68736 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

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

2 17 CFR 240.19b–4. 

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

refer to MIAX Pearl Equities. Any references to the 

options trading facility of MIAX PEARL, LLC will 

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

4The term ‘‘Equity Member’’ means a Member 

authorized by the Exchange to transact business on 

MIAX PEARL Equities. See Exchange Rule 1901. 

5 ‘‘FIX Order Interface’’ or ‘‘FOI’’ means the 

Financial Information Exchange interface for certain 

order types as set forth in Exchange Rule 2614. See 

the Definitions section of the Fee Schedule. 

6Each MEO interface will have one Full Service 

Port (‘‘FSP’’) and one Purge Port. ‘‘Full Service 

Port’’ or ‘‘FSP’’ means an MEO port that supports 

all MEO order input message types. See the 

Definitions section of the Fee Schedule. 

7See Securities Exchange Act Release No. 90651 

(December 11, 2020), 85 FR 81971 (December 17, 

2020) (SR–PEARL–2020–33). 

8For 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. 

9For the avoidance of doubt, all references to 

costs in this filing, including the cost categories 

discussed below, refer to costs incurred by MIAX 

Pearl Equities only and not MIAX Pearl Options, 

the options trading facility. 

10See Securities Exchange Act Release No. 96631 

(January 10, 2023), 88 FR 2671 (January 17, 2023) 

(SR–PEARL–2022–61). 

11See Securities Exchange Act Release No. 97077 

(March 8, 2023), 88 FR 15746 (March 14, 2023) (SR– 

PEARL–2023–06). 

12See Securities Exchange Act Release No. 97417 

(May 2, 2023), 88 FR 29730 (May 8, 2023) (SR– 

PEARL–2023–18). 

13The 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. 97816 (June 

28, 2023), 88 FR 42976 (July 5, 2023) (SR–PEARL– 

2023–28). 

14See Securities Exchange Act Release No. 98170 

(August 18, 2023), 88 FR 57982 (August 24, 2023) 

(SR–PEARL–2023–36). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98584; File No. SR– 

PEARL–2023–51] 

Self-Regulatory Organizations; MIAX 

PEARL, LLC; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend the MIAX Pearl 

Equities Fee Schedule To Modify 

Certain Connectivity and Port Fees 

September 28, 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 

September 27, 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 fee schedule (the ‘‘Fee 

Schedule’’) applicable to MIAX Pearl 

Equities, an equities trading facility, 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 to amend fees for: (1) the 

1 gigabit (‘‘Gb’’) and 10Gb ultra-low 

latency (‘‘ULL’’) fiber connections for 

Equity Members 4 and non-Members; (2) 

the Financial Information Exchange 

(‘‘FIX’’) Ports,5 and the MIAX Express 

Orders Interface (‘‘MEO’’) Ports.6 The 

Exchange adopted connectivity and port 

fees in September 2020,7 and has not 

changed those fees since they were 

adopted. Since that time, the Exchange 

experienced ongoing increases in 

expenses, particularly internal 

expenses.8 As discussed more fully 

below, the Exchange recently calculated 

increased annual aggregate costs of 

$18,331,650 for providing 1Gb and 10Gb 

ULL connectivity combined and 

$3,951,993 for providing FIX and MEO 

Ports.9

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 and port 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 

1Gb connectivity, 10Gb ULL 

connectivity and FIX and MEO Ports in 

order to recoup ongoing costs and 

increased expenses set forth below in 

the Exchange’s cost analysis. 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– 

61) (the ‘‘Initial Proposal’’).10 On 

February 23, 2023, the Exchange 

withdrew the Initial Proposal and 

replaced it with a revised proposal (SR– 

PEARL–2023–06) (the ‘‘Second 

Proposal’’).11 On April 20, 2023, the 

Exchange withdrew the Second 

Proposal and replaced it with a revised 

proposal (SR–PEARL–2023–18) (the 

‘‘Third Proposal’’).12 On June 16, 2023, 

the Exchange withdrew the Third 

Proposal and replaced it with a revised 

proposal (SR–PEARL–2023–28) (the 

‘‘Fourth Proposal’’).13 On August 8, 

2023, the Exchange withdrew the 

Fourth Proposal and replaced it with a 

revised proposal (SR–PEARL–2023–36) 

(the ‘‘Fifth Proposal’’).14 On September 

27, 2023, the Exchange withdrew the 

Fifth Proposal and replaced it with this 


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15The term ‘‘MIAX’’ means Miami International 

Securities Exchange, LLC. See Exchange Rule 100. 

16The term ‘‘MIAX Emerald’’ means MIAX 

Emerald, LLC. See Exchange Rule 100. 

17See Susquehanna International Group, LLP v. 

Securities & Exchange Commission, 866 F.3d 442 

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

18 Id. 

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

Exchange Act Release No. 84432, 2018 WL 5023228 

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

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

Exchange Act Release No. 84433, 2018 WL 5023230 

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

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

(asserted as an alternative basis of jurisdiction in 

some applications). 

21 Id. at page 2. 

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

Exchange Act Release No. 85802, 2019 WL 2022819 

(May 7, 2019) (the ‘‘Order Denying 

Reconsideration’’). 

23Order Denying Reconsideration, 2019 WL 

2022819, at *13. 

24See Securities Exchange Act Release No. 85459 

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

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

2019–04) (Order Disapproving Proposed Rule 

Changes to Amend the Fee Schedule on the BOX 

Market LLC Options Facility to Establish BOX 

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

The Commission noted in the BOX Order that it 

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

assessment of market data fees, which [the 

Commission] believe[s] present similar issues as the 

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

Despite this admission, the Commission 

disapproved BOX’s proposal to begin charging 

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

allowing legacy exchanges to charge rates equal to 

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

filings from years prior). 

25See Staff Guidance on SRO Rule Filings 

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

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

(the ‘‘Staff Guidance’’). 

26 Id. 

27 Id. 

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

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

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

6, 2020. 

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

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

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

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

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

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

it must, at a minimum, be targeted at specific 

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

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

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

Id. 

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

the challenged remand has disappeared.’’). 

further revised proposal (SR–PEARL– 

2023–51) (the ‘‘Sixth Proposal’’). 

The Exchange previously included a 

cost analysis in the Initial Proposal, 

Second, Third, Fourth, and Fifth 

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 ,15 and MIAX 

Emerald,16 together with MIAX and 

MIAX Pearl Options, 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, Fourth and Fifth 

Proposals, the fees themselves have not 

changed since the Initial, Second, Third, 

Fourth or Fifth Proposals and the 

Exchange still proposes fees that are 

intended to cover the Exchange’s cost of 

providing 1Gb and 10Gb ULL 

connectivity and FIX and MEO Ports. 

* * * * * 

Starting in 2017, following the United 

States Court of Appeals for the District 

of Columbia’s Susquehanna Decision 17

and various other developments, the 

Commission began to undertake a 

heightened review of exchange filings, 

including non-transaction fee filings 

that was substantially and materially 

different from it’s prior review process 

(hereinafter referred to as the ‘‘Revised 

Review Process’’). In the Susquehanna 

Decision, the D.C. Circuit Court stated 

that the Commission could not maintain 

a practice of ‘‘unquestioning reliance’’ 

on claims made by a self-regulatory 

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

filing a rule or fee change with the 

Commission.18 Then, on October 16, 

2018, the Commission issued an 

opinion in Securities Industry and 

Financial Markets Association finding 

that exchanges failed both to establish 

that the challenged fees were 

constrained by significant competitive 

forces and that these fees were 

consistent with the Act.19 On that same 

day, the Commission issued an order 

remanding to various exchanges and 

national market system (‘‘NMS’’) plans 

challenges to over 400 rule changes and 

plan amendments that were asserted in 

57 applications for review (the ‘‘Remand 

Order’’).20 The Remand Order directed 

the exchanges to ‘‘develop a record,’’ 

and to ‘‘explain their conclusions, based 

on that record, in a written decision that 

is sufficient to enable us to perform our 

review.’’ 21 The Commission denied 

requests by various exchanges and plan 

participants for reconsideration of the 

Remand Order.22 However, the 

Commission did extend the deadlines in 

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

not begin to run until the resolution of 

the appeal of the SIFMA Decision in the 

D.C. Circuit and the issuance of the 

court’s mandate.’’ 23 Both the Remand 

Order and the Order Denying 

Reconsideration were appealed to the 

D.C. Circuit. 

While the above appeal to the D.C. 

Circuit was pending, on March 29, 2019, 

the Commission issued an order 

disapproving a proposed fee change by 

BOX Exchange LLC (‘‘BOX’’) to 

establish connectivity fees (the ‘‘BOX 

Order’’), which significantly increased 

the level of information needed for the 

Commission to believe that an 

exchange’s filing satisfied its obligations 

under the Act with respect to changing 

a fee.24 Despite approving hundreds of 

access fee filings in the years prior to 

the BOX Order (described further 

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

the Commission changed course and 

disapproved BOX’s proposal to begin 

charging connectivity at one-fourth the 

rate of competing exchanges’ pricing. 

Also while the above appeal was 

pending, on May 21, 2019, the 

Commission Staff issued guidance ‘‘to 

assist the national securities exchanges 

and FINRA . . . in preparing Fee Filings 

that meet their burden to demonstrate 

that proposed fees are consistent with 

the requirements of the Securities 

Exchange Act.’’ 25 In the Staff Guidance, 

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

an initial step in assessing the 

reasonableness of a fee, staff considers 

whether the fee is constrained by 

significant competitive forces.’’ 26 The 

Staff Guidance also states that, ‘‘. . . 

even where an SRO cannot demonstrate, 

or does not assert, that significant 

competitive forces constrain the fee at 

issue, a cost-based discussion may be an 

alternative basis upon which to show 

consistency with the Exchange Act.’’ 27

Following the BOX Order and Staff 

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

Circuit vacated the Commission’s 

SIFMA Decision in NASDAQ Stock 

Market, LLC v. SEC28 and remanded for 

further proceedings consistent with its 

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

Circuit issued an order remanding the 

Remand Order to the Commission for 

reconsideration in light of NASDAQ. 

The court noted that the Remand Order 

required the exchanges and NMS plan 

participants to consider the challenges 

that the Commission had remanded in 

light of the SIFMA Decision. The D.C. 

Circuit concluded that because the 

SIFMA Decision ‘‘has now been 

vacated, the basis for the [Remand 

Order] has evaporated.’’ 30 Accordingly, 

on August 7, 2020, the Commission 

vacated the Remand Order and ordered 

the parties to file briefs addressing 


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

Exchange Act Release No. 89504, 2020 WL 4569089 

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

and Requesting Additional Briefs’’). 

32 Id. 

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

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

34See supra note 28, at page 2. 

35Commission Chair Gary Gensler recently 

reiterated the Commission’s mandate to ensure 

competition in the equities markets. See ‘‘Statement 

on Minimum Price Increments, Access Fee Caps, 

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

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

Congress tasked the Securities and Exchange 

Commission with responsibility to facilitate the 

establishment of the national market system and 

enhance competition in the securities markets, 

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

that same statement, Chair Gary Gensler cited the 

five objectives laid out by Congress in 11A of the 

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

‘‘fair competition among brokers and dealers, 

among exchange markets, and between exchange 

markets and markets other than exchange 

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

also Securities Acts Amendments of 1975, available 

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

36This timeframe also includes challenges to over 

400 rule filings by SIFMA and Bloomberg discussed 

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

Exchange Act Release No. 84433, 2018 WL 5023230 

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

while at the same time, blocking newer exchanges 

from the ability to establish competitive access and 

market data fees. See The Nasdaq Stock Market, 

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

2020). The expectation at the time of the litigation 

was that the 400 rule flings challenged by SIFMA 

and Bloomberg would need to be justified under 

revised review standards. 

