1606 Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 

22 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Types 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 to Members, and thus, may access 

application sessions on behalf of one or more 

Members. Extranets offer physical connectivity 

services to Members and non-Members. 

4MEMX Options launched on September 27, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.22

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00285 Filed 1–9–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99275; File No. SR–MEMX– 

2023–39] 

Self-Regulatory Organizations; MEMX 

LLC; Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend the Exchange’s Fee 

Schedule To Adopt Connectivity and 

Application Session Fees for MEMX 

Options 

January 4, 2024. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on December 

21, 2023, MEMX LLC (‘‘MEMX’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing a proposal to 

amend the Fee Schedule to: (i) apply the 

Exchange’s current Connectivity and 

Application Session fees to MEMX 

Options Users, (ii) implement a waiver 

of Connectivity and Application Session 

fees solely related to participation on 

MEMX Options until February 1, 2024, 

and (iii) make an organizational change 

to its existing fee schedule for the 

Exchange’s pre-existing equities market 

(‘‘MEMX Equities’’), in order to create a 

separate fee schedule for Connectivity 

Fees (for both MEMX Equities and 

MEMX Options). The Exchange 

proposes to implement the changes to 

the Fee Schedule pursuant to this 

proposal immediately. The text of the 

proposed rule change is provided in 

Exhibit 5. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background 

The Exchange is filing a proposal to 

amend the Fee Schedule to: (i) apply the 

Exchange’s current Connectivity and 

Application Session fees to MEMX 

Options Users, (ii) implement a waiver 

of Connectivity and Application Session 

fees solely related to participation on 

MEMX Options until February 1, 2024, 

and (iii) make an organizational change 

to its existing fee schedule for the 

Exchange’s pre-existing equities market 

(‘‘MEMX Equities’’), in order to create a 

separate fee schedule for Connectivity 

Fees (for both MEMX Equities and 

MEMX Options). The Exchange believes 

that these changes will provide greater 

transparency to Members about how the 

Exchange assesses fees, as well as 

allowing Members to more easily 

validate their bills on a monthly basis. 

The Exchange notes that none of these 

changes amend any existing fee 

applicable to MEMX Equities. The 

Exchange is proposing to implement the 

proposal immediately. The Exchange 

previously filed the proposal on October 

24, 2023 (SR–MEMX–2023–29) (the 

‘‘Initial Proposal’’). The Exchange has 

withdrawn the Initial Proposal and 

replaced the proposal with the current 

filing (SR–MEMX–2023–39). 

As set forth below, the Exchange 

believes that its proposal provides a 

great deal of transparency regarding the 

cost of providing connectivity services 

and anticipated revenue and that the 

proposal is consistent with the Act and 

associated guidance. The Exchange is 

re-filing this proposal promptly 

following the withdrawal of the Initial 

Proposal in order to provide additional 

details not contained in the Initial 

Proposal and modify the original 

proposed Options Connectivity and 

Application Session fee waiver end date 

from January 1, 2024, to February 1, 

2024. 

(i) Fees for Connectivity to MEMX 

Options 

As noted above, the Exchange is 

proposing to apply the current fees it 

charges to Members and non-Members 3

for physical connectivity to the 

Exchange and for application sessions 

(otherwise known as ‘‘logical ports’’) 

that a Member utilizes in connection 

with their participation on the Exchange 

(together with physical connectivity, 

collectively referred to in this proposal 

as ‘‘connectivity services’’, as described 

in greater detail below) to both Users of 

MEMX Equities and MEMX Options.4

Specifically, the Exchange will continue 

to charge $6,000 per month for a 

physical connection in the data center 

where the Exchange primarily operates 

under normal market conditions 

(‘‘Primary Data Center’’), and $3,000 per 

month for a physical connection at the 

geographically diverse data center, 

which is operated for backup and 

disaster recovery purposes (‘‘Secondary 

Data Center’’). These physical 

connections can be used to access both 

platforms, accordingly, a firm that is a 

Member of both MEMX Equities and 

MEMX Options may use a single 

physical connection to access its 

application sessions at both MEMX 

Equities and MEMX Options. This 

differs from application sessions in that 

a firm that is a Member of both MEMX 

Equities and MEMX Options would 

need to purchase separate application 

sessions for each trading platform in 

order to access each such trading 

platform. These application session fees 

will continue to be $450 per month for 

an application session used for order 

entry (‘‘Order Entry Port’’) and $450 per 

month for an application session for 

receipt of drop copies (‘‘Drop Copy 

Port’’), to the extent such ports are in 

the Primary Data Center. As is true 

today for MEMX Equities, the Exchange 

will not charge for Order Entry Ports or 

Drop Copy Ports in the Secondary Data 

Center. The Exchange’s proposal to 

apply the same fees to Equities and 

Options stems from the same cost 

analysis it conducted in adopting those 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 1607 

5See Securities Exchange Act Release No. 59846 

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

2022) (SR–MEMX–2022–026). 

6 15 U.S.C. 78s(b)(1). 

7 17 CFR 240.19b–4. 

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

9 15 U.S.C. 78f(b)(4). 

10 15 U.S.C. 78f(b)(5). 

11 15 U.S.C. 78f(b)(8). 

12 In 2019, Commission staff published guidance 

suggesting the types of information that SROs may 

use to demonstrate that their fee filings comply 

with the standards of the Exchange Act (‘‘Fee 

Guidance’’). While MEMX understands that the Fee 

Guidance does not create new legal obligations on 

SROs, the Fee Guidance is consistent with MEMX’s 

view about the type and level of transparency that 

exchanges should meet to demonstrate compliance 

with their existing obligations when they seek to 

charge new fees. See Staff Guidance on SRO Rule 

Filings Relating to Fees (May 21, 2019) available at 

https://www.sec.gov/tm/staff-guidancesro-rulefilings-fees. 

13As proposed, fees for connectivity services 

would be assessed based on each active 

connectivity service product at the close of business 

on the first day of each month. If a product is 

cancelled by a Member’s submission of a written 

request or via the MEMX User Portal prior to such 

fee being assessed then the Member will not be 

obligated to pay the applicable product fee. MEMX 

will not return pro-rated fees even if a product is 

not used for an entire month. 

fees to its Equities Members,5 which the 

Exchange has reviewed and updated for 

2024 as detailed below. Given that the 

Exchange has only recently launched 

MEMX Options, however, and the fact 

that its analysis is based on projections 

across all potential revenue streams, the 

Exchange is committing to conduct a 

one-year review after these fees are 

applied. 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, or to 

decrease fees in the event that revenue 

materially exceeds expectations. 

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 services to MEMX Options, 

the Exchange has sought to be especially 

diligent in assessing those fees in a 

transparent way against its own 

aggregate costs of providing the related 

services, and also 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,6 and Rule 19b–4 thereunder,7

with respect to the types of information 

self-regulatory organizations (‘‘SROs’’) 

should provide when filing fee changes, 

and Section 6(b) of the Act,8 which 

requires, among other things, that 

exchange fees be reasonable and 

equitably allocated,9 not designed to 

permit unfair discrimination,10 and that 

they not impose a burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.11 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.12

As detailed below, MEMX calculated 

its aggregate annual costs for providing 

physical connectivity to both MEMX 

Equities and MEMX Options in 2024 at 

$11,448,322 and its aggregate annual 

costs for providing application sessions 

at $5,918,788. In order to cover the 

aggregate costs of providing 

connectivity to its Options and Equities 

Users (both Members and non-Members) 

going forward and to make a modest 

profit, as described below, the Exchange 

is proposing to modify its Fee Schedule, 

pursuant to MEMX Rules 15.1(a) and 

(c), to charge a fee to Options Users, as 

it currently does to Equities Users, of 

$6,000 per month for each physical 

connection in the Primary Data Center 

and of $3,000 per month for each 

physical connection in the Secondary 

Data Center. The Exchange also 

proposes to modify its Fee Schedule, 

pursuant to MEMX Rules 15.1(a) and 

(c), to charge a fee to Options Users, as 

it currently does to Equities Users, of 

$450 per month for each Order Entry 

Port and Drop Copy Port in the 

Exchange’s Primary Data Center, as 

further described below.13

Cost Analysis 

Background on Cost Analysis 

In September 2023, MEMX completed 

a study of its aggregate projected costs 

to produce market data and connectivity 

across both its Equities and Options 

platforms in 2024 (the ‘‘Cost Analysis’’). 

The Cost Analysis required a detailed 

analysis of MEMX’s aggregate baseline 

costs, including a determination and 

allocation of costs for core services 

provided by the Exchange—transaction 

execution, market data, membership 

services and trading permits, regulatory 

services, physical connectivity, and 

application sessions (which provide 

order entry, cancellation and 

modification functionality, risk 

functionality, ability to receive drop 

copies, and other functionality). MEMX 

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’’). Next, MEMX adopted 

an allocation methodology with various 

principles to guide how much of a 

particular cost should be allocated to 

each core service. 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 (70%), with smaller 

allocations to logical ports (2%), and the 

remainder to the provision of 

transaction execution, regulatory 

services, and market data services 

(28%). In contrast, costs that are driven 

largely by client activity (e.g., message 

rates), were not allocated to physical 

connectivity at all but were allocated 

primarily to the provision of transaction 

execution and market data services 

(80%) with a smaller allocation to 

application sessions (20%). The 

allocation methodology was decided 

through conversations with senior 

management familiar with each area of 

the Exchange’s operations. After 

adopting this allocation methodology, 

the Exchange then applied an estimated 

allocation of each cost driver to each 

core service, resulting in the cost 

allocations described below. 

