72174 Federal Register / Vol. 88, No. 201 / Thursday, October 19, 2023 / Notices 

17 15 U.S.C. 78s(b)(3)(A)(ii). 18 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

exchanges and with alternative trading 

systems that have been exempted from 

compliance with the statutory standards 

applicable to exchanges. Because 

competitors are free to modify their own 

fees in response, the Exchange believes 

that the degree to which fee changes in 

this market may impose any burden on 

competition is extremely limited. 

Approval of the proposal does not 

impose any burden on the ability of 

other exchanges to compete. As noted 

above, time synchronization services are 

offered by other vendors and any 

exchange has the ability to offer such 

services if it so chooses. 

Nothing in the proposal burdens 

intra-market competition (the 

competition among consumers of 

exchange data) because the GPS antenna 

is available to any customer under the 

same fees as any other customer, and 

any market participant that wishes to 

purchase a GPS antenna can do so on 

a non-discriminatory basis. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to section 

19(b)(3)(A)(ii) of the Act.17 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: (i) 

necessary or appropriate in the public 

interest; (ii) for the protection of 

investors; or (iii) 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– 

MRX–2023–19 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–MRX–2023–19. 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–MRX–2023–19 and should be 

submitted on or before November 9, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–23035 Filed 10–18–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98751; File No. SR– 

EMERALD–2023–27] 

Self-Regulatory Organizations; MIAX 

Emerald, LLC; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend Its Fee 

Schedule To Modify Certain 

Connectivity and Port Fees 

October 13, 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 October 

2, 2023, MIAX Emerald, LLC (‘‘MIAX 

Emerald’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

as described in Items I, II, and III below, 

which Items have been prepared by the 

Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing a proposal to 

amend the MIAX Emerald Options 

Exchange Fee Schedule (‘‘Fee 

Schedule’’) to amend certain 

connectivity and port fees. 

The text of the proposed rule change 

is available on the Exchange’s website at 

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

office, and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

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. 


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3The term ‘‘Member’’ means an individual or 

organization approved to exercise the trading rights 

associated with a Trading Permit. Members are 

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

Exchange Rule 100. 

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

a connection to the MIAX Emerald System that 

enables Market Makers to submit simple and 

complex electronic quotes to MIAX Emerald. See 

the Definitions Section of the Fee Schedule. 

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

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

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

(‘‘RMMs’’) collectively. See the Definitions Section 

of the Fee Schedule and Exchange Rule 100. For 

purposes of Limit Service MEI Ports, Market Makers 

also include firms that engage in other types of 

liquidity activity, such as seeking to remove resting 

liquidity from the Exchange’s Book. 

6See Securities Exchange Act Release Nos. 91460 

(April 1, 2021), 86 FR 18349 (April 8, 2021) (SR– 

EMERALD–2021–11); 90184 (October 14, 2020), 85 

FR 66636 (October 20, 2020) (SR–EMERALD–2020– 

12); 90600 (December 8, 2020), 85 FR 80831 

(December 14, 2020) (SR–EMERALD–2020–17); 

91032 (February 1, 2021), 86 FR 8428 (February 5, 

2021) (SR–EMERALD–2021–02); and 91200 

(February 24, 2021), 86 FR 12221 (March 2, 2021) 

(SR–EMERALD–2021–07). 

7See id. for a description of each of these ports. 

8 Id. 

9For 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. 

10See Securities Exchange Act Release No. 96628 

(January 10, 2023), 88 FR 2651 (January 17, 2023) 

(SR–EMERALD–2023–01). 

11See Securities Exchange Act Release No. 97079 

(March 8, 2023), 88 FR 15764 (March 14, 2023) (SR– 

EMERALD–2023–05). 

12See Securities Exchange Act Release No. 97422 

(May 2, 2023), 88 FR 29750 (May 8, 2023) (SR– 

EMERALD–2023–12). 

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. 97813 (June 

27, 2023), 88 FR 42785 (July 3, 2023) (SR– 

EMERALD–2023–14). 

14See Securities Exchange Act Release No. 98176 

(August 21, 2023), 88 FR 58341 (August 25, 2023) 

(SR–EMERALD–2023–19). Due to the prospect of a 

U.S. government shutdown, the Commission 

suspended the Fifth Proposal on September 29, 

2023. See Securities Exchange Act Release No. 

98656 (September 29, 2023) (SR–EMERALD–2023– 

19). 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend the 

Fee Schedule as follows: (1) increase the 

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

latency (‘‘ULL’’) fiber connection for 

Members 3 and non-Members; and (2) 

amend the monthly port fee for 

additional Limited Service MIAX 

Emerald Express Interface (‘‘MEI’’) 

Ports 4 available to Market Makers.5 The 

Exchange last increased the fees for both 

10Gb ULL fiber connections and 

Limited Service MEI Ports beginning 

with a series of filings on October 1, 

2020 (with the final filing made on 

March 24, 2021).6 Prior to that fee 

change, the Exchange provided Limited 

Service MEI Ports for $50 per port, after 

the first two Limited Service MEI Ports 

that are provided free of charge, and the 

Exchange incurred all the costs 

associated to provide those first two 

Limited Service MEI Ports since it 

commenced operations in March 2019. 

The Exchange then increased the fee by 

$50 to a modest $100 fee per Limited 

Service MEI Port and increased the fee 

for 10Gb ULL fiber connections from 

$6,000 to $10,000 per month. 

Also, in that fee change, the Exchange 

adopted fees for providing five different 

types of ports for the first time. These 

ports were FIX Ports, MEI Ports, 

Clearing Trade Drop Ports, FIX Drop 

Copy Ports, and Purge Ports.7 Again, the 

Exchange absorbed all costs associated 

with providing these ports since its 

launch in March 2019. As explained in 

that filing, expenditures, as well as 

research and development (‘‘R&D’’) in 

numerous areas resulted in a material 

increase in expense to the Exchange and 

were the primary drivers for that 

proposed fee change. In that filing, the 

Exchange allocated a total of $9.3 

million in expenses to providing 10Gb 

ULL fiber connectivity, additional 

Limited Service MEI Ports, FIX Ports, 

MEI Ports, Clearing Trade Drop Ports, 

FIX Drop Copy Ports, and Purge Ports.8

Since the time of the 2021 increase 

discussed above, the Exchange 

experienced ongoing increases in 

expenses, particularly internal 

expenses.9 As discussed more fully 

below, the Exchange recently calculated 

increased annual aggregate costs of 

$11,361,586 for providing 10Gb ULL 

connectivity and $1,779,066 for 

providing Limited Service MEI Ports. 

Much of the cost relates to monitoring 

and analysis of data and performance of 

the network via the subscriber’s 

connection with nanosecond 

granularity, and continuous 

improvements in network performance 

with the goal of improving the 

subscriber’s experience. The costs 

associated with maintaining and 

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

significant expense for the Exchange, 

and thus the Exchange believes that it 

is reasonable and appropriate to help 

offset those increased costs by amending 

fees for connectivity services. 

Subscribers expect the Exchange to 

provide this level of support so they 

continue to receive the performance 

they expect. This differentiates the 

Exchange from its competitors. 

The Exchange now proposes to amend 

the Fee Schedule to amend the fees for 

10Gb ULL connectivity and Limited 

Service MEI Ports in order to recoup 

ongoing costs and increase in expenses 

set forth below in the Exchange’s cost 

analysis. The Exchange initially filed 

this proposal on December 30, 2022 as 

SR–EMERALD–2022–38. On January 9, 

2023, the Exchange withdrew SR– 

EMERALD–2022–38 and resubmitted 

this proposal as SR–EMERALD–2023– 

01 (the ‘‘Initial Proposal’’).10 On, 

February 23, 2023, the Exchange 

withdrew the Initial Proposal and 

replaced it with a revised proposal (SR– 

EMERALD–2023–05) (the ‘‘Second 

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

Exchange withdrew the Second 

Proposal and replaced it with a revised 

proposal (SR–EMERALD–2023–12) (the 

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

the Exchange withdrew the Third 

Proposal and replaced it with a revised 

proposal (SR–EMERALD–2023–14) (the 

‘‘Fourth Proposal’’).13 On August 8, 

2023, the Exchange withdrew the 

Fourth Proposal and replaced it with a 

revised proposal (SR–EMERALD–2023– 

19) (the ‘‘Fifth Proposal’’).14 Since a U.S. 

government shutdown was avoided, on 

October 2, 2023, the Exchange withdrew 

the Fifth Proposal and replaced it with 

this further revised proposal (SR– 

EMERALD–2023–27) (the ‘‘Sixth 

Proposal’’). 

The Exchange previously included a 

cost analysis in the Initial, 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 (MIAX 

PEARL, LLC (‘‘MIAX Pearl’’) (separately 

among MIAX Pearl Options and MIAX 


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15The term ‘‘MIAX’’ means Miami International 

Securities Exchange, LLC. See Exchange Rule 100. 

16See Susquehanna International Group, LLP v. 

Securities & Exchange Commission, 866 F.3d 442 

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

17 Id. 

18See Sec. Indus. & Fin. Mkts. Ass’n, Securities 

Exchange Act Release No. 84432, 2018 WL 5023228 

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

19See 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). 

20 Id. at page 2. 

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

Exchange Act Release No. 85802, 2019 WL 2022819 

(May 7, 2019) (the ‘‘Order Denying 

Reconsideration’’). 

22Order Denying Reconsideration, 2019 WL 

2022819, at *13. 

23See 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). 

24See 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’’). 25 Id. 26 Id. 27NASDAQ 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. 28Nasdaq 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. 

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

the challenged remand has disappeared.’’). 

30Sec. 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’’). 

Pearl Equities) and MIAX 15 (together 

with MIAX Pearl Options and MIAX 

Pearl Equities, the ‘‘affiliated markets’’)) 

to ensure no cost was allocated more 

than once, as well as additional detail 

supporting its cost allocation processes 

and explanations as to why a cost 

allocation in this proposal may differ 

from the same cost allocation in a 

similar proposal submitted by one of its 

affiliated markets. Although the baseline 

cost analysis used to justify the 

proposed fees was made in the Initial, 

Second, Third, 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 10Gb ULL connectivity and 

Limited Service MEI Ports with a 

reasonable mark-up over those costs. 

* * * * * 

Starting in 2017, following the United 

States Court of Appeals for the District 

of Columbia’s Susquehanna Decision 16

and various other developments, the 

Commission began to undertake a 

heightened review of exchange filings, 

including non-transaction fee filings 

that was substantially and materially 

different from it prior review process 

(hereinafter referred to as the ‘‘Revised 

Review Process’’). In the Susquehanna 

Decision, the D.C. Circuit Court stated 

that the Commission could not maintain 

a practice of ‘‘unquestioning reliance’’ 

on claims made by a self-regulatory 

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

filing a rule or fee change with the 

Commission.17 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.18 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’’).19 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.’’ 20 The Commission denied 

requests by various exchanges and plan 

participants for reconsideration of the 

Remand Order.21 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.’’ 22 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.23 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.’’ 24 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.’’ 25 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.’’ 26

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. SEC27 and remanded for 

further proceedings consistent with its 

opinion.28 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.’’ 29 Accordingly, 

on August 7, 2020, the Commission 

vacated the Remand Order and ordered 

the parties to file briefs addressing 

whether the holding in NASDAQ v. SEC 

that Exchange Act section 19(d) does 

not permit challenges to generally 

applicable fee rules requiring dismissal 

of the challenges the Commission 

previously remanded.30 The 

Commission further invited ‘‘the parties 

to submit briefing stating whether the 

challenges asserted in the applications 

for review . . . should be dismissed, 


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31 Id. 

32Sec. Indus. & Fin. Mkts. Ass’n, Securities 

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

33See supra note 27, at page 2. 

34Commission 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. 35This 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. 

36See, 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). 

37The Exchange has filed, and subsequently 

withdrawn, various forms of this proposed fee 

numerous times since August 2021 with each 

proposal containing hundreds of cost and revenue 

disclosures never previously disclosed by legacy 

exchanges in their access and market data fee filings 

prior to 2019. 

38According 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. 

39See Cboe 2022 Form 1 Amendment, available 

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

22001155.pdf. 

40See C2 2021 Form 1 Amendment, available at 

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

21000469.pdf. 

41See C2 2022 Form 1 Amendment, available at 

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

22001156.pdf. 

and specifically identifying any 

challenge that they contend should not 

be dismissed pursuant to the holding of 

Nasdaq v. SEC.’’ 31 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.32

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.’’ 33 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’’).34 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 35

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.36 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.37 By impeding any 

path forward for non-legacy exchanges 

to establish commensurate nontransaction fees, or by failing to provide 

any alternative means for smaller 

markets to establish ‘‘fee parity’’ with 

legacy exchanges, the Commission is 

stifling competition: non-legacy 

exchanges are, in effect, being deprived 

of the revenue necessary to compete on 

a level playing field with legacy 

exchanges. This is particularly harmful, 

given that the costs to maintain 

exchange systems and operations 

continue to increase. The Commission 

Staff’s change in position impedes the 

ability of non-legacy exchanges to raise 

revenue to invest in their systems to 

compete with the legacy exchanges who 

already enjoy disproportionate nontransaction fee based revenue. For 

example, the Cboe Exchange, Inc. 

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

fee’’ revenue of $70,893,000 for 2020 38

and $80,383,000 for 2021.39 Cboe C2 

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

and capacity fee’’ revenue of 

$19,016,000 for 2020 40 and $22,843,000 

for 2021.41 Cboe BZX Exchange, Inc. 

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


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42See BZX 2021 Form 1 Amendment, available 

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

21000465.pdf. 

43See BZX 2022 Form 1 Amendment, available 

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

22001152.pdf. 

44See EDGX 2021 Form 1 Amendment, available 

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

21000467.pdf. 