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

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

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

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

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

5, 2013) (SR–NYSEMKT–2013–71); 76373 

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

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

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

NYSEARCA–2016–172). 

38For example, the options exchange affiliates of 

MIAX Pearl Equities, MIAX, MIAX Pearl Options, 

and MIAX Emerald, have filed, and subsequently 

withdrawn, various forms of connectivity and port 

fee changes at least seven (7) times since August 

2021. Each of the proposals contained hundreds of 

cost and revenue disclosures never previously 

disclosed by legacy exchanges in their access and 

market data fee filings prior to 2019. 

39According to Cboe’s 2021 Form 1 Amendment, 

access and capacity fees represent fees assessed for 

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

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

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

whether the holding in NASDAQ v. SEC 

that Exchange Act Section 19(d) does 

not permit challenges to generally 

applicable fee rules requiring dismissal 

of the challenges the Commission 

previously remanded.31 The 

Commission further invited ‘‘the parties 

to submit briefing stating whether the 

challenges asserted in the applications 

for review . . . should be dismissed, 

and specifically identifying any 

challenge that they contend should not 

be dismissed pursuant to the holding of 

Nasdaq v. SEC.’’ 32 Without resolving 

the above issues, on October 5, 2020, the 

Commission issued an order granting 

SIFMA and Bloomberg’s request to 

withdraw their applications for review 

and dismissed the proceedings.33

As a result of the Commission’s loss 

of the NASDAQ vs. SEC case noted 

above, the Commission never followed 

through with its intention to subject the 

over 400 fee filings to ‘‘develop a 

record,’’ and to ‘‘explain their 

conclusions, based on that record, in a 

written decision that is sufficient to 

enable us to perform our review.’’ 34 As 

such, all of those fees remained in place 

and amounted to a baseline set of fees 

for those exchanges that had the benefit 

of getting their fees in place before the 

Commission Staff’s fee review process 

materially changed. The net result of 

this history and lack of resolution in the 

D.C. Circuit Court resulted in an uneven 

competitive landscape where the 

Commission subjects all new nontransaction fee filings to the new 

Revised Review Process, while allowing 

the previously challenged fee filings, 

mostly submitted by incumbent 

exchanges prior to 2019, to remain in 

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

‘‘review’’ earlier intended by the 

Commission. 

While the Exchange appreciates that 

the Staff Guidance articulates an 

important policy goal of improving 

disclosures and requiring exchanges to 

justify that their market data and access 

fee proposals are fair and reasonable, 

the practical effect of the Revised 

Review Process, Staff Guidance, and the 

Commission’s related practice of 

continuous suspension of new fee 

filings, is anti-competitive, 

discriminatory, and has put in place an 

un-level playing field, which has 

negatively impacted smaller, nascent, 

non-legacy exchanges (‘‘non-legacy 

exchanges’’), while favoring larger, 

incumbent, entrenched, legacy 

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

legacy exchanges all established a 

significantly higher baseline for access 

and market data fees prior to the 

Revised Review Process. From 2011 

until the issuance of the Staff Guidance 

in 2019, national securities exchanges 

filed, and the Commission Staff did not 

abrogate or suspend (allowing such fees 

to become effective), at least 92 filings 36

to amend exchange connectivity or port 

fees (or similar access fees). The support 

for each of those filings was a simple 

statement by the relevant exchange that 

the fees were constrained by 

competitive forces.37 These fees remain 

in effect today. 

The net result is that the non-legacy 

exchanges are effectively now blocked 

by the Commission Staff from adopting 

or increasing fees to amounts 

comparable to the legacy exchanges 

(which were not subject to the Revised 

Review Process and Staff Guidance), 

despite providing enhanced disclosures 

and rationale to support their proposed 

fee changes that far exceed any such 

support provided by legacy exchanges. 

Simply put, legacy exchanges were able 

to increase their non-transaction fees 

during an extended period in which the 

Commission applied a ‘‘market-based’’ 

test that only relied upon the assumed 

presence of significant competitive 

forces, while exchanges today are 

subject to a cost-based test requiring 

extensive cost and revenue disclosures, 

a process that is complex, inconsistently 

applied, and rarely results in a 

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

Process and Staff Guidance changed 

decades-long Commission Staff 

standards for review, resulting in unfair 

discrimination and placing an undue 

burden on inter-market competition 

between legacy exchanges and nonlegacy exchanges. 

Commission Staff now require 

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

to provide detailed cost-based analysis 

in place of competition-based arguments 

to support such changes. However, even 

with the added detailed cost and 

expense disclosures, the Commission 

Staff continues to either suspend such 

filings and institute disapproval 

proceedings, or put the exchanges in the 

unenviable position of having to 

repeatedly withdraw and re-file with 

additional detail in order to continue to 

charge those fees.38 By impeding any 

path forward for non-legacy exchanges 

to establish commensurate nontransaction fees, or by failing to provide 

any alternative means for smaller 

markets to establish ‘‘fee parity’’ with 

legacy exchanges, the Commission is 

stifling competition: non-legacy 

exchanges are, in effect, being deprived 

of the revenue necessary to compete on 

a level playing field with legacy 

exchanges. This is particularly harmful, 

given that the costs to maintain 

exchange systems and operations 

continue to increase. 

The Commission Staff’s change in 

position impedes the ability of nonlegacy exchanges to raise revenue to 

invest in their systems to compete with 

the legacy exchanges who already enjoy 

disproportionate non-transaction fee 

based revenue. For example, the Cboe 

Exchange, Inc. (‘‘Cboe’’) reported 

‘‘access and capacity fee’’ revenue of 

$70,893,000 for 2020 39 and $80,383,000 


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40See Cboe 2022 Form 1 Amendment, available 

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

22001155.pdf. 41See C2 2021 Form 1 Amendment, available at 

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

21000469.pdf. 42See C2 2022 Form 1 Amendment, available at 

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

22001156.pdf. 43See BZX 2021 Form 1 Amendment, available 

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

21000465.pdf. 44See BZX 2022 Form 1 Amendment, available 

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

22001152.pdf. 45See EDGX 2021 Form 1 Amendment, available 

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

21000467.pdf. 46See EDGX 2022 Form 1 Amendment, available 

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

22001154.pdf. 47According to PHLX, ‘‘Trade Management 

Services’’ includes ‘‘a wide variety of alternatives 

for connectivity to and accessing [the PHLX] 

markets for a fee. These participants are charged 

monthly fees for connectivity and support in 

accordance with [PHLX’s] published fee 

schedules.’’ See PHLX 2020 Form 1 Amendment, 

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

vprr/2001/20012246.pdf. 

48See PHLX 2021 Form 1 Amendment, available 

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

21000475.pdf. The Exchanges notes that this type 

of Form 1 accounting appears to be designed to 

obfuscate the true financials of such exchanges and 

has the effect of perpetuating fee and revenue 

advantages of legacy exchanges. 

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

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

50See, e.g., Cboe Fee Schedule, Page 4, Affiliate 

Volume Plan, available at https://cdn.cboe.com/ 

resources/membership/Cboe_FeeSchedule.pdf 

(providing that if a market maker or its affiliate 

receives a credit under Cboe’s Volume Incentive 

Program (‘‘VIP’’), the market maker will receive an 

access credit on their BOE Bulk Ports corresponding 

to the VIP tier reached and the market maker will 

receive a transaction fee credit on their sliding scale 

market maker transaction fees) and NYSE American 

Options Fee Schedule, Section III, E, Floor Broker 

Incentive and Rebate Programs, available at https:// 

www.nyse.com/publicdocs/nyse/markets/americanoptions/NYSE_American_Options_Fee_

Schedule.pdf (providing floor brokers the 

opportunity to prepay certain non-transaction fees 

for the following calendar year by achieving certain 

amounts of volume executed on NYSE American). 

51See supra note 25, at note 1. 

52See, e.g., 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). 

53 15 U.S.C. 78f(b)(4). 

54To the extent that the cost-based standard 

includes Commission Staff making determinations 

as to the appropriateness of certain profit margins, 

the Exchange believes that Staff should be clear as 

to what they determine is an appropriate profit 

margin. 

55 In light of the arguments above regarding 

disparate standards of review for historical legacy 

non-transaction fees and current non-transaction 

fees for non-legacy exchanges, a fee parity 

alternative would be one possible way to avoid the 

current unfair and discriminatory effect of the Staff 

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

Continued 

for 2021.40 Cboe C2 Exchange, Inc. 

(‘‘C2’’) reported ‘‘access and capacity 

fee’’ revenue of $19,016,000 for 2020 41

and $22,843,000 for 2021.42 Cboe BZX 

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

and capacity fee’’ revenue of 

$38,387,000 for 2020 43 and $44,800,000 

for 2021.44 Cboe EDGX Exchange, Inc. 

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

fee’’ revenue of $26,126,000 for 2020 45

and $30,687,000 for 2021.46 For 2021, 

the affiliated Cboe, C2, BZX, and EDGX 

(the four largest exchanges of the Cboe 

exchange group) reported $178,712,000 

in ‘‘access and capacity fees’’ in 2021. 

NASDAQ Phlx, LLC (‘‘NASDAQ Phlx’’) 

reported ‘‘Trade Management Services’’ 

revenue of $20,817,000 for 2019.47 The 

Exchange notes it is unable to compare 

‘‘access fee’’ revenues with NASDAQ 

Phlx (or other affiliated NASDAQ 

exchanges) because after 2019, the 

‘‘Trade Management Services’’ line item 

was bundled into a much larger line 

item in PHLX’s Form 1, simply titled 

‘‘Market services.’’ 48

The much higher non-transaction fees 

charged by the legacy exchanges 

provides them with two significant 

competitive advantages. First, legacy 

exchanges are able to use their 

additional non-transaction revenue for 

investments in infrastructure, vast 

marketing and advertising on major 

media outlets,49 new products and other 

innovations. Second, higher nontransaction fees provide the legacy 

exchanges with greater flexibility to 

lower their transaction fees (or use the 

revenue from the higher non-transaction 

fees to subsidize transaction fee rates),50

which are more immediately impactful 

in competition for order flow and 

market share, given the variable nature 

of this cost on member firms. The 

prohibition of a reasonable path forward 

denies the Exchange (and other 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. There is little doubt that 

subjecting one exchange to a materially 

different standard than that historically 

applied to legacy exchanges for nontransaction 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 

. . .’’,51 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, MIAX 

Pearl Options has attempted to increase 

similar fees using a cost-based 

justification numerous times, having 

submitted over six filings.52 However, 

despite providing 100+ page filings 

describing in extensive detail its costs 

associated with providing the services 

described in the filings, Commission 

Staff continues to suspend such filings, 

with the rationale that the Exchange has 

not provided sufficient detail of its costs 

and without ever being precise about 

what additional data points are 

required. The Commission Staff appears 

to be interpreting the reasonableness 

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

the Act 53 in a manner that is not 

possible to achieve. This essentially 

nullifies the cost-based approach for 

exchanges as a legitimate alternative as 

laid out in the Staff Guidance. By 

refusing to accept a reasonable 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,54 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; 55 or (c) 


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68740 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

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. 56The 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. 