By allocating segmented costs to each 

core service, MEMX 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 four 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 four 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 


lotter on DSK11XQN23PROD with NOTICES1
1608 Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 

14See supra note 6. 

15See Securities Exchange Act Release No. 98585 

(September 28, 2023), 88 FR 68692 (October 4, 

2023) (SR–MEMX–2023–25). 

16To reiterate, these allocations are applied to the 

percentage of employee time left over after the ORF 

allocation. As such, if 10% of an employee’s time 

was allocated towards options regulation, the 

percentage of time allocated to physical 

connectivity in this example would apply to the 

90% of the employee’s time left over. 

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. 

Through the Exchange’s extensive 

Cost Analysis, 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 services, 

and, if such expense did so relate, what 

portion (or percentage) of such expense 

actually supports the provision of 

connectivity services, and thus bears a 

relationship that is, ‘‘in nature and 

closeness,’’ directly related to network 

connectivity services. In turn, the 

Exchange allocated certain costs more to 

physical connectivity and others to 

application sessions, 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, 

MEMX estimates that the cost drivers to 

provide connectivity services in 2024, 

including both physical connections 

and application sessions, will result in 

an aggregate annual cost of $17,367,110, 

as further detailed below. The Exchange 

notes that it utilized the same principles 

to generate the 2021 Cost Analysis, 

applicable to Equities only, and at that 

time, the estimated annual aggregate 

cost to provide connectivity services 

was $13,724,580. The differences 

between such estimated costs and the 

overall analysis are primarily based on: 

(1) the addition of MEMX Options, (ii) 

increased, and in some cases decreased, 

costs projected by the Exchange, (iii) 

and changes made to reallocate certain 

costs into categories that more closely 

align the Exchange’s audited financial 

statements, as further described below. 

Costs Related to Offering Physical 

Connectivity 

The following chart details the 

individual line-item costs considered by 

MEMX to be related to offering physical 

connectivity 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 17% of its overall 

Human Resources cost to offering 

physical connectivity). 

Costs driver Costs % of all 

Human Resources ................................................................................................................................................... $4,685,902 17 

Connectivity ............................................................................................................................................................. 413,032 75 

Data Center ............................................................................................................................................................. 2,654,732 70 

Technology (Hardware, Software Licenses, etc.) ................................................................................................... 842,258 21 

Depreciation ............................................................................................................................................................. 2,030,846 33 

External Market Data ............................................................................................................................................... ........................ 0 

Allocated Shared Expenses .................................................................................................................................... 821,552 12 

Total .................................................................................................................................................................. 11,448,322 20.7 

Below are additional details regarding 

each of the line-item costs considered 

by MEMX to be related to offering 

physical connectivity, as well as any 

relevant discussion of how the costs 

projected for 2024 differ, if any, from 

the Exchange’s previous Cost Analysis 

conducted in 2021 in adopting 

Connectivity Fees for its Equities 

platform, which are the same fees the 

Exchange is proposing to apply for its 

Options platform in this filing.14

Human Resources 

In allocating personnel (Human 

Resources) costs, in order to not double 

count any allocations, the Exchange first 

excluded any employee time allocated 

towards options regulation in order to 

recoup costs via the Options Regulatory 

Fee (‘‘ORF’’).15 Of the remaining 

employee time left over, MEMX then 

calculated an allocation of employee 

time for employees whose functions 

include providing and maintaining 

physical connectivity and performance 

thereof (primarily the MEMX network 

infrastructure team, which spends most 

of their time performing functions 

necessary to provide physical 

connectivity) and for which the 

Exchange allocated 75% of each 

employee’s time. 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 and finance personnel), for 

which the Exchange allocated cost on an 

employee-by-employee basis (i.e., only 

including those personnel who do 

support functions related to providing 

physical connectivity) and then applied 

a smaller allocation to such employees 

(30%).16 The Exchange notes that it has 

fewer than 100 employees and each 

department leader has direct knowledge 

of the time spent by those spent by each 

employee with respect to the various 

tasks necessary to operate the Exchange. 

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 their time such 

employees devote to tasks related to 

providing physical connectivity. The 

Exchange notes that senior level 

executives were only allocated Human 

Resources costs to the extent the 

Exchange believed 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. 

In 2021, 13.8% of the Exchange’s 

Human Resources costs were allocated 

towards the provision of physical 

connectivity, which is slightly lower 

than the 17% allocation in the current 

Cost Analysis. The Exchanges notes that 

this increase is due to additional hiring 

necessary to support network 

infrastructure, and that in advance of 

the launch of MEMX Options, this 

hiring started at the beginning of 2023. 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 1609 

17This figure is arrived at by dividing the annual 

allocated Connectivity costs in the table on page 12 

($413,032) by 12. 

18As of September 1, 2023, the Exchange’s 

customers maintained 182 physical connections in 

the Primary Data Center and 37 connections in the 

Secondary Data Center. For purposes of calculating 

profit margin, however, the Exchange divided the 

total number of actual Secondary Data Center 

connections by two (2), given that it charges half 

price for those connections relative to Primary Data 

Center connections, but its calculation assumes 

$6,000 earned per connection. This is necessary in 

order to calculate profit margin, given that the 

Exchange’s costs related to physical connectivity 

are not separated out for Primary or Secondary Data 

Center connections, and as such, there are no 

separate Secondary Data Center costs to use as a 

Continued 

Connectivity 

The Connectivity cost includes 

external fees paid to connect to other 

exchanges and third parties. 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. 

Approximately 75% of the Exchange’s 

connectivity costs are allocated towards 

the provision of physical connectivity, 

which is the same percentage identified 

in the 2021 Cost Analysis. Of note, the 

2021 Cost Analysis allocated 

approximately $162,000 per month of 

connectivity costs towards physical 

connectivity, which is notably higher 

than the $34,420 17 per month allocated 

under the current Cost Analysis. The 

Exchange notes that this is due to a 

substantial redesign in the Exchange’s 

connectivity plan which achieved the 

cost savings noted. Additionally, in the 

2021 Cost Analysis, certain costs were 

included in the Connectivity category 

that have since been moved into the 

broader Technology category. 

Data Center 

Data Center costs include 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 (70%) to physical 

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 

of 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. This slight decrease over 

the allocation of Data Center costs to 

physical connectivity from 2021 (75%) 

is due to the fact that at the time of the 

2021 Cost Analysis there were certain 

one-time costs in establishing the 

Exchange’s data center presence that it 

will not have in 2024, as well as the fact 

that in the 2021 Cost Analysis, 

additional costs were included in the 

Data Center category that are not 

included in the current Analysis. 

Technology 

The Technology category includes the 

Exchange’s network infrastructure, other 

hardware, software, and software 

licenses used to operate and monitor 

physical assets necessary to offer 

physical connectivity to the Exchange. 

Of note, certain of these costs were 

included in the Connectivity and a 

separate Hardware and Software 

Licenses category in the 2021 Cost 

Analysis; however, in order to align 

more closely with the Exchange’s 

audited financial statements these costs 

were combined into the broader 

Technology category. The Exchange 

allocated approximately 21% of its 

Technology costs to physical 

connectivity in 2024. 

Depreciation 

All physical assets and software, 

which also includes assets used for 

testing and monitoring of Exchange 

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 are owned by 

the Exchange and some of which are 

leased by the Exchange in order to allow 

efficient periodic technology refreshes. 

As noted above, the Exchange allocated 

33% of all depreciation costs to 

providing physical connectivity. This is 

a higher percentage than was allocated 

to providing physical connectivity in 

2021 (18.5%), and this increase is due 

to a high amount of capital expenditures 

required to build the Exchange’s options 

platform, none of which began to 

depreciate until the launch of options in 

September 2023. The Exchange notes, 

however, that it did not allocate 

depreciation costs for any internally 

developed software to build the 

Exchange’s trading platforms to physical 

connectivity, as such software does not 

impact the provision of physical 

connectivity. 

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 notes that it did not allocate 

any External Market Data fees to the 

provision of physical connectivity as 

market data is not related to such 

services. 

Allocated Shared Expenses 

Finally, a limited portion of general 

shared expenses was allocated to 

physical connectivity as without these 

general shared costs the Exchange 

would not be able to operate in the 

manner that it does and provide 

physical connectivity. 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 notes that the cost of paying 

directors to serve on its Board of 

Directors is also included in the 

Exchange’s general shared expenses, 

and thus a portion of such overall cost 

amounting to 23% of the overall cost for 

directors was allocated to providing 

physical connectivity. The Exchange 

notes that the 12% allocation of general 

shared expenses for physical 

connectivity is lower than that allocated 

to general shared expenses for 

application sessions based on its 

allocation methodology that weighted 

costs attributable to each Core Service 

based on an understanding of each area. 

While physical connectivity has several 

areas where certain tangible costs are 

heavily weighted towards providing 

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

described above), physical connectivity 

does not require as many broad or 

indirect resources as other Core 

Services. 

