87 FR 21945 (April 13, 2022) (SR–IEX– 

2022–02). MEMX did not include a similar analysis 

in either of its recent non-transaction fee proposals. 

See supra note 77. The Exchange does not believe 

a similar analysis would be useful here because it 

is amending existing fees, not proposing to charge 

a new fee where existing subscribers may terminate 

connections because they are no longer enjoying the 

service at no cost. 

Intra-Market Competition 

The Exchange believes the proposed 

fees will not result in any burden on 

intra-market competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act because the 

proposed fees will allow the Exchange 

to recoup some of its costs in providing 

10Gb ULL connectivity and Limited 

Service MEI Ports at below market rates 

to market participants since the 

Exchange launched operations. As 

described above, the Exchange has 

operated at a cumulative net annual loss 

since it launched operations in 2012 128

due to providing a low-cost alternative 

to attract order flow and encourage 

market participants to experience the 

high determinism and resiliency of the 

Exchange’s trading Systems. To do so, 

the Exchange chose to waive the fees for 

some non-transaction related services 

and Exchange products or provide them 

at a very lower fee, which was not 

profitable to the Exchange. This resulted 

in the Exchange forgoing revenue it 

could have generated from assessing any 

fees or higher fees. The Exchange could 

have sought to charge higher fees at the 

outset, but that could have served to 

discourage participation on the 

Exchange. Instead, the Exchange chose 

to provide a low-cost exchange 

alternative to the options industry, 

which resulted in lower initial 

revenues. Examples of this are 10Gb 

ULL connectivity and Limited Service 

MEI Ports, for which the Exchange only 

now seeks to adopt fees at a level 

similar to or lower than those of other 

options exchanges. 

Further, the Exchange does not 

believe that the proposed fee increase 

for the 10Gb ULL connection change 

would place certain market participants 

at the Exchange at a relative 

disadvantage compared to other market 

participants or affect the ability of such 

market participants to compete. As is 

the case with the current proposed flat 

fee, the proposed fee would apply 

uniformly to all market participants 

regardless of the number of connections 

they choose to purchase. The proposed 

fee does not favor certain categories of 

market participants in a manner that 

would impose an undue burden on 

competition. 

The Exchange does not believe that 

the proposed rule change would place 

certain market participants at the 

Exchange at a relative disadvantage 

compared to other market participants 

or affect the ability of such market 

participants to compete. In particular, 

Exchange personnel has been informally 

discussing potential fees for 

connectivity services with a diverse 

group of market participants that are 

connected to the Exchange (including 

large and small firms, firms with large 

connectivity service footprints and 

small connectivity service footprints, as 

well as extranets and service bureaus) 

for several months leading up to that 

time. The Exchange does not believe the 

proposed fees for connectivity services 

would negatively impact the ability of 

Members, non-Members (extranets or 

service bureaus), third-parties that 

purchase the Exchange’s connectivity 

and resell it, and customers of those 

resellers to compete with other market 

participants or that they are placed at a 

disadvantage. 

The Exchange does anticipate, 

however, that some market participants 

may reduce or discontinue use of 

connectivity services provided directly 

by the Exchange in response to the 

proposed fees. In fact, as mentioned 

above, one MIAX Pearl Options Market 

Maker terminated their MIAX Pearl 

Options membership on January 1, 2023 

as a direct result of the similar proposed 

fee changes by MIAX Pearl Options.129

The Exchange does not believe that the 

proposed fees for connectivity services 

place certain market participants at a 

relative disadvantage to other market 

participants because the proposed 

connectivity pricing is associated with 

relative usage of the Exchange by each 

market participant and does not impose 

a barrier to entry to smaller participants. 

