[Federal Register Volume 89, Number 209 (Tuesday, October 29, 2024)]
[Notices]
[Pages 86024-86046]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25056]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101418; File No. SR-SAPPHIRE-2024-32]


Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change by MIAX 
Sapphire, LLC To Adopt Connectivity and Certain Port Fees for Members 
and Non-Members

October 23, 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 October 10, 2024, MIAX Sapphire, LLC (``MIAX Sapphire'' 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Sapphire 
Options Exchange Fee Schedule (the ``Fee Schedule'') to adopt certain 
non-transaction fees. The text of the proposed rule change is available 
on the Exchange's website at https://www.miaxglobal.com/markets/us-options/miax-sapphire/rule-filings, at the Exchange's principal office, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On July 15, 2024, the U.S. Securities and Exchange Commission 
(``Commission'') approved the Exchange's Form 1 application to register 
as a national securities exchange under Section 6 of the Exchange 
Act.\3\ The Exchange commenced electronic operations on August 12, 
2024.\4\ The Exchange proposes to establish the following sections of 
the Fee Schedule, including proposed fee structures and amounts (the 
majority of which the Exchange proposes to waive for a specified time, 
as discussed further below): (1) connectivity fees for Members \5\ and 
non-Members; and (2) certain port fees for Members and non-Members.\6\ 
The Exchange initially filed this proposal on August 9, 2024 (SR-
SAPPHIRE-2024-21). The Exchange withdrew SR-SAPPHIRE-2024-21 on August 
14, 2024 and submitted SR-SAPPHIRE-2024-22. On October 10, 2024, the 
Exchange withdrew SR-

[[Page 86025]]

SAPPHIRE-2024-22 and submitted this proposal.
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    \3\ See Securities Exchange Act Release No. 100539 (July 15, 
2024), 89 FR 58848 (July 19, 2024) (File No. 10-240) (the ``Approval 
Order'').
    \4\ See MIAX Sapphire News Alert, dated August 13, 2024, 
available at https://www.miaxglobal.com/alert/2024/08/13/miami-international-holdings-announces-successful-launch-miax-sapphire?nav=all.
    \5\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of the 
Exchange's Rules for purposes of trading on the Exchange as an 
``Electronic Exchange Member'' or ``Market Maker.'' Members are 
deemed ``members'' under the Exchange Act. See Exchange Rule 100.
    \6\ The Exchange filed a separate rule filing to establish fees 
for Purge Ports. See SR-SAPPHIRE-2024-15. ``Purge Ports'' provide 
Market Makers with the ability to send quote purge messages to the 
MIAX Sapphire System. Purge Ports are not capable of sending or 
receiving any other type of messages or information. See the 
Definitions section of the Fee Schedule. Fees for all other types of 
ports are proposed in this filing.
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Connectivity Fees
    The Exchange proposes to establish Section 5), System Connectivity 
Fees, which will describe network connectivity fees. The Exchange 
proposes to offer to both Members and non-Members the choice of a 1 
Gigabit (``Gb'') fiber connection or the 10Gb ultra-low latency 
(``ULL'') fiber connection to the Exchange's primary and secondary 
facilities, as well as its disaster recovery facility. The 1Gb and 10Gb 
ULL fees will be charged to both Members and non-Members for 
connectivity to the Exchange's primary/secondary facility and to its 
disaster recovery facility.
    The Exchange proposes to establish monthly fees of $1,400 per 1Gb 
connection and $13,500 per 10Gb ULL connection that will be assessed to 
Members and non-Members for connecting to the primary/secondary 
facility. The Exchange proposes to establish monthly fees of $550 per 
1Gb connection and $2,750 per 10Gb ULL connection that will be assessed 
to Members and non-Members for connecting to the disaster recovery 
facility.
    Monthly network connectivity fees for Members and non-Members for 
connectivity with the primary/secondary facility will be assessed in 
any month the Member or non-Member is credentialed to use any of the 
MIAX Sapphire Application Programming Interfaces (``APIs'') or market 
data feeds in the production environment. Further, the Exchange 
proposes to pro-rate the monthly fees when a Member or non-Member makes 
a change to the connectivity (by adding or deleting connections) with 
such pro-rated fees based on the number of trading days that the Member 
or non-Member has been credentialed to utilize any of the MIAX Sapphire 
APIs or market data feeds in the production environment through such 
connection, divided by the total number of trading days in such month 
multiplied by the applicable monthly rate. Monthly network connectivity 
fees for Members and non-Members for connectivity to the disaster 
recovery facility will be assessed in each month during which the 
Member or non-Member has established connectivity to the disaster 
recovery facility.
    The Exchange proposes that Members and non-Members utilizing the 
MENI \7\ to connect to the trading platforms, market data systems, and 
disaster recovery facilities of the Exchange or its affiliated options 
markets (MIAX, MIAX Pearl, and MIAX Emerald) \8\ via a single, shared 
1Gb connection will only be assessed one monthly network connectivity 
fee per connection, regardless of the trading platforms, market data 
systems, and disaster recovery facilities accessed via such connection.
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    \7\ The term ``MENI'' means the MIAX Express Network 
Interconnect, which is a network infrastructure which provides 
Members and non-Members network connectivity to the MIAX Sapphire 
trading platform, market data systems, test systems, and disaster 
recovery facilities. When utilizing a shared 1Gb cross-connect, the 
MENI can also be configured to offer network connectivity to the 
trading platforms, market data systems, test systems, and disaster 
recovery facilities of the Exchange's affiliates, MIAX, MIAX Pearl 
and MIAX Emerald. When utilizing a Dedicated cross-connect, the MENI 
can only be configured to offer network connectivity to the trading 
platforms, market data systems, and test systems of MIAX Sapphire. 
See the Definitions section of the Fee Schedule.
    \8\ The term ``MIAX'' means Miami International Securities 
Exchange, LLC. See Exchange Rule 100. The term ``MIAX Pearl'' means 
MIAX PEARL, LLC. All references to ``MIAX Pearl'' in this filing are 
to the options trading facility of MIAX PEARL, LLC. References to 
``MIAX Pearl Equities'' are to the equities trading facility of MIAX 
PEARL, LLC. See MIAX Pearl Rule 1901. The term ``MIAX Emerald'' 
means MIAX Emerald, LLC. See Exchange Rule 100. MIAX, MIAX Pearl and 
MIAX Emerald are collectively referred to herein as the ``affiliated 
markets.''
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    Waiver Period for Connectivity Fees. The Exchange proposes to waive 
the monthly Member and non-Member network connectivity fees for the 1Gb 
connections to the primary/secondary facility and disaster recovery 
facility, and the 10Gb ULL connections to the disaster recovery 
facility for the partial month in which the Exchange launches 
operations, plus an additional three full calendar months. The proposed 
monthly Member and non-Member network connectivity fees for the 1Gb 
connections to the primary/secondary facility and disaster recovery 
facility, and 10Gb ULL connections to the disaster recovery facility 
will be discounted by 50% for the three full calendar months 
thereafter.
    The Exchange proposes to waive the monthly Member and non-Member 
network connectivity fees for the first two 10Gb ULL connections on 
each switch \9\ to the primary/secondary facility for the partial month 
in which the Exchange launches operations, plus an additional three 
full calendar months. The Exchange proposes that the monthly Member and 
non-Member network connectivity fees for the first two 10Gb ULL 
connections on each switch to the primary/secondary facility will be 
discounted by 50% for the three full calendar months thereafter. Any 
subsequent 10Gb ULL connections on each switch will be charged the full 
monthly rate of $13,500 per 10Gb ULL connection.
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    \9\ The network switches are the first layer of access to the 
trading platform that firms connect to before being able to access 
the Exchange's matching engines, each of which pertain to a certain 
list of underlying symbols. The Exchange notes that it is possible 
to reach each matching engine from a single switch.
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    For clarity, the Exchange provides the below examples regarding 
connectivity fees, utilizing the launch date of August 12, 2024:
    <bullet> Members and non-Members that subscribe to the 1Gb 
connection to the primary/secondary facility and/or disaster recovery 
facility, and/or subscribe to the 10Gb ULL connection to the disaster 
recovery facility, will not be charged the proposed rates (i.e., $1,400 
for 1Gb connections to the primary/secondary facility, $550 for 1Gb 
connections to the disaster recovery facility, or $2,750 for 10Gb ULL 
connections to the disaster recovery facility) for the remaining days 
in August, as well as for the entire period covering the months of 
September 2024 through November 2024. Thereafter, Members and non-
Members will receive a 50% discount for each 1Gb connection to the 
primary/secondary facility and disaster recovery facility, and for each 
10Gb ULL connection to the disaster recovery facility for entire period 
covering December 2024 through February 2025.
    <bullet> Members and non-Members that subscribe to the 10Gb ULL 
connection to the primary/secondary facility will not be charged the 
proposed rate ($13,500) for the first two 10Gb ULL connections on each 
switch to the primary/secondary facility for the remaining days in 
August, as well as the entire period cover the months of September 
through November 2024. Thereafter, Members and non-Members will receive 
a 50% discount for the first two 10Gb ULL connections on each switch to 
the primary/secondary facility for entire period covering December 2024 
through February 2025. For each 10Gb ULL connection on each switch 
greater than two (i.e., three or more), Members and non-Members will be 
assessed the entire amount of the proposed rate beginning upon the 
launch of the Exchange.
    The Exchange previously communicated to market participants that 
the Exchange intends to waive the monthly Member and non-Member network 
connectivity fees in the manner described above.\10\ Even though the