As a final part of the Exchange’s 

analysis related to physical 

connectivity, the Exchange determined 

the total monthly cost of providing 

physical connections, (i.e. the annual 

cost of $11,448,322 noted in the table 

above divided by 12), $954,027, and it 

divided that by the total number of 

physical connections (for both Equities 

and Options) the Exchange maintained 

at the time the proposed pricing was 

determined (200.5),18 to arrive at a cost 


lotter on DSK11XQN23PROD with NOTICES1
1610 Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 

denominator for Secondary Data Center connection 

revenue. Thus, the Exchange’s total number of 

physical connections for purposes of the profit 

margin calculation includes all 182 Primary Data 

Center connections plus 18.5 (i.e. one-half) of the 

Exchange’s Secondary Data Center connections, 

totaling 200.5 connections. 

19The Exchange calculated margin by dividing 

the total profit ($248,972.88) by the total revenue 

($1,203,000) and multiplying by 100. 

20The 2021 Cost Analysis projected a profit 

margin for physical connections of 8%. 

of $4,758.24 per month, per physical 

connection. Thus, revenue based on this 

number of connections under the 

proposed pricing herein results in a 

physical connectivity profit margin of 

approximately 20%.19 The Exchange 

notes that this projected profit margin 

represents an increase over the 

projected profit margin noted in the 

2021 Cost Analysis related to physical 

connectivity,20 which is in part due to 

certain cost savings noted above 

associated with a redesign in the 

Exchange’s external connectivity plan. 

Nevertheless, the Exchange believes that 

the projected profit margin is reasonable 

and well within the range of where a 

similarly situated company would 

expect to be after three years of growth, 

especially upon launching a new 

trading platform that provides scale. 

While the Exchange does not anticipate 

a significant change to physical 

connectivity during 2024 (i.e., neither a 

significant increase nor a significant 

decrease), it is possible that participants 

will shift the way that they connect to 

the Exchange and a reduction occurs or 

that additional connectivity is 

established, resulting in an increase. 

Costs Related to Offering Application 

Sessions 

The following chart details the 

individual line-item costs considered by 

MEMX to be related to offering 

application sessions 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 12% of its 

overall Human Resources cost to 

offering application sessions). 

Costs driver Costs % of all 

Human Resources ................................................................................................................................................... $3,251,548 12 

Connectivity ............................................................................................................................................................. 7,097 0 

Data Center ............................................................................................................................................................. 86,513 2 

Technology (Hardware, Software Licenses, etc.) ................................................................................................... 459,116 11 

Depreciation ............................................................................................................................................................. 553,931 9 

External Market Data ............................................................................................................................................... 420,394 18 

Allocated Shared Expenses .................................................................................................................................... 1,140,189 17 

Total .................................................................................................................................................................. 5,918,788 10.7 

Human Resources 

With respect to application sessions, 

MEMX calculated Human Resources 

cost by taking an allocation of employee 

time for employees whose functions 

include providing application sessions 

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). The estimates of Human 

Resources cost were again determined 

by consulting with department leaders, 

determining which employees are 

involved in tasks related to providing 

application sessions 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 application sessions and 

maintaining performance thereof. The 

Exchange notes that senior level 

executives were only allocated Human 

Resources costs to the extent the 

Exchange believed they are involved in 

overseeing tasks related to providing 

application sessions and maintaining 

performance thereof. 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. As 

shown in the table above, for 2024, the 

Exchange allocated approximately 12% 

of its Human Resources costs to 

providing application sessions, which is 

higher than the 7.7% it allocated in 

2021. This increase is again due to 

additional hiring needed to support the 

addition of MEMX Options. 

Connectivity 

The Connectivity cost includes 

external fees paid to connect to other 

exchanges, as described above. The 

Exchange did not allocate any 

Connectivity costs to application 

sessions in the current Cost Analysis, 

which differs from the 2.6% allocated 

towards application sessions in the 2021 

Cost Analysis. This difference is due to 

the fact that certain formerly categorized 

Connectivity costs are now categorized 

under Technology in the current 2024 

Cost Analysis. 

Data Center 

Data Center costs include an 

allocation of the costs the Exchange 

incurs to provide physical connectivity 

in the third-party data centers where it 

maintains its equipment as well as 

related costs (the Exchange does not 

own the Primary Data Center or the 

Secondary Data Center, but instead, 

leases space in data centers operated by 

third parties). As shown in the table, the 

Exchange allocated 2% of its Data 

Center costs to application sessions in 

the current Cost Analysis, which is in 

line with the 2.6% it allocated in the 

2021 Cost Analysis. 

Technology 

The Technology category includes the 

Exchange’s network infrastructure, other 

hardware, software, and software 

licenses used to monitor the health of 

the order entry services provided by the 

Exchange. The Exchange allocated 11% 

of its Technology costs to the provision 

of application sessions, which is in line 

with the 10.1% it allocated in the 2021 

Cost Analysis. 

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 allocated 18% of External 

Market Data fees to the provision of 

application sessions as such market data 

is necessary to offer certain services 

related to such sessions, such as 

validating orders on entry against the 

National Best Bid and National Best 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 1611 

21The Exchange calculated margin by dividing 

the total profit ($31,012.30) by the total revenue 

($524,250) and multiplying by 100. 

22The 2021 Cost Analysis projected an 

application session profit margin of approximately 

8%. 23See supra note 16. 

Offer (‘‘NBBO’’) and checking for other 

conditions (e.g., whether a symbol is 

halted or subject to a short sale circuit 

breaker). Thus, as market data from 

other exchanges is consumed at the 

application session 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 application sessions. The 

increase in allocation of External Market 

Data costs to the provision of 

application sessions compared to the 

2021 Cost Analysis, in which 7.5% of its 

External Market Data costs were 

allocated, is due to a restructuring of the 

category. Specifically, in 2021, External 

Market Data only included those costs 

incurred to receive data from other 

exchanges, while costs to receive the 

SIP feeds and other non-exchange data 

feeds were categorized under Hardware 

and Software Licenses. These costs are 

now all categorized under External 

Market Data. 

Depreciation 

All physical assets 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 9% of all 

depreciation costs to providing 

application sessions. In contrast to 

physical connectivity, described above, 

the Exchange did allocate depreciation 

costs for depreciated internally 

developed software to build the 

Exchange’s platforms to application 

sessions because such software is 

related to the provision of such 

connectivity. 

Allocated Shared Expenses 

Finally, a limited portion of general 

shared expenses was allocated to overall 

application session costs as without 

these general shared costs the Exchange 

would not be able to operate in the 

manner that it does and provide 

application sessions. The costs included 

in general shared expenses include 

general expenses of the Exchange, 

including office space and office 

expenses (e.g., occupancy and overhead 

expenses), utilities, recruiting and 

training, marketing and advertising 

costs, professional fees for legal, tax and 

accounting services (including external 

and internal audit expenses), and 

telecommunications costs. The 

Exchange again notes that the cost of 

paying directors to serve on its Board of 

Directors is included in the calculation 

of Allocated Shared Expenses, and thus 

a portion of such overall cost amounting 

to less than 20% of the overall cost for 

directors was allocated to providing 

application sessions. The Exchange 

notes that the 17% allocation of general 

shared expenses for application sessions 

is higher 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 

physical connectivity has several areas 

where certain tangible costs are heavily 

weighted towards providing such 

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

above), application sessions require 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 determined the 

total monthly cost of providing 

application sessions, (i.e. the annual 

cost of $5,918,788 noted in the table 

above divided by 12), $493,232.33, and 

it divided that by the total number of 

application sessions (for both Equities 

and Options) the Exchange maintained 

at the time the proposed pricing was 

determined (1,165), to arrive at a cost of 

approximately $423.38 per month per 

physical connection. Thus, revenue 

based on this number of connections 

under the proposed pricing herein 

results in an application session profit 

margin of approximately 6%.21 This 

profit margin for application sessions is 

slightly lower than the projected profit 

margin noted in the 2021 Cost 

Analysis,22 and stems from multiple 

factors, but in part, is due to the fact that 

the number of application sessions used 

by participants can and does vary 

significantly from month to month, and 

this particular profit margin was 

calculated based on the number of 

application sessions for one month in 

2023. While the Exchange expects the 

number of application sessions to 

increase throughout 2024 (which would 

result in a higher profit margin), it is 

also possible that participants shift the 

way that they connect and a reduction 

occurs. Nevertheless, the Exchange 

believes that the margin is again, 

reasonable and well within the range of 

where the Exchange would expect it to 

be at this time. 

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 

application sessions) 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 filing it recently 

submitted proposing the establishment 

of an ORF.23 For instance, in calculating 

the Human Resources expenses to be 

allocated to physical connections, 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 time of such personnel 

(75%) given their focus on functions 

necessary to provide physical 

connections. The time of those same 

personnel were allocated only 6% to 

application sessions and the remaining 

19% was allocated to transactions and 

market data. Of note, this allocation 

applied only to the network 

infrastructure employee’s time that was 

left over after allocating for options 

regulation support. The Exchange did 

not allocate any other Human Resources 

expense for providing physical 

connections to any other employee 

group outside of a smaller allocation 

(30%) of the employee time associated 

with certain specified personnel who 

work closely with and support network 

infrastructure personnel. In contrast, the 

Exchange allocated much smaller 

percentages of employee time (15% or 

less) across a wider range of personnel 

groups in order to allocate Human 

Resources costs to providing application 

sessions. This is because a much wider 

range of personnel are involved in 

functions necessary to offer, monitor 

and maintain application sessions but 

the tasks necessary to do so are not a 

primary or full-time function. 