57The term ‘‘User’’ shall mean any Member or 

Sponsored Participant who is authorized to obtain 

access to the System pursuant to Exchange Rule 

2602. See Exchange Rule 1901. 

58The Exchange notes that while its proposed fee 

of $8,000 per 10Gb ULL connection is higher than 

MEMX’s $6,000 monthly fee for its xNet Physical 

Connection, MEMX does not offer any other 

physical connectivity, such as a 1Gb connection, for 

a lower fee. See Securities Exchange Act Release 

No. 95936 (September 27, 2022), 87 FR 59845 

(October 3, 2022) (SR–MEMX–2022–26). See MEMX 

Fee Schedule, Connectivity and Application 

Sessions, available at https://

info.memxtrading.com/fee-schedule/ (last visited 

August 4, 2023). 

59The Exchange notes that the proposed fee of 

$450 per port equals the amount charged by MEMX 

for MEMX’s application sessions (order entry and 

drop copy ports), but MEMX does not offer any 

ports free of charge. See MEMX Fee Schedule, 

Connectivity and Application Sessions, available at 

https://info.memxtrading.com/fee-schedule/ (last 

visited August 4, 2023). See Securities Exchange 

Act Release No. 95936 (September 27, 2022), 87 FR 

59845 (October 3, 2022) (SR–MEMX–2022–26). 

Unlike MEMX and other exchanges, the Exchange 

also continues to provide FXD Ports (i.e., Drop Copy 

Ports) free of charge. 

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 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 exchanges. 

Disapproval of this filing could also be 

viewed as an arbitrary and capricious 

decision should the Commission Staff 

continue to ignore its past treatment of 

non-transaction fee filings before 

implementation of the Revised Review 

Process and Staff Guidance and refuse 

to allow such filings to be approved 

despite significantly enhanced 

arguments and cost disclosures.56

* * * * * 

1Gb and 10Gb ULL Connectivity Fee 

Change 

Sections 2a) and b) of the Fee 

Schedule describe network connectivity 

fees for the 1Gb ULL and 10Gb ULL 

fiber connections, which are charged to 

both Equity Members and non-Members 

for connectivity to the Exchange’s 

primary and secondary facilities. The 

Exchange offers its Equity Members the 

ability to connect to the Exchange in 

order to transmit orders to and receive 

information from the Exchange. Equity 

Members can also choose to connect to 

the Exchange indirectly through 

physical connectivity maintained by a 

third-party extranet. Extranet physical 

connections may provide access to one 

or multiple Equity Members on a single 

connection. The number of physical 

connections assigned to each User 57 as 

of May 31, 2023, ranges from one to 

thirteen, depending on the scope and 

scale of the Equity Member’s trading 

activity on the Exchange as determined 

by the Equity Member, including the 

Equity Member’s determination of the 

need for redundant connectivity. The 

Exchange notes that 40% of its Equity 

Members do not maintain a physical 

connection directly with the Exchange 

in the Primary Data Center (though 

many such Equity Members have 

connectivity through a third-party 

provider) and another 46% have either 

one or two physical ports to connect to 

the Exchange in the Primary Data 

Center. Thus, only a limited number of 

Equity Members, 14%, maintain three or 

more physical ports to connect to the 

Exchange in the Primary Data Center. 

In order to partially cover the 

continuous increase in aggregate costs of 

providing physical connectivity to 

Equity Members and non-Equity 

Members, as described below, the 

Exchange proposes to amend the 

monthly connectivity fees as follows: (a) 

increase the 1Gb ULL connection from 

$1,000 to $2,500; and (b) increase the 

10Gb ULL connection from $3,500 to 

$8,000.58

FIX and MEO Ports 

Similar to other exchanges, the 

Exchange offers its Equity Members 

application sessions, also known as 

ports, for order entry and receipt of 

trade execution reports and order 

messages. Equity Members can also 

choose to connect to the Exchange 

indirectly through a session maintained 

by a third-party service bureau. Service 

bureau sessions may provide access to 

one or multiple Equity Members on a 

single session. The number of sessions 

assigned to each User as of April 18, 

2023, ranges from one to more than 100, 

depending on the scope and scale of the 

Equity Member’s trading activity on the 

Exchange (either through a direct 

connection or through a service bureau) 

as determined by the Equity Member. 

For example, by using multiple 

sessions, Equity Members can segregate 

order flow from different internal desks, 

business lines, or customers. The 

Exchange does not impose any 

minimum or maximum requirements for 

how many application sessions an 

Equity Member or service bureau can 

maintain, and does not propose to 

impose any minimum or maximum 

session requirements for its Equity 

Members or their service bureaus. 

Section 2)d), Port Fees, of the Fee 

Schedule describes fees for access and 

services used by Equity Members and 

non-Members. The Exchange provides 

the following types of ports: (i) FIX 

Ports, which allow Equity Members to 

send orders and other messages using 

the FIX protocol; and (ii) MEO Ports, 

which allow Equity Members order 

entry capabilities to all Exchange 

matching engines. 

The Exchange operates a primary and 

secondary data center as well as a 

disaster recovery center. Each Port 

provides access to all Exchange data 

centers for a single fee. The Exchange 

currently provides the first twenty-five 

(25) FIX and MEO Ports free of charge 

and absorbed all associated costs since 

the launch of MIAX Pearl Equities. The 

Exchange charges the following separate 

monthly fees for FIX and MEO Ports: 

$450 for ports 26—50, $400 for ports 

51—75, $350 for ports 76—100, and 

$300 for ports 101 and higher. The 

Exchange now proposes to provide the 

first five (5) FIX or MEO Ports free of 

charge, then charge a flat rate of $450 

per port for port six (6) and above.59

Implementation 

The proposed fee changes are 

immediately effective. 


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60 15 U.S.C. 78f(b). 

61 15 U.S.C. 78f(b)(4). 

62 15 U.S.C. 78f(b)(5). 

63See supra note 24. 

64See supra note 25. 

65 Id. 

66 Id. 

67 Id. 

68See supra note 7. 

69See 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 

Continued 

2. Statutory Basis 

The Exchange believes that the 

proposed fees are consistent with 

Section 6(b) of the Act 60 in general, and 

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

of the Act 61 in particular, in that it 

provides for the equitable allocation of 

reasonable dues, fees and other charges 

among Equity 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 62 in that they 

are designed to promote just and 

equitable principles of trade, remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general protect investors and the public 

interest and are not designed to permit 

unfair discrimination between 

customers, issuers, brokers and dealers. 

The Exchange believes that the 

information provided to justify the 

proposed fees meets or exceeds the 

amount of detail required in respect of 

proposed fee changes under the Revised 

Review Process and as set forth in 

recent Staff Guidance. Based on both the 

BOX Order 63 and the Staff Guidance,64

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.’’ 65 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.’’ 66

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.’’ 67

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 begin to recover its costs to 

provide dedicated access via 1Gb and 

10Gb ULL connectivity as well as FIX 

and 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 Equity Member 

firms. The absence of a reasonable path 

forward to increase non-transaction fees 

to comparable (or lower rates) limits the 

Exchange’s flexibility to, among other 

things, make additional investments in 

infrastructure and advertising, 

diminishes the ability to remain 

competitive on transaction fees, and 

hinders the ability to compete for order 

flow and market share. Again, there is 

little doubt that subjecting one exchange 

to a materially different standard than 

that applied to other exchanges for nontransaction 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 September 2020 and adopted its 

initial fee schedule, with 1Gb ULL 

connectivity set at $1,000, 10Gb ULL 

connectivity fees set at $3,500, and 

provided the first twenty-five (25) FIX 

and MEO Ports for free.68 As a new 

exchange entrant, the Exchange chose to 

offer such services at a discounted rate 

or 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.69


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68742 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

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). 

70See 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)). 

71See Securities Exchange Act Release No. 51808 

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

(‘‘Regulation NMS Adopting Release’’). 

72See 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.’’). 

73See Securities Exchange Act Release No. 59039 

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

2008) (SR–NYSEArca–2006–21). 

74 Id. 

75See Staff Guidance, supra note 25. 

The Exchange has not amended any of 

its non-transaction fees since its launch 

in September 2022. 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’. . . .’’ 70

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.’’ 71

Congress directed the Commission to 

‘‘rely on ‘competition, whenever 

possible, in meeting its regulatory 

responsibilities for overseeing the SROs 

and the national market system.’ ’’ 72 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.’’ 73 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.’’ 74 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.’’ 75

The Exchange believes the competing 

exchanges’ 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 

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 exchanges with 

similar market share. Each of the 

connectivity or port rates in place at 

competing 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 Equities (as proposed) (market 

share of 1.74% for the month of August 

2023 a.

1Gb ULL connection .............................

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

$2,500. 

$8,000. 

FIX and MEO Ports ............................... 1–5 ports: FREE; 6 ports or more: $450 per port. 

FXD Ports (i.e., Drop Copy Ports ......... FREE. 

MEMXb (market share of 3.04% for the month 

of August 2023) c.

1Gb connection .....................................

xNet Physical connection ......................

Not available. 

$6,000 per connection. 

Order Entry Ports .................................. $450 per port. 

Drop Copy Ports .................................... $450 per port. 

NASDAQ PSX LLC (‘‘PSX’’) d (market share of 

0.32% for the month of August 2023) e.

1Gb connection .....................................

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

$2,500 per connection (plus $1,500 installation fee). 

$7,500 per connection (plus $1,500 installation fee). 

Order Entry Ports .................................. $400 per port. 

Drop Copy Ports .................................... $400 per port. 

NASDAQ BX LLC (‘‘BX’’)f (market share of 

0.37% for the month of August 2023) g.

1Gb Ultra connection ............................

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

$2,500 per connection (plus $1,500 installation fee). 

$15,000 (plus $1,500 installation fee). 

Order Entry Ports .................................. $500 per port. 

Drop Copy Ports .................................... $500 per port. 

aSee the ‘‘Market Share’’ section of the Exchange’s website, available at https://www.miaxglobal.com/. bSee MEMX Fee Schedule, Connectivity and Application Sessions, available at https://info.memxtrading.com/fee-schedule/. cSee supra note a. 


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76BOX 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.’’ 

77Service Bureaus may obtain ports on behalf of 

Equity Members. 

78See Securities Exchange Act Release No. 94894 

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

BOX–2022–17). 

79See Securities Exchange Act Release No. 93927 

(January 7, 2022), 87 FR 2191 (January 13, 2022) 

(SR–MEMX–2021–19). 

80See 17 CFR 242.611. 

81See Exchange Rule 1901. 

82Equity Members may elect to not route their 

orders by utilizing the Do Not Route or Post Only 

order type instructions. See Exchange Rule 

2614(c)(1) and (2). 

83Service Bureaus provide access to market 

participants to submit and execute orders on an 

exchange. On the Exchange, a Service Bureau may 

be an Equity Member. Some Equity Members utilize 

a Service Bureau for connectivity and that Service 

Bureau may not be an Equity Member. Some market 

participants utilize a Service Bureau who is an 

Equity Member to submit orders. 

84Sponsored Access is an arrangement whereby 

an Equity Member permits its customers to enter 

orders into an exchange’s system that bypass the 

Equity Member’s trading system and are routed 

directly to the Exchange, including routing through 

a service bureau or other third-party technology 

provider. 