[[Page 86026]]

Exchange proposes to waive the Member and non-Member network 
connectivity fees for the periods of time described above, the Exchange 
believes that it is appropriate to provide market participants with the 
overall structure of the fees by outlining the structure and amounts in 
the Fee Schedule, so that there is general awareness that the Exchange 
intends to assess such fees in the future. The Exchange notes that its 
affiliated markets, MIAX, MIAX Pearl and MIAX Emerald, provide for the 
same structure and amounts, absent the waiver and discount periods 
described above, for connectivity fees assessed to their Members and 
non-Members.\11\
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    \10\ See Fee Change Alert, MIAX Sapphire Options Exchange--
Updated Summary of Proposed Non-Transaction Fees to Clarify 
Application of Production Connectivity Waiver Period, dated July 26, 
2024, available at https://www.miaxglobal.com/alert/2024/07/26/miax-sapphire-options-exchange-updated-summary-proposed-non-transaction.
    \11\ See MIAX Fee Schedule, Sections 5)a)-b); MIAX Pearl Fee 
Schedule, Sections 5)a)-b); and MIAX Emerald Fee Schedule, Sections 
5)a)-b).
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Port Fees
    The Exchange proposes to establish Section 5)d), Port Fees, which 
will provide the fee structure and amounts for the different types of 
ports offered by the Exchange, which are described below.\12\ MIAX 
Sapphire has primary and secondary data centers and a disaster recovery 
center. Each port provides access to all Exchange data centers for a 
single fee. The Exchange notes that, unless otherwise specifically set 
forth in the Fee Schedule, the port fees include the information 
communicated through the port. That is, unless otherwise specifically 
set forth in the Fee Schedule, there is no additional charge for the 
information that is communicated through the port apart from what the 
user is assessed for each port.
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    \12\ The Exchange notes that this filing includes proposed fees 
for FIX Ports, Full Service MEO Ports, Limited Service MEO Ports, 
Clearing Trade Drop Ports, and FIX Drop Copy Ports. The Exchange 
separately filed to establish fees for Purge Ports. See SR-SAPPHIRE-
2024-26. The Exhibit 5 reflects the separate filing to establish 
fees for Purge Ports.
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    Waiver Period. The Exchange proposes to waive all port fees during 
the Initial Waiver Period.\13\ Even though the Exchange proposes to 
fully waive all port fees during the Initial Waiver Period upon 
launching operations, the Exchange believes that is appropriate to 
provide market participants with the overall structure of the fees by 
outlining the structure and amounts in the Fee Schedule, so that there 
is general awareness that the Exchange intends to assess such fees upon 
the expiration of the defined period of the Initial Waiver Period.
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    \13\ The term ``Initial Waiver Period'' means, for each 
applicable fee, the period of time from the initial effective date 
of the MIAX Sapphire Fee Schedule plus an additional six (6) full 
calendar months after the completion of the partial month of the 
Exchange launch. See the Definitions Section of the Fee Schedule.
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FIX Port Fees \14\
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    \14\ The term ``FIX Interface'' means the Financial Information 
Exchange interface used for submitting certain order types (as set 
forth in Rule 516) to the MIAX Sapphire System. See Exchange Rule 
100. The term ``FIX Port'' means a FIX port that allows Members to 
send orders and other messages using the FIX protocol. See the 
Definitions section of the Fee Schedule.
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    The Exchange proposes to establish Section 5)d)i), FIX Port Fees, 
pursuant to which the Exchange will assess FIX Port fees to Members in 
each month the Member is credentialed to use a FIX Port in the 
production environment and based upon the number of credentialed FIX 
Ports. In particular, the Exchange proposes to assess Members the 
following monthly FIX Port fees: (i) $275 for the 1st FIX Port; (ii) 
$175 per port for the 2nd through 5th FIX Ports; and (iii) $75 per port 
for the 6th FIX Port and each additional FIX Port. FIX Port fees will 
be waived during the Initial Waiver Period.
MEO Port Fees \15\
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    \15\ The term ``MEO Interface'' or ``MEO'' means a binary order 
interface for certain order types as set forth in Rule 516 into the 
MIAX Sapphire System. See Exchange Rule 100 and the Definitions 
section of the Fee Schedule.
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    The Exchange proposes to establish Section 5)d)ii), MEO Port Fees, 
pursuant to which the Exchange will assess MEO Port fees based upon the 
different types of MEO Ports offered by the Exchange. MIAX Sapphire 
offers different types of MEO Ports depending on the services required 
by Members.
    The Exchange proposes to assess monthly Full Service MEO Port \16\ 
fees to Market Makers \17\ based upon the number of classes or class 
volume accessed by the Market Maker. MIAX Sapphire will assess monthly 
Full Service MEO Port fees to Market Makers in each month the Marker 
Maker has been credentialed to use the Full Service MEO Port in the 
production environment and has registered to quote in at least one 
class.
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    \16\ The term ``Full Service MEO Port'' means an MEO port that 
supports all MEO input message types and binary bulk order entry. 
See the Definitions section of the Fee Schedule.
    \17\ The term ``Market Maker'' or ``MM'' means a Member 
registered with the Exchange for the purpose of making markets in 
options contracts traded on the Exchange and that is vested with the 
rights and responsibilities specified in Chapter VI of the 
Exchange's Rules. See Exchange Rule 100.
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    Specifically, the Exchange proposes to establish the following 
monthly Full Service MEO Port fees: (i) $2,500 for Market Maker 
registrations in up to 10 option classes or up to 20% of option classes 
by volume; (ii) $3,750 for Market Maker registrations in up to 40 
option classes or up to 35% of option classes by volume; (iii) $5,000 
for Market Maker registrations in up to 100 option classes or up to 50% 
of option classes by volume; and (iv) $6,000 for Market Maker 
registrations in over 100 option classes or over 50% of option classes 
by volume up to all option classes listed on MIAX Sapphire.
    The Exchange also proposes to adopt footnote ``b.'' for its Full 
Service MEO Port fees that will apply to the Market Makers who fall 
within the following Full Service MEO Port fee levels, which represent 
the 3rd and 4th levels of the fee table: Market Makers who have (i) 
registrations in up to 100 option classes or up to 50% of option 
classes by volume, and (ii) registrations in over 100 option classes or 
over 50% of option classes by volume up to all option classes listed on 
MIAX Sapphire. The Exchange proposes that for these monthly Full 
Service MEO Port tier levels, if the Market Maker's total monthly 
executed volume during the relevant month is less than 0.015% of the 
total monthly executed volume reported by OCC in the Market Maker 
account type for MIAX Sapphire-listed option classes for that month, 
then the fee will be $4,000 instead of the fee otherwise applicable to 
such level (i.e., $5,000 or $6,000).
    The purpose of this proposed lower monthly Full Service MEO Port 
fee is to provide a lower fixed cost to those Market Makers who quote 
the entire Exchange market (or substantial amount of the Exchange 
market), as objectively measured by either number of classes assigned 
or national average daily volume (``ADV''), but who do not otherwise 
execute a significant amount of volume on the Exchange. The Exchange 
believes that, by offering lower fixed costs to Market Makers that 
execute less volume, the Exchange will retain and attract smaller-scale 
Market Makers, which are an integral component of the option industry 
marketplace, but have been decreasing in number in recent years, due to 
industry consolidation and lower market maker profitability. Since 
these smaller-scale Market Makers utilize less Exchange capacity due to 
lower overall volume executed, the Exchange believes it is reasonable 
and appropriate to offer such Market Makers a lower fixed cost. The 
Exchange notes that its affiliated markets, MIAX, MIAX Pearl, and MIAX 
Emerald, offer a similar reduced fee for their full service MEO/MEI 
ports for