45See EDGX 2022 Form 1 Amendment, available 

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

22001154.pdf. 

46According 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. 

47See PHLX 2021 Form 1 Amendment, available 

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

21000475.pdf. The Exchange notes that this type of 

Form 1 accounting appears to be designed to 

obfuscate the true financials of such exchanges and 

has the effect of perpetuating fee and revenue 

advantages of legacy exchanges. 

48See, e.g., CNBC Debuts New Set on NYSE Floor, 

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

49See, 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). 

50See supra note 24, at note 1. 

51See Securities Exchange Act Release Nos. 

94889 (May 11, 2022), 87 FR 29928 (May 17, 2022) 

(SR–EMERALD–2022–19); 94718 (April 14, 2022), 

87 FR 23633 (April 20, 2022) (SR–EMERALD–2022– 

15); 94717 (April 14, 2022), 87 FR 23648 (April 20, 

2022) (SR–EMERALD–2022–13); 94260 (February 

15, 2022), 87 FR 9695 (February 22, 2022) (SR– 

EMERALD–2022–05); 94257 (February 15, 2022), 87 

FR 9678 (February 22, 2022) (SR–EMERALD–2022– 

04); 93772 (December 14, 2021), 86 FR 71965 

(December 20, 2021) (SR–EMERALD–2021–43); 

93776 (December 14, 2021), 86 FR 71983 (December 

20, 2021) (SR–EMERALD–2021–42); 93188 

(September 29, 2021), 86 FR 55052 (October 5, 

2021) (SR–EMERALD–2021–31); (SR–EMERALD– 

2021–30) (withdrawn without being noticed by the 

Commission); 93166 (September 28, 2021), 86 FR 

54760 (October 4, 2021) (SR–EMERALD–2021–29); 

92662 (August 13, 2021), 86 FR 46726 (August 19, 

2021) (SR–EMERALD–2021–25); 92645 (August 11, 

2021), 86 FR 46048 (August 17, 2021) (SR– 

EMERALD–2021–23). 

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

53To the extent that the cost-based standard 

includes Commission Staff making determinations 

as to the appropriateness of certain profit margins, 

the Exchange believes that Staff should be clear as 

to what they determine is an appropriate profit 

margin. 

54 In light of the arguments above regarding 

disparate standards of review for historical legacy 

non-transaction fees and current non-transaction 

fees for non-legacy exchanges, a fee parity 

alternative would be one possible way to avoid the 

current unfair and discriminatory effect of the Staff 

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

CSA Staff Consultation Paper 21–401, Real-Time 

Market Data Fees, available at https://

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

Securities_Law/Policies/Policy2/21401_Market_

Data_Fee_CSA_Staff_Consulation_Paper.pdf. 

fee’’ revenue of $38,387,000 for 2020 42

and $44,800,000 for 2021.43 Cboe EDGX 

Exchange, Inc. (‘‘EDGX’’) reported 

‘‘access and capacity fee’’ revenue of 

$26,126,000 for 2020 44 and $30,687,000 

for 2021.45 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 2019.46 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.’’ 47

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,48 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),49

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 . . . ’’,50 this is not the reality 

experienced by exchanges such as 

MIAX Emerald. As such, non-legacy 

exchanges are forced to rely on an 

opaque cost-based justification 

standard. However, because the Staff 

Guidance is devoid of detail on what 

must be contained in cost-based 

justification, this standard is nearly 

impossible to meet despite repeated 

good-faith efforts by the Exchange to 

provide substantial amount of costrelated details. For example, the 

Exchange has attempted to increase fees 

using a cost-based justification 

numerous times, having submitted over 

six filings.51 However, despite 

providing 100+ page filings describing 

in extensive detail its costs associated 

with providing the services described in 

the filings, Commission Staff continues 

to suspend such filings, with the 

rationale that the Exchange has not 

provided sufficient detail of its costs 

and without ever being precise about 

what additional data points are 

required. The Commission Staff appears 

to be interpreting the reasonableness 

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

the Act 52 in a manner that is not 

possible to achieve. This essentially 

nullifies the cost-based approach for 

exchanges as a legitimate alternative as 

laid out in the Staff Guidance. By 

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

to accept a competition-based argument 

as described above), or by failing to 

provide the detail required to achieve 

that standard, the Commission Staff is 

effectively preventing non-legacy 

exchanges from making any nontransaction fee changes, which benefits 

the legacy exchanges and is 

anticompetitive to the non-legacy 

exchanges. This does not meet the 

fairness standard under the Act and is 

discriminatory. 

Because of the un-level playing field 

created by the Revised Review Process 

and Staff Guidance, the Exchange 

believes that the Commission Staff, at 

this point, should either (a) provide 

sufficient clarity on how its cost-based 

standard can be met, including a clear 

and exhaustive articulation of required 

data and its views on acceptable 

margins,53 to the extent that this is 

pertinent; (b) establish a framework to 

provide for commensurate nontransaction based fees among competing 

exchanges to ensure fee parity; 54 or (c) 

accept that certain competition-based 

arguments are applicable given the 

linkage between non-transaction fees 

and transaction fees, especially where 

non-transaction fees among exchanges 

are based upon disparate standards of 


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55The Exchange’s costs have clearly increased 

and continue to increase, particularly regarding 

capital expenditures, as well as employee benefits 

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

insurance). Yet, practically no fee change proposed 

by the Exchange to cover its ever-increasing costs 

has been acceptable to the Commission Staff since 

2021. The only other fair and reasonable alternative 

would be to require the numerous fee filings 

unquestioningly approved before the Staff Guidance 

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

and to ‘‘explain their conclusions, based on that 

record, in a written decision that is sufficient to 

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

comparable review process with the Exchange’s 

filing. 

56The Exchange’s system networks consist of the 

Exchange’s extranet, internal network, and external 

network. 

57Market participants that purchase additional 

10Gb ULL connections as a result of this change 

will not be subject to the Exchange’s Member 

Network Connectivity Testing and Certification Fee 

under Section (4)(c) of the Exchange’s Fee 

Schedule. See Section (4)(c) of the Exchange’s fee 

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

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

that ‘‘Network Connectivity Testing and 

Certification Fees will not be assessed in situations 

where the Exchange initiates a mandatory change 

to the Exchange’s system that requires testing and 

certification. Member Network Connectivity Testing 

and Certification Fees will not be assessed for 

testing and certification of connectivity to the 

Exchange’s Disaster Recovery Facility.’’). 

58The Exchange notes that in its prior filings (the 

Initial, Second, Third, Fourth and Fifth Proposals), 

the Exchange proposed to adopt a tiered-pricing 

structure for Limited Service MEI Ports. 

59The term ‘‘Full Service MEI Ports’’ means a 

port which provides Market Makers with the ability 

to send Market Maker simple and complex quotes, 

eQuotes, and quote purge messages to the MIAX 

Emerald System. Full Service MEI Ports are also 

capable of receiving administrative information. 

Market Makers are limited to two Full Service MEI 

Ports per Matching Engine. See the Definitions 

Section of the Fee Schedule. 

60The term ‘‘Limited Service MEI Ports’’ means 

a port which provides Market Makers with the 

ability to send simple and complex eQuotes and 

quote purge messages only, but not Market Maker 

Quotes, to the MIAX Emerald System. Limited 

Service MEI Ports are also capable of receiving 

administrative information. Market Makers initially 

receive two Limited Service MEI Ports per Matching 

Engine. See the Definitions Section of the Fee 

Schedule. 

61The term ‘‘Matching Engine’’ means a part of 

the MIAX Emerald electronic system that processes 

options orders and trades on a symbol-by-symbol 

basis. Some Matching Engines will process option 

classes with multiple root symbols, and other 

Matching Engines may be dedicated to one single 

option root symbol (for example, options on SPY 

may be processed by one single Matching Engine 

that is dedicated only to SPY). A particular root 

symbol may only be assigned to a single designated 

Matching Engine. A particular root symbol may not 

be assigned to multiple Matching Engines. See the 

Definitions Section of the Fee Schedule. 

62As noted in the Fee Schedule, Market Makers 

will continue to be limited to fourteen Limited 

Service MEI Ports per Matching Engine. The 

Exchange also proposes to make a ministerial 

clarifying change to remove the defined term 

‘‘Additional Limited Service MEI Ports’’. The 

Exchange proposes to make a related change to add 

the term ‘‘Limited Service MEI Ports’’ after the word 

‘‘fourteen’’ in the Fee Schedule. 

review, lack parity, and impede fair 

competition. Considering the absence of 

any such framework or clarity, the 

Exchange believes that the Commission 

does not have a reasonable basis to deny 

the Exchange this change in fees, where 

the proposed change would result in 

fees meaningfully lower than 

comparable fees at competing exchanges 

and where the associated nontransaction revenue is meaningfully 

lower than competing exchanges. 

In light of the above, disapproval of 

this would not meet the fairness 

standard under the Act, would be 

discriminatory and places a substantial 

burden on competition. The Exchange 

would be uniquely disadvantaged by 

not being able to increase its access fees 

to comparable levels (or lower levels 

than current market rates) to those of 

other options exchanges for 

connectivity. If the Commission Staff 

were to disapprove this proposal, that 

action, and not market forces, would 

substantially affect whether the 

Exchange can be successful in its 

competition with other options 

exchanges. Disapproval of this filing 

could also be viewed as an arbitrary and 

capricious decision should the 

Commission Staff continue to ignore its 

past treatment of non-transaction fee 

filings before implementation of the 

Revised Review Process and Staff 

Guidance and refuse to allow such 

filings to be approved despite 

significantly enhanced arguments and 

cost disclosures.55

* * * * * 

10Gb ULL Connectivity Fee Change 

The Exchange proposes to amend the 

Fee Schedule to increase the fees for 

Members and non-Members to access 

the Exchange’s system networks 56 via a 

10Gb ULL fiber connection. 

Specifically, the Exchange proposes to 

amend Sections (5)(a)–(b) of the Fee 

Schedule to increase the 10Gb ULL 

connectivity fee for Members and nonMembers from $10,000 per month to 

$13,500 per month (‘‘10Gb ULL Fee’’).57

The Exchange will continue to assess 

monthly Member and non-Member 

network connectivity fees for 

connectivity to the primary and 

secondary facilities in any month the 

Member or non-Member is credentialed 

to use any of the Exchange APIs or 

market data feeds in the production 

environment. The Exchange will 

continue to pro-rate the fees when a 

Member or non-Member makes a change 

to the connectivity (by adding or 

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

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

any of the Exchange APIs or market data 

feeds in the production environment 

through such connection, divided by the 

total number of trading days in such 

month multiplied by the applicable 

monthly rate. 

Limited Service MEI Ports 

Background 

The Exchange also proposes to amend 

Section (5)(d) of the Fee Schedule to 

amend the monthly port fee for Limited 

Service MEI Ports available to Market 

Makers.58 The Exchange currently 

allocates two (2) Full Service MEI 

Ports 59 and two (2) Limited Service MEI 

Ports 60 per matching engine 61 to which 

each Market Maker connects. Market 

Makers may also request additional 

Limited Service MEI Ports for each 

matching engine to which they connect. 

The Full Service MEI Ports and Limited 

Service MEI Ports all include access to 

the Exchange’s primary and secondary 

data centers and its disaster recovery 

center. Market Makers may request 

additional Limited Service MEI Ports. 

Prior to the Exchange’s proposals to 

adopt a tiered fee structure for Limited 

Service MEI Ports, Market Makers were 

assessed a $100 monthly fee for each 

Limited Service MEI Port for each 

matching engine above the first two 

Limited Service MEI Ports that are 

included for free (before the proposals 

to adopt a tiered fee structure). 

Limited Service MEI Port Fee Changes 

The Exchange now proposes to amend 

the monthly fee per Limited Service 

MEI Port and increase the number of 

free Limited Service MEI Ports per 

matching engine from two (2) to four (4). 

Specifically, the Exchange will now 

provide the first, second, third and 

fourth Limited Service MEI Ports for 

each matching engine free of charge. For 

additional Limited Service MEI Ports 

after the first four ports per matching 

engine that are provided for free (i.e., 

beginning with the fifth Limited Service 

MEI Port), the Exchange proposes to 

increase the monthly fee from $100 to 

$420 per Limited Service MEI Port per 

matching engine.62

Market Makers that elect to purchase 

more than the number of Limited 

Service Ports that are provide for free do 


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63See supra note 6. 

64 15 U.S.C. 78f(b). 

65 15 U.S.C. 78f(b)(4). 

66 15 U.S.C. 78f(b)(5). 

67See supra note 23. 

68See supra note 24. 

69 Id. 

70 Id. 

71 Id. 

so due to the nature of their business 

and their perceived need for numerous 

ports to access the Exchange. 

Meanwhile, Market Makers who utilize 

the free Limited Service MEI Ports do so 

based on their business needs. 

The Exchange notes that it last 

proposed to increase its monthly 

Limited Service MEI Port fees in 2020 

(other than the prior proposals to adopt 

a tiered fee structure for Limited Service 

MEI Ports),63 and such increase 

proposed herein is designed to recover 

a portion of the ever increasing costs 

associated with directly accessing the 

Exchange. 

The Exchange also proposes to make 

corresponding changes to the 

Definitions section of the Fee Schedule 

and the paragraph describing the cap on 

the number of Limited Service MEI 

Ports each Market Maker may receive in 

Section (5)(d)(ii) of the Fee Schedule to 

account for the proposed change to now 

provide the first four (4) Limited Service 

MEI Ports for free per matching engine. 

Accordingly, the Exchange proposes to 

amend the last sentence of the 

paragraph describing the fees for 

Limited Service MEI Ports in Section 

(5)(d)(ii) of the Fee Schedule to now 

state that Market Makers are limited to 

ten additional Limited Service MEI 

Ports per matching engine, for a total of 

fourteen Limited Service MEI Ports per 

matching engine. 

