Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 12907 

47 15 U.S.C. 78s(b)(3)(A)(ii). 

48 17 CFR 240.19b–4(f)(2). 49 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The proposed fee change is based on a recent 

proposal by Nasdaq Phlx LLC (‘‘Phlx’’) to adopt fees 

for purge ports. See Securities Exchange Act 

Release No. 97825 (June 30, 2023), 88 FR 43405 

(July 7, 2023) (SR–Phlx–2023–28). 

and not through an individual exchange 

fee filings. However, the commenters do 

raise one issue that concerns this 

proposal whereby it asserts that the 

Exchange’s comparison to fees charged 

by other exchanges for similar ports is 

irrelevant and unpersuasive. The core of 

the issue raised is regarding the cost to 

connect to one exchange compared to 

the cost to connect to others. A thorough 

response to this comment would require 

the Exchange to obtain competitively 

sensitive information about other 

exchange architecture and how their 

members connect. The Exchange is not 

privy to this information. Further, the 

commenter compares the Exchange’s 

proposed rate to other exchanges that 

offer purge port functionality across all 

matching engines for a single fee, but 

fails to provide the same comparison to 

other exchanges that charge for purge 

functionality like proposed here. The 

Exchange does not have insight into the 

technical architecture of other 

exchanges so it is difficult to ascertain 

the number of purge ports a firm would 

need to connect to another exchanges 

entire market. Therefore, the Exchange 

is limited to comparing its proposed fee 

to other exchanges’ purge port fees as 

listed in their fee schedules. 

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,47 and Rule 

19b–4(f)(2) 48 thereunder. At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

MIAX–2024–07 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–MIAX–2024–07. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–MIAX–2024–07 and should be 

submitted on or before March 12, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.49

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–03338 Filed 2–16–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99529; File No. SR– 

EMERALD–2024–05] 

Self-Regulatory Organizations; MIAX 

Emerald, LLC; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend Its Fee 

Schedule for Purge Ports 

February 13, 2024. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on January 

31, 2024, MIAX Emerald, LLC (‘‘MIAX 

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

Securities and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

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

which Items have been prepared by the 

Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend the 

MIAX Emerald Options Exchange Fee 

Schedule (the ‘‘Fee Schedule’’) to 

amend fees for Purge Ports.3

The text of the proposed rule change 

is available on the Exchange’s website at 

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

us-options/emerald-options/rule-filings, 

at MIAX’s principal office, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 


ddrumheller on DSK120RN23PROD with NOTICES1
12908 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 

4The term ‘‘Market Makers’’ refers to Lead Market 

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

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

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

5The term ‘‘System’’ means the automated 

trading system used by the Exchange for the trading 

of securities. See Exchange Rule 100. 

6See Securities Exchange Act Release No. 98734 

(October 12, 2023), 88 FR 71894 (October 18, 2023) 

(SR–EMERALD–2023–26). 

7See Securities Exchange Act Release No. 99089 

(December 5, 2023), 88 FR 85941 (December 11, 

2023) (SR–EMERALD–2023–29). 

8MIAX Pearl Options is the options market of 

MIAX PEARL, LLC (‘‘MIAX Pearl’’), which also 

operates an equities trading facility called MIAX 

Pearl Equities. See Exchange Rule 100 and MIAX 

Pearl Rule 1901. 

9The term ‘‘MIAX’’ means Miami International 

Securities Exchange, LLC. See Exchange Rule 100. 

10See Cboe BXZ Exchange, Inc. (‘‘BZX’’) Options 

Fee Schedule, Options Logical Port Fees, Purge 

Ports ($750 per purge port per month); Cboe EDGX 

Exchange, Inc. (‘‘EDGX’’) Options Fee Schedule, 

Options Logical Port Fees, Purge Ports ($750 per 

purge port per month); Cboe Exchange, Inc. 

(‘‘Cboe’’) Fee Schedule ($850 per purge port per 

month). See also Nasdaq GEMX, Options 7, Pricing 

Schedule, Section 6.C.(3). Nasdaq GEMX, LLC 

(‘‘Nasdaq GEMX’’) assesses its members $1,250 per 

SQF Purge Port per month, subject to a monthly cap 

of $17,500 for SQF Purge Ports and SQF Ports, 

applicable to market makers. See also Securities 

Exchange Act Release No. 97825 (June 30, 2023), 88 

FR 43405 (July 7, 2023) (SR–Phlx–2023–28). 

11A Matching Engine is a part of the Exchange’s 

electronic system that processes options quotes and 

trades on a symbol-by-symbol basis. Some matching 

engines will process option classes with multiple 

root symbols, and other matching engines will be 

dedicated to one single option root symbol (for 

example, options on SPY will be processed by one 

single matching engine that is dedicated only to 

SPY). A particular root symbol may only be 

assigned to a single designated matching engine. A 

particular root symbol may not be assigned to 

multiple matching engines. See the Definitions 

Section of the Fee Schedule. 

12See supra note 10. 

13The Exchange notes that each Matching Engine 

corresponds to a specified group of symbols. 

Certain Market Makers choose to only quote in 

certain symbols while other Market Makers choose 

to quote the entire market. 

14The term ‘‘Member’’ means an individual or 

organization approved to exercise the trading rights 

associated with a Trading Permit. Members are 

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

Exchange Rule 100. 

15Members seeking to become registered as a 

Market Maker must comply with the applicable 

requirements of Chapter VI of the Exchange’s Rules. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend the 

fees for Purge Ports, which is a function 

enabling Market Makers 4 to cancel all 

open quotes or a subset of open quotes 

through a single cancel message. The 

Exchange currently provides Market 

Makers the option to purchase Purge 

Ports to assist in their quoting activity. 

Purge Ports provide Market Makers with 

the ability to send purge messages to the 

Exchange System.5 Purge Ports are not 

capable of sending or receiving any 

other type of messages or information. 

The use of Purge Ports is completely 

optional and no rule or regulation 

requires that a Market Maker utilize 

them. 

The Exchange initially filed the 

proposal on September 29, 2023 

(EMERALD–2023–26) (the ‘‘Initial 

Proposal’’).6 On November 22, 2023, the 

Exchange withdrew the Initial Proposal 

and replaced with a revised filing (SR– 

EMERALD–2023–29) (the ‘‘Second 

Proposal’’).7 On January 31, 2024, the 

Exchange withdrew the Second 

Proposal and replaced it with this 

further revised filing (the ‘‘Third 

Proposal’’) (SR–EMERALD–2024–05). 

The Exchange is including a cost 

analysis in this filing to justify the 

proposed fees. As described more fully 

below, the cost analysis includes, 

among other things, descriptions of how 

the Exchange allocated costs among it 

and its affiliated exchanges for similar 

proposed fee changes (separately 

between MIAX Pearl Options 8 and 

MIAX,9 collectively referred to herein as 

the ‘‘affiliated markets’’), to ensure no 

cost was allocated more than once, as 

well as detail supporting its cost 

allocation processes and explanations as 

to why a cost allocation in this proposal 

may differ from the same cost allocation 

in similar proposals submitted by the 

affiliated markets. The proposed fees are 

intended to cover the Exchange’s cost of 

providing Purge Ports with a reasonable 

mark-up over those costs. 