[[Page 86027]]

smaller-scale Market Makers.\18\ Accordingly, this concept is not 
novel.
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    \18\ See MIAX Fee Schedule, Section 5)d)ii), note ``*''; MIAX 
Pearl Fee Schedule, Section 5)d), page 20, note ``**''; and MIAX 
Emerald Fee Schedule, Section 5)d)ii), note [ssquf].
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    For the calculation of the monthly Full Service MEO Port fees, the 
applicable fee rate is the lesser of either the per class basis or 
percentage of total national ADV measurement. The amount of the monthly 
Full Service MEO Port fee will be based upon the number of classes in 
which the Market Maker was registered to quote on any given day within 
the calendar month, or upon the class volume percentages set forth in 
the table in Section 5)d)ii) of the Fee Schedule. A Market Maker is 
determined to be registered in a class if that Market Maker has been 
registered in one or more series in that class.\19\ The Exchange will 
assess MIAX Sapphire Market Makers the monthly Full Service MEO Port 
fee based on the greatest number of classes listed on MIAX Sapphire 
that the MIAX Sapphire Market Maker registered to quote in on any given 
day within a calendar month. The class volume percentage is based on 
the total national average daily volume in classes listed on MIAX 
Sapphire in the prior calendar quarter. Newly listed option classes are 
excluded from the calculation of the monthly Full Service MEO Port fee 
until the calendar quarter following their listing, at which time the 
newly listed option classes will be included in both the per class 
count and the percentage of total national average daily volume.
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    \19\ See, generally, Chapter VI of the Exchange's Rules.
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    MEO Port users will be allocated two (2) Full Service MEO Ports and 
four (4) Limited Service MEO Ports per Matching Engine \20\ to which 
they connect. MEO Port fees include MEO Ports at the primary, secondary 
and disaster recovery data centers. Market Makers may request 
additional Limited Service MEO Ports for which MIAX Sapphire proposes 
to assess Market Makers $250 per month per additional Limited Service 
MEO Port for each Matching Engine in excess of the four (4) Limited 
Service MEO Ports described above.
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    \20\ A ``Matching Engine'' is a part of the MIAX Sapphire 
electronic system that processes options orders and trades on a 
symbol-by-symbol basis. Some Matching Engines will process option 
classes with multiple root symbols, and other Matching Engines may 
be dedicated to one single option root symbol (for example, options 
on SPY may be processed by one single Matching Engine that is 
dedicated only to SPY). A particular root symbol may only be 
assigned to a single designated Matching Engine. A particular root 
symbol may not be assigned to multiple Matching Engines. See the 
Definitions section of the Fee Schedule.
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    Full Service MEO Port fees and Limited Service MEO Port fees will 
be waived during the Initial Waiver Period.
Clearing Trade Drop Port Fees \21\
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    \21\ A ``CTD Port'' or ``Clearing Trade Drop Port'' provides an 
Exchange Member with a real-time clearing trade updates. The updates 
include the Member's clearing trade messages on a low latency, real-
time basis. The trade messages are routed to a Member's connection 
containing certain information. The information includes, among 
other things, the following: (i) trade date and time; (ii) symbol 
information; (iii) trade price/size information; (iv) Member type 
(for example, and without limitation, Market Maker, Electronic 
Exchange Member, Broker-Dealer); and (v) Exchange MPID for each side 
of the transaction, including Clearing Member MPID. See the 
Definitions section of the Fee Schedule. The term ``Electronic 
Exchange Member'' or ``EEM'' means the holder of a Trading Permit 
who is a Member representing as agent Public Customer Orders or Non-
Customer Orders on the Exchange and those non-Market Maker Members 
conducting proprietary trading. Electronic Exchange Members are 
deemed ``members'' under the Exchange Act. See Exchange Rule 100.
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    The Exchange proposes to establish Section 5)d)iv), Clearing Trade 
Drop Port Fees. The Exchange proposes to assess a CTD Port fee of $450 
per month. This fixed fee structure and amount is the same as the CTD 
Port fee in place at the Exchange's affiliate, MIAX Emerald.\22\ CTD 
Port fees will be waived during the Initial Waiver Period.
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    \22\ See MIAX Emerald Fee Schedule, Section 5)d)iii).
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FIX Drop Copy Port Fees \23\
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    \23\ The term ``FXD'' or ``FIX Drop Copy Port'' means a 
messaging interface that provides a copy of real-time trade 
execution, trade correction and trade cancellation information to 
FIX Drop Copy Port users who subscribe to the service. FXD Port 
users are those users who are designated by an EEM to receive the 
information and the information is restricted for use by the EEM 
only. See the Definitions section of the Fee Schedule.
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    The Exchange proposes to establish Section 5)d)v), Fix Drop Copy 
Port Fees. The Exchange proposes to assess an FXD Port fee of $250 per 
month. This fixed fee structure is the same as the FXD Port fee 
structure in place at the Exchange's affiliate, MIAX Emerald, and is 
half the price of the FXD Port fee for MIAX Emerald.\24\ FXD Port fees 
will be waived during the Initial Waiver Period.
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    \24\ See MIAX Emerald Fee Schedule, Section 5)d)iv).
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* * * * *
    As described more fully below, the Exchange provides a cost 
analysis to supports its proposed connectivity and port fees that 
includes, among other things, descriptions of how the Exchange 
allocated costs among it and its affiliated markets (MIAX, MIAX Pearl, 
and MIAX Emerald) to ensure no cost was allocated more than once, as 
well as additional detail supporting its cost allocation processes. The 
Exchange proposes connectivity and port fees that are intended to cover 
the Exchange's cost of providing connectivity and ports, with a 
reasonable mark-up over those costs.
2. Statutory Basis
    The Exchange believes that the proposed fees are consistent with 
Section 6(b) of the Act \25\ in general, and furthers the objectives of 
Section 6(b)(4) of the Act \26\ in particular, in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among Members and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposed 
fees further the objectives of Section 6(b)(5) of the Act \27\ in that 
they are designed to promote just and equitable principles of trade, 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general protect investors 
and the public interest and are not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(4).
    \27\ 15 U.S.C. 78f(b)(5).
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Cost Analysis
    In general, the Exchange believes that exchanges, in setting fees 
of all types, should meet very high standards of transparency to 
demonstrate why each new fee or fee increase meets the Exchange Act 
requirements that fees be reasonable, equitably allocated, not unfairly 
discriminatory, and not create an undue burden on competition among 
members and markets. In particular, the Exchange believes that each 
exchange should take extra care to be able to demonstrate that these 
fees are based on its costs and reasonable business needs.
    In proposing to charge fees for connectivity and port services, the 
Exchange is especially diligent in assessing those fees in a 
transparent way against its own aggregate costs of providing the 
related service, and in carefully and transparently assessing the 
impact on Members--both generally and in relation to other Members, 
i.e., to assure the fee will not create a financial burden on any 
participant and will not have an undue impact in particular on smaller 
Members and competition among Members in general. The Exchange believes 
that this level of diligence and transparency is called for by the 
requirements of Section 19(b)(1)