Implementation 

The proposed fee changes are 

immediately effective. 

2. Statutory Basis 

The Exchange believes that the 

proposed fees are consistent with 

section 6(b) of the Act 64 in general, and 

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

of the Act 65 in particular, in that it 

provides for the equitable allocation of 

reasonable dues, fees and other charges 

among Members and other persons 

using any facility or system which the 

Exchange operates or controls. The 

Exchange also believes the proposed 

fees further the objectives of section 

6(b)(5) of the Act 66 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 67 and the Staff Guidance,68

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.’’ 69 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.’’ 70

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.’’ 71

The proposed fees are reasonable 

because they promote parity among 

exchange pricing for access, which 

promotes competition, including in the 

Exchanges’ ability to competitively 

price transaction fees, invest in 

infrastructure, new products and other 

innovations, all while allowing the 

Exchange to recover its costs to provide 

dedicated access via 10Gb ULL 

connectivity and Limited Service MEI 

Ports. As discussed above, the Revised 

Review Process and Staff Guidance have 

created an uneven playing field between 

legacy and non-legacy exchanges by 

severely restricting non-legacy 

exchanges from being able to increase 

non-transaction related fees to provide 

them with additional necessary revenue 

to better compete with legacy 

exchanges, which largely set fees prior 

to the Revised Review Process. The 

much higher non-transaction fees 

charged by the legacy exchanges 

provides them with two significant 

competitive advantages: (i) additional 

non-transaction revenue that may be 

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

such as investments in infrastructure, 

advertising, new products and other 

innovations; and (ii) greater flexibility to 

lower their transaction fees by using the 

revenue from the higher non-transaction 

fees to subsidize transaction fee rates. 

The latter is more immediately 

impactful in competition for order flow 

and market share, given the variable 

nature of this cost on Member firms. 

The absence of a reasonable path 

forward to increase non-transaction fees 

to comparable (or lower rates) limits the 

Exchange’s flexibility to, among other 

things, make additional investments in 

infrastructure and advertising, 

diminishes the ability to remain 

competitive on transaction fees, and 

hinders the ability to compete for order 

flow and market share. Again, 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 initially adopted a fee 

of $50 per port, after the first two 

Limited Service MEI Ports that are 

provided free of charge, and the 

Exchange incurred all the costs 

associated to provide those first two 

Limited Service MEI Ports since it 

commenced operations in March 2019. 

At that same time, the Exchange only 

charged $6,000 per month for each 10Gb 

ULL connection. As a new exchange 

entrant, the Exchange chose to offer 

connectivity and ports at very low fees 

to encourage market participants to 


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72See Securities Exchange Act Release No. 94894 

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

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

this lower (when compared to other options 

exchanges in the industry) Participant Fee in order 

to encourage market participants to become 

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

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

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

10) (proposing to adopt the initial fee schedule and 

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

Schedule, the Exchange proposes to make clear that 

it does not charge any fees for membership, market 

data products, physical connectivity or application 

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

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

market data, and connectivity. See Securities 

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

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

19) (proposing to adopt membership fees); 96430 

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

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

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

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

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

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

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

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

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

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

data fees for the NYSE National exchange after 

initially setting such fees at zero). 

73The Exchange experienced a monthly average 

trading volume of 3.43% for the month of October 

2020. See the ‘‘Market Share’’ section of the 

Exchange’s website, available at https://

www.miaxglobal.com/. 

74See Securities Exchange Act Release Nos. 

91460 (April 1, 2021), 86 FR 18349 (April 8, 2021) 

(SR–EMERALD–2021–11); 90184 (October 14, 

2020), 85 FR 66636 (October 20, 2020) (SR– 

EMERALD–2020–12); 90600 (December 8, 2020), 85 

FR 80831 (December 14, 2020) (SR–EMERALD– 

2020–17); 91032 (February 1, 2021), 86 FR 8428 

(February 5, 2021) (SR–EMERALD–2021–02); and 

91200 (February 24, 2021), 86 FR 12221 (March 2, 

2021) (SR–EMERALD–2021–07). 

75See 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)). 

76See Securities Exchange Act Release No. 51808 

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

(‘‘Regulation NMS Adopting Release’’). 

77See 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.’’). 

78See Securities Exchange Act Release No. 59039 

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

2008) (SR–NYSEArca–2006–21). 

79 Id. 

80See Staff Guidance, supra note 24. 

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.72

Later in 2020, as the Exchange’s 

market share increased,73 the Exchange 

then increased the fee by $50 to a 

modest $100 fee per Limited Service 

MEI Port and increased the fee for 10Gb 

ULL fiber connections from $6,000 to 

$10,000 per month.74 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’. . . .’’ 75

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.’’ 76

Congress directed the Commission to 

‘‘rely on ‘competition, whenever 

possible, in meeting its regulatory 

responsibilities for overseeing the SROs 

and the national market system.’ ’’ 77 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.’’ 78 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.’’ 79 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.’’ 80

The Exchange believes the competing 

exchanges’ 10Gb connectivity and port 

fees are useful examples of alternative 

approaches to providing and charging 

for access and demonstrating how such 

fees are competitively set and 

constrained. To that end, the Exchange 

believes the proposed fees are 

competitive and reasonable because the 

proposed fees are similar to or less than 

fees charged for similar connectivity 

and port access provided by other 

options exchanges with comparable 

market shares. As such, the Exchange 

believes that denying its ability to 

institute fees that allow the Exchange to 

recoup its costs with a reasonable 

margin in a manner that is closer to 

parity with legacy exchanges, in effect, 

impedes its ability to compete, 

including in its pricing of transaction 

fees and ability to invest in competitive 

infrastructure and other offerings. 

The following table shows how the 

Exchange’s proposed fees remain 

similar to or less than fees charged for 

similar connectivity and port access 

provided by other options exchanges 

with similar market share. Each of the 

connectivity or port rates in place at 

competing options exchanges were filed 

with the Commission for immediate 

effectiveness and remain in place today. 


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81BOX 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.’’ 

82Service Bureaus may obtain ports on behalf of 

Members. 83See Securities Exchange Act Release No. 94894 

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

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

Effectiveness of a Proposed Rule Change to Amend 

the Fee Schedule on the BOX Options Market LLC 

Facility To Adopt Electronic Market Maker Trading 

Permit Fees). The Exchange believes that BOX’s 

observation demonstrates that market making firms 

can, and do, select which exchanges they wish to 

access, and, accordingly, options exchanges must 

take competitive considerations into account when 

setting fees for such access. 

Exchange Type of connection or port Monthly fee 

(per connection or per port) 

MIAX Emerald (as proposed) (equity options market share of 

2.69% for the month of August 2023) a.

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

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

$13,500. 

1–4 ports: FREE. 

5 or more ports: $420 each. 

NASDAQ b (equity options market share of 5.80% for the 

month of August 2023) c.

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

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

$15,000 per connection. 

1–5 ports: $1,500 per port. 

6–20 ports: $1,000 per port. 

21 or more ports: $500 per port. 

NASDAQ ISE LLC (‘‘ISE’’) d (equity options market share of 

5.58% for the month of August 2023) e.

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

SQF Port f ............................................

$15,000 per connection. 

$1,100 per port. 

NYSE American LLC (‘‘NYSE American’’) g (equity options market share of 7.34% for the month of August 2023) h.10Gb LX LCN connection ...................

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

$22,000 per connection. 

1–40 Ports: $450 per port. 

41 or more Ports: $150 per port. 

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

of 3.03% for the month of August 2023)j.

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

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

$15,000 per connection. 

$1,250 per port. 

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

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

jSee supra note a. 

There is no requirement, regulatory or 

otherwise, that any broker-dealer 

connect to and access any (or all of) the 

available options exchanges. Market 

participants may choose to become a 

member of one or more options 

exchanges based on the market 

participant’s assessment of the business 

opportunity relative to the costs of the 

Exchange. With this, there is elasticity 

of demand for exchange membership. 

As an example, the Exchange’s affiliate, 

MIAX Pearl Options, experienced a 

decrease in membership as the result of 

similar fees proposed herein. One MIAX 

Pearl Options Market Maker terminated 

their MIAX Pearl Options membership 

effective January 1, 2023, as a direct 

result of the proposed connectivity and 

port fee changes proposed by MIAX 

Pearl Options. 

It is not a requirement for market 

participants to become members of all 

options exchanges; in fact, certain 

market participants conduct an options 

business as a member of only one 

options market.81 A very small number 

of market participants choose to become 

a member of all sixteen options 

exchanges. Most firms that actively 

trade on options markets are not 

currently Members of the Exchange and 

do not purchase connectivity or port 

services at the Exchange. Connectivity 

and ports are only available to Members 

or service bureaus, and only a Member 

may utilize a port.82

One other exchange recently noted in 

a proposal to amend their own trading 

permit fees that of the 62 market making 

firms that are registered as Market 

Makers across Cboe, MIAX, and BOX, 

42 firms access only one of the three 

exchanges.83 The Exchange and its 

affiliated options markets, MIAX Pearl 

Options and MIAX, have a total of 46 

members. Of those 46 total members, 37 

are members of all three affiliated 

options markets, two are members of 

only two affiliated options markets, and 

seven are members of only one affiliated 

options market. The Exchange also 

notes that no firm is a Member of the 

Exchange only. The above data 

evidences that a broker-dealer need not 

have direct connectivity to all options 

exchanges, let alone the Exchange and 

its two affiliates, and broker-dealers may 

elect to do so based on their own 

business decisions and need to directly 

access each exchange’s liquidity pool. 

Not only is there not an actual 

regulatory requirement to connect to 

every options exchange, the Exchange 

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

practical requirement as well, as further 

evidenced by the broker-dealer 

membership analysis of the options 

exchanges discussed above. As noted 

above, this is evidenced by the fact that 

one MIAX Pearl Options Market Maker 

terminated their MIAX Pearl Options 

membership effective January 1, 2023 as 

a direct result of the proposed 

connectivity and port fee changes on 

MIAX Pearl Options (which are similar 

to the changes proposed herein). Indeed, 

broker-dealers choose if and how to 

access a particular exchange and 

because it is a choice, the Exchange 

must set reasonable pricing, otherwise 

prospective members would not connect 

and existing members would disconnect 

from the Exchange. The decision to 

become a member of an exchange, 

particularly for registered market 

makers, is complex, and not solely 

based on the non-transactional costs 

assessed by an exchange. As noted 

herein, specific factors include, but are 


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84See Options Order Protection and Locked/ 

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

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

4b99-9f11-c0e4db1a2266/options_order_protection_

plan.pdf. 

85See Exchange Rule 100. 

86Members may elect to not route their orders by 

utilizing the Do Not Route order type. See Exchange 

Rule 516(g). 

87Service Bureaus provide access to market 

participants to submit and execute orders on an 

exchange. On the Exchange, a Service Bureau may 

be a Member. Some Members utilize a Service 

Bureau for connectivity and that Service Bureau 

may not be a Member. Some market participants 

utilize a Service Bureau who is a Member to submit 

orders. 

88Sponsored Access is an arrangement whereby 

a Member permits its customers to enter orders into 

an exchange’s system that bypass the Member’s 

trading system and are routed directly to the 

Exchange, including routing through a service 

bureau or other third-party technology provider. 

89This may include utilizing a floor broker and 

submitting the trade to one of the five options 

trading floors. 

90See, 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). 

91The 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. 

92 15 U.S.C. 78s(b)(1). 

93 17 CFR 240.19b–4. 

94 15 U.S.C. 78f(b). 

not limited to: (i) an exchange’s 

available liquidity in options series; (ii) 

trading functionality offered on a 

particular market; (iii) product offerings; 

(iv) customer service on an exchange; 

and (v) transactional pricing. Becoming 

a member of the exchange does not 

‘‘lock’’ a potential member into a market 

or diminish the overall competition for 

exchange services. 

In lieu of becoming a member at each 

options exchange, a market participant 

may join one exchange and elect to have 

their orders routed in the event that a 

better price is available on an away 

market. Nothing in the Order Protection 

Rule requires a firm to become a 

Member at—or establish connectivity 

to—the Exchange.84 If the Exchange is 

not at the national best bid or offer 

(‘‘NBBO’’),85 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.86

With respect to the submission of 

orders, Members may also choose not to 

purchase any connection from the 

Exchange, and instead rely on the port 

of a third party to submit an order. For 

example, a third-party broker-dealer 

Member of the Exchange may be 

utilized by a retail investor to submit 

orders into an exchange. An 

institutional investor may utilize a 

broker-dealer, a service bureau,87 or 

request sponsored access 88 through a 

member of an exchange in order to 

submit a trade directly to an options 

exchange.89 A market participant may 

either pay the costs associated with 

becoming a member of an exchange or, 

in the alternative, a market participant 

may elect to pay commissions to a 

broker-dealer, pay fees to a service 

bureau to submit trades, or pay a 

member to sponsor the market 

participant in order to submit trades 

directly to an exchange. 

Non-Member third-parties, such as 

service bureaus and extranets, resell the 

Exchange’s connectivity. This indirect 

connectivity is another viable 

alternative for market participants to 

trade on the Exchange without 

connecting directly to the Exchange 

(and thus not pay the Exchange’s 

connectivity fees), which alternative is 

already being used by non-Members and 

further constrains the price that the 

Exchange is able to charge for 

connectivity and other access fees to its 

market. The Exchange notes that it 

could, but chooses not to, preclude 

market participants from reselling its 

connectivity. Unlike other exchanges, 

the Exchange also does not currently 

assess fees on third-party resellers on a 

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

the number of firms that connect to the 

Exchange indirectly via the thirdparty).90 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.91 Particularly, 

in the event that a market participant 

views the Exchange’s direct 

connectivity and access fees as more or 

less attractive than competing markets, 

that market participant can choose to 

connect to the Exchange indirectly or 

may choose not to connect to the 

Exchange and connect instead to one or 

more of the other 15 options markets. 