The Exchange believes its proposed 

pricing is reasonable and, when coupled 

with the availability of third-party 

providers that also offer connectivity 

solutions, that participation on the 

Exchange is affordable for all market 

participants, including smaller trading 

firms. As described above, the 

connectivity services purchased by 

market participants typically increase 

based on their additional message traffic 

and/or the complexity of their 

operations. The market participants that 

utilize more connectivity services 

typically utilize the most bandwidth, 

and those are the participants that 

consume the most resources from the 

network. Accordingly, the proposed fees 

for connectivity services do not favor 

certain categories of market participants 

in a manner that would impose a 

burden on competition; rather, the 

allocation of the proposed connectivity 

fees reflects the network resources 

consumed by the various size of market 

participants and the costs to the 

Exchange of providing such 

connectivity services. 

Lastly, the Exchange does not believe 

its proposal to implement incrementally 

higher fees for those that purchase more 

Limited Service MEI Ports will place 

certain market participants at a relative 

disadvantage to other market 

participants because those with the 

greatest number of Limited Service MEI 

Ports tend generate a disproportionate 

amount of messages and order traffic, 

usually billions per day across the 

Exchange, resulting in greater demands 

and additional burdens on Exchange 

resources (as described above). The 

firms that purchase numerous Limited 

Service MEI Ports do so for competitive 

reasons and choose to utilize numerous 

connections based on their business 

needs, which include a desire to attempt 

to access the market quicker using the 

lowest latency connections. These firms 

are generally engaged in sending 

liquidity removing orders to the 

Exchange and seek to add more 

connections to competitively access 

resting liquidity. All firms purchase the 

amount of Limited Service MEI Ports 

they require based on their own 

business decisions and similarly 

situated firms are subject to the same 

fees. 

Inter-Market Competition 

The Exchange also does not believe 

that the proposed rule change and price 

increase will result in any burden on 

inter-market competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. As this is a 

fee increase, arguably if set too high, 

this fee would make it easier for other 

exchanges to compete with the 

Exchange. Only if this were a 

substantial fee decrease could this be 

considered a form of predatory pricing. 

In contrast, the Exchange believes that, 

without this fee increase, we are 

potentially at a competitive 

disadvantage to certain other exchanges 

that have in place higher fees for similar 

services. As we have noted, the 

Exchange believes that connectivity fees 

can be used to foster more competitive 

transaction pricing and additional 

infrastructure investment and there are 

other options markets of which market 


ddrumheller on DSK120RN23PROD with NOTICES1
58402 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

130See Securities Exchange Act Release No. 

90333 (November 4, 2020), 85 FR 71666 (November 

10, 2020) (SR–CBOE–2020–105). The Exchange 

notes that Cboe submitted this filing after the Staff 

Guidance and contained no cost based justification. 

131 Id. at 71676. 

132 Id. 

133 Id. at 71676. 

134See Securities Exchange Act Release No. 

86901 (September 9, 2019), 84 FR 48458 (September 

13, 2019) (File No. S7–13–19). 

135 Id. 

136 Id. 

137 Id. 

138See Securities Exchange Act Release No. 

94512 (March 24, 2002), 87 FR 18425 (March 30, 

2022) (SR–Cboe–2022–011). Cboe offers BOE and 

FIX Logical Ports, BOE Bulk Logical Ports, DROP 

Logical Ports, Purge Ports, GRP Ports and Multicast 

PITCH/Top Spin Server Ports. For each type of the 

aforementioned logical ports that are used in the 

production environment, the Exchange also offers 

corresponding ports which provide Trading Permit 

Holders and non-TPHs access to the Exchange’s 

certification environment to test proprietary 

systems and applications (i.e., ‘‘Certification Logical 

Ports’’). 

139See Securities Exchange Act Release No. 

94512 (March 24, 2002), 87 FR 18425 (March 30, 

2022) (SR–Cboe–2022–011). 

140 Id. at 18426. 

141 Id. 

142 Id. 

participants may connect to trade 

options at higher rates than the 

Exchange’s. Accordingly, the Exchange 

does not believe its proposed fee 

changes impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

The Exchange also believes that the 

proposed fees for 10Gb connectivity are 

appropriate and warranted and would 

not impose any burden on competition. 