* * * * * 

Purge Port Fee Change 

Unlike other options exchanges that 

charge fees for Purge Ports on a per port 

basis,10 the Exchange assesses a flat fee 

of $1,500 per month, regardless of the 

number of Purge Ports utilized by a 

Market Maker. Currently, a Market 

Maker may request and be allocated two 

(2) Purge Ports per Matching Engine 11

to which it connects and not all Market 

Makers connect to all of the Exchange’s 

Matching Engines. 

The Exchange now proposes to amend 

the fee for Purge Ports to align more 

closely with other exchanges who 

charge on a per port basis by providing 

two (2) Purge Ports per Matching Engine 

for a monthly flat fee of $600 per month 

per Matching Engine. The only 

difference with a per port structure is 

that Market Makers receive two (2) 

Purge Ports per Matching Engine for the 

same proposed monthly fee, rather than 

being charged a separate fee for each 

Purge Port. The Exchange proposes to 

charge the proposed fee for Purge Ports 

per Matching Engine, instead on a per 

Purge Port basis, due to its System 

architecture which provides two (2) 

Purge Ports per Matching Engine for 

redundancy purposes. In addition, the 

proposed fee is lower than the 

comparable fee charged by competing 

exchanges that also charge on a per port 

basis, notwithstanding that the 

Exchange is providing up to two (2) 

Purge Ports for that same lower fee.12

Similar to a per port charge, Market 

Makers are able to select the Matching 

Engines that they want to connect to,13

based on the business needs of each 

Market Maker, and pay the applicable 

fee based on the number of Matching 

Engines and ports utilized. The 

Exchange believes that the proposed fee 

provides Market Makers with flexibility 

to control their Purge Port costs based 

on the number of Matching Engines 

each Marker Maker elects to connect to 

based on each Market Maker’s business 

needs. 

* * * * * 

A logical port represents a port 

established by the Exchange within the 

Exchange’s System for trading and 

billing purposes. Each logical port 

grants a Member 14 the ability to 

accomplish a specific function, such as 

order entry, order cancellation, access to 

execution reports, and other 

administrative information. 

Purge Ports are designed to assist 

Market Makers 15 in the management of, 

and risk control over, their quotes, 

particularly if the firm is dealing with 

a large number of securities. For 

example, if a Market Maker detects 

market indications that may influence 

the execution potential of their quotes, 

the Market Maker may use Purge Ports 

to reduce uncertainty and to manage 

risk by purging all quotes in a number 

of securities. This allows Market Makers 

to seamlessly avoid unintended 

executions, while continuing to evaluate 

the market, their positions, and their 

risk levels. Purge Ports are used by 

Market Makers that conduct business 

activity that exposes them to a large 

amount of risk across a number of 

securities. Purge Ports enable Market 

Makers to cancel all open quotes, or a 

subset of open quotes through a single 

cancel message. The Exchange notes 

that Purge Ports increase efficiency of 

already existing functionality enabling 

the cancellation of quotes. 

The Exchange operates highly 

performant systems with significant 

throughput and determinism which 

allows participants to enter, update and 

cancel quotes at high rates. Market 

Makers may currently cancel individual 

quotes through the existing 


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16See Exchange Rule 519C(a) and (b). 

17Current Exchange port functionality supports 

cancelation rates that exceed one thousand 

messages per second and the Exchange’s research 

indicates that certain market participants rely on 

such functionality and at times utilize such 

cancelation rates. 

18See Exchange Rule 519C(c). 

19See Exchange Rule 532. 

20 15 U.S.C. 78f(b). 

21 15 U.S.C. 78f(b)(5). 

22 15 U.S.C. 78f(b)(4). 

23 15 U.S.C. 78s(b)(1). 

24 17 CFR 240.19b–4. 

25 15 U.S.C. 78f(b). 

26 15 U.S.C. 78f(b)(4). 

27 15 U.S.C. 78f(b)(5). 

28 15 U.S.C. 78f(b)(8). 29See Staff Guidance on SRO Rule Filings 

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

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

(the ‘‘Staff Guidance’’). 30The Exchange frequently updates it Cost 

Analysis as strategic initiatives change, costs 

increase or decrease, and market participant needs 

and trading activity changes. The Exchange’s most 

recent Cost Analysis was conducted ahead of this 

filing. 

functionality, such as through the use of 

a mass cancel message by which a 

Market Maker may request that the 

Exchange remove all or a subset of its 

quotations and block all or a subset of 

its new inbound quotations.16 Other 

than Purge Ports being a dedicated line 

for cancelling quotations, Purge Ports 

operate in the same manner as a mass 

cancel message being sent over a 

different type of port. For example, like 

Purge Ports, mass cancellations sent 

over a logical port may be done at either 

the firm or MPID level. As a result, 

Market Makers can currently cancel 

quotes in rapid succession across their 

existing logical ports 17 or through a 

single cancel message, all open quotes 

or a subset of open quotes. 

Similarly, Market Makers may also 

use cancel-on-disconnect control when 

they experience a disruption in 

connection to the Exchange to 

automatically cancel all quotes, as 

configured or instructed by the Member 

or Market Maker.18 In addition, the 

Exchange already provides similar 

ability to mass cancel quotes through 

the Exchange’s risk controls, which are 

offered at no charge and enables Market 

Makers to establish pre-determined 

levels of risk exposure, and can be used 

to cancel all open quotes.19

Accordingly, the Exchange believes that 

the Purge Ports provide an efficient 

option as an alternative to already 

available services and enhance the 

Market Maker’s ability to manage their 

risk. 

The Exchange believes that market 

participants benefit from a dedicated 

purge mechanism for specific Market 

Makers and to the market as a whole. 

Market Makers will have the benefit of 

efficient risk management and purge 

tools. The market will benefit from 

potential increased quoting and 

liquidity as Market Makers may use 

Purge Ports to manage their risk more 

robustly. Only Market Makers that 

request Purge Ports would be subject to 

the proposed fees, and other Market 

Makers can continue to operate in 

exactly the same manner as they do 

today without dedicated Purge Ports, 

but with the additional purging 

capabilities described above. 

Implementation Date 

The proposed fees are effective 

beginning February 1, 2024. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6(b) of the Act,20 in general, and 

furthers the objectives of Section 6(b)(5) 

of the Act,21 in particular, in that it is 

not designed to permit unfair 

discrimination among customers, 

brokers, or dealers. The Exchange also 

believes that its proposed fee is 

consistent with Section 6(b)(4) of the 

Act 22 because it represents an equitable 

allocation of reasonable dues, fees and 

other charges among market 

participants. 

Cost Analysis 

In general, the Exchange believes that 

exchanges, in setting fees of all types, 

should meet very high standards of 

transparency to demonstrate why each 

new fee or fee increase meets the 

Exchange Act requirements that fees be 

reasonable, equitably allocated, not 

unfairly discriminatory, and not create 

an undue burden on competition among 

members and markets. In particular, the 

Exchange believes that each exchange 

should take extra care to be able to 

demonstrate that these fees are based on 

its costs and reasonable business needs. 

