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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Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58405 

13The Exchange notes that MIAX will make a 

similar filing to increase its 10Gb ULL connectivity 

fees. 14See Securities Exchange Act Release No. 96632 

(January 10, 2023), 88 FR 2707 (January 17, 2023) 

(SR–PEARL–2022–62). 15See Securities Exchange Act Release No. 97082 

(March 8, 2023), 88 FR 15825 (March 14, 2023) (SR– 

PEARL–2023–05). 16See Securities Exchange Act Release No. 97420 

(May 2, 2023), 88 FR 29701 (May 8, 2023) (SR– 

PEARL–2023–19). 17The 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. 97815 (June 

27, 2023), 88 FR 42759 (July 3, 2023) (SR–PEARL– 

2023–27). 

18The term ‘‘MIAX Emerald’’ means MIAX 

Emerald, LLC. See Exchange Rule 100. 

19See Susquehanna International Group, LLP v. 

Securities & Exchange Commission, 866 F.3d 442 

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

20 Id. 

21See Sec. Indus. & Fin. Mkts. Ass’n, Securities 

Exchange Act Release No. 84432, 2018 WL 5023228 

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

22See 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). 

23 Id. at page 2. 

24Sec. Indus. & Fin. Mkts. Ass’n, Securities 

Exchange Act Release No. 85802, 2019 WL 2022819 

(May 7, 2019) (the ‘‘Order Denying 

Reconsideration’’). 

25Order Denying Reconsideration, 2019 WL 

2022819, at * 13. 

26See 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). 

MEO Ports (Bulk and Single) in order to 

recoup cost related to bifurcating 10Gb 

connectivity to the Exchange and MIAX 

as well as the ongoing costs and 

increase in expenses set forth below in 

the Exchange’s cost analysis.13 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–PEARL–2022– 

62) (the ‘‘Initial Proposal’’).14 On 

February 23, 2023, the Exchange 

withdrew the Initial Proposal and 

replaced it with a revised proposal (SR– 

PEARL–2023–08) (the ‘‘Second 

Proposal’’).15 On April 20, 2023, the 

Exchange withdrew the Second 

Proposal and replaced it with a revised 

proposal (SR–PEARL–2023–19) (the 

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

the Exchange withdrew the Third 

Proposal and replaced it with a revised 

proposal (SR–PEARL–2023–27) (the 

‘‘Fourth Proposal’’).17 On August 8, 

2023, the Exchange withdrew the 

Fourth Proposal and replaced it with 

this further revised proposal (SR– 

PEARL–2023–35). 

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 (separately 

among MIAX Pearl Options and MIAX 

Pearl Equities, MIAX and MIAX 

Emerald 18 (together with MIAX 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 Full Service MEO 

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 19

and various other developments, the 

Commission began to undertake a 

heightened review of exchange filings, 

including non-transaction fee filings 

that was substantially and materially 

different from it prior review process 

(hereinafter referred to as the ‘‘Revised 

Review Process’’). In the Susquehanna 

Decision, the D.C. Circuit Court stated 

that the Commission could not maintain 

a practice of ‘‘unquestioning reliance’’ 

on claims made by a self-regulatory 

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

filing a rule or fee change with the 

Commission.20 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.21 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’’).22 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.’’ 23 The Commission denied 

requests by various exchanges and plan 

participants for reconsideration of the 

Remand Order.24 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.’’ 25 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.26 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 


ddrumheller on DSK120RN23PROD with NOTICES1
58406 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

27See Staff Guidance on SRO Rule Filings 

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

/www.sec.gov/tm/staff-guidance-sro-rule-filingsfees (the ‘‘Staff Guidance’’). 28 Id. 29 Id. 30NASDAQ 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. 31Nasdaq 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. 

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

the challenged remand has disappeared.’’). 

33Sec. 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’’). 

34 Id. 

35Sec. Indus. & Fin. Mkts. Ass’n, Securities 

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

36See supra note 31, at page 2. 

37Commission 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. 38This 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. 

39See, 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). 

Exchange Act.’’ 27 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.’’ 28 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.’’ 29

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. SEC30 and remanded for 

further proceedings consistent with its 

opinion.31 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.’’ 32 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.33 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.’’ 34 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.35

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.’’ 36 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 

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’’).37 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 38

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.39 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 


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40The Exchange has filed, and subsequently 

withdrew, 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. 

41According 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. 

42See Cboe 2022 Form 1 Amendment, available 

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

22001155.pdf. 

43See C2 2021 Form 1 Amendment, available at 

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

21000469.pdf. 

44See C2 2022 Form 1 Amendment, available at 

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

22001156.pdf. 

45See BZX 2021 Form 1 Amendment, available 

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

21000465.pdf. 

46See BZX 2022 Form 1 Amendment, available 

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

22001152.pdf. 

47See EDGX 2021 Form 1 Amendment, available 

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

21000467.pdf. 

48See EDGX 2022 Form 1 Amendment, available 

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

22001154.pdf. 

49According 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. 

50See 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. 

51See, e.g., CNBC Debuts New Set on NYSE Floor, 

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

52See supra note 27, at note 1. 

53See Securities Exchange Act Release Nos. 

92798 (August 27, 2021), 86 FR 49360 (September 

2, 2021) (SR–PEARL–2021–33); 92644 (August 11, 

2021), 86 FR 46055 (August 17, 2021) (SR–PEARL– 

2021–36); 93162 (September 28, 2021), 86 FR 54739 

(October 4, 2021) (SR–PEARL–2021–45); 93556 

(November 10, 2021), 86 FR 64235 (November 17, 

2021) (SR–PEARL–2021–53); 93774 (December 14, 

2021), 86 FR 71952 (December 20, 2021) (SR– 

PEARL–2021–57); 93894 (January 4, 2022), 87 FR 

1203 (January 10, 2022) (SR–PEARL–2021–58); 

94258 (February 15, 2022), 87 FR 9659 (February 

22, 2022) (SR–PEARL–2022–03); 94286 (February 

18, 2022), 87 FR 10860 (February 25, 2022) (SR– 

PEARL–2022–04); 94721 (April 14, 2022), 87 FR 

23573 (April 20, 2022) (SR–PEARL–2022–11); 

94722 (April 14, 2022), 87 FR 23660 (April 20, 

2022) (SR–PEARL–2022–12); 94888 (May 11, 2022), 

87 FR 29892 (May 17, 2022) (SR–PEARL–2022–18). 

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 MIAX Pearl, 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.40 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 41

and $80,383,000 for 2021.42 Cboe C2 

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

and capacity fee’’ revenue of 

$19,016,000 for 2020 43 and $22,843,000 

for 2021.44 Cboe BZX Exchange, Inc. 

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

fee’’ revenue of $38,387,000 for 2020 45

and $44,800,000 for 2021.46 Cboe EDGX 

Exchange, Inc. (‘‘EDGX’’) reported 

‘‘access and capacity fee’’ revenue of 

$26,126,000 for 2020 47 and $30,687,000 

for 2021.48 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 2019.49 The Exchange 

notes it is unable to compare ‘‘access 

fee’’ revenues with NASDAQ Phlx (or 

other affiliated NASDAQ exchanges) 

because after 2019, the ‘‘Trade 

Management Services’’ line item was 

bundled into a much larger line item in 

PHLX’s Form 1, simply titled ‘‘Market 

services.’’ 50

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,51 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 

. . .’’,52 this is not the reality 

experienced by exchanges such as 

MIAX Pearl. As such, non-legacy 

exchanges are forced to rely on an 

opaque cost-based justification 

standard. However, because the Staff 

Guidance is devoid of detail on what 

must be contained in cost-based 

justification, this standard is nearly 

impossible to meet despite repeated 

good-faith efforts by the Exchange to 

provide substantial amount of costrelated details. For example, the 

Exchange has attempted to increase fees 

using a cost-based justification 

numerous times, having submitted over 

six filings.53 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 


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54 15 U.S.C. 78f(b)(4). 

55To 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. 

56 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. 

57The Exchange’s costs have clearly increased 

and continue to increase, particularly regarding 

capital expenditures, as well as employee benefits 

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

insurance). Yet, practically no fee change proposed 

by the Exchange to cover its ever increasing costs 

has been acceptable to the Commission Staff since 

2021. The only other fair and reasonable alternative 

would be to require the numerous fee filings 

unquestioningly approved before the Staff Guidance 

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

and to ‘‘explain their conclusions, based on that 

record, in a written decision that is sufficient to 

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

comparable review process with the Exchange’s 

filing. 

58See supra note 9. 

59 Id. 

60The Exchange’s system networks consist of the 

Exchange’s extranet, internal network, and external 

network. 

61Market 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/pearl-options/fees (providing that 

‘‘Network Connectivity Testing and Certification 

Fees will not be assessed in situations where the 

Exchange initiates a mandatory change to the 

Exchange’s system that requires testing and 

certification. Member Network Connectivity Testing 

and Certification Fees will not be assessed for 

testing and certification of connectivity to the 

Exchange’s Disaster Recovery Facility.’’). 

the Act 54 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,55 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; 56 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 place 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.57

* * * * * 

10Gb ULL Connectivity Fee Change 

MIAX Pearl Options filed a proposal 

to no longer operate 10Gb connectivity 

to MIAX Pearl Options on a single 

shared network with its affiliate, MIAX. 

This change is an operational necessity 

due to ever-increasing capacity 

constraints and to accommodate 

anticipated access needs for Members 

and other market participants.58 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 MIAX Pearl Options 

and MIAX via the 1Gb network. 