85This may include utilizing a floor broker and 

submitting the trade to an equities trading floor. 

dSee PSX Pricing Schedule, available at https://www.nasdaqtrader.com/Trader.aspx?id=PSX_Pricing; and PSX Rules, General 8: Connectivity, 

Section 2, Direct Connectivity. eSee supra note a. fSee BX Pricing Schedule, available at https://www.nasdaqtrader.com/Trader.aspx?id=bx_pricing; and BX Rules, General 8: Connectivity, Section 2, Direct Connectivity. gSee supra note a. 

There is no requirement, regulatory or 

otherwise, that any broker-dealer 

connect to and access any (or all of) the 

available equity exchanges. Market 

participants may choose to become a 

member of one or more equities 

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 of 

MIAX Pearl Options terminated their 

membership effective January 1, 2023 as 

a direct result of the proposed 

connectivity and port fee changes by 

MIAX Pearl Options. 

It is not a requirement for market 

participants to become members of all 

equities exchanges; in fact, certain 

market participants conduct an equities 

business as a member of only one 

market.76 A very small number of 

market participants choose to become a 

member of all sixteen (16) equities 

exchanges. Most firms that actively 

trade on equities markets are not 

currently Equity Members of the 

Exchange and do not purchase 

connectivity or port services at the 

Exchange. Connectivity and ports are 

only available to Equity Members or 

service bureaus, and only an Equity 

Member may utilize a port.77

BOX 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.78 MIAX 

Pearl Equities currently has 50 Equity 

Members. Also, MEMX noted in a 

January 2022 filing that it had only 66 

members, and, based on publicly 

available information regarding a 

sample of the Exchange’s competitors, 

NYSE has 142 members, Cboe BZX has 

140 members, and Investors Exchange 

LLC (‘‘IEX’’) has 133 members.79 MIAX 

Pearl Options 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 believes that significant 

differences in membership numbers 

describes by the Exchange, BOX, and 

MEMX demonstrate that firms can, and 

do, select which exchanges they wish to 

access, and, accordingly, exchanges 

must take competitive considerations 

into account when setting fees for such 

access. The Exchange also notes that no 

firm is an Equity Member of the 

Exchange only. The above data 

evidences that a broker-dealer need not 

have direct connectivity to all 

exchanges, let alone the Exchange and 

its affiliates, and broker-dealers may 

elect to do so based on their own 

business decisions and need to directly 

access each exchange’s liquidity pool. 

Not only is there not an actual 

regulatory requirement to connect to 

every equities 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 exchanges 

discussed above. Indeed, broker-dealers 

choose if and how to access a particular 

exchange and because it is a choice, the 

Exchange must set reasonable pricing, 

otherwise prospective members would 

not connect and existing members 

would disconnect from the Exchange. 

The decision to become a member of an 

exchange, 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 equities securities; 

(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 

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 an Equity 

Member at—or establish connectivity 

to—the Exchange.80 If the Exchange is 

not at the national best bid and offer 

(‘‘NBBO’’),81 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.82

With respect to the submission of 

orders, Equity 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 brokerdealer Equity 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,83 or 

request sponsored access 84 through a 

member of an exchange in order to 

submit a trade directly to an equities 

exchange.85 A market participant may 


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86See, 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). 

87The 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. 

88 15 U.S.C. 78s(b)(1). 

89 17 CFR 240.19b–4. 

90 15 U.S.C. 78f(b). 

91 15 U.S.C. 78f(b)(4). 

92 15 U.S.C. 78f(b)(5). 

93 15 U.S.C. 78f(b)(8). 

94See Staff Guidance, supra note 25. 

95Types of market participants that obtain 

connectivity services from the Exchange but are not 

Equity 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 

Equity Members. Extranets offer physical 

connectivity services to Equity Members and nonEquity Members. 

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-Equity 

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).86 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.87 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 equities 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 Equity Members and secure access to 

its environment. To properly regulate its 

Equity 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 Equity 

Members secure access to communicate 

with the Exchange and exercise trading 

rights. When a market participant elects 

to be an Equity Member, and is 

approved for membership by the 

Exchange, the Equity 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 an Equity Member of the 

Exchange, or, if it is an Equity Member, 

to purchase connectivity beyond the one 

connection that is necessary to quote or 

submit orders on the Exchange. Equity 

Members may freely choose to rely on 

one or many connections, depending on 

their business model. 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 by MIAX Pearl 

Options. If a market participant chooses 

to become an Equity 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. 

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 Equity Members—both 

generally and in relation to other Equity 

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 Equity 

Members and competition among Equity 

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,88 and Rule 19b–4 thereunder,89

with respect to the types of information 

exchanges should provide when filing 

fee changes, and Section 6(b) of the 

Act,90 which requires, among other 

things, that exchange fees be reasonable 

and equitably allocated,91 not designed 

to permit unfair discrimination,92 and 

that they not impose a burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.93 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.94 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 1Gb and 

10Gb ULL connectivity to the Exchange 

at $18,331,650 combined ($17,726,799 

for 10Gb ULL connectivity and $604,851 

for 1Gb connectivity) (or approximately 

$1,527,637 per month for combined 

connectivity costs, rounded to the 

nearest dollar when dividing the 

combined annual cost by 12 months). 

The Exchange also recently calculated 

its aggregate annual costs for providing 

FIX and MEO Ports at $3,951,993 

combined ($911,998 for FIX Ports and 

$3,039,995 for MEO Ports) (or 

approximately $329,333 per month for 

combined FIX and MEO Port costs, 

rounded to the nearest dollar when 

dividing the combined annual cost by 

12 months). In order to cover a portion 

of the aggregate costs of providing 

connectivity to its Users (both Equity 

Members and non-Equity Members 95) 


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96The 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. 

97For example, MIAX Pearl Equities maintains 24 

matching engines, MIAX Pearl Options maintains 

12 matching engines, MIAX maintains 24 matching 

engines and MIAX Emerald maintains 12 matching 

engines. 

going forward, as described below, the 

Exchange proposes to modify its Fee 

Schedule as described above. 

In 2020, the Exchange completed a 

study of its aggregate costs to produce 

market data and connectivity (the ‘‘Cost 

Analysis’’).96 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,97 storage needs, 

dedicated infrastructure versus shared 

infrastructure allocated per platform 

based on the resources required to 

support each platform, number of 

available connections, and employees 

allocated time. All of these factors result 

in different allocation percentages 

among the Exchange and its affiliated 

markets, i.e., the different percentages of 

the overall cost driver allocated to the 

Exchange and its affiliated markets will 

cause the dollar amount of the overall 

cost allocated among the Exchange and 

its affiliated markets to also differ. 

Because the Exchange’s parent company 

currently owns and operates four 

separate and distinct marketplaces, the 

Exchange must determine the costs 

associated with each actual market—as 

opposed to the Exchange’s parent 

company simply concluding that all 

costs drivers are the same at each 

individual marketplace and dividing 

total cost by four (4) (evenly for each 

marketplace). Rather, the Exchange’s 

parent company determines an accurate 

cost for each marketplace, which results 

in different allocations and amounts 

across exchanges for the same cost 

drivers, due to the unique factors of 

each marketplace as described above. 

This allocation methodology also 

ensures that no cost would be allocated 

twice or double-counted between the 

Exchange and its affiliated markets. The 

Finance Team then consolidates the 

budget and sends it to senior 

management, including the Chief 

Financial Officer and Chief Executive 

Officer, for review and approval. Next, 

the budget is presented to the Board of 

Directors and the Finance and Audit 

Committees for each exchange for their 

approval. The above steps encompass 

the first step of the cost allocation 

process. 

The next step involves determining 

what portion of the cost allocated to the 

Exchange pursuant to the above 

methodology is to be allocated to each 

core service, e.g., connectivity and 

ports, market data, and transaction 

services. The Exchange and its affiliated 

markets adopted an allocation 

methodology with thoughtful and 

consistently applied principles to guide 

how much of a particular cost amount 

allocated to the Exchange should be 

allocated within the Exchange to each 

core service. This is the final step in the 

cost allocation process and is applied to 

each of the cost drivers set forth below. 

For instance, fixed costs that are not 

driven by client activity (e.g., message 

rates), such as data center costs, were 

allocated more heavily to the provision 

of physical connectivity (60.0% of total 

expense amount allocated to 10Gb ULL 

connectivity), with smaller allocations 

to FIX Ports (1.2%) and MEO Ports 

(3.8%), and the remainder to the 

provision of other connectivity, other 

ports, transaction execution, 

membership services and market data 

services (35%). 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 Equity Members and parties that 

they sponsor to participate directly on 

the Exchange may submit orders to the 

Exchange; many Equity 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 


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the allocation of exchanges’ 

interdependent costs, the Exchange is 

left with its best efforts 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 1Gb 

and10Gb ULL connectivity, as well as 

FIX and MEO Ports, is $1,856,970, 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 Options 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, 

all of which are discussed in more detail 

below. MIAX PEARL, LLC confirms that 

there is no double counting of expenses 

between the options and equities 

platform of MIAX PEARL, LLC; the 

greater expense amounts of MIAX 

PEARL, LLC (relative to its affiliated 

exchanges, MIAX and MIAX Emerald) is 

solely attributed to the unique factors of 

MIAX PEARL, LLC discussed above. 

Costs Related to Offering Physical 1Gb 

and 10Gb ULL Connectivity 

The following charts detail the 

individual line-item costs considered by 

the Exchange to be related to offering 

physical dedicated 1Gb and 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 47.6% of its overall 

Human Resources cost to offering 

physical 1Gb and 10Gb ULL 

connectivity). 

10GB ULL CONNECTIVITY

Cost drivers Allocated 

annual cost h

Allocated 

monthly cost i Percent of all 

Human Resources ....................................................................................................................... $5,936,741 $494,728 46.1 

Connectivity (external fees, cabling, switches, etc.) ................................................................... 69,451 5,788 60.0 

Internet Services and External Market Data ............................................................................... 1,818,808 151,567 72.5 

Data Center ................................................................................................................................. 1,052,797 87,733 60.0 

Hardware and Software Maintenance and Licenses .................................................................. 642,112 53,509 58.0 

Depreciation ................................................................................................................................. 3,448,206 287,351 73.6 

Allocated Shared Expenses ........................................................................................................ 4,758,684 396,557 48.6 

Total ...................................................................................................................................... 17,726,799 1,477,233 54 

hThe Annual Cost includes figures rounded to the nearest dollar. 

iThe 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. 

1GB ULL CONNECTIVITY

Cost drivers Allocated 

annual cost j

Allocated 

monthly cost k Percent of all 

Human Resources ....................................................................................................................... $202,566 $16,880 1.6 

Connectivity (external fees, cabling, switches, etc.) ................................................................... 2,370 197 2.0 

Internet Services and External Market Data ............................................................................... 62,059 5,172 2.5 

Data Center ................................................................................................................................. 35,922 2,993 2.0 

Hardware and Software Maintenance and Licenses .................................................................. 21,909 1,826 2.0 

Depreciation ................................................................................................................................. 117,655 9,805 2.5 

Allocated Shared Expenses ........................................................................................................ 162,370 13,531 1.7 

Total ...................................................................................................................................... 604,851 50,404 1.8 

jSee supra note h. kSee supra note i. 