This is a technology driven change 

designed to meet customer needs. The 

proposed fees would assist the 

Exchange in recovering costs related to 

providing dedicated 10Gb connectivity 

to the Exchange while enabling it to 

continue to meet current and 

anticipated demands for connectivity by 

its Members and other market 

participants. Separating its 10Gb 

network from MIAX Pearl Options 

enables the Exchange to better compete 

with other exchanges by ensuring it can 

continue to provide adequate 

connectivity to existing and new 

Members, which may increase in ability 

to compete for order flow and deepen its 

liquidity pool, improving the overall 

quality of its market. The proposed rates 

for 10Gb ULL connectivity are 

structured to enable the Exchange to 

bifurcate its 10Gb ULL network shared 

with MIAX Pearl Options so that it can 

continue to meet current and 

anticipated connectivity demands of all 

market participants. 

Similarly, and also in connection with 

a technology change, Cboe Exchange, 

Inc. (‘‘Cboe’’) amended its access and 

connectivity fees, including port fees.130

Specifically, Cboe adopted certain 

logical ports to allow for the delivery 

and/or receipt of trading messages—i.e., 

orders, accepts, cancels, transactions, 

etc. Cboe established tiered pricing for 

BOE and FIX logical ports, tiered 

pricing for BOE Bulk ports, and flat 

prices for DROP, Purge Ports, GRP Ports 

and Multicast PITCH/Top Spin Server 

Ports. Cboe argued in its fee proposal 

that the proposed pricing more closely 

aligned its access fees to those of its 

affiliated exchanges as the affiliated 

exchanges offer substantially similar 

connectivity and functionality and are 

on the same platform that Cboe migrated 

to.131 Cboe justified its proposal by 

stating that, ‘‘. . . the Exchange believes 

substitutable products and services are 

in fact available to market participants, 

including, among other things, other 

options exchanges a market participant 

may connect to in lieu of the Exchange, 

indirect connectivity to the Exchange 

via a third-party reseller of connectivity 

and/or trading of any options product, 

including proprietary products, in the 

Over-the-Counter (OTC) markets.’’ 132

The Exchange concurs with the 

following statement by CBOE, 

The rule structure for options exchanges 

are also fundamentally different from those 

of equities exchanges. In particular, options 

market participants are not forced to connect 

to (and purchase market data from) all 

options exchanges. For example, there are 

many order types that are available in the 

equities markets that are not utilized in the 

options markets, which relate to mid-point 

pricing and pegged pricing which require 

connection to the SIPs and each of the 

equities exchanges in order to properly 

execute those orders in compliance with best 

execution obligations. Additionally, in the 

options markets, the linkage routing and 

trade through protection are handled by the 

exchanges, not by the individual members. 