MIAX Pearl Options bifurcated the 

MIAX Pearl Options and MIAX 10Gb 

ULL networks in the first quarter of 

2023, which change became effective 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.59 Upon 

bifurcation of the 10Gb ULL network, 

subscribers need to purchase separate 

connections to MIAX Pearl Options and 

MIAX 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 were able to 

connect to both MIAX Pearl Options 

and MIAX 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 60 via a 10Gb ULL fiber 

connection and to specify that this fee 

is for a dedicated connection to MIAX 

Pearl Options and no longer provides 

access to MIAX. Specifically, MIAX 

Pearl Options 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’’).61 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 MIAX Pearl Options and 

MIAX. 

The Exchange proposes to make the 

following changes to reflect the 

bifurcated 10Gb ULL network for the 

Exchange and MIAX. First, in the 

Definitions section of the Fee Schedule, 

the Exchange proposes to amend the last 

sentence in the definition of ‘‘MENI’’ to 

specify that the MENI can be configured 

to provide network connectivity to the 

trading platforms, market data systems, 

test systems, and disaster recovery 

facilities of the Exchange’s affiliate, 

MIAX, via a single, shared 1Gb 


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62. ‘‘Full Service MEO Port—Bulk’’ means an 

MEO port that supports all MEO input message 

types and binary bulk order entry. See the 

Definitions Section of the Fee Schedule. 

63 ‘‘Full Service MEO Port—Single’’ means an 

MEO port that supports all MEO input message 

types and binary order entry on a single order-byorder basis, but not bulk orders. See the Definitions 

Section of the Fee Schedule. 

64 ‘‘Limited Service MEO Port’’ means an MEO 

port that supports all MEO input message types, but 

does not support bulk order entry and only 

supports limited order types, as specified by the 

Exchange via Regulatory Circular. See the 

Definitions Section of the Fee Schedule. 

65A ‘‘Matching Engine’’ is a part of the 

Exchange’s electronic system that processes options 

orders and trades on a symbol-by-symbol basis. See 

the Definitions Section of the Fee Schedule. 

66 ‘‘Affiliate’’ means (i) an affiliate of a Member 

of at least 75% common ownership between the 

firms as reflected on each firm’s Form BD, Schedule 

A, or (ii) the Appointed Market Maker of an 

Appointed EEM (or, conversely, the Appointed 

EEM of an Appointed Market Maker). See the 

Definitions Section of the Fee Schedule. 

67 ‘‘Excluded Contracts’’ means any contracts 

routed to an away market for execution. See the 

Definitions Section of the Fee Schedule. 

68 ‘‘TCV’’ means total consolidated volume 

calculated as the total national volume in those 

classes listed on MIAX Pearl for the month for 

which the fees apply, excluding consolidated 

volume executed during the period of time in 

which the Exchange experiences an Exchange 

System Disruption (solely in the option classes of 

the affected Matching Engine). See the Definitions 

Section of the Fee Schedule. 

69The term ‘‘Market Maker’’ means a Member 

registered with the Exchange for the purpose of 

making markets in options contracts traded on the 

Exchange and that is vested with the rights and 

responsibilities specified in Chapter VI of Exchange 

Rules. See the Definitions Section of the Fee 

Schedule and Exchange Rule 100. 

70The term ‘‘Electronic Exchange Member’’ or 

‘‘EEM’’ means the holder of a Trading Permit who 

is a Member representing as agent Public Customer 

Orders or Non-Customer Orders on the Exchange 

and those non-Market Maker Members conducting 

proprietary trading. Electronic Exchange Members 

are deemed ‘‘members’’ under the Exchange Act. 

See the Definitions Section of the Fee Schedule and 

Exchange Rule 100. 

71See MIAX Fee Schedule, Section 5)d)ii) and 

MIAX Emerald Fee Schedule, Section 5)d)ii). 

connection. Next, the Exchange 

proposes to amend the explanatory 

paragraphs below the network 

connectivity fee tables in Sections 5)a)- 

b) of the Fee Schedule to specify that, 

with the bifurcated 10Gb ULL network, 

Members (and non-Members) utilizing 

the MENI to connect to the trading 

platforms, market data systems, test 

systems, and disaster recovery facilities 

of the Exchange and MIAX 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. 

Full Service MEO Ports—Bulk and 

Single 

Background 

The Exchange also proposes to amend 

Section 5)d) of the Fee Schedule to 

amend the calculation and amount of 

fees for Full Service MEO Ports. The 

Exchange currently offers different types 

of MEO Ports depending on the services 

required by the Member, including a 

Full Service MEO Port-Bulk,62 a Full 

Service MEO Port-Single,63 and a 

Limited Service MEO Port.64 For one 

monthly price, a Member may be 

allocated two (2) Full-Service MEO 

Ports of either type per matching 

engine 65 and may request Limited 

Service MEO Ports for which MIAX 

Pearl will assess Members Limited 

Service MEO Port fees based on a 

sliding scale for the number of Limited 

Service MEO Ports utilized each month. 

The two (2) Full-Service MEO Ports that 

may be allocated per matching engine to 

a Member may consist of: (a) two (2) 

Full Service MEO Ports—Bulk; (b) two 

(2) Full Service MEO Ports—Single; or 

(c) one (1) Full Service MEO Port—Bulk 

and one (1) Full Service MEO Port— 

Single. 

Currently, the Exchange assesses 

Members Full Service MEO Port Fees, 

either for a Full Service MEO Port— 

Bulk and/or for a Full Service MEO 

Port—Single, based upon the monthly 

total volume executed by a Member and 

its Affiliates 66 on the Exchange, across 

all origin types, not including Excluded 

Contracts,67 as compared to the Total 

Consolidated Volume (‘‘TCV’’),68 in all 

MIAX Pearl-listed options. The 

Exchange adopted a tier-based fee 

structure based upon the volume-based 

tiers detailed in the definition of ‘‘NonTransaction Fees Volume-Based Tiers’’ 

described in the Definitions section of 

the Fee Schedule. The Exchange 

assesses these and other monthly Port 

fees to Members in each month the 

market participant is credentialed to use 

a Port in the production environment. 

Full Service MEO Port (Bulk) Fee 

Changes 

Current Full Service MEO Port (Bulk) 

Fees. The Exchange currently assesses 

all Members (Market Makers 69 and 

Electronic Exchange Members 70

(‘‘EEMs’’)) monthly Full Service MEO 

Port—Bulk fees as follows: 

(i) if its volume falls within the 

parameters of Tier 1 of the NonTransaction Fees Volume-Based Tiers, 

or volume up to 0.30%, $3,000; 

(ii) if its volume falls within the 

parameters of Tier 2 of the NonTransaction Fees Volume-Based Tiers, 

or volume above 0.30% up to 0.60%, 

$4,500; and 

(iii) if its volume falls within the 

parameters of Tier 3 of the NonTransaction Fees Volume-Based Tiers, 

or volume above 0.60%, $5,000. 

Proposed Full Service MEO Port 

(Bulk) Fees. The Exchange proposes to 

amend the calculation and amount of 

Full Service MEO Port (Bulk) fees for 

EEMs and Market Makers. In particular, 

for EEMs, the Exchange proposes to 

move away from the above-described 

volume tier-based fee structure and 

instead charge all EEMs that utilize Full 

Service MEO Ports (Bulk) a flat monthly 

fee of $7,500. For this flat monthly fee, 

EEMs will continue to be entitled to two 

(2) Full Service MEO Ports (Bulk) for 

each Matching Engine for the single 

monthly fee of $7,500. The Exchange 

now proposes to amend the calculation 

and amount of Full Service MEO Port 

(Bulk) fees for Market Makers by moving 

away from the above-described volume 

tier-based fee structure to harmonize the 

Full Service MEO Port (Bulk) fee 

structure for Market Makers with that of 

the Exchange’s affiliates, MIAX and 

MIAX Emerald.71 The Exchange 

proposes that the amount of the 

monthly Full Service MEO Port (Bulk) 

fees for Market Makers would be based 

on the lesser of either the per class 

traded or percentage of total national 

average daily volume (‘‘ADV’’) 

measurement based on classes traded by 

volume. The amount of monthly Market 

Maker Full Service MEO Port (Bulk) fee 

would be based upon the number of 

classes in which the Market Maker was 

registered to quote on any given day 

within the calendar month, or upon the 

class volume percentages. This change 

in how Full Service MEO Port (Bulk) 

fees are calculated is identical to how 

the Exchange assesses Market Makers 

Trading Permit fees, which is in line 

with how numerous exchanges charge 

similar membership fees. 

Specifically, the Exchange proposes to 

adopt the following Full Service MEO 

Port (Bulk) fees for Market Makers: (i) 

$5,000 for Market Maker registrations in 


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72See id. 

73Pursuant to Exchange Rule 602(a), a Member 

that has qualified as a Market Maker may register 

to make markets in individual series of options. 

74See MIAX Fee Schedule, Section 5)d)ii), note 

‘‘*’’ and MIAX Emerald Fee Schedule, Section 

5)d)ii), note ‘‘■’’. 

75See NYSE American Options Fee Schedule, 

Section V.A., Port Fees (each port charged on a per 

matching engine basis, with NYSE American having 

17 match engines). See NYSE Technology FAQ and 

Best Practices: Options, Section 5.1 (How many 

matching engines are used by each exchange?) 