In proposing to charge fees for port 

services, the Exchange is especially 

diligent in assessing those fees in a 

transparent way against its own 

aggregate costs of providing the related 

service, and in carefully and 

transparently assessing the impact on 

Members—both generally and in 

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

the fee will not create a financial burden 

on any participant and will not have an 

undue impact in particular on smaller 

Members and competition among 

Members in general. The Exchange 

believes that this level of diligence and 

transparency is called for by the 

requirements of Section 19(b)(1) under 

the Act,23 and Rule 19b–4 thereunder,24

with respect to the types of information 

exchanges should provide when filing 

fee changes, and Section 6(b) of the 

Act,25 which requires, among other 

things, that exchange fees be reasonable 

and equitably allocated,26 not designed 

to permit unfair discrimination,27 and 

that they not impose a burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.28 The Exchange 

notes that the legacy exchanges with 

whom the Exchange vigorously 

competes for order flow and market 

share, were not subject to any such 

diligence or transparency in setting their 

baseline non-transaction fees, most of 

which were put in place before the Staff 

Guidance.29

As detailed below, the Exchange 

recently calculated its aggregate annual 

costs for providing Purge Ports to be 

$822,969 (or approximately $68,581 per 

month, rounded to the nearest dollar 

when dividing the annual cost by 12 

months). In order to cover the aggregate 

costs of providing Purge Ports to its 

Market Makers going forward and to 

make a modest profit, as described 

below, the Exchange proposes to modify 

its Fee Schedule to charge a fee of $600 

per Matching Engine for Purge Ports. 

In 2019, the Exchange completed a 

study of its aggregate costs to produce 

market data and connectivity (the ‘‘Cost 

Analysis’’).30 The Cost Analysis 

required a detailed analysis of the 

Exchange’s aggregate baseline costs, 

including a determination and 

allocation of costs for core services 

provided by the Exchange—transaction 

execution, market data, membership 

services, physical connectivity, and port 

access (which provide order entry, 

cancellation and modification 

functionality, risk and purge 

functionality, the ability to receive drop 

copies, and other functionality). The 

Exchange separately divided its costs 

between those costs necessary to deliver 

each of these core services, including 

infrastructure, software, human 

resources (i.e., personnel), and certain 

general and administrative expenses 

(‘‘cost drivers’’). The Exchange recently 

update its Cost Analysis using its 2024 

estimated budget as described below. 

As an initial step, the Exchange 

determined the total cost for the 

Exchange and the affiliated markets for 

each cost driver as part of its 2024 

budget review process. The 2024 budget 

review is a company-wide process that 

occurs over the course of many months, 

includes meetings among senior 

management, department heads, and the 


ddrumheller on DSK120RN23PROD with NOTICES1
12910 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 

31For example, MIAX maintains 24 matching 

engines, MIAX Pearl Options maintains 12 

matching engines, MIAX Pearl Equities maintains 24 matching engines, and MIAX Emerald maintains 

12 matching engines. 

Finance Team. Each department head is 

required to send a ‘‘bottom up’’ budget 

to the Finance Team allocating costs at 

the profit and loss account and vendor 

levels for the Exchange and its affiliated 

markets based on a number of factors, 

including server counts, additional 

hardware and software utilization, 

current or anticipated functional or nonfunctional development projects, 

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

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

markets, auction functionality, etc.), 

which may impact message traffic, 

individual system architectures that 

impact platform size,31 storage needs, 

dedicated infrastructure versus shared 

infrastructure allocated per platform 

based on the resources required to 

support each platform, number of 

available connections, and employees 

allocated time. All of these factors result 

in different allocation percentages 

among the Exchange and its affiliated 

markets, i.e., the different percentages of 

the overall cost driver allocated to the 

Exchange and its affiliated markets will 

cause the dollar amount of the overall 

cost allocated among the Exchange and 

its affiliated markets to also differ. 

Because the Exchange’s parent company 

currently owns and operates four 

separate and distinct marketplaces, the 

Exchange must determine the costs 

associated with each actual market—as 

opposed to the Exchange’s parent 

company simply concluding that all 

costs drivers are the same at each 

individual marketplace and dividing 

total cost by four (4) (evenly for each 

marketplace). Rather, the Exchange’s 

parent company determines an accurate 

cost for each marketplace, which results 

in different allocations and amounts 

across exchanges for the same cost 

drivers, due to the unique factors of 

each marketplace as described above. 

This allocation methodology also 

ensures that no cost would be allocated 

twice or double-counted between the 

Exchange and its affiliated markets. The 

Finance Team then consolidates the 

budget and sends it to senior 

management, including the Chief 

Financial Officer and Chief Executive 

Officer, for review and approval. Next, 

the budget is presented to the Board of 

Directors and the Finance and Audit 

Committees for each exchange for their 

approval. The above steps encompass 

the first step of the cost allocation 

process. 

The next step involves determining 

what portion of the cost allocated to the 

Exchange pursuant to the above 

methodology is to be allocated to each 

core service, e.g., connectivity and 

ports, market data, and transaction 

services. The Exchange and its affiliated 

markets adopted an allocation 

methodology with thoughtful and 

consistently applied principles to guide 

how much of a particular cost amount 

allocated to the Exchange should be 

allocated within the Exchange to each 

core service. This is the final step in the 

cost allocation process and is applied to 

each of the cost drivers set forth below. 

This next level of the allocation 

methodology at the individual exchange 

level also took into account factors 

similar to those set forth under the first 

step of the allocation methodology 

process described above, to determine 

the appropriate allocation to 

connectivity or market data versus 

allocations for other services. This 

allocation methodology was developed 

through an assessment of costs with 

senior management intimately familiar 

with each area of the Exchange’s 

operations. After adopting this 

allocation methodology, the Exchange 

then applied an allocation of each cost 

driver to each core service, resulting in 

the cost allocations described below. 

Each of the below cost allocations is 

unique to the Exchange and represents 

a percentage of overall cost that was 

allocated to the Exchange pursuant to 

the initial allocation described above. 

By allocating segmented costs to each 

core service, the Exchange was able to 

estimate by core service the potential 

margin it might earn based on different 

fee models. The Exchange notes that as 

a non-listing venue it has five primary 

sources of revenue that it can 

potentially use to fund its operations: 

transaction fees, fees for connectivity 

and port services, membership fees, 

regulatory fees, and market data fees. 

Accordingly, the Exchange must cover 

its expenses from these five primary 

sources of revenue. The Exchange also 

notes that as a general matter each of 

these sources of revenue is based on 

services that are interdependent. For 

instance, the Exchange’s system for 

executing transactions is dependent on 

physical hardware and connectivity; 

only Members and parties that they 

sponsor to participate directly on the 

Exchange may submit orders to the 

Exchange; many Members (but not all) 

consume market data from the Exchange 

in order to trade on the Exchange; and, 

the Exchange consumes market data 

from external sources in order to 

comply with regulatory obligations. 

Accordingly, given this 

interdependence, the allocation of costs 

to each service or revenue source 

required judgment of the Exchange and 

was weighted based on estimates of the 

Exchange that the Exchange believes are 

reasonable, as set forth below. While 

there is no standardized and generally 

accepted methodology for the allocation 

of an exchange’s costs, the Exchange’s 

methodology is the result of an 

extensive review and analysis and will 

be consistently applied going forward 

for any other potential fee proposals. In 

the absence of the Commission 

attempting to specify a methodology for 

the allocation of exchanges’ 

interdependent costs, the Exchange will 

continue to be left with its best efforts 

to attempt to conduct such an allocation 

in a thoughtful and reasonable manner. 