Below are additional details regarding 

each of the line-item costs considered 

by the Exchange to be related to offering 

physical 1Gb and 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 cost drivers differ when 

compared to the same cost drivers 

described by the Exchange’s affiliated 


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98See, 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 

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, 

Continued 

markets in their similar proposed fee 

changes for connectivity and ports. This 

is because MIAX Pearl Equities’ cost 

allocation methodology utilizes the 

actual projected costs of MIAX Pearl 

Equities (which are specific to MIAX 

Pearl Equities, and are independent of 

the costs projected and utilized by 

MIAX Pearl Equities’ affiliated markets) 

to determine its actual costs, which may 

vary across the Exchange and its 

affiliated markets based on factors that 

are unique to each marketplace. The 

Exchange provides additional 

explanation below (including the reason 

for the deviation) for the significant 

differences. 

Human Resources 

The Exchange notes that it and its 

affiliated markets have 184 employees 

(excluding employees at non-options/ 

equities exchange subsidiaries of Miami 

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

the holding company of the Exchange 

and its affiliated markets), and each 

department leader has direct knowledge 

of the time spent by each employee with 

respect to the various tasks necessary to 

operate the Exchange. Specifically, 

twice a year, and as needed with 

additional new hires and new project 

initiatives, in consultation with 

employees as needed, managers and 

department heads assign a percentage of 

time to every employee and then 

allocate that time amongst the Exchange 

and its affiliated markets to determine 

each market’s individual Human 

Resources expense. Then, managers and 

department heads assign a percentage of 

each employee’s time allocated to the 

Exchange into buckets including 

network connectivity, ports, market 

data, and other exchange services. This 

process ensures that every employee is 

100% allocated, ensuring there is no 

double counting between the Exchange 

and its affiliated markets. 

For personnel costs (Human 

Resources), the Exchange calculated an 

allocation of employee time for 

employees whose functions include 

providing and maintaining physical 

connectivity and performance thereof 

(primarily the Exchange’s network 

infrastructure team, which spends most 

of their time performing functions 

necessary to provide physical 

connectivity). As described more fully 

above, the Exchange’s parent company 

allocates costs to the Exchange and its 

affiliated markets and then a portion of 

the Human Resources costs allocated to 

the Exchange is then allocated to 

connectivity. From that portion 

allocated to the Exchange that applied 

to connectivity, the Exchange then 

allocated weighted average percentages 

of 58% for 10Gb ULL connectivity and 

2.0% for 1Gb connectivity 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’ 

time to 10Gb ULL connectivity (less 

than 37%). This other group of 

personnel with a smaller allocation of 

Human Resources costs also have a 

direct nexus to 10Gb ULL connectivity, 

whether it is a sales person selling a 

connection, finance personnel billing 

for connectivity or providing budget 

analysis, or information security 

ensuring that such connectivity is 

secure and adequately defended from an 

outside intrusion. 

The estimates of Human Resources 

cost were therefore determined by 

consulting with such department 

leaders, determining which employees 

are involved in tasks related to 

providing physical connectivity, and 

confirming that the proposed allocations 

were reasonable based on an 

understanding of the percentage of time 

such employees devote to those tasks. 

This includes personnel from the 

Exchange departments that are 

predominately involved in providing 

1Gb and 10Gb ULL connectivity: 

Business Systems Development, Trading 

Systems Development, Systems 

Operations and Network Monitoring, 

Network and Data Center Operations, 

Listings, Trading Operations, and 

Project Management. Again, the 

Exchange allocated 58% for 10Gb ULL 

connectivity and 2.0% for 1Gb ULL 

connectivity of each of their employee’s 

time assigned to the Exchange for 10Gb 

ULL connectivity, as stated above. 

Employees from these departments 

perform numerous functions to support 

10Gb ULL connectivity, such as the 

installation, re-location, configuration, 

and maintenance of 10Gb ULL 

connections and the hardware they 

access. This hardware includes servers, 

routers, switches, firewalls, and 

monitoring devices. These employees 

also perform software upgrades, 

vulnerability assessments, remediation 

and patch installs, equipment 

configuration and hardening, as well as 

performance and capacity management. 

These employees also engage in 

research and development analysis for 

equipment and software supporting 

10Gb ULL connectivity and design, and 

support the development and on-going 

maintenance of internally-developed 

applications as well as data capture and 

analysis, and Member and internal 

Exchange reports related to network and 

system performance. The above list of 

employee functions is not exhaustive of 

all the functions performed by Exchange 

employees to support 10Gb ULL 

connectivity, but illustrates the breath of 

functions those employees perform in 

support of the above cost and time 

allocations. 

Lastly, the Exchange notes that senior 

level executives’ time was only 

allocated to the 10Gb ULL connectivity 

related Human Resources costs to the 

extent that they are involved in 

overseeing tasks related to providing 

physical connectivity. The Human 

Resources cost was calculated using a 

blended rate of compensation reflecting 

salary, equity and bonus compensation, 

benefits, payroll taxes, and 401(k) 

matching contributions. 

Lastly, the Exchange notes that the 

above allocation for 10Gb ULL 

connectivity is greater than its affiliate 

options exchanges as MIAX Pearl 

Equities allocated 46.1% of its Human 

Resources expense towards 10Gb ULL 

connectivity, while MIAX, MIAX Pearl 

Options and MIAX Emerald allocated 

25%, 26.3% and 28%, respectively, to 

the same category of expense. This 

difference is due to meaningfully more 

current and anticipated business and 

technology initiatives dedicated to 

MIAX Pearl Equities than its affiliate 

options exchanges at the time of this 

filing. These initiatives include: 

enhancements to routing options, 

expanding the available order types, 

adding direct market data connectivity 

to competing exchanges, and adopting 

additional risk controls.98 MIAX Pearl 


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68748 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

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). 

99This allocation may differ from MIAX Pearl 

Options due to the different amount of proprietary 

market data feeds purchased by MIAX Pearl 

Equities compared to MIAX Pearl Options. For 

options market data, MIAX Pearl Options primarily 

relies on data purchased from OPRA. For equities 

market data, MIAX Pearl Equities does not solely 

rely on data purchased from the consolidated tape 

plans (e.g., Nasdaq UTP, CTA, and CQ plans), but 

rather purchases multiple proprietary market data 

feeds from other equities exchanges. See, e.g., 

Exchange Rule 2613 (setting forth the data feeds 

MIAX Pearl Equities subscribes to for each equities 

exchange and trading center). 

Equities is a relatively new market 

(launched in September of 2020), and, 

as a result, more personnel are allocated 

to work on various business initiatives 

and enhancements to help the market 

grow, add new functionality, and 

expand its product offerings. These 

technology changes directly impact the 

Exchange’s interface specifications and 

matching engine which, in turn, impacts 

connectivity by requiring additional 

coding, testing, and other updates 

necessary to accommodate the above 

initiatives. 

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. equities 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 1Gb and 10Gb 

ULL connectivity. Specifically, the 

Exchange utilizes connectivity 

providers to connect to other national 

securities exchanges, the NASDAQ UTP 

and CTA/CQ Plans. 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 the NASDAQ UTP and 

CTA/CQ Plans and, therefore, would not 

be able to operate and support its 

System Networks. The Exchange does 

not employ a separate fee to cover its 

connectivity provider expense and 

recoups that expense, in part, by 

charging for 1Gb and 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 and consume 

market data from other markets. The 

Exchange included external market data 

fees to the provision of physical 

connectivity as such market data is 

necessary here to offer certain services 

related to such connectivity, such as 

certain risk checks that are performed 

prior to execution, and checking for 

other conditions (e.g., limit order price 

protection, trading collars).99 Thus, as 

market data from other exchanges is 

consumed at the matching engine level, 

(to which physical connectivity 

provides access to) in order to validate 

orders before additional entering the 

matching engine or being executed, the 

Exchange believes it is reasonable to 

allocate an amount of such costs to 1Gb 

ULL and 10Gb ULL connectivity. 

The Exchange relies on content 

service providers for data feeds for the 

entire U.S. equities 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 

Nasdaq UTP, CTA and CQ Plans, as well 

as from 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 and 

competing exchanges is critical to the 

Exchange’s daily operations and 

performance of its System Networks to 

which market participants connect to 

via 1Gb ULL and 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 1Gb ULL and 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 

markets, the overall dollar amount 

allocated to the Exchange under the 

initial step of the 2023 budget process 

is lower than its affiliated markets. 

Data Center 

Data Center costs includes an 

allocation of the costs the Exchange 

incurs to provide physical connectivity 

in the third-party data centers where it 

maintains its equipment (such as 

dedicated space, security services, 

cooling and power). The Exchange notes 


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100See supra note 97. MIAX Pearl Options also 

provides an additional gateway but only maintains 

12 matching engines. MIAX and MIAX Emerald do 

not provide an additional gateway and maintain 24 

and 12 matching engines, respectively. 

101This allocation may be greater than the 

Exchange’s affiliated markets, specifically MIAX 

and MIAX Emerald, because, unlike MIAX and 

MIAX Emerald, MIAX Pearl Equities and MIAX 

Pearl Options both maintain an additional gateway 

to accommodate their Members’ and Equity 

Members’ access and connectivity needs. This 

added gateway contributes to the difference in 

allocation percentages between MIAX Pearl Equities 

and MIAX Pearl Options and MIAX and MIAX 

Emerald. 

102The Exchange notes that MEMX allocated a 

precise amount of 10% of the overall cost for 

directors to providing physical connectivity. See 

Securities Exchange Act Release No. 95936 

(September 27, 2022), 87 FR 59845 (October 3, 

Continued 

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 (62%) to physical 1Gb 

and 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. 

Lastly, MIAX Emerald, MIAX, MIAX 

Pearl Options and MIAX Pearl Equities 

allocated 61.9%, 60.60%, 60.60% and 

60%, respectively, to the Data Center 

cost driver. However, MIAX Pearl 

Equities was allocated a larger dollar 

amount under the first step of the 2023 

budget process. This resulted in MIAX 

Pearl Equities allocating a larger dollar 

amount to its Data Center cost driver 

than its affiliated options markets, 

despite nearly identical percentage 

allocations. The dollar amount of MIAX 

Pearl Equities’ Data Center cost driver is 

higher than its affiliated options 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). As described herein, 

MIAX Pearl Equities connects directly 

to multiple individual equities 

exchanges for trading and market data. 

This, in turn, requires additional 

hardware and software requiring an 

increased data center footprint. MIAX 

Pearl Equities also maintains an 

additional gateway to support market 

participant’s access demands and 

maintains 24 matching engines, double 

the number of matching engines on 

MIAX Emerald and MIAX Pearl 

Options.100 The additional gateway 

coupled with the higher number of 

matching engines results in higher data 

center costs. 

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.101 The 

Exchange notes that this allocation is 

greater than MIAX and MIAX Emerald 

options exchanges as MIAX Pearl 

Equities allocated 58% 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 difference in allocation is 

because MIAX Pearl Equities maintains 

software licenses that are unique to its 

trading platform and used only for the 

trading of equity securities. The cost for 

these licenses cannot be shared with 

MIAX Pearl Equities’ affiliated options 

markets because each of those platforms 

trade only options, not equities. MIAX 

Pearl Equities’ affiliates are able to share 

the cost of many of their software 

licenses among the multiple options 

platforms (thus lowering the cost to 

each individual options platform), 

whereas MIAX Pearl Equities cannot 

share such cost and, therefore, bears the 

entire cost. Also, MIAX Pearl Options 

allocated a higher percentage of the 

same category of expense (58.6%) 

towards its Hardware and Software 

Maintenance and License expense for 

10Gb ULL connectivity, which MIAX 

Pearl Options explains in its own 

proposal to amend its 10Gb ULL 

connectivity fees. 