Thus not connecting to an options exchange 

or disconnecting from an options exchange 

does not potentially subject a broker-dealer to 

violate order protection requirements. Gone 

are the days when the retail brokerage firms 

(such as Fidelity, Schwab, and eTrade) were 

members of the options exchanges—they are 

not members of the Exchange or its affiliates, 

they do not purchase connectivity to the 

Exchange, and they do not purchase market 

data from the Exchange. Accordingly, not 

only is there not an actual regulatory 

requirement to connect to every options 

exchange, the Exchange believes there is also 

no ‘‘de facto’’ or practical requirement as 

well, as further evidenced by the recent 

significant reduction in the number of 

broker-dealers that are members of all 

options exchanges.133

The Cboe proposal also referenced the 

National Market System Plan Governing 

the Consolidated Audit Trail (‘‘CAT 

NMS Plan’’),134 wherein the 

Commission discussed the existence of 

competition in the marketplace 

generally, and particularly for 

exchanges with unique business 

models. The Commission acknowledged 

that, even if an exchange were to exit 

the marketplace due to its proposed feerelated change, it would not 

significantly impact competition in the 

market for exchange trading services 

because these markets are served by 

multiple competitors.135 Further, the 

Commission explicitly stated that 

‘‘[c]onsequently, demand for these 

services in the event of the exit of a 

competitor is likely to be swiftly met by 

existing competitors.’’ 136 Finally, the 

Commission recognized that while some 

exchanges may have a unique business 

model that is not currently offered by 

competitors, a competitor could create 

similar business models if demand were 

adequate, and if a competitor did not do 

so, the Commission believes it would be 

likely that new entrants would do so if 

the exchange with that unique business 

model was otherwise profitable.137

Cboe also filed to establish a monthly 

fee for Certification Logical Ports of 

$250 per Certification Logical Port.138

Cboe reasoned that purchasing 

additional Certification Logical Ports, 

beyond the one Certification Logical 

Port per logical port type offered in the 

production environment free of charge, 

is voluntary and not required in order 

to participate in the production 

environment, including live production 

trading on the Exchange.139

In its statutory basis, Cboe justified 

the new port fee by stating that it 

believed the Certification Logical Port 

fee were reasonable because while such 

ports were no longer completely free, 

TPHs and non-TPHs would continue to 

be entitled to receive free of charge one 

Certification Logical Port for each type 

of logical port that is currently offered 

in the production environment.140 Cboe 

noted that other exchanges assess 

similar fees and cited to NASDAQ LLC 

and MIAX.141 Cboe also noted that the 

decision to purchase additional ports is 

optional and no market participant is 

required or under any regulatory 

obligation to purchase excess 

Certification Logical Ports in order to 

access the Exchange’s certification 

environment.142 Finally, similar 

proposals to adopt a Certification 

Logical Port monthly fee were filed by 


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Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58403 

143See Securities Exchange Act Release No. 

94507 (March 24, 2002), 87 FR 18439 (March 30, 

2022) (SR–CboeBYX–2022–004). 

144See Securities Exchange Act Release No. 

94511 (March 24, 2002), 87 FR 18411 (March 30, 

2022) (SR–CboeBZX–2022–021). 

145See Securities Exchange Act Release No. 

94517 (March 25, 2002), 87 FR 18848 (March 31, 

2022) (SR–CboeEDGA–2022–004). 

146See letter from Brian Sopinsky, General 

Counsel, Susquehanna International Group, LLP 

(‘‘SIG’’), to Vanessa Countryman, Secretary, 

Commission, dated February 7, 2023, and letters 

from Gerald D. O’Connell, SIG, to Vanessa 

Countryman, Secretary, Commission, dated March 

21, 2023, May 24, 2023 and July 24, 2023. 

147 15 U.S.C. 78s(b)(3)(A)(ii). 

148 17 CFR 240.19b–4(f)(2). 

Cboe BYX Exchange, Inc.,143 BZX,144

and Cboe EDGA Exchange, Inc.145

The Cboe fee proposals described 

herein were filed subsequent to the D.C. 

Circuit decision in Susquehanna Int’l 

Grp., LLC v. SEC, 866 F.3d 442 (D.C. Cir. 

2017), meaning that such fee filings 

were subject to the same (and current) 

standard for SEC review and approval as 

this proposal. In summary, the 

Exchange requests the Commission 

apply the same standard of review to 

this proposal which was applied to the 

various Cboe and Cboe affiliated 

markets’ filings with respect to nontransaction fees. If the Commission were 

to apply a different standard of review 

to this proposal than it applied to other 

exchange fee filings it would create a 

burden on competition such that it 

would impair the Exchange’s ability to 

make necessary technology driven 

changes, such as bifurcating its 10Gb 

ULL network, because it would be 

unable to monetize or recoup costs 

related to that change and compete with 

larger, non-legacy exchanges. 

* * * * * 

In conclusion, as discussed 

thoroughly above, the Exchange 

regrettably believes that the application 

of the Revised Review Process and Staff 

Guidance has adversely affected intermarket competition among legacy and 

non-legacy exchanges by impeding the 

ability of non-legacy exchanges to adopt 

or increase fees for their market data 

and access services (including 

connectivity and port products and 

services) that are on parity or 

commensurate with fee levels 

previously established by legacy 

exchanges. Since the adoption of the 

Revised Review Process and Staff 

Guidance, and even more so recently, it 

has become extraordinarily difficult to 

adopt or increase fees to generate 

revenue necessary to invest in systems, 

provide innovative trading products and 

solutions, and improve competitive 

standing to the benefit of non-legacy 

exchanges’ market participants. 