Through the Exchange’s extensive 

updated Cost Analysis, which was again 

recently further refined, the Exchange 

analyzed every expense item in the 

Exchange’s general expense ledger to 

determine whether each such expense 

relates to the provision of connectivity 

and port services, and, if such expense 

did so relate, what portion (or 

percentage) of such expense actually 

supports the provision of Purge Port 

services, and thus bears a relationship 

that is, ‘‘in nature and closeness,’’ 

directly related to Purge Port services. In 

turn, the Exchange allocated certain 

costs more to physical connectivity and 

others to ports, while certain costs were 

only allocated to such services at a very 

low percentage or not at all, using 

consistent allocation methodologies as 

described above. Based on this analysis, 

the Exchange estimates that the 

aggregate monthly cost to provide Purge 

Port services is $68,581, as further 

detailed below. 

Costs Related to Offering Purge Ports 

The following chart details the 

individual line-item costs considered by 

the Exchange to be related to offering 

Purge Ports as well as the percentage of 

the Exchange’s overall costs that such 

costs represent for each cost driver (e.g., 

as set forth below, the Exchange 

allocated approximately 2.2% of its 

overall Human Resources cost to 

offering Purge Ports). 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 12911 

Cost drivers Allocated 

annual cost a

Allocated 

monthly cost b % of all 

Human Resources ......................................................................................................................... $491,123 $40,927 2.2 

Connectivity (external fees, cabling, switches, etc.) ..................................................................... 868 72 0.9 

Internet Services and External Market Data ................................................................................. 4,914 410 0.9 

Data Center ................................................................................................................................... 20,379 1,698 1.3 

Hardware and Software Maintenance and Licenses .................................................................... 16,268 1,356 0.9 

Depreciation ................................................................................................................................... 36,917 3,076 1.0 

Allocated Shared Expenses .......................................................................................................... 252,500 21,042 2.9 

Total ........................................................................................................................................ 822,969 68,581 2.1 

aThe Annual Cost includes figures rounded to the nearest dollar. 

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

Below are additional details regarding 

each of the line-item costs considered 

by the Exchange to be related to offering 

Purge Ports. While some costs were 

attempted to be allocated as equally as 

possible among the Exchange and its 

affiliated markets, the Exchange notes 

that some of its cost allocation 

percentages for certain cost drivers 

differ when compared to the same cost 

drivers for the Exchange’s affiliated 

markets in their similar proposed fee 

changes for Purge Ports. This is because 

the Exchange’s cost allocation 

methodology utilizes the actual 

projected costs of the Exchange (which 

are specific to the Exchange and are 

independent of the costs projected and 

utilized by the Exchange’s affiliated 

markets) to determine its actual costs, 

which may vary across the Exchange 

and its affiliated markets based on 

factors that are unique to each 

marketplace. The Exchange provides 

additional explanation below (including 

the reason for the deviation) for the 

significant differences. 

Human Resources 

The Exchange notes that it and its 

affiliated markets anticipate that by 

year-end 2024, there will be 289 

employees (excluding employees at 

non-options/equities exchange 

subsidiaries of Miami International 

Holdings, Inc. (‘‘MIH’’), the holding 

company of the Exchange and its 

affiliated markets), and each department 

leader has direct knowledge of the time 

spent by each employee with respect to 

the various tasks necessary to operate 

the Exchange. Specifically, twice a year, 

and as needed with additional new 

hires and new project initiatives, in 

consultation with employees as needed, 

managers and department heads assign 

a percentage of time to every employee 

and then allocate that time amongst the 

Exchange and its affiliated markets to 

determine each market’s individual 

Human Resources expense. Then, 

managers and department heads assign 

a percentage of each employee’s time 

allocated to the Exchange into buckets 

including network connectivity, ports, 

market data, and other exchange 

services. This process ensures that every 

employee is 100% allocated, ensuring 

there is no double counting between the 

Exchange and its affiliated markets. 

For personnel costs (Human 

Resources), the Exchange calculated an 

allocation of employee time for 

employees whose functions include 

providing and maintaining Purge Ports 

and performance thereof (primarily the 

Exchange’s network infrastructure team, 

which spends most of their time 

performing functions necessary to 

provide port and connectivity services). 

As described more fully above, the 

Exchange’s parent company allocates 

costs to the Exchange and its affiliated 

markets and then a portion of the 

Human Resources costs allocated to the 

Exchange is then allocated to port 

services. From that portion allocated to 

the Exchange that applied to ports, the 

Exchange then allocated a weighted 

average of 2.6% of each employee’s time 

from the above group to Purge Ports. 

The Exchange also allocated Human 

Resources costs to provide Purge Ports 

to a limited subset of personnel with 

ancillary functions related to 

establishing and maintaining such ports 

(such as information security, sales, 

membership, and finance personnel). 

The Exchange allocated cost on an 

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

including those personnel who support 

functions related to providing Purge 

Ports) and then applied a smaller 

allocation to such employees’ time to 

Purge Ports (1.3%). This other group of 

personnel with a smaller allocation of 

Human Resources costs also have a 

direct nexus to Purge Ports, whether it 

is a sales person selling port services, 

finance personnel billing for port 

services or providing budget analysis, or 

information security ensuring that such 

ports are secure and adequately 

defended from an outside intrusion. 

The estimates of Human Resources 

cost were therefore determined by 

consulting with such department 

leaders, determining which employees 

are involved in tasks related to 

providing Purge Ports, and confirming 

that the proposed allocations were 

reasonable based on an understanding 

of the percentage of time such 

employees devote to those tasks. This 

includes personnel from the Exchange 

departments that are predominately 

involved in providing Purge Ports: 

Business Systems Development, Trading 

Systems Development, Systems 

Operations and Network Monitoring, 

Network and Data Center Operations, 

Listings, Trading Operations, and 

Project Management. Again, the 

Exchange allocated 2.6% of each of their 

employee’s time assigned to the 

Exchange for Purge Ports, as stated 

above. Employees from these 

departments perform numerous 

functions to support Purge Ports, such 

as the installation, re-location, 

configuration, and maintenance of Purge 

Ports and the hardware they access. 

This hardware includes servers, routers, 

switches, firewalls, and monitoring 

devices. These employees also perform 

software upgrades, vulnerability 

assessments, remediation and patch 

installs, equipment configuration and 

hardening, as well as performance and 

capacity management. These employees 

also engage in research and 

development analysis for equipment 

and software supporting Purge Ports and 

design, and support the development 

and on-going maintenance of internallydeveloped applications as well as data 

capture and analysis, and Member and 

internal Exchange reports related to 

network and system performance. The 

above list of employee functions is not 

exhaustive of all the functions 

performed by Exchange employees to 

support Purge Ports, but illustrates the 

breath of functions those employees 

perform in support of the above cost and 

time allocations. 

Lastly, the Exchange notes that senior 

level executives’ time was only 

allocated to the Purge Ports related 


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Human Resources costs to the extent 

that they are involved in overseeing 

tasks related to providing Purge Ports. 

The Human Resources cost was 

calculated using a blended rate of 

compensation reflecting salary, equity 

and bonus compensation, benefits, 

payroll taxes, and 401(k) matching 

contributions. 

Connectivity (External Fees, Cabling, 

Switches, etc.) 