Depreciation 

All physical assets, software, and 

hardware used to provide 1Gb ULL and 

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 73.6% of 

its allocated depreciation costs to 

providing physical 10Gb ULL 

connectivity and 2.5% of all 

depreciation costs to providing 1Gb 

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. 

Lastly, the Exchange notes that this 

allocation is greater than its affiliate 

options exchanges as MIAX Pearl 

Equities allocated 73.6% of its 

Depreciation expense towards 10Gb 

ULL connectivity, while MIAX, MIAX 

Pearl Options and MIAX Emerald 

allocated 61.6%, 58.2% and 63.8%, 

respectively, to the same category of 

expense. This is due to MIAX Pearl 

Equities being a newer market and 

having newer physical assets and 

software subject to depreciation than its 

affiliate options exchanges. The 

Exchange’s affiliate options exchanges 

are older markets that have more 

software and equipment that have been 

fully depreciated when compared to the 

newer software and hardware currently 

being depreciated by MIAX Pearl 

Equities at higher rates. 

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.102 These 


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2022) (SR–MEMX–2022–26). The Exchange does 

not calculate is expenses at that granular a level. 

Instead, director costs are included as part of the 

overall general allocation. 

general shared expenses are incurred by 

the Exchange’s parent company, MIH, as 

a direct result of operating the Exchange 

and its affiliated markets. 

The Exchange employed a process to 

determine a reasonable percentage to 

allocate general shared expenses to 

10Gb ULL connectivity pursuant to its 

multi-layered allocation process. First, 

general expenses were allocated among 

the Exchange and affiliated markets as 

described above. Then, the general 

shared expense assigned to the 

Exchange was allocated across core 

services of the Exchange, including 

connectivity. Then, these costs were 

further allocated to sub-categories 

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

ULL connectivity as a sub-category of 

connectivity. In determining the 

percentage of general shared expenses 

allocated to connectivity that ultimately 

apply to 10Gb ULL connectivity, the 

Exchange looked at the percentage 

allocations of each of the cost drivers 

and determined a reasonable allocation 

percentage. The Exchange also held 

meetings with senior management, 

department heads, and the Finance 

Team to determine the proper amount of 

the shared general expense to allocate to 

10Gb ULL connectivity. The Exchange, 

therefore, believes it is reasonable to 

assign an allocation, in the range of 

allocations for other cost drivers, while 

continuing to ensure that this expense is 

only allocated once. Again, the general 

shared expenses are incurred by the 

Exchange’s parent company as a result 

of operating the Exchange and its 

affiliated markets and it is therefore 

reasonable to allocate a percentage of 

those expenses to the Exchange and 

ultimately to specific product offerings 

such as 10Gb ULL connectivity. 

Again, a portion of all shared 

expenses were allocated to the Exchange 

(and its affiliated markets) which, in 

turn, allocated a portion of that overall 

allocation to all physical connectivity 

on the Exchange. The Exchange then 

allocated 50% of the portion allocated 

to physical connectivity to 10Gb ULL 

connectivity. The Exchange believes 

this allocation percentage is reasonable 

because, while the overall dollar 

amount may be higher than other cost 

drivers, the 50% is based on and in line 

with the percentage allocations of each 

of the Exchange’s other cost drivers. The 

percentage allocated to 10Gb ULL 

connectivity also reflects its importance 

to the Exchange’s strategy and necessity 

towards the nature of the Exchange’s 

overall operations, which is to provide 

a resilient, highly deterministic trading 

system that relies on faster 10Gb ULL 

connectivity than the Exchange’s 

competitors to maintain premium 

performance. This allocation reflects the 

Exchange’s focus on providing and 

maintaining high performance network 

connectivity, of which 10Gb ULL 

connectivity is a main contributor. The 

Exchange differentiates itself by offering 

a ‘‘premium-product’’ network 

experience, as an operator of a high 

performance, ultra-low latency network 

with unparalleled system throughput, 

which system networks can support 

access for multiple competing marketmakers having affirmative obligations to 

continuously quote over 11,000 

symbols, and the capacity to handle 

approximately 8,000,000,000 orders in a 

month. The ‘‘premium-product’’ 

network experience enables users of 

10Gb ULL connections to receive the 

network monitoring and reporting 

services for those approximately 11,000 

symbols available for trading. These 

value add services are part of the 

Exchange’s strategy for offering a high 

performance trading system, which 

utilizes 10Gb ULL connectivity. 

The Exchange notes that the 50% 

allocation of general shared expenses for 

physical 10Gb ULL connectivity is 

higher than that allocated to general 

shared expenses for MEO and FIX 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), FIX and MEO Ports do not 

require as many broad or indirect 

resources as other core services. 

* * * * * 

Approximate Cost Per 1Gb ULL and 

10Gb ULL Connection Per Month 

After determining the approximate 

allocated monthly cost related to 10Gb 

connectivity, the, total monthly cost for 

10Gb ULL connectivity of $1,477,233 

was divided by the number of physical 

10Gb ULL connections the Exchange 

maintained at the time that proposed 

pricing was determined (90), to arrive at 

a cost of approximately $16,414 per 

month, per physical 10Gb ULL 

connection. The total monthly cost for 

1Gb connectivity of $50,404 was 

divided by the number of physical 1Gb 

connections the Exchange maintained at 

the time that proposed pricing was 

determined (8), to arrive at a cost of 

approximately $6,301 per month, per 

physical 1Gb 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 1Gb ULL and 10Gb ULL connections. 

* * * * * 

Costs Related to Offering FIX and MEO 

Ports 

The following chart details the 

individual line-item costs considered by 

the Exchange to be related to offering 

FIX and 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 22.4% of its 

overall Human Resources cost to 

offering FIX and MEO Ports). 

FIX PORTS

Cost drivers Allocated 

annual cost l

Allocated 

monthly cost m Percent of all 

Human Resources ....................................................................................................................... $665,726 $55,476 5.2 

Connectivity (external fees, cabling, switches, etc.) ................................................................... 535 45 0.5 

Internet Services and External Market Data ............................................................................... 11,574 965 0.5 

Data Center ................................................................................................................................. 20,262 1,689 1.2 

Hardware and Software Maintenance and Licenses .................................................................. 5,108 426 0.5 

Depreciation ................................................................................................................................. 92,114 7,676 2.0 

Allocated Shared Expenses ........................................................................................................ 116,679 9,723 1.2 

Total ...................................................................................................................................... 911,998 76,000 2.8 

lSee supra note h (describing rounding of Annual Costs). 


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m See supra note i (describing rounding of Monthly Costs based on annual costs). 

MEO PORTS

Cost drivers Allocated 

annual cost n

Allocated 

monthly cost o Percent of all 

Human Resources ....................................................................................................................... $2,219,088 $184,924 17.2 

Connectivity (external fees, cabling, switches, etc.) ................................................................... 1,782 149 1.5 

Internet Services and External Market Data ............................................................................... 38,582 3,215 1.5 

Data Center ................................................................................................................................. 67,538 5,628 3.8 

Hardware and Software Maintenance and Licenses .................................................................. 17,026 1,419 1.5 

Depreciation ................................................................................................................................. 307,048 25,587 6.6 

Allocated Shared Expenses ........................................................................................................ 388,931 32,411 4.0 

Total ...................................................................................................................................... 3,039,995 253,333 9.3 

nSee supra note h (describing rounding of Annual Costs). The Exchange notes that costs to provide MEO Ports are higher than the Exchange’s costs to provide FIX Ports because it is more expensive to maintain and support the MEO network due to its high performance capabilities and supporting infrastructure (including employee support). The MEO interface is a customizable binary interface that the Exchange developed in-house and maintains on its own. The FIX interface is the industry standard for simple order entry, which requires less development, 

maintenance, and support than the MEO interface. The MEO interface provides best-in-class system throughput and capacity. Users of MEO 

Ports, which are primarily Equity Market Makers, consume the most bandwidth and resources of the network via MEO Ports. To achieve a consistent, premium network performance, the Exchange must build out and maintain a network that has the capacity to handle the message rate 

requirements of its most heavy network consumers, resulting in greater cost to provide and maintain MEO ports. oSee supra note i (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 

FIX and 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 FIX and MEO Ports, 

the Exchange calculated Human 

Resources cost by taking an allocation of 

employee time for employees whose 

functions include providing FIX and 

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 FIX and 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 FIX and MEO Ports 

and maintaining performance thereof. 

This includes personnel from the 

following Exchange departments that 

are predominately involved in 

providing FIX and MEO Ports: Business 

Systems Development, Trading Systems 

Development, Systems Operations and 

Network Monitoring, Network and Data 

Center Operations, Listings, Trading 

Operations, and Project Management. 

The Exchange notes that senior level 

executives were allocated Human 

Resources costs to the extent they are 

involved in overseeing tasks specifically 

related to providing 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 related to providing FIX and 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. 

Lastly, the Exchange notes that the 

Human Resource allocation for MEO 

Ports is greater than its Human Resource 

allocation for FIX Ports as MIAX Pearl 

Equities allocated 5.2% of its Human 

Resource expense towards FIX Ports and 

17.2% of its Human Resource expense 

towards MEO Ports. This is because the 

MEO interface is a customized binary 

interface that the Exchange developed 

in-house and maintains on its own. The 

FIX interface is the industry standard 

for simple order entry which requires 

less development, maintenance, and 

support than the MEO interface. The 

MEO interface is performance oriented 

and designed to meet the needs of more 

latency sensitive Equity Members. Due 

to the in-house development of the MEO 

interface, the Exchange was required to 

expend more internal personnel to 

support the MEO interface than the FIX 

interface. Because of the materially 

higher cost associated with maintaining 

and supporting MEO Ports versus FIX 

Ports, the Exchange allocates a 

materially higher percentage of Human 

Resource expense to MEO Ports versus 

FIX Ports. 

Connectivity (External Fees, Cabling, 

Switches, etc.) 

The Connectivity cost driver includes 

external fees paid to connect to other 

exchanges, 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 

FIX and 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, 


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103This allocation may differ from MIAX Pearl 

Options due to the different amount of proprietary 

market data feeds the Exchange purchases for its 

options and equities trading platforms. MIAX Pearl 

Options primarily relies on data purchased from 

OPRA. MIAX Pearl Equities does not solely rely on 

data purchased from the consolidated tape plans 

(e.g., Nasdaq UTP, CTA, and CQ plans), but rather 

purchases multiple proprietary market data feeds 

from other equities exchanges. See, e.g., Exchange 

Rule 2613 (setting forth the data feeds the Exchange 

subscribes to for each equities exchange and trading 

center). The Exchange separately notes that MEMX 

separately allocated 7.5% of its external market data 

costs to providing physical connectivity. See 

Securities Exchange Act Release No. 95936 

(September 27, 2022), 87 FR 59845 (October 3, 

2022) (SR–MEMX–2022–26). 

including other exchanges, to receive 

and consume market data from other 

markets. The Exchange includes 

external market data fees to the 

provision of FIX and MEO Ports as such 

market data is also necessary here (in 

addition to physical connectivity) to 

offer certain services related to such 

ports, such as validating orders on entry 

against the national best bid and 

national best offer and checking for 

other conditions (e.g., whether a symbol 

is halted or subject to a short sale circuit 

breaker).103 Thus, as market data from 

other exchanges is consumed at the 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 FIX and 

MEO Ports. 

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 as well as 

related costs (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. 