Accordingly, the Exchange believes that 

the proposed fees are fair and 

reasonable and constrained by 

competitive forces. 

The Exchange is obligated to regulate 

its Members and secure access to its 

environment. In order to properly 

regulate its Members and secure the 

trading environment, the Exchange 

takes measures to ensure access is 

monitored and maintained with various 

controls. Connectivity and ports are 

methods utilized by the Exchange to 

grant Members secure access to 

communicate with the Exchange and 

exercise trading rights. When a market 

participant elects to be a Member, and 

is approved for membership by the 

Exchange, the Member is granted 

trading rights to enter orders and/or 

quotes into Exchange through secure 

connections. 

Again, there is no legal or regulatory 

requirement that a market participant 

become a Member of the Exchange. This 

is again evidenced by the fact that one 

MIAX Pearl Options Market Maker 

terminated their MIAX Pearl Options 

membership effective January 1, 2023 as 

a direct result of the proposed 

connectivity and port fee changes on 

MIAX Pearl Options. If a market 

participant chooses to become a 

Member, they may then choose to 

purchase connectivity beyond the one 

connection that is necessary to quote or 

submit orders on the Exchange. 

Members may freely choose to rely on 

one or many connections, depending on 

their business model. 

Cost Analysis 

In general, the Exchange believes that 

exchanges, in setting fees of all types, 

should meet very high standards of 

transparency to demonstrate why each 

new fee or fee increase meets the 

Exchange Act requirements that fees be 

reasonable, equitably allocated, not 

unfairly discriminatory, and not create 

an undue burden on competition among 

members and markets. In particular, the 

Exchange believes that each exchange 

should take extra care to be able to 

demonstrate that these fees are based on 

its costs and reasonable business needs. 

In proposing to charge fees for 

connectivity and port services, the 

Exchange is especially diligent in 

assessing those fees in a transparent way 

against its own aggregate costs of 

providing the related service, and in 

carefully and transparently assessing the 

impact on Members—both generally and 

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

assure the fee will not create a financial 

burden on any participant and will not 

have an undue impact in particular on 

smaller Members and competition 

among Members in general. The 

Exchange believes that this level of 

diligence and transparency is called for 

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

under the Act,92 and Rule 19b–4 

thereunder,93 with respect to the types 

of information exchanges should 

provide when filing fee changes, and 

section 6(b) of the Act,94 which requires, 


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95 15 U.S.C. 78f(b)(4). 

96 15 U.S.C. 78f(b)(5). 

97 15 U.S.C. 78f(b)(8). 

98See Staff Guidance, supra note 24. 

99Types of market participants that obtain 

connectivity services from the Exchange but are not 

Members include service bureaus and extranets. 

Service bureaus offer technology-based services to 

other companies for a fee, including order entry 

services, and thus, may access Limited Service MEI 

Ports on behalf of one or more Members. Extranets 

offer physical connectivity services to Members and 

non-Members. 

100The 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. 

101For example, the Exchange maintains 12 

matching engines, MIAX Pearl Options maintains 

12 matching engines, MIAX Pearl Equities 

maintains 24 matching engines, and MIAX 

maintains 24 matching engines. 

among other things, that exchange fees 

be reasonable and equitably allocated,95

not designed to permit unfair 

discrimination,96 and that they not 

impose a burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act.97 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.98 The Exchange reiterates that the 

legacy exchanges with whom the 

Exchange vigorously competes for order 

flow and market share, were not subject 

to any such diligence or transparency in 

setting their baseline non-transaction 

fees, most of which were put in place 

before the Revised Review Process and 

Staff Guidance. 

As detailed below, the Exchange 

recently calculated its aggregate annual 

costs for providing physical 10Gb ULL 

connectivity to the Exchange at 

$11,361,586 (or approximately $946,799 

per month, rounded to the nearest dollar 

when dividing the annual cost by 12 

months) and its aggregate annual costs 

for providing Limited Service MEI Ports 

at $1,799,066 (or approximately 

$148,255 per month, rounded to the 

nearest dollar when dividing the annual 

cost by 12 months). In order to cover the 

aggregate costs of providing 

connectivity to its users (both Members 

and non-Members 99) going forward and 

to make a modest profit, as described 

below, the Exchange proposes to modify 

its Fee Schedule to charge a fee of 

$13,500 per month for each physical 

10Gb ULL connection. The Exchange 

also proposes to modify its Fee 

Schedule to amend the monthly fee for 

additional Limited Service MEI Ports 

and provide two additional ports free of 

charge for a total of four free Limited 

Service MEI Ports per matching engine 

to which each Member connects. 

In 2020, the Exchange completed a 

study of its aggregate costs to produce 

market data and connectivity (the ‘‘Cost 

Analysis’’).100 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,101 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 (61.9% of total 

expense amount allocated to 10Gb ULL 

connectivity), with smaller allocations 

to additional Limited Service MEI Ports 

(4.6%), and the remainder to the 

provision of other connectivity, other 

ports, transaction execution, 

membership services and market data 

services (33.5%). 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 


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allocation methodology was developed 

through an assessment of costs with 

senior management intimately familiar 

with each area of the Exchange’s 

operations. After adopting this 

allocation methodology, the Exchange 

then applied an allocation of each cost 

driver to each core service, resulting in 

the cost allocations described below. 

Each of the below cost allocations is 

unique to the Exchange and represents 

a percentage of overall cost that was 

allocated to the Exchange pursuant to 

the initial allocation described above. 

By allocating segmented costs to each 

core service, the Exchange was able to 

estimate by core service the potential 

margin it might earn based on different 

fee models. The Exchange notes that as 

a non-listing venue it has five primary 

sources of revenue that it can 

potentially use to fund its operations: 

transaction fees, fees for connectivity 

and port services, membership fees, 

regulatory fees, and market data fees. 

Accordingly, the Exchange must cover 

its expenses from these five primary 

sources of revenue. The Exchange also 

notes that as a general matter each of 

these sources of revenue is based on 

services that are interdependent. For 

instance, the Exchange’s system for 

executing transactions is dependent on 

physical hardware and connectivity; 

only Members and parties that they 

sponsor to participate directly on the 

Exchange may submit orders to the 

Exchange; many Members (but not all) 

consume market data from the Exchange 

in order to trade on the Exchange; and 

the Exchange consumes market data 

from external sources in order to 

comply with regulatory obligations. 

Accordingly, given this 

interdependence, the allocation of costs 

to each service or revenue source 

required judgment of the Exchange and 

was weighted based on estimates of the 

Exchange that the Exchange believes are 

reasonable, as set forth below. While 

there is no standardized and generally 

accepted methodology for the allocation 

of an exchange’s costs, the Exchange’s 

methodology is the result of an 

extensive review and analysis and will 

be consistently applied going forward 

for any other potential fee proposals. In 

the absence of the Commission 

attempting to specify a methodology for 

the allocation of exchanges’ 

interdependent costs, the Exchange will 

continue to be left with its best efforts 

to attempt to conduct such an allocation 

in a thoughtful and reasonable manner. 

Through the Exchange’s extensive 

updated Cost Analysis, which was again 

recently further refined, the Exchange 

analyzed every expense item in the 

Exchange’s general expense ledger to 

determine whether each such expense 

relates to the provision of connectivity 

and port services, and, if such expense 

did so relate, what portion (or 

percentage) of such expense actually 

supports the provision of connectivity 

and port services, and thus bears a 

relationship that is, ‘‘in nature and 

closeness,’’ directly related to network 

connectivity and port services. In turn, 

the Exchange allocated certain costs 

more to physical connectivity and 

others to ports, while certain costs were 

only allocated to such services at a very 

low percentage or not at all, using 

consistent allocation methodologies as 

described above. Based on this analysis, 

the Exchange estimates that the 

aggregate monthly cost to provide 10Gb 

ULL connectivity and Limited Service 

MEI Port services, including both 

physical 10Gb connections and Limited 

Service MEI Ports, is $1,095,054 

(utilizing the rounded numbers when 

dividing the annual cost for 10Gb ULL 

connectivity and annual cost for 

Limited Service MEI Ports by 12 

months, then adding both numbers 

together), as further detailed below. 

Costs Related To Offering Physical 10Gb 

ULL Connectivity 

The following chart details the 

individual line-item costs considered by 

the Exchange to be related to offering 

physical dedicated 10Gb ULL 

connectivity via an unshared network as 

well as the percentage of the Exchange’s 

overall costs that such costs represent 

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

below, the Exchange allocated 

approximately 28.1% of its overall 

Human Resources cost to offering 

physical connectivity). 

Cost drivers Allocated annual 

cost k

Allocated monthly 

cost l % of all 

Human Resources ..................................................................................................... $3,520,856 $293,405 28 

Connectivity (external fees, cabling, switches, etc.) ................................................. 71,675 5,973 61.9 

Internet Services and External Market Data ............................................................. 373,249 31,104 84.8 

Data Center ............................................................................................................... 752,545 62,712 61.9 

Hardware and Software Maintenance and Licenses ................................................ 666,208 55,517 50.9 

Depreciation ............................................................................................................... 1,929,118 160,760 63.8 

Allocated Shared Expenses ...................................................................................... 4,047,935 337,328 51.3 

Total .................................................................................................................... 11,361,586 946,799 42.8 

k.The Annual Cost includes figures rounded to the nearest dollar. 

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

Below are additional details regarding 

each of the line-item costs considered 

by the Exchange to be related to offering 

physical 10Gb ULL connectivity. While 

some costs were attempted to be 

allocated as equally as possible among 

the Exchange and its affiliated markets, 

the Exchange notes that some of its cost 

allocation percentages for certain cost 

drivers differ when compared to the 

same cost drivers for the Exchange’s 

affiliated markets in their similar 

proposed fee changes for connectivity 

and ports. This is because the 

Exchange’s cost allocation methodology 

utilizes the actual projected costs of the 

Exchange (which are specific to the 

Exchange, and are independent of the 

costs projected and utilized by the 

Exchange’s affiliated markets) to 

determine its actual costs, which may 

vary across the Exchange and its 

affiliated markets based on factors that 

are unique to each marketplace. The 

Exchange provides additional 

explanation below (including the reason 

for the deviation) for the significant 

differences. 

Human Resources 

The Exchange notes that it and its 

affiliated markets have 184 employees 

(excluding employees at non-options/ 

equities exchange subsidiaries of Miami 

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

the holding company of the Exchange 

and its affiliated markets), and each 

department leader has direct knowledge 

of the time spent by each employee with 

respect to the various tasks necessary to 

operate the Exchange. Specifically, 

twice a year, and as needed with 


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additional new hires and new project 

initiatives, in consultation with 

employees as needed, managers and 

department heads assign a percentage of 

time to every employee and then 

allocate that time amongst the Exchange 

and its affiliated markets to determine 

each market’s individual Human 

Resources expense. Then, managers and 

department heads assign a percentage of 

each employee’s time allocated to the 

Exchange into buckets including 

network connectivity, ports, market 

data, and other exchange services. This 

process ensures that every employee is 

100% allocated, ensuring there is no 

double counting between the Exchange 

and its affiliated markets. 

For personnel costs (Human 

Resources), the Exchange calculated an 

allocation of employee time for 

employees whose functions include 

providing and maintaining physical 

connectivity and performance thereof 

(primarily the Exchange’s network 

infrastructure team, which spends most 

of their time performing functions 

necessary to provide physical 

connectivity). As described more fully 

above, the Exchange’s parent company 

allocates costs to the Exchange and its 

affiliated markets and then a portion of 

the Human Resources costs allocated to 

the Exchange is then allocated to 

connectivity. From that portion 

allocated to the Exchange that applied 

to connectivity, the Exchange then 

allocated a weighted average of 42.4% 

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 20%). 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 42.4% of each of 

their employee’s time assigned to the 

Exchange for 10Gb ULL connectivity, as 

stated above. Employees from these 

departments perform numerous 

functions to support 10Gb ULL 

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

maintenance of 10Gb ULL connections 

and the hardware they access. This 

hardware includes servers, routers, 

switches, firewalls, and monitoring 

devices. These employees also perform 

software upgrades, vulnerability 

assessments, remediation and patch 

installs, equipment configuration and 

hardening, as well as performance and 

capacity management. These employees 

also engage in research and 

development analysis for equipment 

and software supporting 10Gb ULL 

connectivity and design, and support 

the development and on-going 

maintenance of internally-developed 

applications as well as data capture and 

analysis, and Member and internal 

Exchange reports related to network and 

system performance. The above list of 

employee functions is not exhaustive of 

all the functions performed by Exchange 

employees to support 10Gb ULL 

connectivity, but illustrates the breath of 

functions those employees perform in 

support of the above cost and time 

allocations. 

Lastly, the Exchange notes that senior 

level executives’ time was only 

allocated to the 10Gb ULL connectivity 

related Human Resources costs to the 

extent that they are involved in 

overseeing tasks related to providing 

physical connectivity. The Human 

Resources cost was calculated using a 

blended rate of compensation reflecting 

salary, equity and bonus compensation, 

benefits, payroll taxes, and 401(k) 

matching contributions. 

Connectivity (External Fees, Cabling, 

Switches, etc.) 

The Connectivity cost driver includes 

external fees paid to connect to other 

exchanges and third parties, cabling and 

switches required to operate the 

Exchange. The Connectivity cost driver 

is more narrowly focused on technology 

used to complete connections to the 

Exchange and to connect to external 

markets. The Exchange notes that its 

connectivity to external markets is 

required in order to receive market data 

to run the Exchange’s matching engine 

and basic operations compliant with 

existing regulations, primarily 

Regulation NMS. 