[[Page 86028]]

under the Act,\28\ and Rule 19b-4 thereunder,\29\ with respect to the 
types of information exchanges should provide when filing fee changes, 
and Section 6(b) of the Act,\30\ which requires, among other things, 
that exchange fees be reasonable and equitably allocated,\31\ not 
designed to permit unfair discrimination,\32\ and that they not impose 
a burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\33\ 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.\34\
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    \28\ 15 U.S.C. 78s(b)(1).
    \29\ 17 CFR 240.19b-4.
    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(4).
    \32\ 15 U.S.C. 78f(b)(5).
    \33\ 15 U.S.C. 78f(b)(8).
    \34\ See supra note 31.
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    As detailed below, the Exchange recently calculated its aggregate 
annual costs (and approximations for monthly costs) for providing 1Gb 
and 10Gb ULL connectivity, Full Service MEO Ports, Limited Service MEO 
Ports, FIX Ports, CTD Ports, and FXD Ports. For physical 1Gb and 10Gb 
ULL connectivity combined, the Exchange calculated its aggregate annual 
cost to equal $6,620,300 (or approximately $551,692 per month, when 
rounded to the nearest dollar when dividing the combined annual cost by 
12 months). For the various port services, the Exchange calculated the 
following annual costs: $605,907 for Full Service MEO Ports (or 
approximately $50,491 per month, when rounded to the nearest dollar 
when dividing the combined annual cost by 12 months); $600,608 for 
Limited Service MEO Ports (or approximately $50,050 per month, when 
rounded to the nearest dollar when dividing the combined annual cost by 
12 months); $158,148 for FIX Ports (or approximately $13,178 per month, 
when rounded to the nearest dollar when dividing the combined annual 
cost by 12 months); $109,908 for CTD Ports (or approximately $9,158 per 
month, when rounded to the nearest dollar when dividing the combined 
annual cost by 12 months); and $36,637 for FXD Ports (or approximately 
$3,054 per month, when rounded to the nearest dollar when dividing the 
combined annual cost by 12 months). In order to cover the aggregate 
costs of providing connectivity and ports to its users (both Members 
and non-Members \35\) going forward and to make a modest profit for 
connectivity services, as described below, the Exchange proposes to 
modify its Fee Schedule to establish the connectivity and port fees 
described above, subject to certain fee waiver periods. The Exchange 
does not anticipate that it will make an overall profit on the various 
port services following the expiration of the Initial Waiver Period, on 
an annual basis, based on projected subscriber data.
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    \35\ Types of market participants that obtain connectivity 
services from the Exchange but are not Members include service 
bureaus and extranets. Service bureaus offer technology-based 
services to other companies for a fee, including order entry 
services, and thus, may access ports on behalf of one or more 
Members. Extranets offer physical connectivity services to Members 
and non-Members.
---------------------------------------------------------------------------

    The Exchange's affiliates previously completed a study of their 
aggregate costs to provide connectivity and port services and produce 
market data, defined above as its Cost Analysis.\36\ Personnel began to 
plan for and develop the Exchange beginning in early 2023, and costs 
included in this Cost Analysis are related to the development and 
buildout of the Exchange since that time. During the Exchange's 
development and buildout that occurred throughout 2023 and continues to 
today, the Exchange routinely studied its aggregate costs to provide 
connectivity and port services, which were used to determine the 
proposed pricing for the provisions of connectivity and port services 
that are part of the Exchange's Cost Analysis. The Cost Analysis 
required a detailed analysis of the Exchange's aggregate baseline 
costs, including a determination and allocation of costs for core 
services provided by the Exchange--transaction execution, market data, 
membership services, physical connectivity, and port access (which 
provide order entry, cancellation and modification functionality, risk 
functionality, the ability to receive drop copies, and other 
functionality). The Exchange separately divided its costs between those 
costs necessary to deliver each of these core services, including 
infrastructure, software, human resources (i.e., personnel), and 
certain general and administrative expenses (``cost drivers'').
---------------------------------------------------------------------------

    \36\ See Securities Exchange Act Release Nos. 100041 (April 26, 
2024), 89 FR 35868 (May 2, 2024) (SR-MIAX-2024-25); 100319 (June 12, 
2024), 89 FR 51562 (June 18, 2024) (SR-PEARL-2024-25); 100042 (April 
26, 2024), 89 FR 35879 (May 2, 2024) (SR-EMERALD-2024-15). The 
Exchange frequently updates it Cost Analysis as strategic 
initiatives change, costs increase or decrease, and market 
participant needs and trading activity (once live trading begins) 
changes. The Exchange's most recent Cost Analysis was conducted 
ahead of this filing.
---------------------------------------------------------------------------

    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 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 non-functional 
development projects, capacity needs, end-of-life or end-of-service 
intervals, number of members, market model (e.g., price time or pro-
rata, simple only or simple and complex markets, auction functionality, 
etc.), which may impact message traffic, individual system 
architectures that impact platform size,\37\ 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. For the 2024 
budget process for MIAX Sapphire, only costs and anticipated revenues 
associated with the electronic exchange were considered. While MIAX 
Sapphire plans on opening its trading floor in 2025 costs and 
anticipated revenues from the trading floor were not included as part 
of any analysis for MIAX Sapphire for 2024.\38\ 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 five (5) (evenly for each 
marketplace). Rather, the Exchange's