Depreciation 

The vast majority of the software the 

Exchange uses to provide FIX and 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 FIX and 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 8.6% of all depreciation costs 

to providing FIX and 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 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. 

Lastly, the Exchange notes that the 

Depreciation allocation for MEO Ports is 

greater than the Depreciation allocation 

for FIX Ports as MIAX Pearl Equities 

allocated 2.00% of its Depreciation 

expense towards FIX Ports and 6.60% of 

its Depreciation expense towards MEO 

Ports. As discussed above, this is 

because the MEO interface is a 

customized binary interface that the 

Exchange developed in-house and 

maintains on its own. The FIX interface 

is the industry standard for simple order 

entry which requires less development, 

maintenance, and support than the MEO 

interface. The Exchange maintains more 

dedicated hardware per port for the 

MEO interface compared to the FIX 

interface; MEO Ports sit on their own 

core server, whereas for the FIX 

interface, three (3) to five (5) 

connections may go onto a single server. 

As a result, the MEO interface is 

supported by more dedicated in-house 

hardware and software than the FIX 

interface that is subject to depreciation. 

Thus, there is a greater amount of 

equipment supporting the MEO 

interface than the FIX interface, 

resulting in higher depreciation costs 

than the FIX interface. 

Allocated Shared Expenses 

Finally, a portion of general shared 

expenses was allocated to overall FIX 

and 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 20% of the overall cost for 

directors was allocated to providing FIX 

and MEO Ports. The Exchange notes 

that the 5.2% allocation of general 

shared expenses for FIX and 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 

FIX and MEO Ports have several areas 

where certain tangible costs are heavily 

weighted towards providing such 

service (e.g., Data Centers, as described 

above), 1Gb and 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 the 

Allocated Shared Expense allocation for 

MEO Ports is greater than the same 

allocation for FIX Ports as MIAX Pearl 

Equities allocated 1.20% of its Allocated 

Shared Expense towards FIX Ports and 

4.00% of its Allocated Shared Expense 

towards MEO Ports. As discussed above, 

this is because the MEO interface is a 

customized binary interface that the 

Exchange developed in-house and 

maintains on its own. The FIX interface 

is the industry standard for simple order 

entry which requires less development, 

maintenance, and support than the MEO 

interface. The MEO interface is 

performance oriented and designed to 

meet the needs of more latency sensitive 

Equity Members. This required more 

internal personnel and resources to 

support than the FIX interface. Because 

of the materially higher cost associated 

with maintaining and supporting MEO 

Ports versus FIX Ports, the Exchange 

allocates a materially higher percentage 

of Allocated Shared expense to MEO 

Ports versus FIX Ports, which is a less 

complex, standardized solution. 

* * * * * 


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Approximate Cost Per FIX and MEO 

Port per Month 

The total monthly cost allocated to 

FIX Ports of $76,000 was divided by the 

number of chargeable FIX Ports the 

Exchange maintained at the time that 

proposed pricing was determined (142), 

to arrive at a cost of approximately $535 

per month, per FIX Port (rounded to the 

nearest dollar when dividing the 

approximate monthly cost by the 

number of FIX Ports). The total monthly 

cost allocated to MEO Ports of $253,333 

was divided by the number of 

chargeable MEO Ports the Exchange 

maintained at the time that proposed 

pricing was determined (336), to arrive 

at a cost of approximately $754 per 

month, per MEO Port (rounded to the 

nearest dollar when dividing the 

approximate monthly cost by the 

number of MEO Ports). 

* * * * * 

Cost Analysis—Additional Discussion 

In conducting its Cost Analysis, the 

Exchange did not allocate any of its 

expenses in full to any core services 

(including physical connectivity or FIX 

and 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 

(60%) to 1Gb and 10Gb ULL 

connectivity given their focus on 

functions necessary to provide physical 

connections. The salaries of those same 

personnel were allocated only 25% to 

FIX and MEO Ports and the remaining 

15% was allocated to transactions 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 

37% for 1Gb and 10Gb ULL 

connectivity 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 (less than 21%) 

across a wider range of personnel 

groups in order to allocate Human 

Resources costs to providing FIX and 

MEO Ports. This is because a much 

wider range of personnel are involved in 

functions necessary to offer, monitor 

and maintain FIX and MEO Ports but 

the tasks necessary to do so are not a 

primary or full-time function. 

In total, the Exchange allocated 47.6% 

of its personnel costs to providing 

physical connections and 22.4% of its 

personnel costs to providing FIX and 

MEO Ports, for a total allocation of 70% 

Human Resources expense to provide 

these specific connectivity services. In 

turn, the Exchange allocated the 

remaining 30% of its Human Resources 

expense to membership (less than 1%) 

and transactions and market data 

(9.5%). 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 FIX and MEO Ports, 

but in different amounts. The Exchange 

believes it is reasonable to allocate the 

identified portion of such expense 

because such expense includes the 

actual cost of the computer equipment, 

such as dedicated servers, computers, 

laptops, monitors, information security 

appliances and storage, and network 

switching infrastructure equipment, 

including switches and taps that were 

purchased to operate and support the 

network. Without this equipment, the 

Exchange would not be able to operate 

the network and provide connectivity 

services to its Equity Members and nonEquity Members and their customers. 

However, the Exchange did not allocate 

all of the depreciation and amortization 

expense toward the cost of providing 

connectivity services, but instead 

allocated approximately 85% of the 

Exchange’s overall depreciation and 

amortization expense to connectivity 

services (76.185% attributed to 1Gb and 

10Gb ULL physical connections and 

8.6% to FIX and MEO Ports). The 

Exchange allocated the remaining 

depreciation and amortization expense 

(approximately 15%) toward the cost of 

providing transaction services, 

membership 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 FIX and 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, or decrease fees in the event that 

revenue or the mark-up materially 

exceeds our current projections. In the 

event that the Exchange determines to 

propose a fee change, the results of a 

timely review, including an updated 

cost estimate, will be included in the 

rule filing proposing the fee change. 

More generally, the Exchange believes 

that it is appropriate for an exchange to 

refresh and update information about its 

relevant costs and revenues in seeking 

any future changes to fees, and the 

Exchange commits to do so. 

Projected Revenue 

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; 


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104Assuming 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). 

105 Id. 

106 Id. 

107 Id. 

108See Securities Exchange Act Release No. 

95936 (September 27, 2022), 87 FR 59845 (October 

3, 2022) (SR–MEMX–2022–26) (proposing to adopt 

fees for connectivity and stating that MEMX would 

earn approximately 8.5% to 15% margin). MEMX’s 

projected profit margin being for a single exchange 

and the Exchange and its affiliated markets 

aggregated profit margin being for four separate 

markets is not a material difference as both profit 

margins reflect the profit of the overall corporate 

entities that operate the exchange(s). 

109See BX Pricing Schedule, available at https:// 

www.nasdaqtrader.com/Trader.aspx?id=bx_pricing; 

and BX Rules, General 8: Connectivity, Section 2, 

Direct Connectivity. 

110See PSX Pricing Schedule, available at https:// 

www.nasdaqtrader.com/Trader.aspx?id=PSX_

Pricing; and PSX Rules, General 8: Connectivity, 

Section 2, Direct Connectivity. 

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 $17,726,799. Based on current 

10Gb ULL connectivity services usage, 

the Exchange would generate annual 

revenue of approximately $9,144,000. 

This represents a negative margin when 

compared to the cost of providing 10Gb 

ULL connectivity services, which will 

decrease over time.104

• The Exchange’s Cost Analysis 

estimates the annual cost to provide 1Gb 

connectivity services will equal 

$604,851. Based on current 1Gb 

connectivity services usage, the 

Exchange would generate annual 

revenue of approximately $312,000. 

This represents a negative margin when 

compared to the cost of providing 1Gb 

connectivity services, which will 

decrease over time.105

• The Exchange’s Cost Analysis 

estimates the annual cost to provide FIX 

Port services will equal $911,998. Based 

on current FIX Port services usage, the 

Exchange would generate annual 

revenue of approximately $388,800. 

This represents a negative margin when 

compared to the cost of providing FIX 

Port services, which will decrease over 

time.106

• The Exchange’s Cost Analysis 

estimates the annual cost to provide 

MEO Port services will equal 

$3,039,995. Based on current MEO Port 

services usage, the Exchange would 

generate annual revenue of 

approximately $1,296,000. This 

represents a negative margin when 

compared to the cost of providing MEO 

Port services, which will decrease over 

time.107

Importantly, the Exchange’s affiliated 

markets submitted similar filings to also 

amend their fees for 10Gb ULL 

connectivity and, when considering the 

profit margins attributed to 10Gb ULL 

connectivity for the affiliated markets 

and the Exchange collectively, the 

overall profit margin based on projected 

revenue and costs for the Exchange and 

its affiliated markets for 10Gb ULL 

connectivity is only 9.5%. This margin 

is in line with the profit margin MEMX 

anticipated making in a recent similar 

proposal to adopt connectivity fees, 

including fees for 10Gb connectivity, 

that the Commission Staff did not 

suspend and remains in effect today.108

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 supra-competitive profit, 

when comparing the total expense of the 

Exchange associated with providing 1Gb 

and 10Gb ULL connectivity and FIX and 

MEO Port services versus the total 

projected revenue of the Exchange 

associated with those services. In fact, 

the Exchange will generate negative 

margins on those connectivity and port 

services even with the proposed fees. 

The Exchange also notes that this the 

resultant margin differs 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., 

MIAX Pearl Equities maintains 24 

matching engines while MIAX Pearl 

Options maintains 12 matching 

engines); and different maturity phase of 

the Exchange and its affiliated markets 

(i.e., start-up versus growth versus more 

mature). All of these factors contribute 

to a unique and differing level of profit 

margin per exchange. 

Further, the Exchange proposes to 

charge rates that are comparable to, or 

lower than, similar fees for similar 

products charged by competing 

exchanges. For example, for 10Gb ULL 

connectivity, the Exchange proposes a 

lower fee than the fee charged by BX for 

its comparable 10Gb Ultra fiber 

connection ($8,000 per month for the 

Exchange vs. $15,000 per month for 

BX).109 PSX charges comparable rate for 

its 10Gb connection of $7,500.110

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). 

MIAX Pearl Equities is one of the 

newer equities exchange and only 

commenced operations in September 

2020. New entrants like MIAX Pearl 

Equities propose fees that may help 

these new entrants recoup their 

substantial investment in building out 


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111See Exchange Fee Schedule (offering market 

data for no cost). 

112See, e.g., 5 Successful Companies that Didn’t 

Make a Dollar for 5 Years, by Drew Hendricks, July 

7, 2014, available at https://www.inc.com/drewhendricks/5-successful-companies-that-didn-8217- 

t-make-a-dollar-for-5-years.html. 

113The Exchange has incurred a cumulative loss 

of $83 million since its inception in 2020. See 

Exchange’s Form 1/A, Application for Registration 

or Exemption from Registration as a National 

Securities Exchange, filed June 26, 2023, available 

at https://www.sec.gov/Archives/edgar/vprr/2300/ 

23007741.pdf. 

costly infrastructure. However, it is not 

uncommon for start-ups, like MIAX 

Pearl Equities, to incur losses while they 

seek to build their businesses.111 In 

some cases, as is the case here, these 

start-ups set their fees purposefully low 

or offer products at no cost 112 to attract 

business and build market share so that 

they can compete with the larger, well 

established incumbents that already 

charge higher fees. This is done while 

incurring losses by investing in future 

growth. Therefore, it is not uncommon 

for MIAX Pearl Equities to incur a 

negative profit margin even with the 

proposed fees while it continues to 

build its business and gain traction as a 

new exchange entrant that competing to 

attract market share from the larger, 

established incumbent equities 

exchanges. 