In total, the Exchange allocated 17% 

of its Human Resources costs to 

providing physical connections and 

12% of its Human Resources costs to 

providing application sessions, for a 

total allocation of 29% of its Human 

Resources expense to provide 

connectivity services. In turn, the 

Exchange allocated the remaining 71% 

of its Human Resources expense to 

Regulatory Services (21%), membership 

(2%) and transactions and market data 


lotter on DSK11XQN23PROD with NOTICES1
1612 Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 

24See Securities Exchange Act Release No. 97130 

(March 13, 2013), 88 FR 16491 (March 17, 2023) 

(SR–MEMX–2023–04). 

25See supra note 4. 

26Of those 24 members, six (6) have designated 

certain of their physical ports will be used to 

connect to MEMX Options. 

(48%). 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 application sessions, 

but in different amounts. The Exchange 

believes it is reasonable to allocate the 

identified portion of such expense 

because such expense includes the 

actual cost of the computer equipment, 

such as dedicated servers, computers, 

laptops, monitors, information security 

appliances and storage, and network 

switching infrastructure equipment, 

including switches and taps that were 

purchased to operate and support the 

network. Without this equipment, the 

Exchange would not be able to operate 

the network and provide connectivity 

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

the Exchange did not allocate all of the 

depreciation and amortization expense 

toward the cost of providing 

connectivity services, but instead 

allocated approximately 42% of the 

Exchange’s overall depreciation and 

amortization expense to connectivity 

services (33% attributed to physical 

connections and 9% to application 

sessions). The Exchange allocated the 

remaining depreciation and 

amortization expense (approximately 

58%) toward regulatory services 

(approximately 8%), and to providing 

transaction services and market data 

(approximately 50%). 

Looking at the Exchange’s operations 

holistically, the estimated total monthly 

costs to the Exchange for offering core 

services in 2024 is $4,604,583, 

compared to the $3,954,537 noted in the 

2021 Cost Analysis. Based on its 

projections, the Exchange expects to 

collect approximately $1,768,800 on a 

monthly basis for connectivity services. 

Incorporating this amount into the 

Exchange’s overall projected revenue, 

including projections related to the 

ORF, the Exchange anticipates monthly 

revenue of approximately $5,988,620 

from all sources (i.e., connectivity fees 

and membership fees, transaction fees, 

ORF, and revenue from market data, 

both through the fees adopted in April 

2022 24 and through the revenue 

received from the SIPs). As such, 

applying the Exchange’s holistic Cost 

Analysis to a holistic view of 

anticipated revenues, the Exchange 

would earn approximately 23% margin 

on its operations as a whole. The 

Exchange believes that this amount is 

reasonable. 

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. As a new entrant to 

the hyper-competitive exchange 

environment, and an exchange focused 

on driving competition, 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 options clients that 

wish to maintain physical connectivity 

and/or application sessions 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 was based on the Exchange’s 

operations in 2023 (which is currently 

underway) and projections for the next 

year. As such, the Exchange believes 

that its costs will remain relatively 

similar in future years (as demonstrated 

by the comparison of the 2021 Cost 

Analysis to the 2024 Cost Analysis). It 

is possible however that such costs will 

either decrease or increase. 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 would 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 in ways that 

suggest the then-current fees are 

becoming dislocated from the prior costbased analysis) and would propose to 

increase fees in the event that revenues 

fail to cover its costs and a reasonable 

mark-up, or decrease fees in the event 

that revenue or the mark-up materially 

exceeds our current projections. In the 

event that the Exchange determines to 

propose a fee change, the results of a 

timely review, including an updated 

cost estimate, will be included in the 

rule filing proposing the fee change. 

More generally, the Exchange believes 

that it is appropriate for an exchange to 

refresh and update information about its 

relevant costs and revenues in seeking 

any future changes to fees, and the 

Exchange commits to do so. 

Proposed Fees 

Physical Connectivity Fees 

MEMX offers its Members the ability 

to connect to the Exchange in order to 

transmit orders to and receive 

information from the Exchange. 

Members can also choose to connect to 

MEMX indirectly through physical 

connectivity maintained by a third-party 

extranet. Extranet physical connections 

may provide access to one or multiple 

Members on a single connection. Users 

of MEMX physical connectivity services 

(both Members and non-Members 25) 

seeking to establish one or more 

connections with the Exchange submit a 

request to the Exchange via the MEMX 

User Portal or directly to Exchange 

personnel. Upon receipt of the 

completed instructions, MEMX 

establishes the physical connections 

requested by the User. The number of 

physical connections assigned to each 

User (for both equities and options) as 

of October 1, 2023, ranges from one (1) 

to 30, depending on the scope and scale 

of the Member’s trading activity on the 

Exchange as determined by the Member, 

including the Member’s determination 

of the need for redundant connectivity. 

Separate physical connections are not 

required to access the Exchange’s 

Options and Equities platforms, as such, 

a User could use a single connection to 

access both platforms. The Exchange 

notes that 52% of its Members do not 

maintain a physical connection directly 

with the Exchange in the Primary Data 

Center (though many such Members 

have connectivity through a third-party 

provider) and 24 members, or 32% have 

either one or two physical ports to 

connect to the Exchange in the Primary 

Data Center.26 Thus, only a limited 

number of Members, (12 members, or 

16%), maintain three or more physical 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 1613 

27Of those 12 members, nine (9) have designated 

certain of their physical ports will be used to 

connect to MEMX Options. 

28See, e.g., the BZX options fee schedule, 

available at: https://www.cboe.com/us/options/ 

membership/fee_schedule/bzx/. 29See supra note 4. 

ports to connect to the Exchange in the 

Primary Data Center.27

As described above, the Exchange has 

previously justified its pricing with 

respect to MEMX Equities and believes 

the most fair approach, absent a 

significant differentiation between 

application costs to Equities and 

Options, is to apply the same pricing to 

all participants of either platform. As 

such, in order to cover the aggregate 

costs of providing physical connectivity 

to Options and Equities Users and make 

a modest profit, as described below, the 

Exchange is proposing to charge a fee of 

$6,000 per month for each physical 

connection in the Primary Data Center 

and a fee of $3,000 per month for each 

physical connection in the Secondary 

Data Center for connections to its 

Options platform, as it currently charges 

for connections to its Equities platform. 

There is no requirement that any 

Member maintain a specific number of 

physical connections and a Member 

may choose to maintain as many or as 

few of such connections as each 

Member deems appropriate. Further, as 

noted above, existing Equities Members 

may choose to use their existing 

physical connection(s) to access the 

Exchange’s Options platform. 

The Exchange notes, however, that 

pursuant to Rule 2.4 (Mandatory 

Participation in Testing of Backup 

Systems), the Exchange does require a 

small number of Members to connect 

and participate in functional and 

performance testing as announced by 

the Exchange, which occurs at least 

once every 12 months. Specifically, 

Members that have been determined by 

the Exchange to contribute a meaningful 

percentage of the Exchange’s overall 

volume must participate in mandatory 

testing of the Exchange’s backup 

systems (i.e., such Members must 

connect to the Secondary Data Center). 

The Exchange notes that designated 

Members are still able to use third-party 

providers of connectivity to access the 

Exchange at its Secondary Data Center, 

and that for its Equities platform, one of 

eight such designated Members does use 

a third-party provider instead of 

connecting directly to the Secondary 

Data Center through connectivity 

provided by the Exchange. Nonetheless, 

because some Members are required to 

connect to the Secondary Data Center 

pursuant to Rule 2.4 and to encourage 

Exchange Members to connect to the 

Secondary Data Center generally, the 

Exchange has proposed to charge onehalf of the fee for a physical connection 

in the Primary Data Center for its 

Options platform, as it currently charges 

for Equities. The Exchange notes that its 

costs related to operating the Secondary 

Data Center were not separately 

calculated for purposes of this proposal, 

but instead, all costs related to 

providing physical connections were 

considered in the aggregate. The 

Exchange believes this is appropriate 

because had the Exchange calculated 

such costs separately and then 

determined the fee per physical 

connection that would be necessary for 

the Exchange to cover its costs for 

operating the Secondary Data Center, 

the costs would likely be much higher 

than those proposed for connectivity at 

the Primary Data Center because 

Members maintain significantly fewer 

connections at the Secondary Data 

Center. The Exchange believes that 

charging a higher fee for physical 

connections at the Secondary Data 

Center would be inconsistent with its 

objective of encouraging Members to 

connect at such data center and is 

inconsistent with the fees charged by 

other exchanges, which also provide 

connectivity for disaster recovery 

purposes at a discounted rate.28

The proposed fee will not apply 

differently based upon the size or type 

of the market participant, but rather 

based upon the number of physical 

connections a User requests, based upon 

factors deemed relevant by each User 

(either a Member, service bureau or 

extranet). The Exchange believes these 

factors include the costs to maintain 

connectivity, business model and 

choices Members make in how to 

participate on the Exchange, as further 

described below. 

The proposed fee of $6,000 per month 

for physical connections at the Primary 

Data Center is designed to permit the 

Exchange to cover the costs allocated to 

providing connectivity services with a 

modest profit margin (approximately 

20%), which would also help fund 

future expenditures (increased costs, 

improvements, etc.). The Exchange 

believes it is appropriate to charge fees 

that represent a reasonable markup over 

cost given the other factors discussed 

above and the need for the Exchange to 

maintain a highly performant and stable 

platform to allow Members to transact 

with determinism. 