The Connectivity cost driver includes 

external fees paid to connect to other 

exchanges and third parties, cabling and 

switches required to operate the 

Exchange. The Connectivity cost driver 

is more narrowly focused on technology 

used to complete connections to the 

Exchange and to connect to external 

markets. The Exchange notes that its 

connectivity to external markets 

vendors is required in order to receive 

market data to run the Exchange’s 

matching engine and basic operations 

compliant with existing regulations, 

primarily Regulation NMS. 

The Exchange relies on various 

connectivity providers for connectivity 

to the entire U.S. options industry, and 

infrastructure services for critical 

components of the network that are 

necessary to provide and maintain its 

System Networks and access to its 

System Networks via 10Gb ULL 

connectivity. Specifically, the Exchange 

utilizes connectivity providers to 

connect to other national securities 

exchanges and the Options Price 

Reporting Authority (‘‘OPRA’’). The 

Exchange understands that these service 

providers provide services to most, if 

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

other market participants. Connectivity 

provided by these service providers is 

critical to the Exchanges daily 

operations and performance of its 

System Networks which includes Purge 

Ports. Without these services providers, 

the Exchange would not be able to 

connect to other national securities 

exchanges, market data providers or 

OPRA and, therefore, would not be able 

to operate and support its System 

Networks, including Purge Ports. In 

addition, the connectivity is necessary 

for the Exchange to notify OPRA and 

other market participants that an order 

has been cancelled, and that quotes may 

have been cancelled as a result of a 

Member purging quotes via their Purge 

Port. Also, like other types of ports 

offered by the Exchange, Purge Ports 

leverage the Exchange’s existing 10Gb 

ULL connectivity, which also relies on 

connectivity to other national securities 

exchanges and OPRA. The Exchange 

does not employ a separate fee to cover 

its connectivity provider expense and 

recoups that expense, in part, by 

charging for Purge Ports. 

Internet Services and External Market 

Data 

The next cost driver consists of 

internet services and external market 

data. Internet services includes thirdparty service providers that provide the 

internet, fiber and bandwidth 

connections between the Exchange’s 

networks, primary and secondary data 

centers, and office locations in 

Princeton and Miami. For purposes of 

Purge Ports, the Exchange also includes 

a portion of its costs related to external 

market data. External market data 

includes fees paid to third parties, 

including OPRA, to receive and 

consume market data from other 

markets. The Exchange includes 

external market data costs towards 

Purge Ports because such market data is 

necessary to offer certain services 

related to such ports, such as checking 

for market conditions (e.g., halted 

securities). External market data is also 

consumed at the Matching Engine level 

for, among other things, validating 

quotes on entry against the NBBO. Purge 

Ports are a component of the Matching 

Engine, and used by market participants 

to cancel multiple resting quotes within 

the Matching Engine. While resting, the 

Exchange uses external market data to 

manage those quotes, such as preventing 

trade-throughs, and those quotes are 

also reported to OPRA for inclusion in 

this consolidated data stream. The 

Exchange also must notify OPRA and 

other market participants that an order 

has been cancelled, and that quotes may 

have been cancelled as a result of a 

Member purging quotes via their Purge 

Port. Thus, since market data from other 

exchanges is consumed by the Matching 

Engine to validate quotes and check 

market conditions, the Exchange 

believes it is reasonable to allocate a 

small amount of such costs to Purge 

Ports. 

For the reasons set forth above, the 

Exchange believes it is reasonable to 

allocate a small amount of such costs to 

Purge Ports since market data from other 

exchanges is consumed at the 

Exchange’s Purge Port level to validate 

purge messages and the necessity to 

cancel a resting quote via a purge 

message or via some other means. 

Data Center 

Data Center costs includes an 

allocation of the costs the Exchange 

incurs to provide Purge Ports in the 

third-party data centers where it 

maintains its equipment as well as 

related costs for market data to then 

enter the Exchange’s system (the 

Exchange does not own the Primary 

Data Center or the Secondary Data 

Center, but instead, leases space in data 

centers operated by third parties). 

Hardware and Software Maintenance 

and Licenses 

Hardware and Software Licenses 

includes hardware and software licenses 

used to operate and monitor physical 

assets necessary to offer Purge Ports for 

each Matching Engine of the Exchange. 

Depreciation 

The vast majority of the software the 

Exchange uses to provide Ports has been 

developed in-house and the cost of such 

development, which takes place over an 

extended period of time and includes 

not just development work, but also 

quality assurance and testing to ensure 

the software works as intended, is 

depreciated over time once the software 

is activated in the production 

environment. Hardware used to provide 

Purge Ports includes equipment used for 

testing and monitoring of order entry 

infrastructure and other physical 

equipment the Exchange purchased and 

is also depreciated over time. 

All hardware and software, which 

also includes assets used for testing and 

monitoring of order entry infrastructure, 

were valued at cost, depreciated or 

leased over periods ranging from three 

to five years. Thus, the depreciation cost 

primarily relates to servers necessary to 

operate the Exchange, some of which is 

owned by the Exchange and some of 

which is leased by the Exchange in 

order to allow efficient periodic 

technology refreshes. The Exchange 

allocated 1.0% of all depreciation costs 

to providing Purge Ports. The Exchange 

allocated depreciation costs for 

depreciated software necessary to 

operate the Exchange because such 

software is related to the provision of 

Purge Ports. As with the other allocated 

costs in the Exchange’s updated Cost 

Analysis, the Depreciation cost driver 

was therefore narrowly tailored to 

depreciation related to Purge Ports. 

Allocated Shared Expenses 

Finally, a portion of general shared 

expenses was allocated to overall Purge 

Port costs as without these general 

shared costs the Exchange would not be 

able to operate in the manner that it 

does and provide Purge Ports. The costs 

included in general shared expenses 

include general expenses of the 

Exchange, including office space and 

office expenses (e.g., occupancy and 

overhead expenses), utilities, recruiting 

and training, marketing and advertising 

costs, professional fees for legal, tax and 

accounting services (including external 


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32For purposes of calculating projected 2024 

revenue for Purge Ports, the Exchange used 

revenues for the most recently completed full 

month. 

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 3% of the overall cost for 

directors was allocated to providing 

Purge Ports. 

Approximate Cost for Purge Ports per 

Month 

Based on projected 2024 data, the 

total monthly cost allocated to Purge 

Ports of $68,581 was divided by the 

total number of Matching Engines in 

which Market Makers used Purge Ports 

for the month of December 2023, which 

was 132, resulting in an approximate 

cost of $522 per Matching Engine per 

month for Purge Port usage (when 

rounding to the nearest dollar). The 

Exchange notes that the flat fee of $600 

per month per Matching Engine entitles 

each Market Maker to two Purge Ports 

per Matching Engine. The majority of 

Market Makers are connected to all 

twenty-four of the Exchange’s Matching 

Engines and utilize Purge Ports on each 

Matching Engine, except one Market 

Maker, which only utilizes Purge Ports 

on three Matching Engines. 