[[Page 86029]]

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.
---------------------------------------------------------------------------

    \37\ For example, MIAX Sapphire maintains 8 matching engines, 
MIAX Emerald maintains 12 matching engines, MIAX Pearl Options 
maintains 12 matching engines, MIAX Pearl Equities maintains 24 
matching engines, and MIAX maintains 24 matching engines.
    \38\ Additionally, while MIAX Sapphire received approval as a 
national securities exchange on July 15, 2024, start-up costs 
associated with the launch of MIAX Sapphire were not included in the 
costs used for the 2024 electronic exchange projections.
---------------------------------------------------------------------------

    The next step involves determining what portion of the cost 
allocated to the Exchange pursuant to the above methodology is to be 
allocated to each core service, e.g., connectivity and ports, market 
data, and transaction services. The Exchange and its affiliated markets 
adopted an allocation methodology with thoughtful and consistently 
applied principles to guide how much of a particular cost amount 
allocated to the Exchange should be allocated within the Exchange to 
each core service. This is the final step in the cost allocation 
process and is applied to each of the cost drivers set forth below. For 
instance, fixed costs that are not driven by client activity (e.g., 
message rates), such as data center costs, were allocated more heavily 
to the provision of 10Gb ULL physical connectivity (57.7% of total 
expense amount allocated to 10Gb ULL connectivity), with smaller 
allocations to Full Service MEO Ports (1.6%) and Limited Service MEO 
Ports (1.6%), and the remainder to the provision of other connectivity, 
other ports, transaction execution, membership services and market data 
services (39.1%). This next level of the allocation methodology at the 
individual exchange level also took into account factors similar to 
those set forth under the first step of the allocation methodology 
process described above, to determine the appropriate allocation to 
connectivity or market data versus allocations for other services. This 
allocation methodology was developed through an assessment of costs 
with senior management intimately familiar with each area of the 
Exchange's operations. After adopting this allocation methodology, the 
Exchange then applied an allocation of each cost driver to each core 
service, resulting in the cost allocations described below. Each of the 
below cost allocations is unique to the Exchange and represents a 
percentage of overall cost that was allocated to the Exchange pursuant 
to the initial allocation described above.
    By allocating segmented costs to each core service, the Exchange 
was able to estimate by core service the potential margin it might earn 
based on different fee models. The Exchange notes that as a non-listing 
venue it has five primary sources of revenue that it can potentially 
use to fund its operations: transaction fees, fees for connectivity and 
port services, membership fees, regulatory fees, and market data fees. 
Accordingly, the Exchange must cover its expenses from these five 
primary sources of revenue. The Exchange also notes that as a general 
matter each of these sources of revenue is based on services that are 
interdependent. For instance, the Exchange's system for executing 
transactions is dependent on physical hardware and connectivity; only 
Members and parties that they sponsor to participate directly on the 
Exchange may submit orders to the Exchange; many Members (but not all) 
consume market data from the Exchange in order to trade on the 
Exchange; and the Exchange consumes market data from external sources 
in order to comply with regulatory obligations. Accordingly, given this 
interdependence, the allocation of costs to each service or revenue 
source required judgment of the Exchange and was weighted based on 
estimates of the Exchange that the Exchange believes are reasonable, as 
set forth below. While there is no standardized and generally accepted 
methodology for the allocation of an exchange's costs, the Exchange's 
methodology is the result of an extensive review and analysis and will 
be consistently applied going forward for any other potential fee 
proposals. In the absence of the Commission attempting to specify a 
methodology for the allocation of exchanges' interdependent costs, the 
Exchange will continue to be left with its best efforts to attempt to 
conduct such an allocation in a thoughtful and reasonable manner.
    Through the Exchange's extensive updated Cost Analysis, which was 
again recently further refined, the Exchange analyzed every expense 
item in the Exchange's general expense ledger to determine whether each 
such expense relates to the provision of connectivity and port 
services, and, if such expense did so relate, what portion (or 
percentage) of such expense actually supports the provision of 
connectivity and port services, and thus bears a relationship that is, 
``in nature and closeness,'' directly related to network connectivity 
and port services. In turn, the Exchange allocated certain costs more 
to physical connectivity and others to ports, while certain costs were 
only allocated to such services at a very low percentage or not at all, 
using consistent allocation methodologies as described above. Based on 
this analysis, the Exchange estimates that the aggregate monthly costs 
for connectivity and ports are as follows: $532,820 for 10Gb ULL 
connectivity; $18,872 for 1Gb connectivity; $50,491 for Full Service 
MEO Ports; $50,050 for Limited Service MEO Ports; $13,178 for FIX 
Ports; $9,158 for CTD Ports; and $3,054 for FXD Ports (all calculations 
utilized the number rounded to the nearest dollar when dividing the 
annual cost for each type of connectivity or port by 12 months), as 
further detailed below.
Costs Related to Offering Physical 1Gb and 10Gb ULL Connectivity
    The following charts detail the individual line-item costs 
considered by the Exchange to be related to offering physical dedicated 
1Gb and 10Gb ULL connectivity 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 1.2% of 
its overall Human Resources cost to offering 1Gb connectivity and 34.5% 
to offering 10Gb ULL physical connectivity).

                                                1Gb Connectivity
----------------------------------------------------------------------------------------------------------------
                                                       Allocated annual    Allocated monthly
                    Cost drivers                           cost \a\            cost \b\         Percent of all
----------------------------------------------------------------------------------------------------------------
Human Resources.....................................            $125,167             $10,431                 1.2
Connectivity (external fees, cabling, switches,                      522                  44                 2.0
 etc.)..............................................
Internet Services and External Market Data..........               3,675                 306                 2.5
Data Center.........................................              12,571               1,048                 2.0
Hardware and Software Maintenance and Licenses......               9,826                 819                 2.0

[[Page 86030]]

 
Depreciation........................................              27,679               2,307                 2.3
Allocated Shared Expenses...........................              47,021               3,918                 1.7
                                                     -----------------------------------------------------------
    Total...........................................             226,461              18,872                 1.5
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.


                                              10Gb ULL Connectivity
----------------------------------------------------------------------------------------------------------------
                                                       Allocated annual    Allocated monthly
                    Cost drivers                           cost \a\            cost \b\         Percent of all
----------------------------------------------------------------------------------------------------------------
Human Resources.....................................          $3,533,950            $294,496                34.5
Connectivity (external fees, cabling, switches,                   14,741               1,228                57.7
 etc.)..............................................
Internet Services and External Market Data..........             103,750               8,646                69.8
Data Center.........................................             354,917              29,576                57.7
Hardware and Software Maintenance and Licenses......             277,415              23,118                55.9
Depreciation........................................             781,473              65,123                63.6
Allocated Shared Expenses...........................           1,327,593             110,633                  47
                                                     -----------------------------------------------------------
    Total...........................................           6,393,839             532,820                41.1
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.