The Exchange relies on various 

connectivity providers for connectivity 

to the entire U.S. options industry, and 

infrastructure services for critical 

components of the network that are 

necessary to provide and maintain its 

System Networks and access to its 

System Networks via 10Gb ULL 

connectivity. Specifically, the Exchange 

utilizes connectivity providers to 

connect to other national securities 

exchanges and the Options Price 

Reporting Authority (‘‘OPRA’’). The 

Exchange understands that these service 

providers provide services to most, if 

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

other market participants. Connectivity 

provided by these service providers is 

critical to the Exchanges daily 

operations and performance of its 

System Networks to which market 

participants connect to via 10Gb ULL 

connectivity. Without these services 

providers, the Exchange would not be 

able to connect to other national 

securities exchanges, market data 

providers or OPRA and, therefore, 

would not be able to operate and 

support its System Networks. The 

Exchange does not employ a separate 

fee to cover its connectivity provider 

expense and recoups that expense, in 

part, by charging for 10Gb ULL 

connectivity. 

Internet Services and External Market 

Data 

The next cost driver consists of 

internet Services and external market 

data. The internet services cost driver 

includes third-party service providers 

that provide the internet, fiber and 

bandwidth connections between the 

Exchange’s networks, primary and 

secondary data centers, and office 

locations in Princeton and Miami. 

External market data includes fees 

paid to third parties, including other 

exchanges, to receive market data. The 

Exchange includes external market data 

fee costs towards the provision of 10Gb 

ULL connectivity because such market 

data is necessary for certain services 

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

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

avoid locked or crossed markets and 


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102This expense may be less than the Exchange’s 

affiliated markets, specifically MIAX Pearl (the 

options and equities markets), because, unlike the 

Exchange, MIAX Pearl (the options and equities 

markets) maintains an additional gateway to 

accommodate its member’s access and connectivity 

needs. This added gateway contributes to the 

difference in allocations between the Exchange and 

MIAX Pearl. This expense also differs in dollar 

amount among the Exchange, MIAX Pearl (options 

and equities), and MIAX because each market may 

maintain and utilize a different amount of hardware 

and software based on its market model and 

infrastructure needs. The Exchange allocated a 

percentage of the overall cost based on actual 

amounts of hardware and software utilized by that 

market, which resulted in different cost allocations 

and dollar amounts. 

trading collars). Since external market 

data from other exchanges is consumed 

at the Exchange’s matching engine level, 

(to which 10Gb ULL connectivity 

provides access) in order to validate 

orders before additional orders enter the 

matching engine or are executed, the 

Exchange believes it is reasonable to 

allocate an amount of such costs to 

10Gb ULL connectivity. 

The Exchange relies on various 

content service providers for data feeds 

for the entire U.S. options industry, as 

well as content for critical components 

of the network that are necessary to 

provide and maintain its System 

Networks and access to its System 

Networks via 10Gb ULL connectivity. 

Specifically, the Exchange utilizes 

content service providers to receive 

market data from OPRA, other 

exchanges and market data providers. 

The Exchange understands that these 

service providers provide services to 

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

exchanges and other market 

participants. Market data provided these 

service providers is critical to the 

Exchanges daily operations and 

performance of its System Networks to 

which market participants connect to 

via 10Gb ULL connectivity. Without 

these services providers, the Exchange 

would not be able to receive market data 

and, therefore, would not be able to 

operate and support its System 

Networks. The Exchange does not 

employ a separate fee to cover its 

content service provider expense and 

recoups that expense, in part, by 

charging for 10Gb ULL connectivity. 

Lastly, the Exchange notes that the 

actual dollar amounts allocated as part 

of the second step of the 2023 budget 

process differ among the Exchange and 

its affiliated markets for the internet 

Services and External Market Data cost 

driver, even though, but for the 

Exchange, 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 the Exchange 

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) the Exchange 

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 it allocated to the internet 

Services and External Market Data cost 

driver is greater than its affiliated 

markets, the overall dollar amount 

allocated to the Exchange under the 

initial step of the 2023 budget process 

is lower than its affiliated markets. 

However, the Exchange believes that 

this is not, in dollar amounts, a 

significant difference. This is because 

the total dollar amount of expense 

covered by this cost driver is relatively 

small compared to other cost drivers 

and is due to nuances in exchange 

architecture that require different initial 

allocation amount under the first step of 

the 2023 budget process described 

above. Thus, non-significant differences 

in percentage allocation amounts in a 

smaller cost driver create the 

appearance of a significant difference, 

even though the actual difference in 

dollar amounts is small. For instance, 

despite the difference in cost allocation 

percentages for the internet Services and 

External Market Data cost driver across 

the Exchange and MIAX, the actual 

dollar amount difference is 

approximately only $4,000 per month, a 

non-significant amount. 

Data Center 

Data Center costs includes an 

allocation of the costs the Exchange 

incurs to provide physical connectivity 

in the third-party data centers where it 

maintains its equipment (such as 

dedicated space, security services, 

cooling and power). The Exchange notes 

that it does not own the Primary Data 

Center or the Secondary Data Center, 

but instead, leases space in data centers 

operated by third parties. The Exchange 

has allocated a high percentage of the 

Data Center cost (61.9%) to physical 

10Gb ULL connectivity because the 

third-party data centers and the 

Exchange’s physical equipment 

contained therein is the most direct cost 

in providing physical access to the 

Exchange. In other words, for the 

Exchange to operate in a dedicated 

space with connectivity by market 

participants to a physical trading 

platform, the data centers are a very 

tangible cost, and in turn, if the 

Exchange did not maintain such a 

presence then physical connectivity 

would be of no value to market 

participants. 

Hardware and Software Maintenance 

and Licenses 

Hardware and Software Licenses 

includes hardware and software licenses 

used to operate and monitor physical 

assets necessary to offer physical 

connectivity to the Exchange.102 The 

Exchange notes that this allocation is 

less than MIAX Pearl Options by a 

significant amount, but slightly more 

than MIAX, as MIAX Pearl Options 

allocated 58.6% of its Hardware and 

Software Maintenance and License 

expense towards 10Gb ULL 

connectivity, while MIAX and MIAX 

Emerald allocated 49.8% and 50.9%, 

respectively, to the same category of 

expense. This is because MIAX Pearl 

Options is in the process of replacing 

and upgrading various hardware and 

software used to operate its options 

trading platform in order to maintain 

premium network performance. At the 

time of this filing, MIAX Pearl Options 

is undergoing a major hardware refresh, 

replacing older hardware with new 

hardware. This hardware includes 

servers, network switches, cables, 

optics, protocol data units, and cabinets, 

to maintain a state-of-the-art technology 

platform. Because of the timing of the 

hardware refresh with the timing of this 

filing, the Exchange has materially 

higher expense than its affiliates. Also, 

MIAX Pearl Equities allocated a higher 

percentage of the same category of 

expense (58%) towards its Hardware 

and Software Maintenance and License 

expense for 10Gb ULL connectivity, 

which MIAX Pearl Equities explains in 

its own proposal to amend its 10Gb ULL 

connectivity fees. 

Depreciation 

All physical assets, software, and 

hardware used to provide 10Gb ULL 

connectivity, which also includes assets 

used for testing and monitoring of 

Exchange infrastructure, were valued at 

cost, and depreciated or leased over 

periods ranging from three to five years. 

Thus, the depreciation cost primarily 

relates to servers necessary to operate 

the Exchange, some of which are owned 

by the Exchange and some of which are 

leased by the Exchange in order to allow 

efficient periodic technology refreshes. 

The Exchange also included in the 

Depreciation cost driver certain 


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103The 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, 

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. 

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 63.8% of 

its allocated depreciation costs to 

providing physical 10Gb ULL 

connectivity. 

The Exchange also notes that this 

allocation differs from its affiliated 

markets due to a number of factors, such 

as the age of physical assets and 

software (e.g., older physical assets and 

software were previously depreciated 

and removed from the allocation), or 

certain system enhancements that 

required new physical assets and 

software, thus providing a higher 

contribution to the depreciated cost. For 

example, the percentages the Exchange 

and its affiliate, MIAX, allocated to the 

depreciation of hardware and software 

used to provide 10Gb ULL connectivity 

are nearly identical. However, the 

Exchange’s dollar amount is lower than 

that of MIAX by approximately $32,000 

per month due to two factors: first, 

MIAX has undergone a technology 

refresh since the time MIAX Emerald 

launched in February 2019, leading 

MIAX to have more hardware that 

software that is subject to depreciation. 

Second, MIAX maintains 24 matching 

engines while MIAX Emerald maintains 

only 12 matching engines. This also 

results in more of MIAX’s hardware and 

software being subject to depreciation 

than MIAX Emerald’s hardware and 

software due to the greater amount of 

equipment and software necessary to 

support the greater number of matching 

engines on MIAX. 

Allocated Shared Expenses 

Finally, as with other exchange 

products and services, a portion of 

general shared expenses was allocated 

to 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.103 These 

general shared expenses are incurred by 

the Exchange’s parent company, MIH, as 

a direct result of operating the Exchange 

and its affiliated markets. 

The Exchange employed a process to 

determine a reasonable percentage to 

allocate general shared expenses to 

10Gb ULL connectivity pursuant to its 

multi-layered allocation process. First, 

general expenses were allocated among 

the Exchange and affiliated markets as 

described above. Then, the general 

shared expense assigned to the 

Exchange was allocated across core 

services of the Exchange, including 

connectivity. Then, these costs were 

further allocated to sub-categories 

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

ULL connectivity as a sub-category of 

connectivity. In determining the 

percentage of general shared expenses 

allocated to connectivity that ultimately 

apply to 10Gb ULL connectivity, the 

Exchange looked at the percentage 

allocations of each of the cost drivers 

and determined a reasonable allocation 

percentage. The Exchange also held 

meetings with senior management, 

department heads, and the Finance 

Team to determine the proper amount of 

the shared general expense to allocate to 

10GBb 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 51.3% 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 51.3% 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 maintiain 

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 to three distinct options 

markets and multiple competing 

market-makers having affirmative 

obligations to continuously quote over 

1,100,000 distinct trading products (per 

exchange), and the capacity to handle 

approximately 18 million quote 

messages per second. The ‘‘premiumproduct’’ network experience enables 

users of 10Gb ULL connections to 

receive the network monitoring and 

reporting services for those 

approximately 1,100,000 distinct 

trading products. 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 51.3% 

allocation of general shared expenses for 

physical 10Gb ULL connectivity is 

higher than that allocated to general 

shared expenses for Limited Service 

MEI Ports. This is based on its 

allocation methodology that weighted 

costs attributable to each core service. 

While physical connectivity has several 

areas where certain tangible costs are 

heavily weighted towards providing 

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

described above), Limited Service MEI 

Ports do not require as many broad or 

indirect resources as other core services. 

* * * * * 

Approximate Cost per 10Gb ULL 

Connection per Month 

After determining the approximate 

allocated monthly cost related to 10Gb 

connectivity, the total monthly cost for 

10Gb ULL connectivity of $946,799 was 

divided by the number of physical 10Gb 

ULL connections the Exchange 

maintained at the time that proposed 

pricing was determined (102), to arrive 

at a cost of approximately $9,282 per 

month, per physical 10Gb ULL 


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104The Exchange 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). 

connection. Due to the nature of this 

particular cost, this allocation 

methodology results in an allocation 

among the Exchange and its affiliated 

markets based on set quantifiable 

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

connections. 

* * * * * 

Costs Related To Offering Limited 

Service MEI Ports 

The following chart details the 

individual line-item costs considered by 

the Exchange to be related to offering 

Limited Service MEI Ports as well as the 

percentage of the Exchange’s overall 

costs such costs represent for such area 

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

allocated approximately 5.9% of its 

overall Human Resources cost to 

offering Limited Service MEI Ports). 

Cost drivers Allocated annual 

cost m

Allocated monthly 

cost n % of all 

Human Resources ..................................................................................................... $737,784 $61,482 5.9 

Connectivity (external fees, cabling, switches, etc.) ................................................. 3,713 309 3.2 

Internet Services and External Market Data ............................................................. 14,102 1,175 3.2 

Data Center ............................................................................................................... 55,686 4,641 4.6 

Hardware and Software Maintenance and Licenses ................................................ 41,951 3,496 3.2 

Depreciation ............................................................................................................... 112,694 9,391 3.7 

Allocated Shared Expenses ...................................................................................... 813,136 67,761 10.3 

Total .................................................................................................................... 1,779,066 148,255 6.7 

m. See supra note k (describing rounding of Annual Costs). 

n. See supra note l (describing rounding of Monthly Costs based on Annual Costs). 

Below are additional details regarding 

each of the line-item costs considered 

by the Exchange to be related to offering 

Limited Service MEI Ports. While some 

costs were attempted to be allocated as 

equally as possible among the Exchange 

and its affiliated markets, the Exchange 

notes that some of its cost allocation 

percentages for certain cost drivers 

differ when compared to the same cost 

drivers described by the Exchange’s 

affiliated markets in their similar 

proposed fee changes for connectivity 

and ports. This is because the 

Exchange’s cost allocation methodology 

utilizes the actual projected costs of the 

Exchange (which are specific to the 

Exchange, and are independent of the 

costs projected and utilized by the 

Exchange’s affiliated markets) to 

determine its actual costs, which may 

vary across the Exchange and its 

affiliated markets based on factors that 

are unique to each marketplace. The 

Exchange provides additional 

explanation below (including the reason 

for the deviation) for the significant 

differences. 