As noted above, the Exchange 

proposes a discounted rate of $3,000 per 

month for physical connections at its 

Secondary Data Center. The Exchange 

has proposed this discounted rate for 

Secondary Data Center connectivity in 

order to encourage Members to establish 

and maintain such connections. Also, as 

noted above, a small number of 

Members are required pursuant to Rule 

2.4 to connect and participate in testing 

of the Exchange’s backup systems, and 

the Exchange believes it is appropriate 

to provide a discounted rate for physical 

connections at the Secondary Data 

Center given this requirement. The 

Exchange notes that this rate is well 

below the cost of providing such 

services and the Exchange will operate 

its network and systems at the 

Secondary Data Center without 

recouping the full amount of such cost 

through connectivity services. 

The proposed fee for physical 

connections is effective on filing and 

will become operative immediately, 

subject to the proposed waiver 

described below. 

Application Session Fees 

Similar to other exchanges, MEMX 

offers its Members application sessions, 

also known as logical ports, for order 

entry and receipt of trade execution 

reports and order messages. Members 

can also choose to connect to MEMX 

indirectly through a session maintained 

by a third-party service bureau. Service 

bureau sessions may provide access to 

one or multiple Members on a single 

session. Users of MEMX connectivity 

services (both Members and nonMembers 29) seeking to establish one or 

more application sessions with the 

Exchange submit a request to the 

Exchange via the MEMX User Portal or 

directly to Exchange personnel. Upon 

receipt of the completed instructions, 

MEMX assigns the User the number of 

sessions requested by the User. The 

number of sessions assigned to each 

User as of August 31, 2022, ranges from 

one (1) to more than 150 depending on 

the scope and scale of the Member’s 

trading activity on the Exchange (either 

through a direct connection or through 

a service bureau) as determined by the 

Member. For example, by using 

multiple sessions, Members can 

segregate order flow from different 

internal desks, business lines, or 

customers. The Exchange does not 

impose any minimum or maximum 

requirements for how many application 

sessions a Member or service bureau can 

maintain, and it is not proposing to 

impose any minimum or maximum 

session requirements for its Members or 

their service bureaus. The same 

application session cannot be used to 

access both MEMX Equities and MEMX 

Options, as such, Users will need to 


lotter on DSK11XQN23PROD with NOTICES1
1614 Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 

30See, e.g., Cboe US Options BOE Specification, 

available at: https://cdn.cboe.com/resources/ 

membership/US_Options_BOE_Specification.pdf 

(describing a 5,000 message per second Port Order 

Rate Threshold on Cboe BOE ports). 

31The Exchange understands that some Members 

(or service bureaus) may also request more Order 

Entry Ports to enable the ability to send a greater 

number of simultaneous order messages to the 

Exchange by spreading orders over more Order 

Entry Ports, thereby increasing throughput (i.e., the 

potential for more orders to be processed in the 

same amount of time). The degree to which this 

usage of Order Entry Ports provides any throughput 

advantage is based on how a particular Member 

sends order messages to MEMX, however the 

Exchange notes that its architecture reduces the 

impact or necessity of such a strategy. All Order 

Entry Ports on MEMX provide the same throughput, 

and as noted above, the throughput is likely 

adequate even for a Member sending a significant 

amount of volume at a fast pace, and is not 

artificially throttled or limited in any way by the 

Exchange. 

32 17 CFR 242.1000–1007. 

33 17 CFR 242.1001(a). 

purchase separate application sessions 

for MEMX Options, which differs from 

physical connections. 

As described above, in order to cover 

the aggregate costs of providing 

application sessions to Options Users 

and to make a modest profit, as 

described below, the Exchange is 

proposing to charge a fee of $450 per 

month for each Order Entry Port and 

Drop Copy Port in the Primary Data 

Center for Options application sessions, 

which is the same fee it currently 

charges for Equities application 

sessions. The Exchange notes that it 

does not propose to charge for: (1) Order 

Entry Ports or Drop Copy Ports in the 

Secondary Data Center, or (2) any Test 

Facility Ports or MEMOIR Gap Fill 

Ports, again, which it does not charge 

for Equities Users. The Exchange has 

proposed to continue to provide Order 

Entry Ports and Drop Copy Ports in the 

Secondary Data Center for Options free 

of charge in order to encourage 

Members to connect to the Exchange’s 

backup trading systems. Similarly, 

because the Exchange wishes to 

encourage Members to conduct 

appropriate testing of their use of the 

Exchange, the Exchange has not 

proposed to charge for Test Facility 

Ports. With respect to MEMOIR Gap Fill 

ports, such ports are exclusively used in 

order to receive information when a 

market data recipient has temporarily 

lost its view of MEMX market data. The 

Exchange has not proposed charging for 

such ports because the costs of 

providing and maintaining such ports is 

more directly related to producing 

market data. 

The proposed fee of $450 per month 

for each Order Entry Port and Drop 

Copy Port in the Primary Data Center is 

designed to permit the Exchange to 

cover the costs allocated to providing 

application sessions with a modest 

profit margin (approximately 6%), 

which would also help fund future 

expenditures (increased costs, 

improvements, etc.). 

The proposed fee is also designed to 

encourage Users to be efficient with 

their application session usage, thereby 

resulting in a corresponding increase in 

the efficiency that the Exchange would 

be able to realize in managing its 

aggregate costs for providing 

connectivity services. There is no 

requirement that any Member maintain 

a specific number of application 

sessions and a Member may choose to 

maintain as many or as few of such 

ports as each Member deems 

appropriate. The Exchange has designed 

its platform such that Order Entry Ports 

can handle a significant amount of 

message traffic (i.e., over 50,000 orders 

per second), and has no application 

flow control or order throttling. In 

contrast, other exchanges maintain 

certain thresholds that limit the amount 

of message traffic that a single logical 

port can handle.30 As such, while 

several Members maintain a relatively 

high number of ports because that is 

consistent with their usage on other 

exchanges and is preferable for their 

own reasons, the Exchange believes that 

it has designed a system capable of 

allowing such Members to significantly 

reduce the number of application 

sessions maintained. 

The proposed fee will not apply 

differently based upon the size or type 

of the market participant, but rather 

based upon the number of application 

sessions a User requests, based upon 

factors deemed relevant by each User 

(either a Member or service bureau on 

behalf of a Member). The Exchange 

believes these factors include the costs 

to maintain connectivity and choices 

Members make in how to segment or 

allocate their order flow.31

The proposed fee for application 

sessions is effective on filing and will 

become operative immediately, subject 

to the proposed waiver described below. 

Proposed Fees—Additional Discussion 

As discussed above, the proposed fees 

for connectivity services do not by 

design apply differently to different 

types or sizes of Members. As discussed 

in more detail in the Statutory Basis 

section, the Exchange believes that the 

likelihood of higher fees for certain 

Members subscribing to connectivity 

services usage than others is not 

unfairly discriminatory because it is 

based on objective differences in usage 

of connectivity services among different 

Members. The Exchange’s incremental 

aggregate costs for all connectivity 

services are disproportionately related 

to Members with higher message traffic 

and/or Members with more complicated 

connections established with the 

Exchange, as such Members: (1) 

consume the most bandwidth and 

resources of the network; (2) transact the 

vast majority of the volume on the 

Exchange; and (3) require the hightouch network support services 

provided by the Exchange and its staff, 

including network monitoring, reporting 

and support services, resulting in a 

much higher cost to the Exchange to 

provide such connectivity services. For 

these reasons, MEMX believes it is not 

unfairly discriminatory for the Members 

with higher message traffic and/or 

Members with more complicated 

connections to pay a higher share of the 

total connectivity services fees. While 

Members with a business model that 

results in higher relative inbound 

message activity or more complicated 

connections are projected to pay higher 

fees, the level of such fees is based 

solely on the number of physical 

connections and/or application sessions 

deemed necessary by the Member and 

not on the Member’s business model or 

type of Member. The Exchange notes 

that the correlation between message 

traffic and usage of connectivity services 

is not completely aligned because 

Members individually determine how 

many physical connections and 

application sessions to request, and 

Members may make different decisions 

on the appropriate ways based on facts 

unique to their individual businesses. 

Based on the Exchange’s architecture, as 

described above, the Exchange believes 

that a Member even with high message 

traffic would be able to conduct 

business on the Exchange with a 

relatively small connectivity services 

footprint. 

Finally, the fees for connectivity 

services will help to encourage 

connectivity services usage in a way 

that aligns with the Exchange’s 

regulatory obligations. As a national 

securities exchange, the Exchange is 

subject to Regulation Systems 

Compliance and Integrity (‘‘Reg SCI’’).32

Reg SCI Rule 1001(a) requires that the 

Exchange establish, maintain, and 

enforce written policies and procedures 

reasonably designed to ensure (among 

other things) that its Reg SCI systems 

have levels of capacity adequate to 

maintain the Exchange’s operational 

capability and promote the maintenance 

of fair and orderly markets.33 By 

encouraging Users to be efficient with 

their usage of connectivity services, the 

proposed fee will support the 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 1615 

34While some Members might directly connect to 

the Secondary Data Center and incur the proposed 

$3,000 per month fee, there are other ways to 

connect to the Exchange, such as through a service 

bureau or extranet, and because the Exchange is not 

imposing fees for application sessions in the 

Secondary Data Center, a Member connecting 

through another method would not incur any fees 

charged directly by the Exchange. However, the 

Exchange notes that a third-party service provider 

providing connectivity to the Exchange likely 

would charge a fee for providing such connectivity; 

such fees are not set by or shared in by the 

Exchange. 