    Below are additional details regarding each of the line-item costs 
considered by the Exchange to be related to offering physical 1Gb and 
10Gb ULL connectivity.
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 physical connectivity and performance thereof 
(primarily the Exchange's network infrastructure team, which spends 
most of their time performing functions necessary to provide physical 
connectivity). As described more fully above, the Exchange's parent 
company allocates costs to the Exchange and its affiliated markets and 
then a portion of the Human Resources costs allocated to the Exchange 
is then allocated to connectivity. From that portion allocated to the 
Exchange that applied to connectivity, the Exchange then allocated 
weighted averages of 49.1% for 10Gb ULL connectivity and 1.7% for 1Gb 
connectivity of each employee's time from the above group.
    The Exchange also allocated Human Resources costs to provide 
physical connectivity to a limited subset of personnel with ancillary 
functions related to establishing and maintaining such connectivity 
(such as information security, sales, membership, and finance 
personnel). The Exchange allocated cost on an employee-by-employee 
basis (i.e., only including those personnel who support functions 
related to providing physical connectivity) and then applied a smaller 
allocation to such employees' time to 10Gb ULL connectivity (18.4%) and 
a smaller allocation to 1Gb connectivity (0.6%). This other group of 
personnel with a smaller allocation of Human Resources costs also have 
a direct nexus to 10Gb ULL connectivity, whether it is a sales person 
selling a connection, finance personnel billing for connectivity or 
providing budget analysis, or information security ensuring that such 
connectivity is secure and adequately defended from an outside 
intrusion.
    The estimates of Human Resources cost were therefore determined by 
consulting with such department leaders, determining which employees 
are involved in tasks related to providing physical connectivity, and 
confirming that the proposed allocations were reasonable based on an 
understanding of the percentage of time such employees devote to those 
tasks. This includes personnel from the Exchange departments that are 
predominately involved in providing 1Gb and 10Gb ULL connectivity: 
Business Systems Development, Trading Systems Development, Systems 
Operations and Network Monitoring, Network and Data Center Operations, 
Listings, Trading Operations, and Project Management. Again, the 
Exchange allocated 49.1% for 10Gb ULL connectivity and 1.7% for 1Gb 
connectivity of each of their employee's time assigned to the Exchange 
for 10Gb ULL and 1Gb connectivity, as stated above. Employees from 
these departments perform numerous

[[Page 86031]]

functions to support 10Gb ULL connectivity, such as the installation, 
re-location, configuration, and maintenance of 10Gb ULL connections and 
the hardware they access. This hardware includes servers, routers, 
switches, firewalls, and monitoring devices. These employees also 
perform software upgrades, vulnerability assessments, remediation and 
patch installs, equipment configuration and hardening, as well as 
performance and capacity management. These employees also engage in 
research and development analysis for equipment and software supporting 
10Gb ULL connectivity and design, and support the development and on-
going maintenance of internally-developed applications as well as data 
capture and analysis, and Member and internal Exchange reports related 
to network and system performance. The above list of employee functions 
is not exhaustive of all the functions performed by Exchange employees 
to support 10Gb ULL and 1Gb connectivity, but illustrates the breadth 
of functions those employees perform in support of the above cost and 
time allocations.
    Lastly, the Exchange notes that senior level executives' time was 
only allocated to the 10Gb ULL and 1Gb connectivity related Human 
Resources costs to the extent that they are involved in overseeing 
tasks related to providing physical connectivity. The Human Resources 
cost was calculated using a blended rate of compensation reflecting 
salary, equity and bonus compensation, benefits, payroll taxes, and 
401(k) matching contributions.
Connectivity (External Fees, Cabling, Switches, etc.)
    The Connectivity cost driver includes external fees paid to connect 
to other exchanges and third parties, cabling and switches required to 
operate the Exchange. The Connectivity cost driver is more narrowly 
focused on technology used to complete connections to the Exchange and 
to connect to external markets. The Exchange notes that its 
connectivity to external markets is required in order to receive market 
data to run the Exchange's matching engine and basic operations 
compliant with existing regulations, primarily Regulation NMS.
    The Exchange relies on various connectivity providers for 
connectivity to the entire U.S. options industry, and infrastructure 
services for critical components of the network that are necessary to 
provide and maintain its System Networks and access to its System 
Networks via 1Gb and 10Gb ULL connectivity. Specifically, the Exchange 
utilizes connectivity providers to connect to other national securities 
exchanges and the Options Price Reporting Authority (``OPRA''). The 
Exchange understands that these service providers provide services to 
most, if not all, of the other U.S. exchanges and other market 
participants. Connectivity provided by these service providers is 
critical to the Exchanges daily operations and performance of its 
System Networks to which market participants connect to via 1Gb and 
10Gb ULL connectivity. Without these services providers, the Exchange 
would not be able to connect to other national securities exchanges, 
market data providers or OPRA and, therefore, would not be able to 
operate and support its System Networks. The Exchange does not employ a 
separate fee to cover its connectivity provider expense and recoups 
that expense, in part, by charging for 1Gb and 10Gb ULL connectivity.
Internet Services and External Market Data
    The next cost driver consists of internet Services and external 
market data. Internet services includes third-party service providers 
that provide the internet, fiber and bandwidth connections between the 
Exchange's networks, primary and secondary data centers, and office 
locations in Princeton, New Jersey and Miami, Florida.
    External market data includes fees paid to third parties, including 
other exchanges, to receive market data. The Exchange includes external 
market data fee costs towards the provisions of physical connectivity 
because such market data is necessary for certain services related to 
connectivity, including pre-trade risk checks and checks for other 
conditions (e.g., re-pricing of orders to avoid locked or crossed 
markets and trading collars). Since external market data from other 
exchanges is consumed at the Exchange's matching engine level, (to 
which physical connectivity provides access) in order to validate 
orders before additional orders enter the matching engine or are 
executed, the Exchange believes it is reasonable to allocate an amount 
of such costs to 1Gb and 10Gb ULL connectivity.
    The Exchange relies on various content service providers for data 
feeds for the entire U.S. options industry, as well as content for 
critical components of the network that are necessary to provide and 
maintain its System Networks and access to its System Networks via 1Gb 
and 10Gb ULL connectivity. Specifically, the Exchange utilizes content 
service providers to receive market data from OPRA, other exchanges and 
market data providers. The Exchange understands that these service 
providers provide services to most, if not all, of the other U.S. 
exchanges and other market participants. Market data provided by these 
service providers is critical to the Exchanges daily operations and 
performance of its System Networks to which market participants connect 
to via 1Gb and 10Gb ULL connectivity. Without these services providers, 
the Exchange would not be able to receive market data and, therefore, 
would not be able to operate and support its System Networks. The 
Exchange does not employ a separate fee to cover its content service 
provider expense and recoups that expense, in part, by charging for 1Gb 
and 10Gb ULL connectivity.
Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide physical connectivity in the third-party data centers 
where it maintains its equipment (such as dedicated space, security 
services, cooling and power). The Exchange notes that it does not own 
the primary data center or the secondary data center, but instead, 
leases space in data centers operated by third parties. The Exchange 
has allocated a high percentage of the total Data Center cost to 
physical 1Gb and 10Gb ULL connectivity (59.7% combined) because the 
third-party data centers and the Exchange's physical equipment 
contained therein is the most direct cost in providing physical access 
to the Exchange. In other words, for the Exchange to operate in a 
dedicated space with connectivity by market participants to a physical 
trading platform, the data centers are a very tangible cost, and in 
turn, if the Exchange did not maintain such a presence then physical 
connectivity would be of no value to market participants.
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software 
licenses used to operate and monitor physical assets necessary to offer 
physical connectivity to the Exchange. This software is necessary for 
the Exchange to operate its options trading platform in order to 
maintain premium network performance. This hardware includes servers, 
network switches, cables, optics, protocol data units, and cabinets, to 
maintain a state-of-the-art technology platform. Accordingly, the 
Exchange