Human Resources 

With respect to Limited Service MEI 

Ports, the Exchange calculated Human 

Resources cost by taking an allocation of 

employee time for employees whose 

functions include providing Limited 

Service MEI Ports and maintaining 

performance thereof (including a 

broader range of employees such as 

technical operations personnel, market 

operations personnel, and software 

engineering personnel) as well as a 

limited subset of personnel with 

ancillary functions related to 

maintaining such connectivity (such as 

sales, membership, and finance 

personnel). Just as described above for 

10Gb ULL connectivity, the estimates of 

Human Resources cost were again 

determined by consulting with 

department leaders, determining which 

employees are involved in tasks related 

to providing Limited Service MEI Ports 

and maintaining performance thereof, 

and confirming that the proposed 

allocations were reasonable based on an 

understanding of the percentage of their 

time such employees devote to tasks 

related to providing Limited Service 

MEI Ports and maintaining performance 

thereof. This includes personnel from 

the following Exchange departments 

that are predominately involved in 

providing Limited Service MEI Ports: 

Business Systems Development, Trading 

Systems Development, Systems 

Operations and Network Monitoring, 

Network and Data Center Operations, 

Listings, Trading Operations, and 

Project Management. The Exchange 

notes that senior level executives were 

allocated Human Resources costs to the 

extent they are involved in overseeing 

tasks specifically related to providing 

Limited Service MEI Ports. Senior level 

executives were only allocated Human 

Resources costs to the extent that they 

are involved in managing personnel 

responsible for tasks integral to 

providing and maintaining Limited 

Service MEI Ports. The Human 

Resources cost was again calculated 

using a blended rate of compensation 

reflecting salary, equity and bonus 

compensation, benefits, payroll taxes, 

and 401(k) matching contributions. 

Connectivity (External Fees, Cabling, 

Switches, Etc.) 

The Connectivity cost includes 

external fees paid to connect to other 

exchanges and cabling and switches, as 

described above. 

Internet Services and External Market 

Data 

The next cost driver consists of 

internet services and external market 

data. Internet services includes thirdparty service providers that provide the 

internet, fiber and bandwidth 

connections between the Exchange’s 

networks, primary and secondary data 

centers, and office locations in 

Princeton and Miami. For purposes of 

Limited Service MEI Ports, the 

Exchange also includes a portion of its 

costs related to external market data. 

External market data includes fees paid 

to third parties, including other 

exchanges, to receive and consume 

market data from other markets. The 

Exchange includes external market data 

costs towards the provision of Limited 

Service MEI Ports because such market 

data is necessary (in addition to 

physical connectivity) to offer certain 

services related to such ports, such as 

validating orders on entry against the 

NBBO and checking for other conditions 

(e.g., halted securities).104 Thus, since 

market data from other exchanges is 

consumed at the Exchange’s Limited 

Service MEI Port level in order to 

validate orders, before additional 

processing occurs with respect to such 

orders, the Exchange believes it is 

reasonable to allocate a small amount of 

such costs to Limited Service MEI Ports. 


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The Exchange notes that the 

allocation for the internet Services and 

External Market Data cost driver is 

greater than that of its affiliate, MIAX 

Pearl Options, as MIAX Emerald 

allocated 3.2% of its internet Services 

and External Market Data expense 

towards Limited Service MEI Ports, 

while MIAX Pearl Options allocated 

1.4% to its Full Service MEO Ports for 

the same cost driver. The allocation 

percentages set forth above differ 

because they directly correspond with 

the number of applicable ports utilized 

on each exchange. For August 2023, 

MIAX Emerald Market Makers utilized 

1,030 Limited Service MEI ports and 

MIAX Market Makers utilized 1,781 

Limited Service MEI ports. When 

compared to Full Service Port (Bulk and 

Single) usage, for August 2023, MIAX 

Pearl Options Members utilized only 

384 Full Service MEO Ports (Bulk and 

Single), far fewer than number of 

Limited Service MEI Ports utilized by 

Market Makers on MIAX and MIAX 

Emerald, thus resulting in a smaller cost 

allocation. There is increased cost 

associated with supporting a higher 

number of ports (requiring more 

hardware and other technical 

infrastructure and internet Service), 

thus the Exchange allocates a higher 

percentage of expense than MIAX Pearl 

Options, which has a lower port count. 

Data Center 

Data Center costs includes an 

allocation of the costs the Exchange 

incurs to provide Limited Service MEI 

Ports in the third-party data centers 

where it maintains its equipment as 

well as related costs for market data to 

then enter the Exchange’s system via 

Limited Service MEI Ports (the 

Exchange does not own the Primary 

Data Center or the Secondary Data 

Center, but instead, leases space in data 

centers operated by third parties). 

Hardware and Software Maintenance 

and Licenses 

Hardware and Software Licenses 

includes hardware and software licenses 

used to monitor the health of the order 

entry services provided by the 

Exchange, as described above. 

The Exchange notes that this 

allocation is greater than its affiliate, 

MIAX Pearl Options, as MIAX Emerald 

allocated 3.2% of its Hardware and 

Software Maintenance and License 

expense towards Limited Service MEI 

Ports, while MIAX Pearl Options 

allocated 1.4% to its Full Service MEO 

Ports (Bulk and Single) for the same 

category of expense. The allocation 

percentages set forth above differ 

because they correspond with the 

number of applicable ports utilized on 

each exchange. For August 2023, MIAX 

Market Makers utilized 1,781 Limited 

Service MEI ports and MIAX Emerald 

Market Makers utilized 1,030 Limited 

Service MEI Ports. When compared to 

Full Service Port (Bulk and Single) 

usage, for August 2023, MIAX Pearl 

Options Members utilized only 384 Full 

Service MEO Ports (Bulk and Single), far 

fewer than number of Limited Service 

MEI Ports utilized by Market Makers on 

MIAX and MIAX Emerald, thus 

resulting in a smaller cost allocation. 

There is increased cost associated with 

supporting a higher number of ports 

(requiring more hardware and other 

technical infrastructure), thus the 

Exchange allocates a higher percentage 

of expense than MIAX Pearl Options, 

which has a lower port count. 

Depreciation 

The vast majority of the software the 

Exchange uses to provide Limited 

Service MEI Ports has been developed 

in-house and the cost of such 

development, which takes place over an 

extended period of time and includes 

not just development work, but also 

quality assurance and testing to ensure 

the software works as intended, is 

depreciated over time once the software 

is activated in the production 

environment. Hardware used to provide 

Limited Service MEI Ports includes 

equipment used for testing and 

monitoring of order entry infrastructure 

and other physical equipment the 

Exchange purchased and is also 

depreciated over time. 

All hardware and software, which 

also includes assets used for testing and 

monitoring of order entry infrastructure, 

were valued at cost, depreciated or 

leased over periods ranging from three 

to five years. Thus, the depreciation cost 

primarily relates to servers necessary to 

operate the Exchange, some of which is 

owned by the Exchange and some of 

which is leased by the Exchange in 

order to allow efficient periodic 

technology refreshes. The Exchange 

allocated 3.7% of all depreciation costs 

to providing Limited Service MEI Ports. 

The Exchange allocated depreciation 

costs for depreciated software necessary 

to operate the Exchange because such 

software is related to the provision of 

Limited Service MEI Ports. As with the 

other allocated costs in the Exchange’s 

updated Cost Analysis, the Depreciation 

cost driver was therefore narrowly 

tailored to depreciation related to 

Limited Service MEI Ports. 

The Exchange notes that this 

allocation differs from its affiliated 

markets due to a number of factors, such 

as the age of physical assets and 

software (e.g., older physical assets and 

software were previously depreciated 

and removed from the allocation), or 

certain system enhancements that 

required new physical assets and 

software, thus providing a higher 

contribution to the depreciated cost. For 

example, the Exchange notes that the 

percentages it and its affiliate, MIAX, 

allocated to the depreciation cost driver 

for Limited Service MEI Ports differ by 

only 2.6%. However, MIAX’s 

approximate dollar amount is greater 

than that of MIAX Emerald by 

approximately $10,000 per month. This 

is due to two primary factors. First, 

MIAX has under gone a technology 

refresh since the time MIAX Emerald 

launched in February 2019, leading to it 

having more hardware that software that 

is subject to depreciation. Second, 

MIAX maintains 24 matching engines 

while MIAX Emerald maintains only 12 

matching engines. This also results in 

more of MIAX’s hardware and software 

being subject to depreciation than MIAX 

Emerald’s hardware and software due to 

the greater amount of equipment and 

software necessary to support the 

greater number of matching engines on 

the Exchange. 

Allocated Shared Expenses 

Finally, a portion of general shared 

expenses was allocated to overall 

Limited Service MEI Ports costs as 

without these general shared costs the 

Exchange would not be able to operate 

in the manner that it does and provide 

Limited Service MEI Ports. The costs 

included in general shared expenses 

include general expenses of the 

Exchange, including office space and 

office expenses (e.g., occupancy and 

overhead expenses), utilities, recruiting 

and training, marketing and advertising 

costs, professional fees for legal, tax and 

accounting services (including external 

and internal audit expenses), and 

telecommunications costs. The 

Exchange again notes that the cost of 

paying directors to serve on its Board of 

Directors is included in the calculation 

of Allocated Shared Expenses, and thus 

a portion of such overall cost amounting 

to less than 11% of the overall cost for 

directors was allocated to providing 

Limited Service MEI Ports. The 

Exchange notes that the 10.3% 

allocation of general shared expenses for 

Limited Service MEI Ports is lower than 

that allocated to general shared 

expenses for physical connectivity 

based on its allocation methodology that 

weighted costs attributable to each Core 

Service based on an understanding of 

each area. While Limited Service MEI 

Ports have several areas where certain 

tangible costs are heavily weighted 


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105MIAX allocated a slightly lower amount 

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

(10.3%). This is not a significant difference. 

However, both allocations resulted in an identical 

cost amount of $0.8 million, despite MIAX having 

a higher number of Limited Service MEI Ports. 

MIAX Emerald was allocated a higher cost per 

Limited Service MEI Port due to the additional 

resources and expenditures associated with 

maintaining its recently enhanced low latency 

network. 

towards providing such service (e.g., 

Data Center, as described above), 10Gb 

ULL connectivity requires a broader 

level of support from Exchange 

personnel in different areas, which in 

turn leads to a broader general level of 

cost to the Exchange. 

Lastly, the Exchange notes that this 

allocation is greater than its affiliate, 

MIAX Pearl Options, as MIAX Emerald 

allocated 10.3% of its Allocated Shared 

Expense towards Limited Service MEI 

Ports, while MIAX Pearl Options 

allocated 3.6% to its Full Service MEO 

Ports (Bulk and Single) for the same 

category of expense. The allocation 

percentages set forth above differ 

because they correspond with the 

number of applicable ports utilized on 

each exchange. For August 2023, MIAX 

Market Makers utilized 1,781 Limited 

Service MEI ports and MIAX Emerald 

Market Makers utilized 1,030 Limited 

Service MEI Ports. When compared to 

Full Service Port (Bulk and Single) 

usage, for August 2023, MIAX Pearl 

Options Members utilized only 384 Full 

Service MEO Ports (Bulk and Single), far 

fewer than number of Limited Service 

MEI Ports utilized by Market Makers on 

MIAX Emerald, thus resulting in a 

smaller cost allocation. There is 

increased cost associated with 

supporting a higher number of ports 

(requiring more hardware and other 

technical infrastructure), thus the 

Exchange allocates a higher percentage 

of expense than MIAX Pearl Options 

which has a lower port count.105

* * * * * 

Approximate Cost per Limited Service 

MEI Port per Month 

Based on August 2023 data, the total 

monthly cost allocated to Limited 

Service MEI Ports of $148,255 was 

divided by the total number of Limited 

Service MEI Ports utilized by Members 

in August, which was 1,030 (and 

includes free and charged ports), 

resulting in an approximate cost of $144 

per port per month (when rounding to 

the nearest dollar). The Exchange used 

the total number of Limited Service MEI 

Ports it maintained in August for all 

Members and included free and charged 

ports. However, in prior filings, the 

Exchange did not include the expense of 

maintaining the two free Limited 

Service MEI Ports per matching engine 

that each Member receives when the 

Exchange discussed the approximate 

cost per port per month, but did include 

the two free Limited Service MEI Ports 

in the total expense amounts. As 

described herein, the Exchange changed 

its proposed fee structure since past 

filings to now offer four free Limited 

Service MEI Ports per matching engine 

to which each Member connects. After 

the first four free Limited Service MEI 

Ports, the Exchange proposes to charge 

$420 per Limited Service MEI Port per 

matching engine, up to a total of 

fourteen (14) Limited Service MEI Ports 

per matching engine. 

For the sake of clarity, if a Member 

wanted to connect to all 12 of the 

Exchange’s matching engines and utilize 

the maximum number of Limited 

Service MEI Ports on each matching 

engine (i.e., 14), that Member would 

have a total of 168 Limited Service MEI 

Ports (12 matching engines multiplied 

by 14 Limited Service MEI Ports per 

matching engine). With the proposed 

increase to now provide four Limited 

Service MEI Ports for free on each 

matching engine, that particular 

Member would receive 48 free Limited 

Service MEI Ports (4 free Limited 

Service MEI Ports multiplied by 12 

matching engines), and be charged for 

the remaining 120 Limited Service MEI 

Ports (168 total Limited Service MEI 

Ports across all matching engines minus 

48 free Limited Service MEI Ports across 

all matching engines). 

As mentioned above, Members 

utilized a total of 1,030 Limited Service 

MEI Ports in the month of August 2023 

(free and charged ports combined). 