Exchange’s Reg SCI obligations in this 

regard by ensuring that unused 

application sessions are available to be 

allocated based on individual User 

needs and as the Exchange’s overall 

order and trade volumes increase. 

Additionally, because the Exchange will 

charge a lower rate for a physical 

connection to the Secondary Data 

Center and will not charge any fees for 

application sessions at the Secondary 

Data Center or its Test Facility, the 

proposed fee structure will further 

support the Exchange’s Reg SCI 

compliance by reducing the potential 

impact of a disruption should the 

Exchange be required to switch to its 

Disaster Recovery Facility and 

encouraging Members to engage in any 

necessary system testing with low or no 

cost imposed by the Exchange.34

(ii) Options Connectivity Fee Waiver 

To encourage new participants to join 

the Exchange as Members in order to 

participate in MEMX Options, the 

Exchange is proposing to waive all 

Connectivity Fees used solely for 

MEMX Options until February 1, 2024. 

As noted above, physical connections 

may be used to access both Equities and 

Options, and as such, the Exchange will 

internally verify whether new 

connections are being used solely for 

Options connections in order to 

determine whether such connection 

qualifies for this waiver. Separately, 

Members specify the Exchange to which 

their requested application sessions 

should connect, and as such, any new 

application sessions for MEMX Options 

will qualify for this waiver. 

(iii) Organizational Fee Schedule 

Changes 

The Exchange is proposing to more 

clearly separate Connectivity Fees from 

the Exchange’s current fee schedule. 

Currently, the Exchange has separate 

transaction fee schedules for Equities 

and Options, and the current 

Connectivity Fees appear solely on the 

Equities fee schedule. The Exchange 

proposes to remove the Connectivity 

Fees section from the Equities fee 

schedule, and add hyperlinks at the 

bottom of the Equities and Options fee 

schedules that direct the User to a single 

Connectivity fee schedule. The 

Exchange believes this format is 

appropriate given that the same 

Connectivity Fees apply to both Equities 

and Options Users, and separating out 

the fee schedule for Connectivity Fees 

will reduce potential confusion (e.g., as 

to which fees a Member that participates 

on both MEMX Equities and MEMX 

Options must pay on a monthly basis to 

maintain connectivity to the Exchange). 

The Exchange also proposes to add 

three additional bullet points to the new 

Connectivity Fee Schedule related to 

MEMX Options. The first will notify 

Members that a physical connection can 

be used to access MEMX Equities and/ 

or MEMX Options. The second will 

clarify that an application session can 

only be used to access one MEMX 

platform, i.e., MEMX Equities or MEMX 

Options. The third will note that 

Connectivity and application session 

fees solely related to participation on 

MEMX Options are waived until 

February 1, 2024. The Exchange notes 

that the existing bullet points related to 

Connectivity and application sessions 

will be included on the proposed 

separate Connectivity Fee Schedule, 

(i.e., detailing the Exchange’s billing 

practices, and making clear that that the 

Exchange does not charge for: (1) Order 

Entry Ports or Drop Copy Ports in the 

Secondary Data Center, or (2) any Test 

Facility Ports or MEMOIR Gap Fill 

Ports. 

2. Statutory Basis 

The Exchange believes that the 

proposed fees for connectivity services 

to MEMX Options are reasonable, 

equitable and not unfairly 

discriminatory because, as described 

above, the proposed pricing for 

connectivity services is directly related 

to the relative costs to the Exchange to 

provide those respective services and 

does not impose a barrier to entry to 

smaller participants. 

The Exchange recognizes that there 

are various business models and varying 

sizes of market participants conducting 

business on the Exchange. The 

Exchange’s incremental aggregate costs 

for all connectivity services are 

disproportionately related to Members 

with higher message traffic and/or 

Members with more complicated 

connections established with the 

Exchange, as such Members: (1) 

consume the most bandwidth and 

resources of the network; (2) transact the 

vast majority of the volume on the 

Exchange; and (3) require the hightouch network support services 

provided by the Exchange and its staff, 

including network monitoring, reporting 

and support services, resulting in a 

much higher cost to the Exchange to 

provide such connectivity services. 

Accordingly, the Exchange believes the 

allocation of the proposed fees that 

increase based on the number of 

physical connections or application 

sessions is reasonable based on the 

resources consumed by the respective 

type of market participant (i.e., lowest 

resource consuming Members will pay 

the least, and highest resource 

consuming Members will pay the most), 

particularly since higher resource 

consumption translates directly to 

higher costs to the Exchange. 

With regard to reasonableness, the 

Exchange understands that when 

appropriate given the context of a 

proposal the Commission has taken a 

market-based approach to examine 

whether the SRO making the proposal 

was subject to significant competitive 

forces in setting the terms of the 

proposal. In looking at this question, the 

Commission considers whether the SRO 

has demonstrated in its filing that: (i) 

there are reasonable substitutes for the 

product or service; (ii) ‘‘platform’’ 

competition constrains the ability to set 

the fee; and/or (iii) revenue and cost 

analysis shows the fee would not result 

in the SRO taking supra-competitive 

profits. If the SRO demonstrates that the 

fee is subject to significant competitive 

forces, the Commission will next 

consider whether there is any 

substantial countervailing basis to 

suggest the fee’s terms fail to meet one 

or more standards under the Exchange 

Act. If the filing fails to demonstrate that 

the fee is constrained by competitive 

forces, the SRO must provide a 

substantial basis, other than 

competition, to show that it is 

consistent with the Exchange Act, 

which may include production of 

relevant revenue and cost data 

pertaining to the product or service. 

MEMX believes the proposed fees for 

connectivity services are fair and 

reasonable as a form of cost recovery for 

the Exchange’s aggregate costs of 

offering connectivity services to 

Members and non-Members. The 

proposed fees are expected to generate 

monthly revenue of $1,768,800 

providing cost recovery to the Exchange 

for the aggregate costs of offering 

connectivity services, based on a 

methodology that narrowly limits the 

cost drivers that are allocated cost to 

those closely and directly related to the 

particular service. In addition, this 

revenue will allow the Exchange to 

continue to offer, to enhance, and to 

continually refresh its infrastructure as 

necessary to offer a state-of-the-art 

trading platform. The Exchange believes 


lotter on DSK11XQN23PROD with NOTICES1
1616 Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 

35See Fee Guidance, supra note 13. 36 15 U.S.C. 78f(b)(4). 

37Specifically, in the 2021 Cost Analysis, the 

Exchange estimated the total costs to provide 

connectivity services at $1,143,715 and estimated 

monthly revenues of $1,233,750. 

38One significant differentiation between the 

Exchanges is that while it offers different types of 

physical connections, including 10Gb, 25Gb, 40Gb, 

and 100Gb connections, the Exchange does not 

propose to charge different prices for such 

connections. In contrast, most of the Exchange’s 

competitors provide scaled pricing that increases 

depending on the size of the physical connection. 

that, consistent with the Act, it is 

appropriate to charge fees that represent 

a reasonable markup over cost given the 

other factors discussed above. The 

Exchange also believes the proposed fee 

is a reasonable means of encouraging 

Users to be efficient in the connectivity 

services they reserve for use, with the 

benefits to overall system efficiency to 

the extent Members and non-Members 

consolidate their usage of connectivity 

services or discontinue subscriptions to 

unused physical connectivity. 

The Exchange further believes that the 

proposed fees, as they pertain to 

purchasers of each type of connectivity 

alternative, constitute an equitable 

allocation of reasonable fees charged to 

the Exchange’s Members and nonMembers and are allocated fairly 

amongst the types of market participants 

using the facilities of the Exchange. 

As described above, the Exchange 

believes the proposed fees are equitably 

allocated because the Exchange’s 

incremental aggregate costs for all 

connectivity services are 

disproportionately related to Members 

with higher message traffic and/or 

Members with more complicated 

connections established with the 

Exchange, as such Members: (1) 

consume the most bandwidth and 

resources of the network; (2) transact the 

vast majority of the volume on the 

Exchange; and (3) require the hightouch network support services 

provided by the Exchange and its staff, 

including network monitoring, reporting 

and support services, resulting in a 

much higher cost to the Exchange to 

provide such connectivity services. 

Commission staff previously noted 

that the generation of supra-competitive 

profits is one of several potential factors 

in considering whether an exchange’s 

proposed fees are consistent with the 

Act.35 As described in the Fee 

Guidance, the term ‘‘supra-competitive 

profits’’ refers to profits that exceed the 

profits that can be obtained in a 

competitive market. The proposed fee 

structure would not result in excessive 

pricing or supra-competitive profits for 

the Exchange. The proposed fee 

structure is merely designed to permit 

the Exchange to cover the costs 

allocated to providing connectivity 

services with a modest margin (on 

average, approximately 13%), which 

would also help fund future 

expenditures (increased costs, 

improvements, etc.). While the Fee 

Guidance did not establish a guideline 

as to what constitutes supra-competitive 

pricing through analyzing margin (nor 

does the Exchange believe it should 

have), the Exchange does not believe 

that it would be reasonable to consider 

margin of 20%, which is the Exchange’s 

estimated margin on physical 

connections, margin of 6%, which is the 

Exchange’s estimated margin on 

application sessions, or margin of 13%, 

which is the Exchange’s average 

estimated margin of overall 

Connectivity Fees, to constitute supracompetitive pricing. As noted above, the 

increase in margin for physical 

connections is primarily driven by 

certain cost savings that the Exchange 

has been able to achieve as compared to 

the 2021 Cost Analysis, and the 

Exchange does not believe it should be 

penalized, and instead should be 

rewarded for identifying and realizing 

such savings. Of course, should the 

Exchange find opportunities to 

dramatically reduce costs or increase 

revenues such that it believes the cost 

it is charging for physical connections 

or applications sessions is inconsistent 

with the cost of providing such 

connectivity or resulting in 

unreasonable margin, the Exchange will 

seek to lower its fees in order to pass 

savings on to its constituents. Thus, the 

Exchange believes that its proposed 

pricing for Connectivity Fees is fair, 

reasonable, and equitable. Further, the 

Exchange notes that certain of its 

competitors have connectivity fees that 

were approved without the presentation 

of a cost-based analysis, but it is 

reasonable to assume that certain of 

those competitors with significantly 

higher fees also operate with 

significantly higher profit margins. 