Although the Staff Guidance served an 

important policy goal of improving 

disclosures and requiring exchanges to 

justify that their market data and access 

fee proposals are fair and reasonable, it 

has also negatively impacted non-legacy 

exchanges in particular in their efforts 

to adopt or increase fees that would 

enable them to more fairly compete with 

legacy exchanges, despite providing 

enhanced disclosures and rationale 

under both competitive and cost basis 

approaches provided for by the Revised 

Review Process and Staff Guidance to 

support their proposed fee changes. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange received one comment 

letter on the Initial Proposal, one 

comment letter on the Second Proposal, 

one comment letter on the Third 

Proposal, and one comment letter on the 

Fourth Proposal, all from the same 

commenter.146 In their letters, the sole 

commenter seeks to incorporate 

comments submitted on previous 

Exchange proposals to which the 

Exchange has previously responded. To 

the extent the sole commenter has 

attempted to raise new issues in its 

letters, the Exchange believes those 

issues are not germane to this proposal 

in particular, but rather raise larger 

issues with the current environment 

surrounding exchange non-transaction 

fee proposals that should be addressed 

by the Commission through rule 

making, or Congress, more holistically 

and not through an individual exchange 

fee filings. Among other things, the 

commenter is requesting additional data 

and information that is both opaque and 

a moving target and would constitute a 

level of disclosure materially over and 

above that provided by any competitor 

exchanges. 

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,147 and Rule 

19b–4(f)(2) 148 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. 

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 rule-comments@

sec.gov. Please include file number SR– 

MIAX–2023–30 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–MIAX–2023–30. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–MIAX–2023–30 and should be 

submitted on or before September 15, 

2023. 


ddrumheller on DSK120RN23PROD with NOTICES1
58404 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

149 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3All references to the ‘‘Exchange’’ in this filing 

mean MIAX Pearl Options. Any references to the 

equities trading facility of MIAX PEARL, LLC, will 

specifically be referred to as ‘‘MIAX Pearl Equities.’’ 

4The 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. 

5The term ‘‘MEO Interface’’ or ‘‘MEO’’ means a 

binary order interface for certain order types as set 

forth in Rule 516 into the MIAX Pearl System. See 

the Definitions Section of the Fee Schedule and 

Exchange Rule 100. 

6See Securities Exchange Act Release No. 90981 

(January 25, 2021), 86 FR 7582 (January 29, 2021) 

(SR–PEARL–2021–01). 

7See Securities Exchange Act Release No. 90980 

(January 25, 2021), 86 FR 7602 (January 29, 2021) 

(SR–MIAX–2021–02). 

8See id. 

9See MIAX Options and MIAX Pearl Options— 

Announce planned network changes related to 

shared 10G ULL extranet, issued August 12, 2022, 

available at https://www.miaxglobal.com/alert/ 

2022/08/12/miax-options-and-miax-pearl-optionsannounce-planned-network-changes-0. The 

Exchange will continue to provide access to both 

the Exchange and MIAX over a single shared 1Gb 

connection. See Securities Exchange Act Release 

Nos. 96553 (December 20, 2022), 87 FR 79379 

(December 27, 2022) (SR–PEARL–2022–60); 96545 

(December 20, 2022) 87 FR 79393 (December 27, 

2022) (SR–MIAX–2022–48). 

10The Exchange notes it last filed to amend the 

fees for Full Service MEO Ports in 2018 (excluding 

filings made in July 2021 through early 2022), prior 

to which the Exchange provided Full Service MEO 

Ports free of charge since the it launched operations 

in 2017 and absorbed all costs since that time. See 

Securities Exchange Act Release No. 82867 (March 

13, 2018), 83 FR 12044 (March 19, 2018) (SR– 

PEARL–2018–07). 