Using August 2023 data to extrapolate 

out after the proposed changes herein go 

into effect, the total number of Limited 

Service MEI Ports that the Exchange 

would not charge for as a result of this 

increase in free ports is 468 (meaning 

the Exchange would charge for only 562 

ports) and amounts to a total expense of 

$67,392 per month to the Exchange 

($144 per port multiplied by 468 free 

Limited Service MEI 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 

Limited Service MEI Ports) and did not 

double-count any expenses. Instead, as 

described above, the Exchange allocated 

applicable cost drivers across its core 

services and used the same Cost 

Analysis to form the basis of this 

proposal and the filings the Exchange 

submitted proposing fees for proprietary 

data feeds offered by the Exchange. For 

instance, in calculating the Human 

Resources expenses to be allocated to 

physical connections based upon the 

above described methodology, the 

Exchange has a team of employees 

dedicated to network infrastructure and 

with respect to such employees the 

Exchange allocated network 

infrastructure personnel with a high 

percentage of the cost of such personnel 

(42.4%) given their focus on functions 

necessary to provide physical 

connections. The salaries of those same 

personnel were allocated only 8.0% to 

Limited Service MEI Ports and the 

remaining 49.6% was allocated to 1Gb 

connectivity, other port services, 

transaction services, membership 

services and market data. The Exchange 

did not allocate any other Human 

Resources expense for providing 

physical connections to any other 

employee group, outside of a smaller 

allocation of 19.8% for 10Gb ULL 

connectivity or 19.9% for the entire 

network, of the cost associated with 

certain specified personnel who work 

closely with and support network 

infrastructure personnel. In contrast, the 

Exchange allocated much smaller 

percentages of costs (5% or less) across 

a wider range of personnel groups in 

order to allocate Human Resources costs 

to providing Limited Service MEI Ports. 

This is because a much wider range of 

personnel are involved in functions 

necessary to offer, monitor and maintain 

Limited Service MEI Ports but the tasks 

necessary to do so are not a primary or 

full-time function. 

In total, the Exchange allocated 28.1% 

of its personnel costs to providing 10Gb 

ULL and 1Gb connectivity and 5.9% of 

its personnel costs to providing Limited 

Service MEI Ports, for a total allocation 

of 34% Human Resources expense to 

provide these specific connectivity and 

port services. In turn, the Exchange 

allocated the remaining 66% of its 

Human Resources expense to 

membership services, transaction 

services, other port services and market 

data. Thus, again, the Exchange’s 

allocations of cost across core services 

were based on real costs of operating the 

Exchange and were not double-counted 

across the core services or their 

associated revenue streams. 

As another example, the Exchange 

allocated depreciation expense to all 

core services, including physical 

connections and Limited Service MEI 

Ports, but in different amounts. The 

Exchange believes it is reasonable to 

allocate the identified portion of such 

expense because such expense includes 

the actual cost of the computer 

equipment, such as dedicated servers, 


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106Assuming 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 September 22, 2023). 

107See SR–PEARL–2023–51, SR–PEARL–2023– 

55, and SR–MIAX–2023–39. 

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). 

computers, laptops, monitors, 

information security appliances and 

storage, and network switching 

infrastructure equipment, including 

switches and taps that were purchased 

to operate and support the network. 

Without this equipment, the Exchange 

would not be able to operate the 

network and provide connectivity 

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

the Exchange did not allocate all of the 

depreciation and amortization expense 

toward the cost of providing 

connectivity services, but instead 

allocated approximately 67.5% of the 

Exchange’s overall depreciation and 

amortization expense to connectivity 

services (63.8% attributed to 10Gb ULL 

physical connections and 3.7% to 

Limited Service MEI Ports). The 

Exchange allocated the remaining 

depreciation and amortization expense 

(approximately 32.5%) toward the cost 

of providing transaction services, 

membership services, other port 

services and market data 

The Exchange notes that its revenue 

estimates are based on projections 

across all potential revenue streams and 

will only be realized to the extent such 

revenue streams actually produce the 

revenue estimated. The Exchange does 

not yet know whether such expectations 

will be realized. For instance, in order 

to generate the revenue expected from 

connectivity, the Exchange will have to 

be successful in retaining existing 

clients that wish to maintain physical 

connectivity and/or Limited Service 

MEI Ports or in obtaining new clients 

that will purchase such services. 

Similarly, the Exchange will have to be 

successful in retaining a positive net 

capture on transaction fees in order to 

realize the anticipated revenue from 

transaction pricing. 

The Exchange notes that the Cost 

Analysis is based on the Exchange’s 

2023 fiscal year of operations and 

projections. It is possible, however, that 

actual costs may be higher or lower. To 

the extent the Exchange sees growth in 

use of connectivity services it will 

receive additional revenue to offset 

future cost increases. 

However, if use of connectivity 

services is static or decreases, the 

Exchange might not realize the revenue 

that it anticipates or needs in order to 

cover applicable costs. Accordingly, the 

Exchange is committing to conduct a 

one-year review after implementation of 

these fees. The Exchange expects that it 

may propose to adjust fees at that time, 

to increase fees in the event that 

revenues fail to cover costs and a 

reasonable mark-up of such costs. 

Similarly, the Exchange may propose to 

decrease fees in the event that revenue 

materially exceeds our current 

projections. In addition, the Exchange 

will periodically conduct a review to 

inform its decision making on whether 

a fee change is appropriate (e.g., to 

monitor for costs increasing/decreasing 

or subscribers increasing/decreasing, 

etc. in ways that suggest the thencurrent fees are becoming dislocated 

from the prior cost-based analysis) and 

would propose to increase fees in the 

event that revenues fail to cover its costs 

and a reasonable mark-up, or decrease 

fees in the event that revenue or the 

mark-up materially exceeds our current 

projections. In the event that the 

Exchange determines to propose a fee 

change, the results of a timely review, 

including an updated cost estimate, will 

be included in the rule filing proposing 

the fee change. More generally, 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; 

without such hardware, infrastructure, 

monitoring and support the Exchange 

would be unable to provide the 

connectivity and port services. Much of 

the cost relates to monitoring and 

analysis of data and performance of the 

network via the subscriber’s 

connection(s). The above cost, namely 

those associated with hardware, 

software, and human capital, enable the 

Exchange to measure network 

performance with nanosecond 

granularity. These same costs are also 

associated with time and money spent 

seeking to continuously improve the 

network performance, improving the 

subscriber’s experience, based on 

monitoring and analysis activity. The 

Exchange routinely works to improve 

the performance of the network’s 

hardware and software. The costs 

associated with maintaining and 

enhancing a state-of-the-art exchange 

network is a significant expense for the 

Exchange, and thus the Exchange 

believes that it is reasonable and 

appropriate to help offset those costs by 

amending fees for connectivity services. 

Subscribers, particularly those of 10Gb 

ULL connectivity, expect the Exchange 

to provide this level of support to 

connectivity so they continue to receive 

the performance they expect. This 

differentiates the Exchange from its 

competitors. As detailed above, the 

Exchange has five primary sources of 

revenue that it can potentially use to 

fund its operations: transaction fees, 

fees for connectivity services, 

membership and regulatory fees, and 

market data fees. Accordingly, the 

Exchange must cover its expenses from 

these five primary sources of revenue. 

The Exchange’s Cost Analysis 

estimates the annual cost to provide 

10Gb ULL connectivity services will 

equal $11,361,586. Based on current 

10Gb ULL connectivity services usage, 

the Exchange would generate annual 

revenue of approximately $16,524,000. 

The Exchange believes this represents a 

modest profit of 31% when compared to 

the cost of providing 10Gb ULL 

connectivity services which could 

decrease over time.106 Importantly, the 

Exchange’s affiliated markets submitted 

similar filings to also amend their fees 

for 10Gb ULL connectivity 107 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

The Exchange’s Cost Analysis 

estimates the annual cost to provide 

Limited Service MEI Port services will 

equal $1,779,066. Based on August 2023 

data for Limited Service MEI Port usage 

and counting for the proposed increase 

in free Limited Service MEI Ports and 

proposed increase in the monthly fee 

from $100 to $420 per port, the 

Exchange would generate annual 


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109 Id. 

110See NASDAQ Pricing Schedule, Options 7, 

Section 3, Ports and Other Services and NASDAQ 

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

111See NYSE American Options Fee Schedule, 

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

112Beginning with fiscal year 2022, the Exchange 

incurred a net gain of approximately $14 million. 

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/2300/23007742.pdf. 

revenue of approximately $2,832,480. 

The Exchange believes this would result 

in an estimated profit margin of 37% 

after calculating the cost of providing 

Limited Service MEI Port services, 

which profit margin could decrease over 

time.109 The Exchange notes that the 

cost to provide Limited Service MEI 

Ports is higher than the cost for the 

Exchange’s affiliate, MIAX Pearl 

Options, to provide Full Service MEO 

Ports due to the substantially higher 

number of Limited Service MEI Ports 

used by Exchange Members. For 

example, utilizing August 2023 data, 

MIAX Emerald Market Makers utilized 

1,030 Limited Service MEI Ports 

compared to only 384 Full Service MEO 

Ports (Bulk and Single combined) 

allocated to MIAX Pearl Options 

members. 

Based on the above discussion, the 

Exchange believes that even if the 

Exchange earns the above revenue or 

incrementally more or less, the 

proposed fees are fair and reasonable 

because they will not result in pricing 

that deviates from that of other 

exchanges or a supra-competitive profit, 

when comparing the total expense of the 

Exchange associated with providing 

10Gb ULL connectivity and Limited 

Service MEI Port services versus the 

total projected revenue of the Exchange 

associated with network 10Gb ULL 

connectivity and Limited Service MEI 

Port services. 

The Exchange also notes that this the 

resultant profit margin differs slightly 

from the profit margins set forth in 

similar fee filings by its affiliated 

markets. This is not atypical among 

exchanges and is due to a number of 

factors that differ between these four 

markets, including: different market 

models, market structures, and product 

offerings (equities, options, price-time, 

pro-rata, simple, and complex); different 

pricing models; different number of 

market participants and connectivity 

subscribers; different maintenance and 

operations costs, as described in the cost 

allocation methodology above; different 

technical architecture (e.g., the number 

of matching engines per exchange, i.e., 

the Exchange maintains only 12 

matching engines while MIAX 

maintains 24 matching engines); and 

different maturity phase of the Exchange 

and its affiliated markets (i.e., start-up 

versus growth versus more mature). All 

of these factors contribute to a unique 

and differing level of profit margin per 

exchange. 

Further, the Exchange proposes to 

charge rates that are comparable to, or 

lower than, similar fees for similar 

products charged by competing 

exchanges. For example, for 10Gb ULL 

connectivity, the Exchange proposes a 

lower fee than the fee charged by 

Nasdaq for its comparable 10Gb Ultra 

fiber connection ($13,500 per month for 

the Exchange vs. $15,000 per month for 

Nasdaq).110 NYSE American charges 

even higher fees for its comparable 

10GB LX LCN connection than the 

Exchange’s proposed fees ($13,500 per 

month for the Exchange vs. $22,000 per 

month for NYSE American).111

Accordingly, the Exchange believes that 

comparable and competitive pricing are 

key factors in determining whether a 

proposed fee meets the requirements of 

the Act, regardless of whether that same 

fee across the Exchange’s affiliated 

markets leads to slightly different profit 

margins due to factors outside of the 

Exchange’s control (i.e., more 

subscribers to 10Gb ULL connectivity 

on the Exchange than its affiliated 

markets or vice versa). 

* * * * * 

The Exchange operated at a 

cumulative net annual loss from the 

time it launched operations in 2019 

through fiscal year 2021.112 This was 

due to a number of factors, one of which 

was choosing to forgo revenue by 

offering certain products, such as low 

latency connectivity, at lower rates than 

other options exchanges to attract order 

flow and encourage market participants 

to experience the high determinism, low 

latency, and resiliency of the Exchange’s 

trading systems. The Exchange does not 

believe that it should now be penalized 

for seeking to raise its fees as it now 

needs to upgrade its technology and 

absorb increased costs. Therefore, the 

Exchange believes the proposed fees are 

reasonable because they are based on 

both relative costs to the Exchange to 

provide dedicated 10Gb ULL 

connectivity and Limited Service MEI 

Ports, the extent to which the product 

drives the Exchange’s overall costs and 

the relative value of the product, as well 

as the Exchange’s objective to make 

access to its Systems broadly available 

to market participants. The Exchange 

also believes the proposed fees are 

reasonable because they are designed to 

generate annual revenue to recoup the 

Exchange’s costs of providing dedicated 

10Gb ULL connectivity and Limited 

Service MEI Ports. 

The Exchange notes that its revenue 

estimate is based on projections and 

will only be realized to the extent 

customer activity produces the revenue 

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

an exchange focused on driving 

competition, the Exchange does not yet 

know whether such projections will be 

realized. For instance, in order to 

generate the revenue expected from 

10Gb ULL connectivity and Limited 

Service MEI Ports, the Exchange will 

have to be successful in retaining 

existing clients that wish to utilize 10Gb 

ULL connectivity and Limited Service 

MEI Ports and/or obtaining new clients 

that will purchase such access. To the 

extent the Exchange is successful in 

encouraging new clients to utilize 10Gb 

ULL connectivity and Limited Service 

MEI Ports, the Exchange does not 

believe it should be penalized for such 

success. To the extent the Exchange has 

mispriced and experiences a net loss in 

connectivity clients or in transaction 

activity, the Exchange could experience 

a net reduction in revenue. While the 

Exchange is supportive of transparency 

around costs and potential margins 

(applied across all exchanges), as well 

as periodic review of revenues and 

applicable costs (as discussed below), 

the Exchange does not believe that these 

estimates should form the sole basis of 

whether or not a proposed fee is 

reasonable or can be adopted. Instead, 

the Exchange believes that the 

information should be used solely to 

confirm that an Exchange is not 

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

believes the Cost Analysis and related 

projections in this filing demonstrate 

this fact. 

The Exchange is owned by a holding 

company that is the parent company of 

four exchange markets and, therefore, 

the Exchange and its affiliated markets 

must allocate shared costs across all of 

those markets accordingly, pursuant to 

the above-described allocation 

methodology. In contrast, the Investors 

Exchange LLC (‘‘IEX’’) and MEMX, 

which are currently each operating only 

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

amount of that same cost to a single 

exchange. This can result in lower profit 

margins for the non-transaction fees 

proposed by IEX and MEMX because 

the single allocated cost does not 

experience the efficiencies and 

synergies that result from sharing costs 

across multiple platforms. The 


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72194 Federal Register / Vol. 88, No. 201 / Thursday, October 19, 2023 / Notices 

113 17 CFR 240.17a–1 (recordkeeping rule for 

national securities exchanges, national securities 

associations, registered clearing agencies and the 

Municipal Securities Rulemaking Board). 114See supra note 6. 