Accordingly, the Exchange believes that 

its proposal is consistent with Section 

6(b)(4) 36 of the Act because the 

proposed fees will permit recovery of 

the Exchange’s costs and will not result 

in excessive pricing or supracompetitive profit. 

The proposed fees for Options 

connectivity services 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 services. The Exchange 

routinely works to improve the 

performance of the network’s hardware 

and software. The costs associated with 

maintaining and enhancing a state-ofthe-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 adopting fees for connectivity 

services. As detailed above, the 

Exchange has four 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 four primary sources of revenue. 

The Exchange’s Cost Analysis estimates 

the costs to provide connectivity 

services at $1,447,000. Based on current 

connectivity services usage, the 

Exchange would generate monthly 

revenues of approximately $1,768,800. 

This represents a modest profit when 

compared to the cost of providing 

connectivity services and that profit 

represents a modest increase over the 

profit estimated in the 2021 Cost 

Analysis (a reasonable goal for a newly 

formed business, i.e., growing from nonprofitable, to break-even to modestly 

profitable).37 Even if the Exchange earns 

that amount or incrementally more, the 

Exchange believes the proposed fees for 

connectivity services are fair and 

reasonable because they will not result 

in excessive pricing or supracompetitive profit, when comparing the 

total expense of MEMX associated with 

providing connectivity services versus 

the total projected revenue of the 

Exchange associated with network 

connectivity services. 

As noted above, when incorporating 

the projected revenue from connectivity 

services into the Exchange’s overall 

projected revenue, including projections 

related to recently adopted market data 

fees, the Exchange anticipates monthly 

revenue of $5,988,620 from all sources. 

As such, applying the Exchange’s 

holistic Cost Analysis to a holistic view 

of anticipated revenues, the Exchange 

would earn approximately 23% margin 

on its operations as a whole. The 

Exchange believes that this amount is 

reasonable and is again evidence that 

the Exchange will not earn a supracompetitive profit. 

The Exchange notes that other 

exchanges offer similar connectivity 

options to market participants and that 

the Exchange’s fees are a discount as 

compared to the majority of such fees.38


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 1617 

The Exchange does not believe that its costs 

increase incrementally based on the size of a 

physical connection but instead, that individual 

connections and the number of such separate and 

disparate connections are the primary drivers of 

cost for the Exchange. 

39 Including Nasdaq PHLX (‘‘PHLX’’), Nasdaq 

Options Market (‘‘NOM’’), Nasdaq BX Options 

(‘‘BX’’), Nasdaq ISE (‘‘ISE’’), Nasdaq GEMX 

(‘‘GEMX’’), and Nasdaq MRX (‘‘MRX’’). 

40See the MIAX fee schedule, available at: 

https://www.miaxglobal.com/sites/default/files/fee_

schedule-files/MIAX__Options__Fee__Schedule_

10022023.pdf; the MIAX Pearl fee schedule, 

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

default/files/fee_schedule-files/MIAX_Pearl_

Options_Fee_Schedule_09122023.pdf; the MIAX 

Emerald fee schedule, available at: https://

www.miaxglobal.com/sites/default/files/fee_

schedule-files/MIAX_Emerald_Fee_Schedule_

10122023_3.pdf; the Nasdaq Options markets fee 

schedule, at http://www.nasdaqtrader.com/ 

trader.aspx?id=pricelisttrading2; the NYSE 

Connectivity fee schedule, at: https://

www.nyse.com/publicdocs/Wireless_Connectivity_

Fees_and_Charges.pdf ; the Cboe fee schedule, at: 

https://www.cboe.com/us/options/membership/fee_

schedule/cone/ ; the BZX Options fee schedule, 

available at: https://www.cboe.com/us/options/ 

membership/fee_schedule/bzx/; the EDGX Options 

fee schedule, available at: https://www.cboe.com/ 

us/options/membership/fee_schedule/edgx/, and 

the BOX Options fee schedule, available at: https:// 

boxoptions.com/fee-schedule/. This range is based 

on a review of the fees charged for 10–40Gb 

connections at each of these exchanges and relates 

solely to the physical port fee or connection charge, 

excluding co-location fees and other fees assessed 

by these exchanges. The Exchange notes that it does 

not offer physical connections with lower 

bandwidth than 10Gb and that Members and nonMembers with lower bandwidth requirements 

typically access the Exchange through third-party 

extranets or service bureaus. 

41See id. 

42See id. 

43As noted above, all physical connections 

offered by MEMX are at least 10Gb capable and 

physical connections provided with larger 

bandwidth capabilities will be provided at the same 

rate as such connections. In contrast to other 

exchanges, MEMX has not proposed different types 

of physical connections with higher pricing for 

those with greater capacity. See supra note 39. The 

Exchange also reiterates that MEMX application 

sessions are capable of handling significant amount 

of message traffic (i.e., over 50,000 orders per 

second), and have no application flow control or 

order throttling, in contrast to competitors that have 

imposed message rate thresholds. See supra note 31 

and accompanying text. 

44See supra note 41. 

45 15 U.S.C. 78f(b)(4) and (5). 

With respect to physical connections, 

MIAX Options (‘‘MIAX’’), MIAX Pearl, 

LLC (‘‘MIAX Pearl’’), MIAX Emerald, 

LLC (‘‘MIAX Emerald’’), each of the 

Nasdaq Stock Market LLC (‘‘Nasdaq’’) 

options exchanges,39 NYSE American 

Options (‘‘NYSE American’’), NYSE 

Arca Options (‘‘NYSE Arca’’), Cboe 

Exchange, Inc. (‘‘Cboe Options’’), Cboe 

BZX Options (‘‘BZX Options’’), and 

Cboe EDGX Options (‘‘EDGX Options’’) 

charge between $7,000-$22,000 per 

month for physical connectivity at their 

primary data centers that is comparable 

to that offered by the Exchange.40

Nasdaq, NYSE American and NYSE 

Arca also charge installation fees, which 

are not proposed to be charged by the 

Exchange. With respect to application 

sessions, BX, PHLX, GEMX, MRX, BOX 

Options (‘‘BOX’’), Cboe Options, BZX 

Options and EDGX charge between 

$500-$800 per month for order entry 

and drop ports.41 The Exchange further 

notes that several of these exchanges 

each charge for other logical ports that 

the Exchange will continue to provide 

for free, such as application sessions for 

testing and disaster recovery 

purposes.42 While the Exchange’s 

proposed Options Connectivity Fees are 

lower than certain of the fees charged by 

the Nasdaq options exchanges, MIAX 

Options, MIAX Pearl, MIAX Emerald, 

NYSE American, NYSE Arca, BOX, 

Cboe, BZX and EDGX, MEMX believes 

that it offers significant value to 

Members over these other exchanges in 

terms of bandwidth available over such 

connectivity services, which the 

Exchange believes is a competitive 

advantage, and differentiates its 

connectivity versus connectivity to 

other exchanges.43 Additionally, the 

Exchange’s proposed Connectivity Fees 

to its disaster recovery facility are 

within the range of the fees charged by 

other exchanges for similar connectivity 

alternatives.44 The Exchange believes 

that its proposal to offer certain 

application sessions free of charge is 

reasonable, equitably allocated and not 

unfairly discriminatory because such 

proposal is intended to encourage 

Member connections and use of backup 

and testing facilities of the Exchange, 

and, with respect to MEMOIR Gap Fill 

ports, such ports are used exclusively in 

connection with the receipt and 

processing of market data from the 

Exchange. 

In conclusion, the Exchange submits 

that its proposed fee structure satisfies 

the requirements of Sections 6(b)(4) and 

6(b)(5) of the Act 45 for the reasons 

discussed above in that it provides for 

the equitable allocation of reasonable 

dues, fees and other charges among its 

Members and other persons using its 

facilities, does not permit unfair 

discrimination between customers, 

issuers, brokers, or dealers, and is 

designed to promote just and equitable 

principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system and in 

general to protect investors and the 

public interest, particularly as the 

proposal neither targets nor will it have 

a disparate impact on any particular 

category of market participant. 

The Exchange believes that the waiver 

of Connectivity Fees for physical 

connections and application sessions 

used solely for Options until February 1, 

2024 is reasonable, equitable, and not 

unfairly discriminatory in that it will 

apply uniformly to all Options Users. 

The Exchange is proposing the waiver to 

provide an incentive for options trading 

firms to apply for membership to MEMX 

Options, which has recently launched. 