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 Purge Ports) and did not 

double-count any expenses. Instead, as 

described above, the Exchange allocated 

applicable cost drivers across its core 

services and used the same Cost 

Analysis to form the basis of this 

proposal. For instance, in calculating 

the Human Resources expenses to be 

allocated to Purge Ports based upon the 

above described methodology, the 

Exchange has a team of employees 

dedicated to network infrastructure and 

with respect to such employees the 

Exchange allocated network 

infrastructure personnel with a higher 

percentage of the cost of such personnel 

(19.3%) given their focus on functions 

necessary to provide Ports. The salaries 

of those same personnel were allocated 

only 2.6% to Purge Ports and the 

remaining 97.4% was allocated to 

connectivity, other port services, 

transaction services, membership 

services and market data. The Exchange 

did not allocate any other Human 

Resources expense for providing Purge 

Ports to any other employee group, 

outside of a smaller allocation of 1.3% 

for Purge Ports, of the cost associated 

with certain specified personnel who 

work closely with and support network 

infrastructure personnel. This is because 

a much wider range of personnel are 

involved in functions necessary to offer, 

monitor and maintain Purge Ports but 

the tasks necessary to do so are not a 

primary or full-time function. 

In total, the Exchange allocated 2.2% 

of its personnel costs to providing Purge 

Ports. In turn, the Exchange allocated 

the remaining 97.8% of its Human 

Resources expense to membership 

services, transaction services, 

connectivity services, other port 

services and market data. Thus, again, 

the Exchange’s allocations of cost across 

core services were based on real costs of 

operating the Exchange and were not 

double-counted across the core services 

or their associated revenue streams. 

As another example, the Exchange 

allocated depreciation expense to all 

core services, including Purge Ports, but 

in different amounts. The Exchange 

believes it is reasonable to allocate the 

identified portion of such expense 

because such expense includes the 

actual cost of the computer equipment, 

such as dedicated servers, computers, 

laptops, monitors, information security 

appliances and storage, and network 

switching infrastructure equipment, 

including switches and taps that were 

purchased to operate and support the 

network. Without this equipment, the 

Exchange would not be able to operate 

the network and provide Purge Port 

services to its Market Makers. However, 

the Exchange did not allocate all of the 

depreciation and amortization expense 

toward the cost of providing Purge Port 

services, but instead allocated 

approximately 1.0% of the Exchange’s 

overall depreciation and amortization 

expense to Purge Ports. The Exchange 

allocated the remaining depreciation 

and amortization expense 

(approximately 99%) toward the cost of 

providing transaction services, 

membership services, connectivity 

services, other port services, and market 

data. 

The Exchange notes that its revenue 

estimates are based on projections 

across all potential revenue streams and 

will only be realized to the extent such 

revenue streams actually produce the 

revenue estimated. The Exchange does 

not yet know whether such expectations 

will be realized. For instance, in order 

to generate the revenue expected from 

Purge Ports, the Exchange will have to 

be successful in retaining existing 

Market Makers that wish to maintain 

Purge Ports or in obtaining new Market 

Makers that will purchase such services. 

Similarly, the Exchange will have to be 

successful in retaining a positive net 

capture on transaction fees in order to 

realize the anticipated revenue from 

transaction pricing. 

The Exchange notes that the Cost 

Analysis is based on the Exchange’s 

2024 fiscal year of operations and 

projections. It is possible, however, that 

actual costs may be higher or lower. To 

the extent the Exchange sees growth in 

use of connectivity services it will 

receive additional revenue to offset 

future cost increases. However, if use of 

port services is static or decreases, the 

Exchange might not realize the revenue 

that it anticipates or needs in order to 

cover applicable costs. Accordingly, the 

Exchange is committing to conduct a 

one-year review after implementation of 

these fees. The Exchange expects that it 

may propose to adjust fees at that time, 

to increase fees in the event that 

revenues fail to cover costs and a 

reasonable mark-up of such costs. 

Similarly, the Exchange may propose to 

decrease fees in the event that revenue 

materially exceeds our current 

projections. In addition, the Exchange 

will periodically conduct a review to 

inform its decision making on whether 

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

monitor for costs increasing/decreasing 

or subscribers increasing/decreasing, 

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

from the prior cost-based analysis) and 

would propose to increase fees in the 

event that revenues fail to cover its costs 

and a reasonable mark-up, or decrease 

fees in the event that revenue or the 

mark-up materially exceeds our current 

projections. In the event that the 

Exchange determines to propose a fee 

change, the results of a timely review, 

including an updated cost estimate, will 

be included in the rule filing proposing 

the fee change. More generally, the 

Exchange believes that it is appropriate 

for an exchange to refresh and update 

information about its relevant costs and 

revenues in seeking any future changes 

to fees, and the Exchange commits to do 

so. 

Projected Revenue 32

The proposed fees will allow the 

Exchange to cover certain costs incurred 

by the Exchange associated with 

providing and maintaining necessary 

hardware and other network 

infrastructure as well as network 

monitoring and support services; 

without such hardware, infrastructure, 

monitoring and support the Exchange 

would be unable to provide port 

services. Much of the cost relates to 


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33Assuming the U.S. inflation rate continues at 

its current rate, the Exchange believes that the 

projected profit margins in this proposal will 

decrease; however, the Exchange cannot predict 

with any certainty whether the U.S. inflation rate 

will continue at its current rate or its impact on the 

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

www.usinflationcalculator.com/inflation/currentinflation-rates/ (last visited January 18, 2024). 

34See supra note 3. 

35See Securities Exchange Act Release Nos. 

98770 (October 18, 2023), 88 FR 73065 (October 24, 

2023) (SR–BX–2023–026); and 98768 (October 18, 

2023), 88 FR 73056 (October 24, 2023) (SR– 

NASDAQ–2023–041). While the Exchange included 

a cost-based justification in this Third Proposal, the 

Exchange continues to believe that such 

justification puts the Exchange on an unlevel 

playing field with its competitors because Purge 

Ports are optional functionality and no cost-based 

justification was provided by Phlx or any of its 

affiliates in their same filings to adopt fees for purge 

ports. Nor does the Staff Guidance issued by the 

Commission Staff include such a requirement. See 

supra note 29. 

36See supra notes 3 and 10. See also Securities 

Exchange Act Release No. 77613 (April 13, 2016), 

81 FR 23023 (April 19, 2016). See also Securities 

Exchange Act Release Nos. 79956 (February 3, 

2017), 82 FR 10102 (February 9, 2017) (SR– 

BatsBZX–2017–05); 79957 (February 3, 2017), 82 FR 

10070 (February 9, 2017) (SR–BatsEDGX–2017–07); 

83201 (May 9, 2018), 83 FR 22546 (May 15, 2018) 

(SR–C2–2018–006). 

37See Exchange Rule 604. See also generally 

Chapter VI of the Exchange’s Rules. 

38 Id. 

39See supra notes 3 and 10. 

40See supra note 10. 

monitoring and analysis of data and 

performance of the network via the 

subscriber’s connection(s). The above 

cost, namely those associated with 

hardware, software, and human capital, 

enable the Exchange to measure 

network performance with nanosecond 

granularity. These same costs are also 

associated with time and money spent 

seeking to continuously improve the 

network performance, improving the 

subscriber’s experience, based on 

monitoring and analysis activity. The 

Exchange routinely works to improve 

the performance of the network’s 

hardware and software. The costs 

associated with maintaining and 

enhancing a state-of-the-art exchange 

network is a significant expense for the 

Exchange, and thus the Exchange 

believes that it is reasonable and 

appropriate to help offset those costs by 

amending fees for Purge Port services. 

Subscribers, particularly those of Purge 

Ports, expect the Exchange to provide 

this level of support so they continue to 

receive the performance they expect. 