(September 2020) (providing a link to an Excel file 

detailing the number of matching engines per 

options exchange); NYSE Arca Options Fee 

Schedule, Port Fees (each port charged on a per 

matching engine basis, NYSE Arca having 19 match 

engines); and NYSE Technology FAQ and Best 

Practices: Options, Section 5.1 (How many 

matching engines are used by each exchange?) 

(September 2020) (providing a link to an Excel file 

detailing the number of matching engines per 

options exchange). See NASDAQ Fee Schedule, 

NASDAQ Options 7 Pricing Schedule, Section 3, 

Nasdaq Options Market—Ports and Other Services 

(each port charged on a per matching engine basis, 

with Nasdaq having multiple matching engines). 

See NASDAQ Specialized Quote Interface (SQF) 

Specification, Version 6.5b (updated February 13, 

2020), Section 2, Architecture, available at https:// 

www.nasdaq.com/docs/2020/02/18/SpecializedQuote-Interface-SQI-6.5b.pdf (the ‘‘NASDAQ SQF 

Interface Specification’’). The NASDAQ SQF 

Interface Specification also provides that 

NASDAQ’s affiliates, NASDAQ Phlx and NASDAQ 

BX, Inc. (‘‘BX’’), have trading infrastructures that 

may consist of multiple matching engines with each 

matching engine trading only a range of option 

classes. Further, the NASDAQ SQF Interface 

Specification provides that the SQF infrastructure 

is such that the firms connect to one or more servers 

residing directly on the matching engine 

infrastructure. Since there may be multiple 

matching engines, firms will need to connect to 

each engine’s infrastructure in order to establish the 

ability to quote the symbols handled by that engine. 

up to 10 option classes or up to 20% of 

option classes by national ADV; (ii) 

$7,500 for Market Maker registrations in 

up to 40 option classes or up to 35% of 

option classes by ADV; (iii) $10,000 for 

Market Maker registrations in up to 100 

option classes or up to 50% of option 

classes by ADV; and (iv) $12,000 for 

Market Maker registrations in over 100 

option classes or over 50% of option 

classes by ADV up to all option classes 

listed on MIAX Pearl. For example, if 

Market Maker 1 elects to quote the top 

40 option classes which consist of 58% 

of the total national average daily 

volume in the prior calendar quarter, 

the Exchange would assess $7,500 to 

Market Maker 1 for the month which is 

the lesser of ‘up to 40 classes’ and ‘over 

50% of classes by volume up to all 

classes listed on MIAX Pearl’. If Market 

Maker 2 elects to quote the bottom 1000 

option classes which consist of 10% of 

the total national average daily volume 

in the prior quarter, the Exchange would 

assess $5,000 to Market Maker 2 for the 

month which is the lesser of ‘over 100 

classes’ and ‘up to 20% of classes by 

volume. The Exchange notes that the 

proposed tiers (ranging from $5,000 to 

$12,000) are lower than the tiers that the 

Exchange’s affiliates charge for their 

comparable ports (ranging from $5,000 

to $20,500) for similar per class tier 

thresholds.72

With the proposed changes, a Market 

Maker would be determined to be 

registered in a class if that Market Maker 

has been registered in one or more series 

in that class.73 The Exchange will assess 

MIAX Pearl Options Market Makers the 

monthly Market Maker Full Service 

MEO Port (Bulk) fee based on the 

greatest number of classes listed on 

MIAX Pearl Options that the MIAX 

Pearl Options Market Maker registered 

to quote in on any given day within a 

calendar month. Therefore, with the 

proposed changes to the calculation of 

Market Maker Full Service MEO Port 

(Bulk) fees, the Exchange’s Market 

Makers would be encouraged to quote in 

more series in each class they are 

registered in because each additional 

series in that class would not count 

against their total classes for purposes of 

the Full Service MEO Port (Bulk) fee 

tiers. The class volume percentage is 

based on the total national ADV in 

classes listed on MIAX Pearl Options in 

the prior calendar quarter. Newly listed 

option classes are excluded from the 

calculation of the monthly Market 

Maker Full Service MEO Port (Bulk) fee 

until the calendar quarter following 

their listing, at which time the newly 

listed option classes will be included in 

both the per class count and the 

percentage of total national ADV. 

The Exchange also proposes to adopt 

an alternative lower Full Service MEO 

Port (Bulk) fee for Market Makers who 

fall within the 2nd, 3rd and 4th levels 

of the proposed Market Maker Full 

Service MEO Port (Bulk) fee table: (i) 

Market Maker registrations in up to 40 

option classes or up to 35% of option 

classes by volume; (ii) Market Maker 

registrations in up to 100 option classes 

or up to 50% of option classes by 

volume; and (iii) Market Maker 

registrations in over 100 option classes 

or over 50% of option classes by volume 

up to all option classes listed on MIAX 

Pearl Options. In particular, the 

Exchange proposes to adopt footnote 

‘‘**’’ following the Market Maker Full 

Service MEO Port (Bulk) fee table for 

these Monthly Full Service MEO Port 

(Bulk) tier levels. New proposed 

footnote ‘‘**’’ will provide that if the 

Market Maker’s total monthly executed 

volume during the relevant month is 

less than 0.040% of the total monthly 

TCV for MIAX Pearl-listed option 

classes for that month, then the fee will 

be $6,000 instead of the fee otherwise 

applicable to such level. 

The purpose of the alternative lower 

fee designated in proposed footnote 

‘‘**’’ is to provide a lower fixed fee to 

those Market Makers who are willing to 

quote the entire Exchange market (or 

substantial amount of the Exchange 

market), as objectively measured by 

either number of classes assigned or 

national ADV, but who do not otherwise 

execute a significant amount of volume 

on the Exchange. The Exchange believes 

that, by offering lower fixed fees to 

Market Makers that execute less volume, 

the Exchange will retain and attract 

smaller-scale Market Makers, which are 

an integral component of the option 

marketplace, but have been decreasing 

in number in recent years, due to 

industry consolidation. Since these 

smaller-scale Market Makers utilize less 

Exchange capacity due to lower overall 

volume executed, the Exchange believes 

it is reasonable and equitable to offer 

such Market Makers a lower fixed fee. 

The Exchange notes that the Exchange’s 

affiliates, MIAX and MIAX Emerald, 

also provide lower MIAX Express 

Interface (‘‘MEI’’) Port fees (the 

comparable ports on those exchanges) 

for Market Makers who quote the entire 

MIAX and MIAX Emerald markets (or 

substantial amount of those markets), as 

objectively measured by either number 

of classes assigned or national ADV, but 

who do not otherwise execute a 

significant amount of volume on MIAX 

or MIAX Emerald.74 The proposed 

changes to the Full Service MEO Port 

(Bulk) fees for Market Makers who fall 

within the 2nd, 3rd and 4th levels of the 

fee table are based upon a business 

determination of current Market Maker 

assignments and trading volume. 

Unlike other options exchanges that 

provide similar port functionality and 

charge fees on a per port basis,75 the 

Exchange offers Full Service MEO Ports 

as a package and provides Members 

with the option to receive up to two Full 

Service MEO Ports (described above) 

per matching engine to which that 

Member connects. The Exchange 

currently has twelve (12) matching 

engines, which means Market Makers 

may receive up to twenty-four (24) Full 

Service MEO Ports for a single monthly 

fee, that can vary based on the lesser of 

either the per class traded or percentage 

of total national ADV measurement 

based on classes traded by volume, as 

described above. For illustrative 

purposes, the Exchange currently 

assesses a fee of $5,000 per month for 

Market Makers that reach the highest 

Full Service MEO Port (Bulk) tier, 

regardless of the number of Full Service 

MEO Ports allocated to the Market 

Maker. For example, assuming a Market 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58411 

76 Id. See also infra notes 101 to 108 and 

accompanying text. 

77See Securities Exchange Act Release No. 82867 

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

(SR–PEARL–2018–07). 

78See id. 

79See MIAX Fee Schedule, Section 5)d)ii); MIAX 

Emerald Fee Schedule, Section 5)d)ii). 

80 15 U.S.C. 78f(b). 

81 15 U.S.C. 78f(b)(4). 

82 15 U.S.C. 78f(b)(5). 

Maker connects to all twelve (12) 

matching engines during a month, with 

two Full Service MEO Ports (Bulk) per 

matching engine, this results in an 

effective fee of $208.33 per Full Service 

MEO Port ($5,000 divided by 24) for the 

month, as compared to other exchanges 

that charge over $1,000 per port and 

require multiple ports to connect to all 

of their matching engines.76 This fee 

had been unchanged since the Exchange 

adopted Full Service MEO Port fees in 

2018.77 The Exchange proposes to 

increase Full Service MEO Port fees, 

with the highest monthly fee of $12,000 

for the Full Service MEO Ports (Bulk). 

Market Makers will continue to receive 

two (2) Full Service MEO Ports to each 

matching engine to which they connect 

for the single flat monthly fee. 

Assuming a Market Maker connects to 

all twelve (12) matching engines during 

the month, with two Full Service MEO 

Ports per matching engine, this would 

result in an effective fee of $500 per Full 

Service MEO Port ($12,000 divided by 

24). 