* * * * * 

MIAX Pearl Equities has operated at 

a cumulative net annual loss since it 

launched operations in 2020.113 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 

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 1Gb and 10Gb ULL 

connectivity as well as FIX and 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 

1Gb and 10Gb ULL connectivity as well 

as FIX and 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 1Gb 

and 10Gb ULL connectivity as well as 

FIX and MEO Ports, the Exchange will 

have to be successful in retaining 

existing clients that wish to utilize 1Gb 

and 10Gb ULL connectivity as well as 

FIX and MEO Ports and/or obtaining 

new clients that will purchase such 

access. 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 part of a holding 

company that operates four exchange 

markets and, therefore, the Exchange 

and its affiliated markets must allocate 

shared costs across all of those markets 

accordingly, pursuant to the abovedescribed allocation methodology. In 

contrast, the Investors Exchange LLC 

(‘‘IEX’’) and MEMX, which are currently 

each operating only one exchange, in 

their recent non-transaction fee filings 

can allocate the entire amount of that 

same cost to a single exchange. This can 

result in lower profit margins for the 

non-transaction fees proposed by IEX 

and MEMX because the single allocated 

cost does not experience the efficiencies 

and synergies that result from sharing 

costs across multiple platforms. The 

Exchange and its affiliated markets often 

share a single cost, which results in cost 

efficiencies that can cause a broader gap 

between the allocated cost amount and 

projected revenue, even though the fee 

levels being proposed are lower or 

competitive with competing markets (as 

described above). To the extent that the 

application of a cost-based standard 

results in Commission Staff making 

determinations as to the appropriateness 

of certain profit margins, the Exchange 

believes that Commission Staff should 

also consider whether the proposed fee 

level is comparable to, or competitive 

with, the same fee charged by 

competing exchanges and how different 

cost allocation methodologies (such as 

across multiple markets) may result in 

different profit margins for comparable 

fee levels. Further, if Commission Staff 

is making determinations as to 

appropriate profit margins in their 

approval of exchange fees, the Exchange 

believes that the Commission should be 

clear to all market participants as to 

what they have determined is an 

appropriate profit margin and should 

apply such determinations consistently 

and, in the case of certain legacy 

exchanges, retroactively, if such 

standards are to avoid having a 

discriminatory effect. 

Further, as is reflected in the 

proposal, the Exchange continuously 

and aggressively works to control its 

costs as a matter of good business 

practice. A potential profit margin 

should not be evaluated solely on its 

size; that assessment should also 

consider cost management and whether 

the ultimate fee reflects the value of the 

services provided. For example, a profit 

margin on one exchange should not be 

deemed excessive where that exchange 

has been successful in controlling its 

costs, but not excessive on another 

exchange where that exchange is 

charging comparable fees but has a 

lower profit margin due to higher costs. 

Doing so could have the perverse effect 

of not incentivizing cost control where 

higher costs alone could be used to 

justify fees increases. 

The Proposed Pricing Is Not Unfairly 

Discriminatory and Provides for the 

Equitable Allocation of Fees, Dues, and 

Other Charges 

The Exchange believes that the 

proposed fees are reasonable, fair, 

equitable, and not unfairly 

discriminatory because they are 

designed to align fees with services 

provided and will apply equally to all 

subscribers. 

1Gb and 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 


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68756 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

114 17 CFR 240.17a–1 (recordkeeping rule for 

national securities exchanges, national securities 

associations, registered clearing agencies and the 

Municipal Securities Rulemaking Board). 

115 Id. 

116See supra note 113. 

117The 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 

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 equities 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.114 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. 

FIX and MEO Ports 

To achieve a consistent, premium 

network performance, the Exchange 

must build out and maintain a network 

that has the capacity to handle the 

message rate requirements of its most 

heavy network consumers 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.115 Thus, as the number of 

connections an Equity Member has 

increases, the related pull on Exchange 

resources also increases. The Exchange 

sought to design the proposed pricing 

structure to set the amount of the fees 

to relate to the number of connections 

a firm purchases, while continuing to 

provide the first five (5) ports for free. 

The more connections purchased by an 

Equity Member 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 Equity 

Member their first five (5) ports for free, 

unlike other equity exchanges 

referenced above. 

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 

1Gb and 10Gb ULL connectivity as well 

as FIX and 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 2020 116

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 industry, which 

resulted in lower initial revenues. 

Examples of this are 1Gb and 10Gb ULL 

connectivity as well as FIX and MEO 

Ports, for which the Exchange only now 

seeks to adopt fees at a level similar to 

or lower than those of other equity 

exchanges. 

Further, the Exchange does not 

believe that the proposed fee increase 

for the 1Gb or 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. The 

proposed fees would apply uniformly to 

all market participants regardless of the 

number of connections they choose to 

purchase. The proposed fees do 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 

Equity Members, non-Equity Members 

(extranets or service bureaus), thirdparties that purchase the Exchange’s 

connectivity and resell it, and customers 

of those resellers to compete with other 

market participants or that they are 

placed at a disadvantage. 

The Exchange does anticipate, 

however, that some market participants 

may reduce or discontinue use of 

connectivity services provided directly 

by the Exchange in response to the 

proposed fees. In fact, as mentioned 

above, one MIAX Pearl Options Market 

Maker terminated their MIAX Pearl 

Options membership on January 1, 2023 

as a direct result of the proposed fee 

changes for that market.117 The 


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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 68757 

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 67. 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. In addition, despite 

the potential for existing subscribers to terminate 

connections due to the proposal, the Exchange 

anticipates its number of subscribers to remain 

generally static, resulting in an immaterial 

difference between a best case and worst case 

scenario. 

118See 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, July 24, 2023 and September 18, 2023. 

119 15 U.S.C. 78s(b)(3)(A)(ii). 

120 17 CFR 240.19b–4(f)(2). 

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 will result 

in any burden on inter-market 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. As discussed 

above, market participants are not 

forced to connect to all exchanges. 

There is no reason to believe that our 

proposed price increase will harm 

another exchange’s ability to compete. 

There are other markets of which market 

participants may connect to trade 

equities at higher rates than the 

Exchange’s. There is also a range of 

alternative strategies, including routing 

to the exchange through another 

participant or market center or accessing 

the Exchange indirectly. Market 

participants are free to choose which 

exchange or reseller to use to satisfy 

their business needs. 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. 

* * * * * 

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 Fourth 

Proposal and one comment letter on the 

Fifth Proposal, all from the same 

commenter.118 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,119 and Rule 

19b–4(f)(2) 120 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–2023–51 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 


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68758 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

121 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 97904 

(July 13, 2023), 88 FR 46207 (‘‘Notice’’). Comments 

on the proposed rule change, as modified by 

Amendment No. 1, are available at: https://

www.sec.gov/comments/sr-cboebzx-2023-042/

srcboebzx2023042.htm. 4 15 U.S.C. 78s(b)(2). 

5See Securities Exchange Act Release No. 98264, 

88 FR 61657 (Sept. 7, 2023). The Commission 

designated October 17, 2023, as the date by which 

the Commission shall approve or disapprove, or 

institute proceedings to determine whether to 

disapprove, the proposed rule change. 

6 15 U.S.C. 78s(b)(2)(B). 

7See Notice, supra note 3. 

8See id. at 46215. WisdomTree Digital 

Commodity Services, LLC (‘‘Sponsor’’) is the 

sponsor of the Trust. 9See id. The Trust generally does not intend to 

hold cash or cash equivalents; however, there may 

be situations where the Trust would unexpectedly 

hold cash on a temporary basis. See id. 

10See id. 

11See id. at 46216. 

12See id. 

13See id. at 46215. 

14 15 U.S.C. 78s(b)(2)(B). 

15 Id. 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–PEARL–2023–51. 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–2023–51 and should be 

submitted on or before October 25, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.121

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–21933 Filed 10–3–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98623; File No. SR– 

CboeBZX–2023–042] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Order Instituting 

Proceedings To Determine Whether To 

Approve or Disapprove a Proposed 

Rule Change, as Modified by 

Amendment No. 1, To List and Trade 

Shares of the WisdomTree Bitcoin 

Trust Under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares 

September 28, 2023. 

On June 30, 2023, Cboe BZX 

Exchange, Inc. (‘‘BZX’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to list and trade shares 

(‘‘Shares’’) of the WisdomTree Bitcoin 

Trust (‘‘Trust’’) under BZX Rule 

14.11(e)(4), Commodity-Based Trust 

Shares. On July 11, 2023, the Exchange 

filed Amendment No. 1 to the proposed 

rule change, which amended and 

replaced the proposed rule change in its 

entirety. The proposed rule change, as 

modified by Amendment No. 1, was 

published for comment in the Federal 

Register on July 19, 2023.3

On August 31, 2023, pursuant to 

Section 19(b)(2) of the Act,4 the 

Commission designated a longer period 

within which to approve the proposed 

rule change, disapprove the proposed 

rule change, or institute proceedings to 

determine whether to disapprove the 

proposed rule change, as modified by 

Amendment No. 1.5 This order 

institutes proceedings under Section 

19(b)(2)(B) of the Act 6 to determine 

whether to approve or disapprove the 

proposed rule change, as modified by 

Amendment No. 1. 

I. Summary of the Proposal, as 

Modified by Amendment No. 1 

As described in more detail in the 

Notice,7 the Exchange proposes to list 

and trade the Shares of the Trust under 

BZX Rule 14.11(e)(4), which governs the 

listing and trading of Commodity-Based 

Trust Shares on the Exchange. 

The investment objective of the Trust 

is to gain exposure to the price of 

bitcoin, less expenses and liabilities of 

the Trust’s operations.8 The Trust’s 

assets will consist of bitcoin held by the 

Trust’s custodian on behalf of the 

Trust.9 The Trust will value its Shares 

daily based on the value of bitcoin as 

reflected by the CF Bitcoin US 

Settlement Price (‘‘Reference Rate’’).10

The administrator of the Trust will 

determine the net asset value (‘‘NAV’’) 

of the Trust on each day that the 

Exchange is open for regular trading, as 

promptly as practical after 4:00 p.m. 

ET.11 In determining the Trust’s NAV, 

the administrator will value the bitcoin 

held by the Trust based on the price set 

by the Reference Rate as of 4:00 p.m. 

ET.12 When the Trust sells or redeems 

its Shares, it will do so in ‘‘in-kind’’ 

transactions with authorized 

participants in blocks of Shares.13

II. Proceedings To Determine Whether 

To Approve or Disapprove SR– 

CboeBZX–2023–042 and Grounds for 

Disapproval Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act 14 to determine 

whether the proposed rule change 

should be approved or disapproved. 

Institution of proceedings is appropriate 

at this time in view of the legal and 

policy issues raised by the proposed 

rule change, as discussed below. 

Institution of proceedings does not 

indicate that the Commission has 

reached any conclusions with respect to 

any of the issues involved. Rather, as 

described below, the Commission seeks 

and encourages interested persons to 

provide comments on the proposed rule 

change. 

Pursuant to Section 19(b)(2)(B) of the 

Act,15 the Commission is providing 

notice of the grounds for disapproval 

under consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of the proposed rule 

change’s consistency with Section 

6(b)(5) of the Act, which requires, 


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