This differentiates the Exchange from its 

competitors. As detailed above, the 

Exchange has five primary sources of 

revenue that it can potentially use to 

fund its operations: transaction fees, 

fees for connectivity services 

(connections and ports), membership 

and regulatory fees, and market data 

fees. Accordingly, the Exchange must 

cover its expenses from these five 

primary sources of revenue. 

The Exchange’s Cost Analysis 

estimates the annual cost to provide 

Purge Port services will equal $822,969. 

Based on current Purge Port services 

usage, the Exchange would generate 

annual revenue of approximately 

$950,400. The Exchange believes this 

represents a modest profit of 13.4% 

when compared to the cost of providing 

Purge Port services, which could 

decrease over time.33

Based on the above discussion, the 

Exchange believes that even if the 

Exchange earns the above revenue or 

incrementally more or less, the 

proposed fees are fair and reasonable 

because they will not result in pricing 

that deviates from that of other 

exchanges or a supra-competitive profit, 

when comparing the total expense of the 

Exchange associated with providing 

Purge Port services versus the total 

projected revenue of the Exchange 

associated with network Purge Port 

services. 

Comparable Fee Filing Without Cost 

Justification 

The Exchange further supports the 

proposed fee change based on a recent 

2023 proposal filed with the 

Commission by another national 

securities exchange, Phlx, to adopt fees 

for purge ports, which the Commission 

deemed acceptable by not suspending 

that filing during the applicable 60-day 

review period.34 In fact, the same 

justification Phlx utilized was also used 

in similar recent proposals to adopt fees 

for purge ports by two of Phlx’s 

affiliated exchanges.35 Therefore, the 

Exchange utilizes the below justification 

based on this recent Commission 

precedent from approximately a few 

months ago. 

The Exchange believes that the 

proposed rule change would promote 

just and equitable principles of trade 

and remove impediments to and perfect 

the mechanism of a free and open 

market because offering Market Makers 

optional service and flexible fee 

structures which promotes choice, 

flexibility, efficiency, and competition. 

The Exchange believes Purge Ports 

enhance Market Makers’ ability to 

manage quotes, which would, in turn, 

improve their risk controls to the benefit 

of all market participants. The Exchange 

believes that Purge Ports foster 

cooperation and coordination with 

persons engaged in facilitating 

transactions in securities because 

designating Purge Ports for purge 

messages may encourage better use of 

such ports. This may, concurrent with 

the ports that carry quotes and other 

information necessary for market 

making activities, enable more efficient, 

as well as fair and reasonable, use of 

Market Makers’ resources. Similar 

connectivity and functionality is offered 

by options exchanges, including the 

Exchange’s own affiliated options 

exchanges, and other equities 

exchanges.36 The Exchange believes that 

proper risk management, including the 

ability to efficiently cancel multiple 

quotes quickly when necessary, is 

similarly valuable to firms that trade in 

the equities market, including Market 

Makers that have heightened quoting 

obligations that are not applicable to 

other market participants. 

Purge Ports do not relieve Market 

Makers of their quoting obligations or 

firm quote obligations under Regulation 

NMS Rule 602.37 Specifically, any 

interest that is executable against a 

Member’s or Market Maker’s quotes that 

is received by the Exchange prior to the 

time of the removal of quotes request 

will automatically execute. Market 

Makers that purge their quotes will not 

be relieved of the obligation to provide 

continuous two-sided quotes on a daily 

basis, nor will it prohibit the Exchange 

from taking disciplinary action against a 

Market Maker for failing to meet their 

continuous quoting obligation each 

trading day.38

The Exchange is not the only 

exchange to offer this functionality and 

to charge associated fees.39 The 

Exchange believes the proposed fee for 

Purge Ports is reasonable because it is 

lower than the fees currently charged by 

other exchanges for similar port 

functionality. For example, BZX and 

EDGX charge a fee of $750 per purge 

port per month, Cboe charges $850 per 

purge port per month, Nasdaq GEMX 

assesses its members $1,250 per SQF 

Purge Port per month, subject to a 

monthly cap of $17,500 for SQF Purge 

Ports and SQF Ports.40

The Exchange believes it is reasonable 

to charge $600 per month for Purge 

Ports as proposed because such ports 

were specially developed to allow 

Market Makers to send a single message 

to cancel multiple quotes, thereby 

assisting firms in effectively managing 

risk. The Exchange also believes that a 

Member that chooses to utilize Purge 

Ports may, in the future, reduce their 

need for additional ports by 

consolidating cancel messages to their 

dedicated Purge Port and thus freeing 

up some capacity of the existing logical 

ports and, therefore, allowing for 


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41Current Exchange port functionality supports 

cancelation rates that exceed one thousand 

messages per second and the Exchange’s research 

indicates that certain Participants rely on such 

functionality and at times utilize such cancelation 

rates. 

42See Exchange Rule 532. 

43See Exchange Rule 519C(a). 44See Exchange Rule 519C(c). 

increased message traffic without 

paying for additional logical ports. 

Purge Ports provide the ability to cancel 

multiple quotes with a single message 

over a dedicated port, and, therefore, 

may create efficiencies for firms and 

provide a more efficient solution for 

them based on their risk management 

needs. In addition, Purge Port requests 

may cancel quotes submitted over 

numerous ports and contain added 

functionality to purge only a subset of 

these quotes. Effective risk management 

is important both for individual market 

participants that choose to utilize risk 

features provided by the Exchange, as 

well as for the market in general. As a 

result, the Exchange believes that it is 

appropriate to charge fees for such 

functionality as doing so aids in the 

maintenance of a fair and orderly 

market. 

The Exchange also believes that its 

ability to set fees for Purge Ports is 

subject to significant substitution-based 

forces because Market Makers are able 

to rely on currently available services 

both free and those they receive when 

using existing trading protocols. If the 

value of the efficiency introduced 

through the Purge Port functionality is 

not worth the proposed fees, Market 

Makers will simply continue to rely on 

the existing functionality and not pay 

for Purge Ports. In that regard, Market 

Makers may currently cancel individual 

quotes through the existing 

functionality, such as through the use of 

a mass cancel message by which a 

Market Maker may request that the 

Exchange remove all or a subset of its 

quotations and block all or a subset of 

its new inbound quotations. Already 

Market Makers can also cancel quotes 

individually and by utilizing Exchange 

protocols that allow them to develop 

proprietary systems that can send cancel 

messages at a high rate.41 In addition, 

the Exchange already provides similar 

ability to mass cancel quotes through 

the Exchange’s risk controls, which are 

offered at no charge that enables Market 

Makers to establish pre-determined 

levels of risk exposure, and can be used 

to cancel all open quotes.42

Further, like Purge Ports, Members 

may also cancel all or a subset of its 

orders in the System, by firm name or 

by MPID, over their existing ports, or by 

requesting the Exchange staff to effect 

such cancellations.43

Similarly, Market Makers may use 

cancel-on-disconnect control when they 

experience a disruption in their 

connection to the Exchange and 

immediately cancel all pending quotes 

in the Exchange’s System.44 Finally, this 

existing purging functionality will allow 

Market Makers to achieve essentially the 

same outcome in canceling quotes as 

they would by utilizing the Purge Ports. 