FULL SERVICE MEO PORTS (BULK) 

Number of 

match engines 

Total number 

of ports for 

market maker 

to connect 

to all match 

engines 

Total fee 

(monthly) 

Effective 

per port fee 

Pricing Based on Market Maker Being Charged the Highest Tier (Current) .. 12 24 $5,000 $208.33 

Pricing Based on Market Maker Being Charged the Highest Tier (as proposed) .......................................................................................................... 12 24 12,000 500 

Full Service MEO Port (Single) Fee 

Changes 

Current Full Service MEO Port 

(Single) Fees. The Exchange currently 

assesses all Members (Market Makers 

and EEMs) monthly Full Service MEO 

Port (Single) fees as follows: 

(i) if its volume falls within the 

parameters of Tier 1 of the NonTransaction Fees Volume-Based Tiers, 

or volume up to 0.30%, $2,000; 

(ii) if its volume falls within the 

parameters of Tier 2 of the NonTransaction Fees Volume-Based Tiers, 

or volume above 0.30% up to 0.60%, 

$3,375; and 

(iii) if its volume falls within the 

parameters of Tier 3 of the NonTransaction Fees Volume-Based Tiers, 

or volume above 0.60%, $3,750. 

Proposed Full Service MEO Port 

(Single) Fees. The Exchange proposes to 

amend the calculation and amount of 

Full Service MEO Port (Single) fees for 

EEMs and Market Makers. In particular, 

the Exchange proposes to move away 

from the above-described volume tierbased fee structure and instead charge 

all Members that utilize Full Service 

MEO Ports (Single) a flat monthly fee of 

$4,000. For this flat monthly fee, all 

Members will continue to be entitled to 

two (2) Full Service MEO Ports (Single) 

for each Matching Engine for the single 

monthly fee of $4,000. 

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, MEO ports 

allow for a higher throughput and can 

handle much higher quote/order rates 

than FIX ports. Members that are Market 

Makers or high frequency trading firms 

utilize these ports (typically coupled 

with 10Gb ULL connectivity) because 

they transact in significantly higher 

amounts of messages being sent to and 

from the Exchange, versus FIX port 

users, who are traditionally customers 

sending only orders to the Exchange 

(typically coupled with 1Gb 

connectivity). The different types of 

ports cater to the different types of 

Exchange Memberships and different 

capabilities of the various Exchange 

Members. Certain Members need ports 

and connections that can handle using 

far more of the network’s capacity for 

message throughput, risk protections, 

and the amount of information that the 

System has to assess. Those Members 

account for the vast majority of network 

capacity utilization and volume 

executed on the Exchange, as discussed 

throughout. For example, three (3) 

Members account for 64% of all 10Gb 

ULL connections and Full Service MEO 

Ports purchased. 

The Exchange proposes to increase its 

monthly Full Service MEO Port fees 

since it has not done so since the fees 

were adopted in 2018,78 which are 

designed to recover a portion of the 

costs associated with directly accessing 

the Exchange. As described above, the 

Exchange’s affiliates, MIAX and MIAX 

Emerald, also charge fees for their high 

throughput, low latency ports in a 

similar fashion as the Exchange 

proposes to charge for its MEO Ports— 

generally, the more active user the 

Member (i.e., the greater number/greater 

national ADV of classes assigned to 

quote on MIAX and MIAX Emerald), the 

higher the MEI Port fee.79 This concept 

is, therefore, not new or novel. 

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 80 in general, and 

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

of the Act 81 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 82 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 


ddrumheller on DSK120RN23PROD with NOTICES1
58412 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

83See supra note 26. 

84See supra note 27. 

85 Id. 

86 Id. 

87 Id. 

88See MIAX PEARL Successfully Launches 

Trading Operations, dated February 6, 2017, 

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

default/files/alert-files/MIAX_Press_Release_

02062017.pdf. 

89See Securities Exchange Act Release No. 80061 

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

2017) (SR–PEARL–2017–10). 

90See 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). 

91The Exchange experienced a monthly average 

trading volume of 3.94% for the month of March 

2018. See the ‘‘Market Share’’ section of the 

Exchange’s website, available at 

www.miaxglobal.com. 

92See Securities Exchange Act Release No. 82867 

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

(SR–PEARL–2018–07). 

Review Process and as set forth in 

recent Staff Guidance. Based on both the 

BOX Order 83 and the Staff Guidance,84

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. 

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.’’ 85 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.’’ 86

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.’’ 87

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 Full 

Service MEO 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 February 2017 88 and adopted its 

initial fee schedule, with 10Gb ULL 

connectivity fees set at $8,500 (the 

Exchange originally had a non-ULL 

10Gb connectivity option, which it has 

since removed) and a fee waiver for all 

Full Service MEO Port fees.89 As a new 

exchange entrant, the Exchange chose to 

offer Full Service MEO 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.90

Later in 2018, as the Exchange’s 

market share increased,91 the Exchange 

adopted nominal fees for Full Service 

MEO Ports.92 The Exchange last 

increased the fees for its 10Gb ULL fiber 

connections from $9,300 to $10,000 per 


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Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58413 

93See Securities Exchange Act Release No. 90981 

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

(SR–PEARL–2021–01). 

94See 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)). 

95See Securities Exchange Act Release No. 51808 

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

(‘‘Regulation NMS Adopting Release’’). 

96See 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.’’). 

97See Securities Exchange Act Release No. 59039 

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

2008) (SR–NYSEArca–2006–21). 

98 Id. 

99See Staff Guidance, supra note 27. 

month on January 1, 2021.93 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’. . . .’’ 94

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.’’ 95

Congress directed the Commission to 

‘‘rely on ‘competition, whenever 

possible, in meeting its regulatory 

responsibilities for overseeing the SROs 

and the national market system.’ ’’ 96 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.’’ 97 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.’’ 98 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.’’ 99

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 and 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 Pearl Options (as proposed) (equity options market share of 7.05% for the month of 

May 2023) a.

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

Full Service MEO Port (Bulk) for Market Makers.

$13,500. 

Lesser of either the per class basis or percentage of total national ADV by the Market 

Maker, as follows: 

$5,000—up to 10 classes or up to 20% of 

classes by volume. 

$7,500 **—up to 40 classes or up to 35% of 

classes by volume. 

$10,000 **—up to 100 classes or up to 50% 

of classes by volume. 

$12,000 **—over 100 classes or over 50% of 

all classes by volume up to all classes (or 

$500 per port per matching engine). 

** A lower rate of $6,000 will apply to these 

tiers if the Market Maker’s total monthly executed volume is less than 0.040% of total 

monthly TCV for MIAX Pearl options. 

Full Service MEO Port (Bulk) for EEMs .......... $7,500 (or $312.50 per port per matching engine). 

Full Service MEO Port (Single) for Market 

Makers and EEMs.

$4,000 (or $166.66 per port per matching engine). 


ddrumheller on DSK120RN23PROD with NOTICES1
58414 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

100See Specialized Quote Interface Specification, 

Nasdaq PHLX, Nasdaq Options Market, Nasdaq BX 

Options, Version 6.5a, Section 2, Architecture 

(revised August 16, 2019), available at http://

www.nasdaqtrader.com/content/technicalsupport/ 

specifications/TradingProducts/SQF6.5a-2019- 

Aug.pdf. The Exchange notes that it is unclear 

whether the NASDAQ exchanges include 

connectivity to each matching engine for the single 

fee or charge per connection, per matching engine. 

See also NYSE Technology FAQ and Best Practices: 

Options, Section 5.1 (How many matching engines 

are used by each exchange?) (September 2020). The 

Exchange notes that NYSE provides a link to an 

Excel file detailing the number of matching engines 

per options exchange, with Arca and Amex having 

19 and 17 matching engines, respectively. 

101BOX 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.’’ 

102Service Bureaus may obtain ports on behalf of 

Members. 

103See 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. 

Exchange Type of connection or port Monthly fee 

(per connection or per port) 

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 MIAX Pearl Options’ MEO 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. 

The Exchange acknowledges that, 

without additional contextual 

information, the above table may lead 

someone to believe that the Exchange’s 

proposed fees for Full Service MEO 

Ports is higher than other exchanges 

when in fact, that is not true. The 

Exchange provides each Member or 

non-Member access to two (2) ports on 

all twelve (12) matching engines for a 

single fee and a vast majority choose to 

connect to all twelve (12) matching 

engines and utilize both ports for a total 

of 24 ports. Other exchanges charge on 

a per port basis and require firms to 

connect to multiple matching engines, 

thereby multiplying the cost to access 

their full market.100 On the Exchange, 

this is not the case. The Exchange 

provides each Member or non-Member 

access, but does not require they 

connect to, all twelve (12) matching 

engines. 

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, one Market Maker 

terminated their MIAX Pearl Options 

membership effective January 1, 2023 as 

a direct result of the proposed 

connectivity and port fee changes 

proposed by MIAX Pearl Options. 

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.101 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.102

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.103 The Exchange and its 

affiliated options markets, MIAX 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 broker-dealer need not 

have direct connectivity to all options 

exchanges, let alone the Exchange and 

its two affiliates, and broker-dealers may 


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104See 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. 

105See Exchange Rule 100. 

106Members may elect to not route their orders 

by utilizing the Do Not Route order type. See 

Exchange Rule 516(g). 

107Service 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. 

108Sponsored 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. 

109This may include utilizing a floor broker and 

submitting the trade to one of the five options 

trading floors. 

110See, e.g., Nasdaq Price List—U.S. Direct 

Connection and Extranet Fees, available at, US 

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). 

111The 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. 

112See Securities Exchange Act Release No. 