[[Page 86032]]

allocated a high percentage of the total Hardware and Software 
Maintenance and License cost to physical 1Gb and 10Gb ULL connectivity 
(57.9% combined) because the hardware and software licenses are the 
most direct cost in providing physical access to the Exchange's 
platform.
Depreciation
    All physical assets, software, and hardware used to provide 1Gb and 
10Gb ULL connectivity, which also includes assets used for testing and 
monitoring of Exchange infrastructure, were valued at cost, and 
depreciated or leased over periods ranging from three to five years. 
Thus, the depreciation cost primarily relates to servers necessary to 
operate the Exchange, some of which are owned by the Exchange and some 
of which are leased by the Exchange in order to allow efficient 
periodic technology refreshes. The Exchange also included in the 
Depreciation cost driver certain budgeted improvements that the 
Exchange intends to capitalize and depreciate with respect to 1Gb and 
10Gb ULL connectivity in the near-term. As with the other allocated 
costs in the Exchange's updated Cost Analysis, the Depreciation cost 
was therefore narrowly tailored to depreciation related to 1Gb and 10Gb 
ULL connectivity. As noted above, the Exchange allocated 63.6% of its 
allocated depreciation costs to providing physical 10Gb ULL 
connectivity and 2.3% of all depreciation costs to providing 1Gb 
connectivity.
Allocated Shared Expenses
    Finally, as with other exchange products and services, a portion of 
general shared expenses was allocated to overall physical connectivity 
costs. These general shared costs are integral to exchange operations, 
including its ability to provide physical connectivity. Costs included 
in general shared expenses include office space and office expenses 
(e.g., occupancy and overhead expenses), utilities, recruiting and 
training, marketing and advertising costs, professional fees for legal, 
tax and accounting services (including external and internal audit 
expenses), and telecommunications. Similarly, the cost of paying 
directors to serve on the Exchange's Board of Directors is also 
included in the Exchange's general shared expense cost driver.\39\ 
These general shared expenses are incurred by the Exchange's parent 
company, MIH, as a direct result of operating the Exchange and its 
affiliated markets.
---------------------------------------------------------------------------

    \39\ The Exchange notes that MEMX allocated a precise amount of 
10% of the overall cost for directors to providing physical 
connectivity. See Securities Exchange Act Release No. 95936 
(September 27, 2022), 87 FR 59845 (October 3, 2022) (SR-MEMX-2022-
26). The Exchange does not calculate is expenses at that granular a 
level. Instead, director costs are included as part of the overall 
general allocation.
---------------------------------------------------------------------------

    The Exchange employed a process to determine a reasonable 
percentage to allocate general shared expenses to 1Gb and 10Gb ULL 
connectivity pursuant to its multi-layered allocation process. First, 
general expenses were allocated among the Exchange and affiliated 
markets as described above. Then, the general shared expense assigned 
to the Exchange was allocated across core services of the Exchange, 
including connectivity. Then, these costs were further allocated to 
sub-categories within the final categories, i.e., 1Gb and 10Gb ULL 
connectivity as sub-categories of connectivity. In determining the 
percentage of general shared expenses allocated to connectivity that 
ultimately apply to 1Gb and 10Gb ULL connectivity, the Exchange looked 
at the percentage allocations of each of the cost drivers and 
determined a reasonable allocation percentage. The Exchange also held 
meetings with senior management, department heads, and the Finance Team 
to determine the proper amount of the shared general expense to 
allocate to 1Gb and 10Gb ULL connectivity. The Exchange, therefore, 
believes it is reasonable to assign allocations, in the range of 
allocations for other cost drivers, while continuing to ensure that 
these expenses are only allocated once. Again, the general shared 
expenses are incurred by the Exchange's parent company as a result of 
operating the Exchange and its affiliated markets and it is therefore 
reasonable to allocate a percentage of those expenses to the Exchange 
and ultimately to specific product offerings such as 1Gb and 10Gb ULL 
connectivity.
    Again, a portion of all shared expenses were allocated to the 
Exchange (and its affiliated markets) which, in turn, allocated a 
portion of that overall allocation to all physical connectivity on the 
Exchange. The Exchange then allocated 47% of the portion allocated to 
physical connectivity to 10Gb ULL connectivity and 1.7% of the portion 
allocated to physical connectivity to 1Gb connectivity. The Exchange 
believes these allocation percentages are reasonable because, while the 
overall dollar amounts may be higher than other cost drivers, the 
percentages are based on and in line with the percentage allocations of 
each of the Exchange's other cost drivers for each provision of 
connectivity. The percentage allocated to 10Gb ULL connectivity also 
reflects its importance to the Exchange's strategy and necessity 
towards the nature of the Exchange's overall operations, which is to 
provide a resilient, highly deterministic trading system that relies on 
faster 10Gb ULL connectivity than the Exchange's competitors to 
maintain premium performance. This allocation reflects the Exchange's 
focus on providing and maintaining high performance network 
connectivity, of which 10Gb ULL connectivity is a main contributor. The 
Exchange intends to differentiate itself by offering a ``premium-
product'' network experience, as an operator of a high performance, 
ultra-low latency network with unparalleled system throughput, which 
system networks can support access to four distinct options markets and 
multiple competing market makers having affirmative obligations to 
continuously quote over 1,100,000 distinct trading products (per 
exchange), and the capacity to handle approximately 8 million quote 
messages per second. The ``premium-product'' network experience enables 
users of 10Gb ULL connections to receive the network monitoring and 
reporting services for those approximately 1,100,000 distinct trading 
products. These value add services are part of the Exchange's strategy 
for offering a high performance trading system, which utilizes 10Gb ULL 
connectivity.
    The Exchange notes that the 47% allocation of general shared 
expenses for physical 10Gb ULL connectivity is higher than that 
allocated to general shared expenses for all other types of 
connectivity and ports. This is based on its allocation methodology 
that weighted costs attributable to each core service. While physical 
connectivity has several areas where certain tangible costs are heavily 
weighted towards providing such service (e.g., Data Center, as 
described above), other types of connectivity and ports do not require 
as many broad or indirect resources as other core services.
* * * * *
Approximate Cost per 1Gb and 10Gb ULL Connection per Month
    The Exchange divided the total monthly cost for 10Gb ULL 
connectivity of $532,820 by the number of physical 10Gb ULL connections 
the Exchange anticipates maintaining upon expiration of the full length 
of the waiver period for 10Gb ULL connections at the time the proposed 
pricing was determined (40), to arrive at a cost of approximately 
$13,321 per month (rounded to the

[[Page 86033]]

nearest dollar), per physical 10Gb ULL connection.
    Similarly, the Exchange divided the total monthly cost for 1Gb 
connectivity of $18,872 by the number of physical 1Gb connections the 
Exchange anticipates maintaining upon expiration of the waiver period 
at the time the proposed pricing was determined (12), to arrive at a 
cost of approximately $1,573 per month (rounded to the nearest dollar), 
per physical 1Gb connection.
* * * * *
Costs Related to Offering Full Service MEO Ports
    The following chart details the individual line-item costs 
considered by the Exchange to be related to offering Full Service MEO 
Ports as well as the percentage of the Exchange's overall costs such 
costs represent for such area (e.g., as set forth below, the Exchange 
allocated approximately 5.1% of its overall Human Resources cost to 
offering Full Service MEO Ports).