Exchange and its affiliated markets often 

share a single cost, which results in cost 

efficiencies that can cause a broader gap 

between the allocated cost amount and 

projected revenue, even though the fee 

levels being proposed are lower or 

competitive with competing markets (as 

described above). To the extent that the 

application of a cost-based standard 

results in Commission Staff making 

determinations as to the appropriateness 

of certain profit margins, the Exchange 

believes that Commission Staff should 

also consider whether the proposed fee 

level is comparable to, or competitive 

with, the same fee charged by 

competing exchanges and how different 

cost allocation methodologies (such as 

across multiple markets) may result in 

different profit margins for comparable 

fee levels. Further, if Commission Staff 

is making determinations as to 

appropriate profit margins in their 

approval of exchange fees, the Exchange 

believes that the Commission should be 

clear to all market participants as to 

what they have determined is an 

appropriate profit margin and should 

apply such determinations consistently 

and, in the case of certain legacy 

exchanges, retroactively, if such 

standards are to avoid having a 

discriminatory effect. 

Further, as is reflected in the 

proposal, the Exchange continuously 

and aggressively works to control its 

costs as a matter of good business 

practice. A potential profit margin 

should not be evaluated solely on its 

size; that assessment should also 

consider cost management and whether 

the ultimate fee reflects the value of the 

services provided. For example, a profit 

margin on one exchange should not be 

deemed excessive where that exchange 

has been successful in controlling its 

costs, but not excessive on another 

exchange where that exchange is 

charging comparable fees but has a 

lower profit margin due to higher costs. 

Doing so could have the perverse effect 

of not incentivizing cost control where 

higher costs alone could be used to 

justify fees increases. 

The Proposed Pricing is not Unfairly 

Discriminatory and Provides for the 

Equitable Allocation of Fees, Dues, and 

Other Charges 

The Exchange believes that the 

proposed fees are reasonable, fair, 

equitable, and not unfairly 

discriminatory because they are 

designed to align fees with services 

provided and will apply equally to all 

subscribers. 

10Gb ULL Connectivity 

The Exchange believes that the 

proposed fees are equitably allocated 

among users of the network connectivity 

and port alternatives, as the users of 

10Gb ULL connections consume 

substantially more bandwidth and 

network resources than users of 1Gb 

ULL connection. Specifically, the 

Exchange notes that 10Gb ULL 

connection users account for more than 

99% of message traffic over the network, 

driving other costs that are linked to 

capacity utilization, as described above, 

while the users of the 1Gb ULL 

connections account for less than 1% of 

message traffic over the network. In the 

Exchange’s experience, users of the 1Gb 

connections do not have the same 

business needs for the high-performance 

network as 10Gb ULL users. 

The Exchange’s high-performance 

network and supporting infrastructure 

(including employee support), provides 

unparalleled system throughput with 

the network ability to support access to 

several distinct options markets. To 

achieve a consistent, premium network 

performance, the Exchange must build 

out and maintain a network that has the 

capacity to handle the message rate 

requirements of its most heavy network 

consumers. These billions of messages 

per day consume the Exchange’s 

resources and significantly contribute to 

the overall network connectivity 

expense for storage and network 

transport capabilities. The Exchange 

must also purchase additional storage 

capacity on an ongoing basis to ensure 

it has sufficient capacity to store these 

messages to satisfy its record keeping 

requirements under the Exchange 

Act.113 Thus, as the number of messages 

an entity increases, certain other costs 

incurred by the Exchange that are 

correlated to, though not directly 

affected by, connection costs (e.g., 

storage costs, surveillance costs, service 

expenses) also increase. Given this 

difference in network utilization rate, 

the Exchange believes that it is 

reasonable, equitable, and not unfairly 

discriminatory that the 10Gb ULL users 

pay for the vast majority of the shared 

network resources from which all 

market participants’ benefit. 

Limited Service MEI Ports 

The proposed changes to the monthly 

fee for Limited Service MEI Ports is not 

unfairly discriminatory because it 

would apply to all Market Makers 

equally. All Market Makers would now 

be eligible to receive four (4) free 

Limited Service MEI Ports and those 

that elect to purchase more would be 

subject to the same monthly rate 

regardless of the number of additional 

Limited Service MEI Ports they 

purchase. Certain market participants 

choose to purchase additional Limited 

Service MEI Ports based on their own 

particular trading/quoting strategies and 

feel they need a certain number of 

connections to the Exchange to execute 

on those strategies. Other market 

participants may continue to choose to 

only utilize the free Limited Service 

MEI Ports to accommodate their own 

trading or quoting strategies, or other 

business models. All market 

participants elect to receive or purchase 

the amount of Limited Service MEI 

Ports they require based on their own 

business decisions and all market 

participants would be subject to the 

same fee structure and flat fee. Every 

market participant may receive up to 

four (4) free Limited Service MEI Ports 

and those that choose to purchase 

additional Limited Service MEI Ports 

may elect to do so based on their own 

business decisions and would continue 

to be subject to the same flat fee. The 

Exchange notes that it filed to amend 

this fee in 2020 and that filing contained 

the same fee structure, i.e., a certain 

number of free Limited Service MEI 

Ports coupled with a flat fee for 

additional Limited Service MEI Ports.114

At that time, the Commission did not 

find the structure to be unfairly 

discriminatory by virtue of that proposal 

surviving the 60-day suspension period. 

Therefore, the proposed changes to the 

fees for Limited Service MEI Ports is not 

unfairly discriminatory because it 

would continue to apply to all market 

participants equally and provides a fee 

structure that includes four free Limited 

Service MEI Ports for one monthly rate 

that was previously in place and filed 

with the Commission. 

To achieve consistent, premium 

network performance, the Exchange 

must build and maintain a network that 

has the capacity to handle the message 

rate requirements of its heaviest 

network consumers during anticipated 

peak market conditions. The resultant 

need to support billions of messages per 

day consume the Exchange’s resources 

and significantly contribute to the 

overall network connectivity expense 

for storage and network transport 

capabilities. This need also requires the 

Exchange to purchase additional storage 

capacity on an ongoing basis to ensure 

it has sufficient capacity to store these 

messages as part of it surveillance 


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Federal Register / Vol. 88, No. 201 / Thursday, October 19, 2023 / Notices 72195 

115 17 CFR 240.17a–1 (recordkeeping rule for 

national securities exchanges, national securities 

associations, registered clearing agencies and the 

Municipal Securities Rulemaking Board). 

116The Exchange has incurred a cumulative loss 

of $9 million since its inception in 2019 through 

2021. See Exchange’s Form 1/A, Application for 

Registration or Exemption from Registration as a 

National Securities Exchange, filed June 29, 2022, 

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

vprr/2200/22001164.pdf. 

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 

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 71. 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. 

program and to satisfy its record 

keeping requirements under the 

Exchange Act.115 Thus, as the number of 

connections per Market Maker 

increases, other costs incurred by the 

Exchange also increase, e.g., storage 

costs, surveillance costs, service 

expenses. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

Intra-Market Competition 

The Exchange believes the proposed 

fees will not result in any burden on 

intra-market competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act because the 

proposed fees will allow the Exchange 

to recoup some of its costs in providing 

10Gb ULL connectivity and Limited 

Service MEI Ports at below market rates 

to market participants since the 

Exchange launched operations. As 

described above, the Exchange operated 

at a cumulative net annual loss since its 

launch in 2019 through 2021 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 options industry, 

which resulted in lower initial 

revenues. Examples of this are 10Gb 

ULL connectivity and Limited Service 

MEI Ports, for which the Exchange only 

now seeks to adopt fees at a level 

similar to or lower than those of other 

options exchanges. 

Further, the Exchange does not 

believe that the proposed fee increase 

for the 10Gb ULL connection change 

would place certain market participants 

at the Exchange at a relative 

disadvantage compared to other market 

participants or affect the ability of such 

market participants to compete. As is 

the case with the current proposed flat 

fee, the proposed fee would apply 

uniformly to all market participants 

regardless of the number of connections 

they choose to purchase. The proposed 

fee does not favor certain categories of 

market participants in a manner that 

would impose an undue burden on 

competition. 

The Exchange does not believe that 

the proposed rule change would place 

certain market participants at the 

Exchange at a relative disadvantage 

compared to other market participants 

or affect the ability of such market 

participants to compete. In particular, 

Exchange personnel has been informally 

discussing potential fees for 

connectivity services with a diverse 

group of market participants that are 

connected to the Exchange (including 

large and small firms, firms with large 

connectivity service footprints and 

small connectivity service footprints, as 

well as extranets and service bureaus) 

for several months leading up to that 

time. The Exchange does not believe the 

proposed fees for connectivity services 

would negatively impact the ability of 

Members, non-Members (extranets or 

service bureaus), third-parties that 

purchase the Exchange’s connectivity 

and resell it, and customers of those 

resellers to compete with other market 

participants or that they are placed at a 

disadvantage. 

The Exchange does anticipate, 

however, that some market participants 

may reduce or discontinue use of 

connectivity services provided directly 

by the Exchange in response to the 

proposed fees. In fact, as mentioned 

above, one MIAX Pearl Options Market 

Maker terminated their MIAX Pearl 

Options membership on January 1, 2023 

as a direct result of the similar proposed 

fee changes by MIAX Pearl Options.117

The Exchange does not believe that the 

proposed fees for connectivity services 

place certain market participants at a 

relative disadvantage to other market 

participants because the proposed 

connectivity pricing is associated with 

relative usage of the Exchange by each 

market participant and does not impose 

a barrier to entry to smaller participants. 

The Exchange believes its proposed 

pricing is reasonable and, when coupled 

with the availability of third-party 

providers that also offer connectivity 

solutions, that participation on the 

Exchange is affordable for all market 

participants, including smaller trading 

firms. As described above, the 

connectivity services purchased by 

market participants typically increase 

based on their additional message traffic 

and/or the complexity of their 

operations. The market participants that 

utilize more connectivity services 

typically utilize the most bandwidth, 

and those are the participants that 

consume the most resources from the 

network. Accordingly, the proposed fees 

for connectivity services do not favor 

certain categories of market participants 

in a manner that would impose a 

burden on competition; rather, the 

allocation of the proposed connectivity 

fees reflects the network resources 

consumed by the various size of market 

participants and the costs to the 

Exchange of providing such 

connectivity services. 

Lastly, the Exchange does not believe 

its proposed changes to the monthly rate 

for Limited Service MEI Ports will place 

certain market participants at a relative 

disadvantage to other market 

participants. All market participants 

would be eligible to receive four (4) free 

Limited Service MEI Ports and those 

that elect to purchase more would be 

subject to the same flat fee regardless of 

the number of additional Limited 

Service MEI Ports they purchase. All 

firms purchase the amount of Limited 

Service MEI Ports they require based on 

their own business decisions and 

similarly situated firms are subject to 

the same fees. 

Inter-Market Competition 

The Exchange also does not believe 

that the proposed rule change and price 

increase will result in any burden on 

inter-market competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. As this is a 

fee increase, arguably if set too high, 

this fee would make it easier for other 

exchanges to compete with the 

Exchange. Only if this were a 


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72196 Federal Register / Vol. 88, No. 201 / Thursday, October 19, 2023 / Notices 

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, May 24, 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). 121 17 CFR 200.30–3(a)(12). 

substantial fee decrease could this be 

considered a form of predatory pricing. 

In contrast, the Exchange believes that, 

without this fee increase, we are 

potentially at a competitive 

disadvantage to certain other exchanges 

that have in place higher fees for similar 

services. As we have noted, the 

Exchange believes that connectivity fees 

can be used to foster more competitive 

transaction pricing and additional 

infrastructure investment and there are 

other options markets of which market 

participants may connect to trade 

options at higher rates than the 

Exchange’s. Accordingly, the Exchange 

does not believe its proposed fee 

changes impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

* * * * * 

In conclusion, as discussed 

thoroughly above, the Exchange 

regrettably believes that the application 

of the Revised Review Process and Staff 

Guidance has adversely affected intermarket competition among legacy and 

non-legacy exchanges by impeding the 

ability of non-legacy exchanges to adopt 

or increase fees for their market data 

and access services (including 

connectivity and port products and 

services) that are on parity or 

commensurate with fee levels 

previously established by legacy 

exchanges. Since the adoption of the 

Revised Review Process and Staff 

Guidance, and even more so recently, it 

has become extraordinarily difficult to 

adopt or increase fees to generate 

revenue necessary to invest in systems, 

provide innovative trading products and 

solutions, and improve competitive 

standing to the benefit of non-legacy 

exchanges’ market participants. 

Although the Staff Guidance served an 

important policy goal of improving 

disclosures and requiring exchanges to 

justify that their market data and access 

fee proposals are fair and reasonable, it 

has also negatively impacted non-legacy 

exchanges in particular in their efforts 

to adopt or increase fees that would 

enable them to more fairly compete with 

legacy exchanges, despite providing 

enhanced disclosures and rationale 

under both competitive and cost basis 

approaches provided for by the Revised 

Review Process and Staff Guidance to 

support their proposed fee changes. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange received one comment 

letter on the Initial Proposal, one 

comment letter on the Second Proposal, 

one comment letter on the Third 

Proposal, 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– 

EMERALD–2023–27 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–EMERALD–2023–27. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–EMERALD–2023–27 and should be 

submitted on or before November 9, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.121

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–23038 Filed 10–18–23; 8:45 am] 

BILLING CODE 8011–01–P 


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