80061 (February 17, 2017), 82 FR 11676 (February 

Continued 

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. Indeed, brokerdealers 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.104 If the Exchange is 

not at the national best bid or offer 

(‘‘NBBO’’),105 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.106

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,107 or 

request sponsored access 108 through a 

member of an exchange in order to 

submit a trade directly to an options 

exchange.109 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).110 Indeed, the Exchange does not 

receive any connectivity revenue when 

connectivity is resold by a third-party, 

which often is resold to multiple 

customers, some of whom are agency 

broker-dealers that have numerous 

customers of their own.111 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 when 

MIAX Pearl Options commenced 

operations as a national securities 

exchange on February 7, 2017.112 The 


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24, 2017) (establishing MIAX Pearl Options 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 Options’ affiliate, MIAX, via a single, shared 

connection). 

113See 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). 

114Currently, 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. 115See supra note 9. 

Exchange and MIAX 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 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 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,113 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 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’s Systems and networks to be 

able to continue to meet ongoing and 

future 10Gb ULL connectivity and 

access demands.114

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 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. 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 had their own dedicated 

10Gb ULL networks. Separation of the 

Exchange and MIAX 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 

continued to add switches to meet 

ongoing demand for 10Gb ULL 

connectivity. That was no longer 

sustainable because simply adding 

additional switches to expand the 

current shared 10Gb ULL network 

would not adequately alleviate the issue 

of limited available port connectivity. 

While it would have resulted in a gain 

in overall port availability, the existing 

switches on the shared 10Gb ULL 

network in use would have continued to 

suffer from lack of port headroom given 

many latency sensitive Members’ needs 

for a presence on each switch to reach 

both the Exchange and MIAX. 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 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 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 January 23, 2023 implementation 

date to provide market participants 

adequate time to prepare.115 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 MIAX Pearl 

Options and MIAX. This immaterial 

increase in overall connections reflects 

a minimal fee impact for all types of 

subscribers and reflects that subscribers 


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116 15 U.S.C. 78s(b)(1). 

117 17 CFR 240.19b–4. 

118 15 U.S.C. 78f(b). 

119 15 U.S.C. 78f(b)(4). 

120 15 U.S.C. 78f(b)(5). 

121 15 U.S.C. 78f(b)(8). 

122See Staff Guidance, supra note 27. 

123Types 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 application sessions 

on behalf of one or more Members. Extranets offer 

physical connectivity services to Members and nonMembers. 

124The 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. 125For example, MIAX Pearl Options maintains 

12 matching engines, MIAX Pearl Equities 

maintains 24 matching engines, MIAX maintains 24 

matching engines and MIAX Emerald maintains 12 

matching engines. 

elected to reallocate existing 10Gb ULL 

connectivity directly to the Exchange or 

MIAX, or chose 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 its 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 nontransaction 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,116 and Rule 19b–4 

thereunder,117 with respect to the types 

of information exchanges should 

provide when filing fee changes, and 

section 6(b) of the Act,118 which 

requires, among other things, that 

exchange fees be reasonable and 

equitably allocated,119 not designed to 

permit unfair discrimination,120 and 

that they not impose a burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.121 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.122 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 

$11,567,509 (or approximately $963,959 

per month, rounded to the nearest dollar 

when dividing the annual cost by 12 

months) and its aggregate annual costs 

for providing Full Service MEO Ports at 

$1,644,132 (or approximately $137,012 

per month, rounded to the nearest dollar 

when dividing the annual cost by 12 

months). In order to cover the aggregate 

costs of providing connectivity to its 

users (both Members and nonMembers 123) going forward and to make 

a modest profit, as described below, the 

Exchange proposes to modify its Fee 

Schedule to charge a fee of $13,500 per 

month for each physical 10Gb ULL 

connection and to remove language 

providing for a shared 10Gb ULL 

network between the Exchange and 

MIAX. The Exchange also proposes to 

modify its Fee Schedule to charge tiered 

rates for Full Service MEO Ports (Bulk) 

depending on the number of classes 

assigned or the percentage of national 

ADV, which is in line with how the 

Exchange’s affiliates, MIAX and MIAX 

Emerald, assess fees for their 

comparable MEI Ports. 

In 2019, the Exchange completed a 

study of its aggregate costs to produce 

market data and connectivity (the ‘‘Cost 

Analysis’’).124 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,125 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 


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126See, e.g., Securities Exchange Act Release Nos. 

94301 (February 23, 2022), 87 FR 11739 (March 2, 

2022) (SR–PEARL–2022–06) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

To Amend Rule 2617(b) To Adopt Two New 

Routing Options, and To Make Related Changes and 

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 Full Service MEO Ports (3.4%), and 

the remainder to the provision of other 

connectivity, other ports, transaction 

execution, membership services and 

market data services (36%). This next 

level of the allocation methodology at 

the individual exchange level also took 

into account factors similar to those set 

forth under the first step of the 

allocation methodology process 

described above, to determine the 

appropriate allocation to connectivity or 

market data versus allocations for other 

services. This allocation methodology 

was developed through an assessment of 

costs with senior management 

intimately familiar with each area of the 

Exchange’s operations. After adopting 

this allocation methodology, the 

Exchange then applied an allocation of 

each cost driver to each core service, 

resulting in the cost allocations 

described below. Each of the below cost 

allocations is unique to the Exchange 

and represents a percentage of overall 

cost that was allocated to the Exchange 

pursuant to the initial allocation 

described above. 

By allocating segmented costs to each 

core service, the Exchange was able to 

estimate by core service the potential 

margin it might earn based on different 

fee models. The Exchange notes that as 

a non-listing venue it has five primary 

sources of revenue that it can 

potentially use to fund its operations: 

transaction fees, fees for connectivity 

and port services, membership fees, 

regulatory fees, and market data fees. 

Accordingly, the Exchange must cover 

its expenses from these five primary 

sources of revenue. The Exchange also 

notes that as a general matter each of 

these sources of revenue is based on 

services that are interdependent. For 

instance, the Exchange’s system for 

executing transactions is dependent on 

physical hardware and connectivity; 

only Members and parties that they 

sponsor to participate directly on the 

Exchange may submit orders to the 

Exchange; many Members (but not all) 

consume market data from the Exchange 

in order to trade on the Exchange; and 

the Exchange consumes market data 

from external sources in order to 

comply with regulatory obligations. 

Accordingly, given this 

interdependence, the allocation of costs 

to each service or revenue source 

required judgment of the Exchange and 

was weighted based on estimates of the 

Exchange that the Exchange believes are 

reasonable, as set forth below. While 

there is no standardized and generally 

accepted methodology for the allocation 

of an exchange’s costs, the Exchange’s 

methodology is the result of an 

extensive review and analysis and will 

be consistently applied going forward 

for any other potential fee proposals. In 

the absence of the Commission 

attempting to specify a methodology for 

the allocation of exchanges’ 

interdependent costs, the Exchange will 

continue to be left with its best efforts 

to attempt to conduct such an allocation 

in a thoughtful and reasonable manner. 

Through the Exchange’s extensive 

updated Cost Analysis, which was again 

recently further refined, the Exchange 

analyzed every expense item in the 

Exchange’s general expense ledger to 

determine whether each such expense 

relates to the provision of connectivity 

and port services, and, if such expense 

did so relate, what portion (or 

percentage) of such expense actually 

supports the provision of connectivity 

and port services, and thus bears a 

relationship that is, ‘‘in nature and 

closeness,’’ directly related to network 

connectivity and port services. In turn, 

the Exchange allocated certain costs 

more to physical connectivity and 

others to ports, while certain costs were 

only allocated to such services at a very 

low percentage or not at all, using 

consistent allocation methodologies as 

described above. Based on this analysis, 

the Exchange estimates that the 

aggregate monthly cost to provide 10Gb 

ULL connectivity and Full Service MEO 

Port services, is $1,106,971 (utilizing the 

rounded numbers when dividing the 

annual cost for 10Gb ULL connectivity 

and annual cost for Full Service MEO 

Ports by 12 months, then adding both 

numbers together), as further detailed 

below. 

Lastly, the Exchange notes that, based 

on: (i) the total expense amounts 

contained in this filing (which are 2023 

projected expenses), and (ii) the total 

expense amounts contained in the 

related MIAX Pearl Equities filing (also 

2023 projected expenses), MIAX 

PEARL, LLC’s total costs have increased 

at a greater rate over the last three years 

than the total costs of MIAX PEARL, 

LLC’s affiliated exchanges, MIAX and 

MIAX Emerald. This is also reflected in 

the total costs reported in MIAX PEARL, 

LLC’s Form 1 filings over the last three 

years, when comparing MIAX PEARL, 

LLC to MIAX PEARL, LLC’s affiliated 

exchanges, MIAX and MIAX Emerald. 