The options markets are quote-driven 

markets and are dependent on liquidity 

providers for liquidity and price 

discovery. The proposal will be of 

particular importance in encouraging 

liquidity providers to become members 

of the Exchange, which may result in 

more trading opportunities, enhanced 

competition, and improved overall 

market quality on the Exchange. The 

Exchange notes that it previously 

proposed waiving Connectivity Fees for 

physical connections and application 

sessions used solely for Options until 

January 1, 2024, but has determined to 

extend the time for such waiver to 

February 1, 2024, due to the fact the 

Exchange has been rolling out the 

number of options classes traded on 

MEMX Options gradually since its 

initial launch and will not complete 

such rollout until January of 2024. The 

Exchange believes it is reasonable to 

postpone the time at which it will 

commence charging Connectivity Fees 

for physical connections and 

application sessions until after such 

rollout is complete. 

The Exchange believes that the 

proposed reorganization of its fee 

schedule to establish a separate fee 

schedule for Connectivity Fees is 

reasonable and equitable because it is a 

non-substantive change and does not 

involve changing any existing fees or 

rebates that apply to trading activity on 

MEMX Equities. Further, the changes 

are designed to make the fee schedule 

easier to read and for Members to 

validate the bills they receive from the 

Exchange. The Exchange also believes 

this reorganization is nondiscriminatory because it applies 

uniformly to all Members. The 

Exchange believes the proposed fee 

schedule will be clearer and less 

confusing for Members of the Exchange 

and will eliminate potential Member 

confusion, thereby removing 

impediments to and perfecting the 

mechanism of a free and open market 

and a national market, and in general, 

protecting investors and the public 

interest. 


lotter on DSK11XQN23PROD with NOTICES1
1618 Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 

46 15 U.S.C. 78f(b)(8). 47See supra notes 40–45 and accompanying text. 

48 15 U.S.C. 78s(b)(3)(A)(ii). 

49 17 CFR 240.19b–4(f)(2). 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

In accordance with Section 6(b)(8) of 

the Act,46 the Exchange does not believe 

that the proposed rule change would 

impose any burden on competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

Intramarket Competition 

The Exchange does not believe that 

the proposed rule change to apply the 

same Connectivity Fees to Options 

Users as it does to Equities Users would 

place certain market participants at the 

Exchange at a relative disadvantage 

compared 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. 

As noted above, the Exchange has 

previously justified its pricing with 

respect to MEMX Equities and believes 

the most fair approach, absent a 

significant differentiation between 

application costs to Equities and 

Options, is to apply the same pricing to 

all participants of either platform. The 

Exchange believes its proposed pricing 

is reasonable and lower than what other 

options exchanges charge and, when 

coupled with the availability of thirdparty providers that also offer 

connectivity solutions, that 

participation on the Exchange is 

affordable for all market participants, 

including smaller trading firms. 

Therefore, the fees may stimulate 

intramarket competition by attracting 

additional firms to become Members of 

MEMX Options. 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. 

As it relates to the reorganization of 

the fee schedule and the Options 

Connectivity Fee Waiver, as discussed 

above, the Exchange does not believe 

that the proposed changes would 

impose any burden on intramarket 

competition because such changes 

would encourage new participants to 

participate on the Exchange, thereby 

enhancing liquidity and market quality 

on the Exchange, as well as enhancing 

the attractiveness of the Exchange as a 

trading venue. The Exchange believes 

this would encourage market 

participants to direct order flow to the 

Exchange. 

The Exchange does not believe that 

the proposed changes would impose 

any burden on intramarket competition 

because such changes will incentivize 

new participants to join MEMX Options 

and the majority of the Exchange’s 

current Equities members joined at a 

time when MEMX Equities did not 

charge connectivity fees (also to 

incentivize such participants to join), 

and thus have already received this 

benefit. The options markets are quotedriven markets and are dependent on 

liquidity providers for liquidity and 

price discovery. The proposal will be of 

particular importance in encouraging 

liquidity providers to become members 

of the Exchange, which may result in 

more trading opportunities, enhanced 

competition, and improved overall 

market quality on the Exchange. For the 

foregoing reasons, the Exchange believes 

the proposed changes would not impose 

any burden on intramarket competition 

that is not necessary or appropriate in 

furtherance of the purposes of the Act. 

Intermarket Competition 

The Exchange does not believe the 

proposed fees for Options Connectivity 

place an undue burden on competition 

on other SROs that is not necessary or 

appropriate. Additionally, other 

exchanges have similar connectivity 

alternatives for their participants, but 

with higher rates to connect.47 The 

Exchange is also unaware of any 

assertion that the proposed fees for 

connectivity services would somehow 

unduly impair its competition with 

other exchanges. As a new entrant in an 

already highly competitive environment 

for equity options trading, MEMX does 

not have the market power necessary to 

set prices for services that are 

unreasonable or unfairly discriminatory 

in violation of the Exchange Act. In 

sum, MEMX’s proposed Connectivity 

Fees for Options Members are 

comparable to and generally lower than 

fees charged by other options exchanges 

for the same or similar services. 

Additionally, as described above, the 

proposed reorganization of the fee 

schedule and Connectivity Fee Waiver 

will incentive market participants to 

join the Exchange during the Fee Waiver 

period. Accordingly, the Exchange 

believes the proposal would not burden, 

but rather promote, intermarket 

competition by enabling it to better 

compete with other options exchanges. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

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 48 and Rule 

19b–4(f)(2) 49 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 

change 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– 

MEMX–2023–39 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–MEMX–2023–39. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Notices 1619 

50 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

5See Rule 21.7(a) for the definition of Opening 

Collars. 

6See Rule 21.17(a)(4)(B). 

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–MEMX–2023–39 and should be 

submitted on or before January 31, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.50

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00286 Filed 1–9–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99273; File No. SR– 

CboeEDGX–2023–082] 

Self-Regulatory Organizations; Cboe 

EDGX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change To Amend Rule 

21.17 

January 4, 2024. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on December 

21, 2023, Cboe EDGX Exchange, Inc. 

(the ‘‘Exchange’’ or ‘‘EDGX’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Exchange filed the proposal as a 

‘‘non-controversial’’ proposed rule 

change pursuant to Section 

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

19b–4(f)(6) thereunder.4 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 

Cboe EDGX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘EDGX’’) proposes to 

amend Rule 21.17. The text of the 

proposed rule change is provided 

below. 

(additions are italicized; deletions are 

[bracketed]) 

* * * * * 

Rules of Cboe EDGX Exchange, Inc. 

* * * * * 

Rule 21.17. Additional Price Protection 

Mechanisms and Risk Controls 

The System’s acceptance and 

execution of orders, quotes, and bulk 

messages, as applicable, are subject to 

the price protection mechanisms and 

risk controls in Rule 21.16, this Rule 

21.17, and as otherwise set forth in the 

Rules. Unless otherwise specified the 

price protections set forth in this Rule, 

including the numeric values 

established by the Exchange, may not be 

disabled or adjusted. The Exchange may 

share any of a User’s risk settings with 

the Clearing Member that clears 

transactions on behalf of the User. 

(a) Simple Orders. 

(1)–(3) No change. 

(4) Drill-Through Price Protection. 

(A)–(B) No change. 

(C) The System enters a market order 

with a Time-in Force of Day or limit 

order with a Time-in-Force of Day, GTC, 

or GTD (or unexecuted portion) not 

executed pursuant to subparagraph (A) 

in the EDGX Options Book with a 

displayed price equal to the DrillThrough Price, unless the terms of the 

order instruct otherwise. 

(i)–(vii) No change. 

([viii]D) This protection does not 

apply to bulk messages or ISOs. 

* * * * * 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 

options/regulation/rule_filings/edgx/), 

at the Exchange’s Office of the 

Secretary, and at the Commission’s 

Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend 

Rule 21.17. Specifically, the Exchange 

proposes to exclude Intermarket Sweep 

Orders (‘‘ISOs’’) from its drill-through 

protection. Pursuant to Rule 

21.17(a)(4)(A), if a buy (sell) order enters 

the book at the conclusion of the 

opening auction process or would 

execute or post to the book when it 

enters the book, the Exchange’s system 

executes the order up to an Exchangedetermined buffer amount (determined 

on a class and premium basis) above 

(below) the offer (bid) limit of the 

Opening Collar 5 or the National Best 

Offer (‘‘NBO’’) (National Best Bid 

(‘‘NBB’’)) that existed at the time of 

order entry, respectively (the ‘‘drillthrough price’’). The System cancels or 

rejects any market order with a time-inforce of immediate-or-cancel (‘‘IOC’’) (or 

unexecuted portion or limit order with 

time-in-force of IOC or fill-or-kill 

(‘‘FOK’’) (or unexecuted portion not 

executed pursuant to the previous 

sentence.6 Rule 21.17(a)(4)(C) 

establishes an iterative drill-through 

process, whereby the Exchange permits 

orders to rest in the book for multiple 

time periods and at more aggressive 

displayed prices during each time 

period. Specifically, for a market order 

with a time-in-force of day or limit order 

with a time-in-force of day, good-tilcancelled (‘‘GTC’’), or good-til-gate 

(‘‘GTD’’) (or unexecuted portion), the 

Exchange system enters the order in the 

book with a displayed price equal to the 

drill-through price (unless the terms of 

the order instruct otherwise). The order 

(or unexecuted portion) will rest in the 

book at the drill-through price for the 


lotter on DSK11XQN23PROD with NOTICES1