Accordingly, the Exchange believes that 

the proposed Purge Port fee is 

reasonable because it is related to the 

efficiency of Purge Ports and to other 

means and services already available 

which are either free or already a part 

of a fee assessed to the Market Maker for 

existing connectivity. Accordingly, 

because Purge Ports provide additional 

optional functionality, excessive fees 

would simply serve to reduce or 

eliminate demand for this optional 

product. 

The Exchange also believes that 

offering Purge Ports at the Matching 

Engine level promotes risk management 

across the industry, and thereby 

facilitates investor protection. Some 

market participants, in particular the 

larger firms, could and do build similar 

risk functionality (as described above) 

in their trading systems that permit the 

flexible cancellation of quotes entered 

on the Exchange at a high rate. Offering 

Matching Engine level protections 

ensures that such functionality is 

widely available to all firms, including 

smaller firms that may otherwise not be 

willing to incur the costs and 

development work necessary to support 

their own customized mass cancel 

functionality. 

As noted above, the Exchange is not 

the only exchange to offer dedicated 

Purge Ports, and the proposed rate is 

lower than that charged by other 

exchanges for similar functionality. The 

Exchange also believes that moving to a 

per Matching Engine fee is reasonable 

due to the Exchange’s architecture that 

provides it the ability to provide two (2) 

Purge Ports per Matching Engine for a 

fee that would still be lower than 

competing exchanges that charge on a 

per port basis. Generally speaking, 

restricting the Exchange’s ability to 

charge fees for these services 

discourages innovation and 

competition. Specifically in this case, 

the Exchange’s inability to offer similar 

services to those offered by other 

exchanges, and charge reasonable and 

equitable fees for such services, would 

put the Exchange at a significant 

competitive disadvantage and, therefore, 

serve to restrict competition in the 

market—especially when other 

exchanges assess comparable fees higher 

than those proposed by the Exchange. 

The Exchange believes that the 

proposed Purge Port fees are equitable 

because the proposed Purge Ports are 

completely voluntary as they relate 

solely to optional risk management 

functionality. 

The Exchange also believes that the 

proposed amendments to its Fee 

Schedule are not unfairly 

discriminatory because they will apply 

uniformly to all Market Makers that 

choose to use the optional Purge Ports. 

Purge Ports are completely voluntary 

and, as they relate solely to optional risk 

management functionality, no Market 

Maker is required or under any 

regulatory obligation to utilize them. All 

Market Makers that voluntarily select 

this service option will be charged the 

same amount for the same services. All 

Market Makers have the option to select 

any connectivity option, and there is no 

differentiation among Market Makers 

with regard to the fees charged for the 

services offered by the Exchange. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. Purge Ports 

are completely voluntary and are 

available to all Market Makers on an 

equal basis at the same cost. While the 

Exchange believes that Purge Ports 

provide a valuable service, Market 

Makers can choose to purchase, or not 

purchase, these ports based on their 

own determination of the value and 

their business needs. No Market Maker 

is required or under any regulatory 

obligation to utilize Purge Ports. 

Accordingly, the Exchange believes that 

Purge Ports offer appropriate risk 

management functionality to firms that 

trade on the Exchange without imposing 

an unnecessary or inappropriate burden 

on competition. 

Furthermore, the Exchange operates 

in a highly competitive environment, 

and its ability to price the Purge Ports 

is constrained by competition among 

exchanges that offer similar 

functionality. As discussed, there are 

currently a number of similar offers 

available to market participants for 

higher fees at other exchanges. 

Proposing fees that are excessively 

higher than established fees for similar 

functionality would simply serve to 

reduce demand for the Purge Ports, 

which as discussed, market participants 

are under no obligation to utilize. It 

could also cause firms to shift trading to 

other exchanges that offer similar 


ddrumheller on DSK120RN23PROD with NOTICES1
12916 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 

45See letters from Thomas M. Merritt, Deputy 

General Counsel, Virtu Financial, Inc. (‘‘Virtu’’), to 

Vanessa Countryman, Secretary, Commission, dated 

November 8, 2023 and January 2, 2024. 

46See letter from John C. Pickford, Counsel, 

Susquehanna International Group, LLP (‘‘SIG’’), to 

Vanessa Countryman, Secretary, Commission, dated 

January 4, 2024. 

47 15 U.S.C. 78s(b)(3)(A)(ii). 

48 17 CFR 240.19b–4(f)(2). 49 17 CFR 200.30–3(a)(12). 

functionality at a lower cost, adversely 

impacting the overall trading on the 

Exchange and reducing market share. In 

this competitive environment, potential 

purchasers are free to choose which, if 

any, similar product to purchase to 

satisfy their need for risk management. 

As a result, the Exchange believes this 

proposed rule change permits fair 

competition among national securities 

exchanges. 

The Exchange also does not believe 

the proposal would cause any 

unnecessary or inappropriate burden on 

intermarket competition as other 

exchanges are free to introduce their 

own purge port functionality and lower 

their prices to better compete with the 

Exchange’s offering. The Exchange does 

not believe the proposed rule change 

would cause any unnecessary or 

inappropriate burden on intramarket 

competition. Particularly, the proposal 

would apply uniformly to any market 

participant, in that it does not 

differentiate between Market Makers. 

The proposal would allow any 

interested Market Makers to purchase 

Purge Port functionality based on their 

business needs. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange received one comment 

letter on the Initial Proposal and one 

comment letter on the Second Proposal, 

both from the same commenter.45 This 

comment letters were submitted not 

only on these proposals, but also the 

proposals by the Exchange and its 

affiliates to amend fees for 10Gb ULL 

connectivity and certain ports. The 

Exchange received one other comment 

letter on the Second Proposal.46 Overall, 

the Exchange believes that the issues 

raised by the first commenter are not 

germane to this proposal because they 

apply primarily to the other fee filings. 

Also, the commenters raised concerns 

with the current environment 

surrounding exchange non-transaction 

fee proposals that should be addressed 

by the Commission through rule 

making, or Congress, more holistically 

and not through an individual exchange 

fee filings. However, the commenters do 

raise one issue that concerns this 

proposal whereby it asserts that the 

Exchange’s comparison to fees charged 

by other exchanges for similar ports is 

irrelevant and unpersuasive. The core of 

the issue raised is regarding the cost to 

connect to one exchange compared to 

the cost to connect to others. A thorough 

response to this comment would require 

the Exchange to obtain competitively 

sensitive information about other 

exchange architecture and how their 

members connect. The Exchange is not 

privy to this information. Further, the 

commenter compares the Exchange’s 

proposed rate to other exchanges that 

offer purge port functionality across all 

matching engines for a single fee, but 

fails to provide the same comparison to 

other exchanges that charge for purge 

functionality like proposed here. The 

Exchange does not have insight into the 

technical architecture of other 

exchanges so it is difficult to ascertain 

the number of purge ports a firm would 

need to connect to another exchanges 

entire market. Therefore, the Exchange 

is limited to comparing its proposed fee 

to other exchanges’ purge port fees as 

listed in their fee schedules. 

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,47 and Rule 

19b–4(f)(2) 48 thereunder. At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

EMERALD–2024–05 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–EMERALD–2024–05. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–EMERALD–2024–05 and should be 

submitted on or before March 12, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.49

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–03334 Filed 2–16–24; 8:45 am] 

BILLING CODE 8011–01–P 


ddrumheller on DSK120RN23PROD with NOTICES1