This is primarily because that MIAX 

PEARL, LLC operates two markets, one 

for options and one for equities, while 

MIAX and MIAX Emerald each operate 

only one market. This is also due to 

higher current expense for MIAX 

PEARL, LLC for 2022 and 2023, due to 

a hardware refresh (i.e., replacing old 

hardware with new equipment) for 

MIAX Pearl Options, as well as higher 

costs associated with MIAX Pearl 

Equities due to greater development 

efforts to grow that newer 

marketplace.126 The Exchange confirms 


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Clarifications to Rules 2614(a)(2)(B) and 2617(b)(2)); 

94851 (May 4, 2022), 87 FR 28077 (May 10, 2022) 

(SR–PEARL–2022–15) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

To Adopt Exchange Rule 532, Order Price 

Protection Mechanisms and Risk Controls); 95298 

(July 15, 2022), 87 FR 43579 (July 21, 2022) (SR– 

PEARL–2022–29) (Notice of Filing and Immediate 

Effectiveness of a Proposed Rule Change by MIAX 

PEARL, LLC To Amend the Route to Primary 

Auction Routing Option Under Exchange Rule 

2617(b)(5)(B)); 95679 (September 6, 2022), 87 FR 

55866 (September 12, 2022) (SR–PEARL–2022–34) 

(Notice of Filing and Immediate Effectiveness of a 

Proposed Rule Change To Amend Exchange Rule 

2614, Orders and Order Instructions, To Adopt the 

Primary Peg Order Type); 96205 (November 1, 

2022), 87 FR 67080 (November 7, 2022) (SR– 

PEARL–2022–43) (Notice of Filing and Immediate 

Effectiveness of a Proposed Rule Change To Amend 

Rule 2614, Orders and Order Instructions and Rule 

2618, Risk Settings and Trading Risk Metrics To 

Enhance Existing Risk Controls); 96905 (February 

13, 2023), 88 FR 10391 (February 17, 2023) (SR– 

PEARL–2023–03) (Notice of Filing and Immediate 

Effectiveness of a Proposed Rule Change To Amend 

Exchange Rule 2618 To Add Optional Risk Control 

Settings); 97236 (March 31, 2023), 88 FR 20597 

(April 6, 2023) (SR–PEARL–2023–15) (Notice of 

Filing and Immediate Effectiveness of a Proposed 

Rule Change To Amend Exchange Rules 2617 and 

2626 Regarding Retail Orders Routed Pursuant to 

the Route to Primary Auction Routing Option). 

that there is no double counting of 

expenses between the options and 

equities platform of MIAX Pearl; the 

greater expense amounts of the MIAX 

PEARL, LLC (relative to its affiliated 

exchanges, MIAX and MIAX Emerald) is 

solely attributed to the unique factors of 

MIAX Pearl discussed above. 

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 26.9% of its overall 

Human Resources cost to offering 

physical connectivity). 

Cost drivers Allocated 

annual cost k

Allocated 

monthly cost l % of all 

Human Resources ....................................................................................................................... $3,675,098 $306,258 26.3 

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

Internet Services and External Market Data ............................................................................... 322,388 26,866 73.3 

Data Center ................................................................................................................................. 739,983 61,665 60.6 

Hardware and Software Maintenance and Licenses .................................................................. 959,157 79,930 58.6 

Depreciation ................................................................................................................................. 1,885,969 157,164 58.2 

Allocated Shared Expenses ........................................................................................................ 3,914,751 326,229 49.2 

Total ...................................................................................................................................... 11,567,509 963,959 40.5 

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 MIAX Pearl 

Options’ cost allocation methodology 

utilizes the actual projected costs of 

MIAX Pearl Options (which are specific 

to MIAX Pearl Options, and are 

independent of the costs projected and 

utilized by MIAX Pearl Options’ 

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. MIAX Pearl Options 

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 42.9% 

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 17%). 

The estimates of Human Resources 

cost were therefore determined by 

consulting with such department 

leaders, determining which employees 

are involved in tasks related to 

providing physical connectivity, and 

confirming that the proposed allocations 


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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 42.9% 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 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 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 

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 


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127This expense may be greater than the 

Exchange’s affiliated markets, specifically MIAX 

and MIAX Emerald, because, unlike the MIAX and 

MIAX Emerald, MIAX Pearl (the options and 

equities markets) maintains an additional gateway 

to accommodate its Members’ and Equity Members’ 

access and connectivity needs. This added gateway 

contributes to the difference in allocations between 

MIAX Pearl, MIAX and MIAX Emerald. This 

expense also differs in dollar amount among the 

MIAX Pearl (options and equities markets), MIAX, 

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. 

128The 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. 

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. 

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.127 The 

Exchange notes that this allocation is 

greater than MIAX and MIAX Emerald 

options exchanges by a significant 

amount 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, the Exchange 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 58.2% 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, allocated to the 

depreciation of hardware and software 

used to provide 10Gb ULL connectivity 

are nearly identical. However, the 

Exchange’s dollar amount is less than 

that of MIAX by approximately $35,000 

per month due to two factors: first, 

MIAX has undergone a technology 

refresh since the time MIAX Pearl 

Options launched in 2017, leading to it 

having more hardware that software that 

is subject to depreciation. Second, 

MIAX maintains 24 matching engines 

while MIAX Pearl Options maintains 

only 12 matching engines. This also 

results in more of MIAX’s hardware and 

software being subject to depreciation 

than MIAX Pearl Options’ hardware and 

software due to the greater amount of 

equipment and software necessary to 

support the greater number of matching 

engines on MIAX. 

Allocated Shared Expenses 

Finally, as with other exchange 

products and services, a portion of 

general shared expenses was allocated 

to overall physical connectivity costs. 

These general shared costs are integral 

to exchange operations, including its 

ability to provide physical connectivity. 

Costs included in general shared 

expenses include office space and office 

expenses (e.g., occupancy and overhead 

expenses), utilities, recruiting and 

training, marketing and advertising 

costs, professional fees for legal, tax and 

accounting services (including external 

and internal audit expenses), and 

telecommunications. Similarly, the cost 

of paying directors to serve on the 

Exchange’s Board of Directors is also 

included in the Exchange’s general 

shared expense cost driver.128 These 

general shared expenses are incurred by 

the Exchange’s parent company, MIH, as 


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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 49.2% 

allocation of general shared expenses for 

physical 10Gb ULL connectivity is 

higher than that allocated to general 

shared expenses for Full Service MEO 

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), Full Service MEO Ports do not 

require as many broad or indirect 

resources as other core services. 

* * * * * 

Approximate Cost per 10Gb Connection 

per Month 

After determining the approximate 

allocated monthly cost related to 10Gb 

connectivity, the total monthly cost for 

10Gb ULL connectivity of $963,959 was 

divided by the number of physical 10Gb 

ULL connections the Exchange 

maintained at the time that proposed 

pricing was determined (108), to arrive 

at a cost of approximately $8,925 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 Full Service 

MEO Ports 

The following chart details the 

individual line-item costs considered by 

the Exchange to be related to offering 

Full Service MEO 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 8.3% of its 

overall Human Resources cost to 

offering Full Service MEO Ports). 

Cost drivers Allocated 

annual cost m

Allocated 

monthly cost n % of all 

Human Resources ....................................................................................................................... $1,159,831 $96,653 8.3 

Connectivity (external fees, cabling, switches, etc.) ................................................................... 1,589 132 1.4 

Internet Services and External Market Data ............................................................................... 6,033 503 1.4 

Data Center ................................................................................................................................. 41,881 3,490 3.4 

Hardware and Software Maintenance and Licenses .................................................................. 22,438 1,870 1.4 

Depreciation ................................................................................................................................. 127,986 10,666 3.9 

Allocated Shared Expenses ........................................................................................................ 284,374 23,698 3.6 

Total ...................................................................................................................................... 1,644,132 137,012 5.8 

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 

Full Service MEO 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 Full Service MEO 

Ports, the Exchange calculated Human 

Resources cost by taking an allocation of 

employee time for employees whose 

functions include providing Full 

Service MEO Ports and maintaining 

performance thereof (including a 

broader range of employees such as 

technical operations personnel, market 

operations personnel, and software 

engineering personnel) as well as a 

limited subset of personnel with 

ancillary functions related to 

maintaining such connectivity (such as 

sales, membership, and finance 

personnel). Just as described above for 

10Gb ULL connectivity, the estimates of 

Human Resources cost were again 

determined by consulting with 

department leaders, determining which 

employees are involved in tasks related 

to providing Full Service MEO 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 Full Service MEO 

Ports and maintaining performance 

thereof. This includes personnel from 

the following Exchange departments 

that are predominately involved in 

providing Full Service MEO Ports: 

Business Systems Development, Trading 


ddrumheller on DSK120RN23PROD with NOTICES1
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129The Exchange notes that MEMX separately 

allocated 7.5% of its external market data costs to 

providing physical connectivity. 

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 

Full Service MEO 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 Full Service MEO 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 

Full Service MEO 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 Full Service MEO 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).129 Thus, since market data 

from other exchanges is consumed at 

the Exchange’s Full Service MEO 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 Full 

Service MEO Ports. 

The Exchange notes that the 

allocation for the Internet Services and 

External Market Data cost driver is 

lower than that of its affiliate, MIAX, 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 Full Service MEO 

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 

Full Service MEO 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 less than its affiliate, 

MIAX, 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 Full Service 

MEO 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 

Full Service MEO Ports includes 

equipment used for testing and 

monitoring of order entry infrastructure 

and other physical equipment the 

Exchange purchased and is also 

depreciated over time. 

All hardware and software, which 

also includes assets used for testing and 

monitoring of order entry infrastructure, 

were valued at cost, depreciated or 

leased over periods ranging from three 

to five years. Thus, the depreciation cost 

primarily relates to servers necessary to 

operate the Exchange, some of which is 

owned by the Exchange and some of 

which is leased by the Exchange in 

order to allow efficient periodic 

technology refreshes. The Exchange 

allocated 3.9% of all depreciation costs 

to providing Full Service MEO Ports. 