11For example, the New York Stock Exchange, 

Inc.’s (‘‘NYSE’’) Secure Financial Transaction 

Infrastructure (‘‘SFTI’’) network, which contributes 

to the Exchange’s connectivity cost, increased its 

fees by approximately 9% since 2021. Similarly, 

since 2021, the Exchange, and its affiliates, 

experienced an increase in data center costs of 

approximately 17% and an increase in hardware 

and software costs of approximately 19%. These 

percentages are based on the Exchange’s actual 

2021 and proposed 2023 budgets. 

12For the avoidance of doubt, all references to 

costs in this filing, including the cost categories 

discussed below, refer to costs incurred by MIAX 

Pearl Options only and not MIAX Pearl Equities, 

the equities trading facility. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.149

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–18299 Filed 8–24–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98180; File No. SR– 

PEARL–2023–35] 

Self-Regulatory Organizations; MIAX 

PEARL, LLC; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend the MIAX Pearl 

Options Exchange Fee Schedule To 

Modify Certain Connectivity and Port 

Fees 

August 21, 2023. 

Pursuant to section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on August 8, 

2023, MIAX PEARL, LLC (‘‘MIAX Pearl’’ 

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. 

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 Pearl Options 

Exchange Fee Schedule (the ‘‘Fee 

Schedule’’) to amend certain 

connectivity and port fees.3

The text of the proposed rule change 

is available on the Exchange’s website at 

https://www.miaxoptions.com/rulefilings, at MIAX Pearl’s principal office, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend the 

Fee Schedule as follows: (1) increase the 

fees for a 10 gigabit (‘‘Gb’’) ultra-low 

latency (‘‘ULL’’) fiber connection for 

Members 4 and non-Members; (2) amend 

the calculation of fees for MIAX Express 

Network Full Service (‘‘MEO’’) 5 Ports 

(Bulk and Single); and (3) amend the 

fees for Full Service MEO Ports (Bulk 

and Single). The Exchange and its 

affiliate, Miami International Securities 

Exchange, LLC (‘‘MIAX’’) operated 10Gb 

ULL connectivity on a single shared 

network that provided access to both 

exchanges via a single 10Gb ULL 

connection. The Exchange last increased 

fees for 10Gb ULL connections from 

$9,300 to $10,000 per month on January 

1, 2021.6 At the same time, MIAX also 

increased its 10Gb ULL connectivity fee 

from $9,300 to $10,000 per month.7 The 

Exchange and MIAX shared a combined 

cost analysis in those filings due to the 

single shared 10Gb ULL connectivity 

network for both exchanges. In those 

filings, the Exchange and MIAX 

allocated a combined total of $17.9 

million in expenses to providing 10Gb 

ULL connectivity.8

Beginning in late January 2023, the 

Exchange also recently determined a 

substantial operational need to no 

longer operate 10Gb ULL connectivity 

on a single shared network with MIAX. 

The Exchange bifurcated 10Gb ULL 

connectivity due to ever-increasing 

capacity constraints and to enable it to 

continue to satisfy the anticipated 

access needs for Members and other 

market participants.9 Since the time of 

the 2021 increase discussed above, 10

the Exchange experienced ongoing 

increases in expenses, particularly 

internal expenses.11 As discussed more 

fully below, the Exchange recently 

calculated increased annual aggregate 

costs of $11,567,509 for providing 10Gb 

ULL connectivity on a single unshared 

network (an overall increase over its 

prior cost to provide 10Gb ULL 

connectivity on a shared network with 

MIAX) and $1,644,132 for providing 

Full Service MEO Ports.12

Much of the cost relates to monitoring 

and analysis of data and performance of 

the network via the subscriber’s 

connection with nanosecond 

granularity, and continuous 

improvements in network performance 

with the goal of improving the 

subscriber’s experience. The costs 

associated with maintaining and 

enhancing a state-of-the-art network is a 

significant expense for the Exchange, 

and thus the Exchange believes that it 

is reasonable and appropriate to help 

offset those increased costs by amending 

fees for connectivity services. 

Subscribers expect the Exchange to 

provide this level of support so they 

continue to receive the performance 

they expect. This differentiates the 

Exchange from its competitors. 

The Exchange now proposes to amend 

the Fee Schedule to amend the fees for 

10Gb ULL connectivity and Full Service 


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