The Exchange allocated depreciation 

costs for depreciated software necessary 

to operate the Exchange to Full Service 

MEO Ports because such software is 

related to the provision of Full Service 

MEO 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 Full Service 

MEO 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 


ddrumheller on DSK120RN23PROD with NOTICES1
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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 percentage it allocated to the 

depreciation cost driver for Full Service 

MEO Ports and the percentage its 

affiliate, MIAX, allocated to the 

depreciation cost driver for MIAX’s 

Limited Service MEI Ports, differ by 

only 2.4%. However, MIAX’s 

approximate dollar amount is greater 

than that of MIAX Pearl Options by 

approximately $9,000 per month. This 

is due to two primary factors. First, 

MIAX has under gone a technology 

refresh since the time MIAX Pearl 

Options launched in 2017, leading to it 

having more hardware that software that 

is subject to depreciation. Second, 

MIAX maintains 24 matching engines 

while MIAX Pearl Options maintains 

only 12 matching engines. This also 

results in more of MIAX’s hardware and 

software being subject to depreciation 

than MIAX Pearl Options’ hardware and 

software due to the greater amount of 

equipment and software necessary to 

support the greater number of matching 

engines on MIAX. 

Allocated Shared Expenses 

Finally, a portion of general shared 

expenses was allocated to overall Full 

Service MEO Ports costs as without 

these general shared costs the Exchange 

would not be able to operate in the 

manner that it does and provide 

application sessions. 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 4.0% of the overall cost for 

directors was allocated to providing Full 

Service MEO Ports. The Exchange notes 

that the 3.6% allocation of general 

shared expenses for Full Service MEO 

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 

Full Service MEO Ports have several 

areas where certain tangible costs are 

heavily weighted towards providing 

such service (e.g., Data Centers, 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 less than its affiliate, 

MIAX, 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. 

* * * * * 

Approximate Cost per Full Service MEO 

Port per Month 

Based on May 2023 data, the total 

monthly cost allocated to Full Service 

MEO Ports of $137,012 was divided by 

the number of chargeable Full Service 

MEO Ports the Exchange maintained at 

the time that proposed pricing was 

determined (25 total; 25 Full Service 

MEO Port, Bulk, and 0 Full Service 

MEO Port, Single), to arrive at a cost of 

approximately $5,480 per month, per 

charged Full Service MEO Port. 

* * * * * 

Cost Analysis—Additional Discussion 

In conducting its Cost Analysis, the 

Exchange did not allocate any of its 

expenses in full to any core services 

(including physical connectivity or Full 

Service MEO Ports) and did not doublecount 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 

(42.9%) given their focus on functions 

necessary to provide physical 

connections. The salaries of those same 

personnel were allocated only 12.3% to 

Full Service MEO Ports and the 

remaining 44.8% 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 16.9% for 10Gb ULL 

connectivity or 17.3% 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 (6.0% or less) 

across a wider range of personnel 

groups in order to allocate Human 

Resources costs to providing Full 

Service MEO Ports. This is because a 

much wider range of personnel are 

involved in functions necessary to offer, 

monitor and maintain Full Service MEO 

Ports but the tasks necessary to do so are 

not a primary or full-time function. 

In total, the Exchange allocated 26.9% 

of its personnel costs to providing 10Gb 

ULL and 1Gb ULL connectivity and 

8.3% of its personnel costs to providing 

Full Service MEO Ports, for a total 

allocation of 35.2% Human Resources 

expense to provide these specific 

connectivity and port services. In turn, 

the Exchange allocated the remaining 

64.8% of its Human Resources expense 

to membership services, transaction 

services, other port services and market 

data. Thus, again, the Exchange’s 

allocations of cost across core services 

were based on real costs of operating the 

Exchange and were not double-counted 

across the core services or their 

associated revenue streams. 

As another example, the Exchange 

allocated depreciation expense to all 

core services, including physical 

connections and Full Service MEO 

Ports, but in different amounts. The 

Exchange believes it is reasonable to 

allocate the identified portion of such 

expense because such expense includes 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58425 

130For 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 

MIAX Pearl Options and ceased operating a shared 

10Gb ULL network with MIAX. 

131Assuming 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). 

132 Id. 

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 62.1% of the 

Exchange’s overall depreciation and 

amortization expense to connectivity 

services (58.2% attributed to 10Gb ULL 

physical connections and 3.9% to Full 

Service MEO Ports). The Exchange 

allocated the remaining depreciation 

and amortization expense 

(approximately 37.9%) 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 Full Service MEO 

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 thencurrent fees are becoming dislocated 

from the prior cost-based analysis) and 

would propose to increase fees in the 

event that revenues fail to cover its costs 

and a reasonable mark-up, or decrease 

fees in the event that revenue or the 

mark-up materially exceeds our current 

projections. In the event that the 

Exchange determines to propose a fee 

change, the results of a timely review, 

including an updated cost estimate, will 

be included in the rule filing proposing 

the fee change. More generally, we 

believe 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 130

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 $11,567,509. Based on current 

10Gb ULL connectivity services usage, 

the Exchange would generate annual 

revenue of approximately $17,496,000. 

The Exchange believes this represents a 

modest profit of 34% when compared to 

the cost of providing 10Gb ULL 

connectivity services, which could 

decrease over time.131 The Exchange’s 

Cost Analysis estimates the annual cost 

to provide Full Service MEO Port 

services will equal $1,644,132. Based on 

current Full Service MEO Port services 

usage, the Exchange would generate 

annual revenue of approximately 

$1,644,000. The Exchange believes this 

would result in a small negative margin 

after calculating the cost of providing 

Full Service MEO Port services, which 

could decrease further over time.132

Based on the above discussion, 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 excessive 

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 Full Service 

MEO Port services versus the total 

projected revenue of the Exchange 

associated with network 10Gb ULL 

connectivity and Full Service MEO Port 

services. 

The Exchange also notes that this the 

resultant profit margin differs slightly 


ddrumheller on DSK120RN23PROD with NOTICES1
58426 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

133See NASDAQ Pricing Schedule, Options 7, 

Section 3, Ports and Other Services and NASDAQ 

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

134See NYSE American Options Fee Schedule, 

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

135The Exchange has incurred a cumulative loss 

of $83 million since its inception in 2017 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/2300/23007743.pdf. 

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 12 matching 

engines while MIAX maintains 24 

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).133 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).134 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 2017.135 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 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 Full Service MEO 

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 Full Service 

MEO 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 Full Service 

MEO Ports, the Exchange will have to be 

successful in retaining existing clients 

that wish to utilize 10Gb ULL 

connectivity and Full Service MEO 

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 Full Service MEO 

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 

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 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58427 

136 17 CFR 240.17a–1 (recordkeeping rule for 

national securities exchanges, national securities 

associations, registered clearing agencies and the 

Municipal Securities Rulemaking Board). 

137See Securities Exchange Act Release No. 

82867 (March 13, 2018), 83 FR 12044 (March 19, 

2018) (SR–PEARL–2018–07). 

138 17 CFR 240.17a–1 (recordkeeping rule for 

national securities exchanges, national securities 

associations, registered clearing agencies and the 

Municipal Securities Rulemaking Board). 

139See supra notes 101 to 109 and accompanying 

text. 

140See Securities Exchange Act Release No. 

82867 (March 13, 2018), 83 FR 12044 (March 19, 

2018) (SR–PEARL–2018–07). 

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.136 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. 

Full Service MEO Ports 

The tiered pricing structure for Full 

Service MEO Ports has been in effect 

since 2018.137 The Exchange now 

proposes a pricing structure that is used 

by the Exchange’s affiliates, MIAX and 

MIAX Emerald, except with lower 

pricing for each tier for Full Service 

MEO Ports (Bulk) and a flat fee for Full 

Service MEO Ports (Single). Members 

that are frequently in the highest tier for 

Full Service MEO Ports consume the 

most bandwidth and resources of the 

network. Specifically, as noted above for 

10Gb ULL connectivity, Market Makers 

who reach the highest tier for Full 

Service MEO Ports (Bulk) account for 

greater than 84% of ADV on the 

Exchange, while Market Makers that are 

typically in the lowest Tier for Full 

Service MEO Ports, account for less than 

14% of ADV on the Exchange. The 

remaining 1% is accounted for by 

Market Makers who are frequently in 

the middle Tier for Full Service MEO 

Ports (Bulk). 

To achieve a consistent, premium 

network performance, the Exchange 

must build out and maintain a network 

that has the capacity to handle the 

message rate requirements of its most 

heavy network consumers during 

anticipated peak market conditions. The 

need to support billions of messages per 

day consume the Exchange’s resources 

and significantly contribute to the 

overall network connectivity expense 

for storage and network transport 

capabilities. The Exchange must also 

purchase additional storage capacity on 

an ongoing basis to ensure it has 

sufficient capacity to store these 

messages as part of it surveillance 

program and to satisfy its record 

keeping requirements under the 

Exchange Act.138 Thus, as the number of 

connections a Market Maker has 

increases, the related pull on Exchange 

resources also increases. The Exchange 

sought to design the proposed tieredpricing 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. 

The Exchange further believes that the 

proposed fees are reasonable, equitably 

allocated and not unfairly 

discriminatory because, for the flat fee, 

the Exchange provides each Member 

two (2) Full Service MEO Ports for each 

matching engine to which that Member 

is connected. Unlike other options 

exchanges that provide similar port 

functionality and charge fees on a per 

port basis,139 the Exchange offers Full 

Service MEO Ports as a package and 

provides Members with the option to 

receive up to two Full Service MEO 

Ports per matching engine to which it 

connects. The Exchange currently has 

twelve (12) matching engines, which 

means Members may receive up to 

twenty-four (24) Full Service MEO Ports 

for a single monthly fee, that can vary 

based on certain volume percentages. 

The Exchange currently assesses 

Members a fee of $5,000 per month in 

the highest Full Service MEO Port— 

Bulk Tier, regardless of the number of 

Full Service MEO Ports allocated to the 

Member. Assuming a Member connects 

to all twelve (12) matching engines 

during a month, with two Full Service 

MEO Ports per matching engine, this 

results in a cost of $208.33 per Full 

Service MEO Port—Bulk ($5,000 

divided by 24) for the month. This fee 

has been unchanged since the Exchange 

adopted Full Service MEO Port fees in 

2018.140 Members will continue to 

receive two (2) Full Service MEO Ports 

to each matching engine to which they 

are connected for the single flat monthly 

fee. Assuming a Member connects to all 

twelve (12) matching engines during the 

month, and achieves the highest Tier for 

that month, with two Full Service MEO 

Ports (Bulk) per matching engine, this 

would result in a cost of $500 per Full 

Service MEO Port ($12,000 divided by 

24). 


ddrumheller on DSK120RN23PROD with NOTICES1
58428 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

141See supra note 135. 

142The Exchange acknowledges that IEX included 

in its proposal to adopt market data fees after 

offering market data for free an analysis of what its 

projected revenue would be if all of its existing 

customers continued to subscribe versus what its 

projected revenue would be if a limited number of 

customers subscribed due to the new fees. See 

Securities Exchange Act Release No. 94630 (April 

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

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

in either of its recent non-transaction fee proposals. 

See, e.g., supra note 90. 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. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

Intra-Market Competition 

The Exchange believes the proposed 

fees will not result in any burden on 

intra-market competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act because the 

proposed fees will allow the Exchange 

to recoup some of its costs in providing 

10Gb ULL connectivity and Full Service 

MEO 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 2017 141 due to 

providing a low-cost alternative to 

attract order flow and encourage market 

participants to experience the high 

determinism and resiliency of the 

Exchange’s trading Systems. To do so, 

the Exchange chose to waive the fees for 

some non-transaction related services 

and Exchange products or provide them 

at a very lower fee, which was not 

profitable to the Exchange. This resulted 

in the Exchange forgoing revenue it 

could have generated from assessing any 

fees or higher fees. The Exchange could 

have sought to charge higher fees at the 

outset, but that could have served to 

discourage participation on the 

Exchange. Instead, the Exchange chose 

to provide a low-cost exchange 

alternative to the options industry, 

which resulted in lower initial 

revenues. Examples of this are 10Gb 

ULL connectivity and Full Service MEO 

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 membership on 

January 1, 2023 as a direct result of the 

proposed fee changes.142 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. 

Inter-Market Competition 

The Exchange also does not believe 

that the proposed rule change and price 

increase will result in any burden on 

inter-market competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. As this is a 

fee increase, arguably if set too high, 

this fee would make it easier for other 

exchanges to compete with the 

Exchange. Only if this were a 

substantial fee decrease could this be 

considered a form of predatory pricing. 

In contrast, the Exchange believes that, 

without this fee increase, we are 

potentially at a competitive 

disadvantage to certain other exchanges 

that have in place higher fees for similar 

services. As we have noted, the 

Exchange believes that connectivity fees 

can be used to foster more competitive 

transaction pricing and additional 

infrastructure investment and there are 

other options markets of which market 

participants may connect to trade 

options at higher rates than the 

Exchange’s. Accordingly, the Exchange 

does not believe its proposed fee 

changes impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

The Exchange also believes that the 

proposed fees for 10Gb connectivity are 

appropriate and warranted and would 

not impose any burden on competition. 

This is a technology driven change 

designed to meet customer needs. The 

proposed fees would assist the 

Exchange in recovering costs related to 

providing dedicated 10Gb connectivity 

to the Exchange while enabling it to 

continue to meet current and 

anticipated demands for connectivity by 

its Members and other market 

participants. Separating its 10Gb 

network from MIAX enables the 

Exchange to better compete with other 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 58429 

143See Securities Exchange Act Release No. 

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

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

notes that Cboe submitted this filing after the Staff 

Guidance and contained no cost based justification. 

144 Id. at 71676. 

145 Id. 

146 Id. at 71676. 

147See Securities Exchange Act Release No. 

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

13, 2019) (File No. S7–13–19). 

148 Id. 

149 Id. 

150 Id. 

151See 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’’). 

152See Securities Exchange Act Release No. 

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

2022) (SR–Cboe–2022–011). 

153 Id. at 18426. 

154 Id. 

155 Id. 

156See Securities Exchange Act Release No. 

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

2022) (SR–CboeBYX–2022–004). 

157See Securities Exchange Act Release No. 

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

2022) (SR–CboeBZX–2022–021). 

158See Securities Exchange Act Release No. 

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

2022) (SR–CboeEDGA–2022–004). 

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 

so that it can continue to meet current 

and anticipated connectivity demands 

of all market participants. 

Similarly, and also in connection with 

a technology change, Cboe Exchange, 

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

connectivity fees, including port fees.143

Specifically, Cboe adopted certain 

logical ports to allow for the delivery 

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

orders, accepts, cancels, transactions, 

etc. Cboe established tiered pricing for 

BOE and FIX logical ports, tiered 

pricing for BOE Bulk ports, and flat 

prices for DROP, Purge Ports, GRP Ports 

and Multicast PITCH/Top Spin Server 

Ports. Cboe argued in its fee proposal 

that the proposed pricing more closely 

aligned its access fees to those of its 

affiliated exchanges as the affiliated 

exchanges offer substantially similar 

connectivity and functionality and are 

on the same platform that Cboe migrated 

to.144 Cboe justified its proposal by 

stating that, ‘‘. . . the Exchange believes 

substitutable products and services are 

in fact available to market participants, 

including, among other things, other 

options exchanges a market participant 

may connect to in lieu of the Exchange, 

indirect connectivity to the Exchange 

via a third-party reseller of connectivity 

and/or trading of any options product, 

including proprietary products, in the 

Over-the-Counter (OTC) markets.’’ 145

The Exchange concurs with the 

following statement by Cboe, 

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.146

The Cboe proposal also referenced the 

National Market System Plan Governing 

the Consolidated Audit Trail (‘‘CAT 

NMS Plan’’),147 wherein the 

Commission discussed the existence of 

competition in the marketplace 

generally, and particularly for 

exchanges with unique business 

models. The Commission acknowledged 

that, even if an exchange were to exit 

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

significantly impact competition in the 

market for exchange trading services 

because these markets are served by 

multiple competitors.148 Further, the 

Commission explicitly stated that 

‘‘[c]onsequently, demand for these 

services in the event of the exit of a 

competitor is likely to be swiftly met by 

existing competitors.’’ 149 Finally, the 

Commission recognized that while some 

exchanges may have a unique business 

model that is not currently offered by 

competitors, a competitor could create 

similar business models if demand were 

adequate, and if a competitor did not do 

so, the Commission believes it would be 

likely that new entrants would do so if 

the exchange with that unique business 

model was otherwise profitable.150

Cboe also filed to establish a monthly 

fee for Certification Logical Ports of 

$250 per Certification Logical Port.151

Cboe reasoned that purchasing 

additional Certification Logical Ports, 

beyond the one Certification Logical 

Port per logical port type offered in the 

production environment free of charge, 

is voluntary and not required in order 

to participate in the production 

environment, including live production 

trading on the Exchange.152

In its statutory basis, Cboe justified 

the new port fee by stating that it 

believed the Certification Logical Port 

fee were reasonable because while such 

ports were no longer completely free, 

TPHs and non-TPHs would continue to 

be entitled to receive free of charge one 

Certification Logical Port for each type 

of logical port that is currently offered 

in the production environment.153 Cboe 

noted that other exchanges assess 

similar fees and cited to NASDAQ LLC 

and MIAX.154 Cboe also noted that the 

decision to purchase additional ports is 

optional and no market participant is 

required or under any regulatory 

obligation to purchase excess 

Certification Logical Ports in order to 

access the Exchange’s certification 

environment.155 Finally, similar 

proposals to adopt a Certification 

Logical Port monthly fee were filed by 

Cboe BYX Exchange, Inc.,156 BZX,157

and Cboe EDGA Exchange, Inc.158

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 


ddrumheller on DSK120RN23PROD with NOTICES1
58430 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices 

159See 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. 

160 15 U.S.C. 78s(b)(3)(A)(ii). 

161 17 CFR 240.19b–4(f)(2). 162 17 CFR 200.30–3(a)(12). 

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.159 In their letters, the sole 

commenter seeks to incorporate 

comments submitted on previous 

Exchange proposals to which the 

Exchange has previously responded. To 

the extent the sole commenter has 

attempted to raise new issues in its 

letters, the Exchange believes those 

issues are not germane to this proposal 

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,160 and Rule 

19b–4(f)(2) 161 thereunder. At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or disapproved. 

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– 

PEARL–2023–35 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–SR–PEARL–2023–35. 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–PEARL–2023–35 and should be 

submitted on or before September 15, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.162

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–18302 Filed 8–24–23; 8:45 am] 

BILLING CODE 8011–01–P 

SMALL BUSINESS ADMINISTRATION 

[Disaster Declaration # 18086 and # 18087; 

NEW JERSEY Disaster Number NJ–00075] 

Administrative Disaster Declaration of 

a Rural Area for the State of New 

Jersey 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice. 

SUMMARY: This is a notice of an 

Administrative disaster declaration of a 

rural area for the State of New Jersey 

dated 08/18/2023. 

Incident: Severe Storm and Flooding. 

Incident Period: 07/14/2023 through 

07/15/2023. 

DATES: Issued on 08/18/2023. 

Physical Loan Application Deadline 

Date: 10/17/2023. 


ddrumheller on DSK120RN23PROD with NOTICES1