                                             Full Service MEO Ports
----------------------------------------------------------------------------------------------------------------
                                                       Allocated annual    Allocated monthly
                    Cost drivers                           cost \a\            cost \b\         Percent of all
----------------------------------------------------------------------------------------------------------------
Human Resources.....................................            $517,369             $43,114                 5.1
Connectivity (external fees, cabling, switches,                      160                  13                 0.6
 etc.)..............................................
Internet Services and External Market Data..........                 929                  77                 0.6
Data Center.........................................               9,615                 801                 1.6
Hardware and Software Maintenance and Licenses......               3,106                 259                 0.6
Depreciation........................................              27,745               2,312                 2.3
Allocated Shared Expenses...........................              46,983               3,915                 1.7
                                                     -----------------------------------------------------------
    Total...........................................             605,907              50,491                 3.9
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.

    Below are additional details regarding each of the line-item costs 
considered by the Exchange to be related to offering Full Service MEO 
Ports.
Human Resources
    With respect to Full Service MEO Ports, the Exchange calculated 
Human Resources cost by taking an allocation of employee time for 
employees whose functions include providing Full Service MEO Ports and 
maintaining performance thereof (including a broader range of employees 
such as technical operations personnel, market operations personnel, 
and software engineering personnel) as well as a limited subset of 
personnel with ancillary functions related to maintaining such 
connectivity (such as sales, membership, and finance personnel). Just 
as described above for connectivity, the estimates of Human Resources 
cost were again determined by consulting with department leaders, 
determining which employees are involved in tasks related to providing 
Full Service MEO Ports and maintaining performance thereof, and 
confirming that the proposed allocations were reasonable based on an 
understanding of the percentage of their time such employees devote to 
tasks related to providing Full Service MEO Ports and maintaining 
performance thereof. This includes personnel from the following 
Exchange departments that are predominately involved in providing Full 
Service MEO Ports: Business Systems Development, Trading Systems 
Development, Systems Operations and Network Monitoring, Network and 
Data Center Operations, Listings, Trading Operations, and Project 
Management. The Exchange notes that senior level executives were 
allocated Human Resources costs to the extent they are involved in 
overseeing tasks specifically related to providing Full Service MEO 
Ports. Senior level executives were only allocated Human Resources 
costs to the extent that they are involved in managing personnel 
responsible for tasks integral to providing Full Service MEO Ports. The 
Human Resources cost was again calculated using a blended rate of 
compensation reflecting salary, equity and bonus compensation, 
benefits, payroll taxes, and 401(k) matching contributions.
Connectivity (External Fees, Cabling, Switches, etc.)
    The Connectivity cost driver includes external fees paid to connect 
to other exchanges and cabling and switches, as described above.
Internet Services and External Market Data
    The next cost driver consists of internet services and external 
market data. Internet services includes third-party service providers 
that provide the internet, fiber and bandwidth connections between the 
Exchange's networks, primary and secondary data centers, and office 
locations in Princeton and Miami. For purposes of Full Service MEO 
Ports, the Exchange also includes a portion of its costs related to 
external market data. External market data includes fees paid to third 
parties, including other exchanges, to receive and consume market data 
from other markets. The Exchange includes external market data costs 
towards the provision of Full Service MEO Ports because such market 
data is necessary (in addition to physical connectivity) to offer 
certain services related to such ports, such as validating orders on 
entry against the NBBO and checking for other conditions (e.g., halted 
securities).\40\ Thus, since market data from other exchanges is 
consumed at the Exchange's Full Service MEO Port level in order to 
validate orders, before additional processing occurs with respect to 
such orders, the Exchange believes it is reasonable to allocate a small 
amount of such costs to Full Service MEO Ports.
---------------------------------------------------------------------------

    \40\ The Exchange notes that MEMX separately allocated 7.5% of 
its external market data costs to providing physical connectivity. 
See Securities Exchange Act Release No. 95936 (September 27, 2022), 
87 FR 59845 (October 3, 2022) (SR-MEMX-2022-26).
---------------------------------------------------------------------------

Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide Full Service MEO Ports in the third-party data 
centers where it maintains its equipment as well as related costs for 
market data to then enter the Exchange's system via Full Service MEO 
Ports (the Exchange does not own the primary data center or

[[Page 86034]]

secondary date center, but instead leases space in data centers 
operated by third parties).
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software 
licenses used to monitor the health of the order entry services 
provided by the Exchange, as described above.
Depreciation
    The vast majority of the software the Exchange uses to provide Full 
Service MEO Ports has been developed in-house and the cost of such 
development, which takes place over an extended period of time and 
includes not just development work, but also quality assurance and 
testing to ensure the software works as intended, is depreciated over 
time once the software is activated in the production environment. 
Hardware used to provide Full Service MEO Ports includes equipment used 
for testing and monitoring of order entry infrastructure and other 
physical equipment the Exchange purchased and is also depreciated over 
time.
    All hardware and software, which also includes assets used for 
testing and monitoring of order entry infrastructure, were valued at 
cost, depreciated or leased over periods ranging from three to five 
years. Thus, the depreciation cost primarily relates to servers 
necessary to operate the Exchange, some of which is owned by the 
Exchange and some of which is leased by the Exchange in order to allow 
efficient periodic technology refreshes. The Exchange allocated 2.3% of 
all depreciation costs to providing Full Service MEO Ports. The 
Exchange allocated depreciation costs for depreciated software 
necessary to operate the Exchange to Full Service MEO Ports because 
such software is related to the provision of Full Service MEO Ports. As 
with the other allocated costs in the Exchange's updated Cost Analysis, 
the Depreciation cost driver was therefore narrowly tailored to 
depreciation related to Full Service MEO Ports.
Allocated Shared Expenses
    Finally, a portion of general shared expenses was allocated to 
overall Full Service MEO Port costs as without these general shared 
costs the Exchange would not be able to operate in the manner that it 
does and provide application sessions. The costs included in general 
shared expenses include general expenses of the Exchange, including 
office space and office expenses (e.g., occupancy and overhead 
expenses), utilities, recruiting and training, marketing and 
advertising costs, professional fees for legal, tax and accounting 
services (including external and internal audit expenses), and 
telecommunications costs. The Exchange again notes that the cost of 
paying directors to serve on its Board of Directors is included in the 
calculation of Allocated Shared Expenses, and thus a portion of such 
overall cost amounting to less than 4% of the overall cost for 
directors was allocated to providing Full Service MEO Ports. The 
Exchange notes that the 1.7% allocation of general shared expenses for 
Full Service MEO Ports is lower than that allocated to general shared 
expenses for physical connectivity based on its allocation methodology 
that weighted costs attributable to each Core Service based on an 
understanding of each area. While Full Service MEO Ports have several 
areas where certain tangible costs are heavily weighted towards 
providing such service (e.g., data centers, as described above), 10Gb 
ULL connectivity requires a broader level of support from Exchange 
personnel in different areas, which in turn leads to a broader general 
level of cost to the Exchange.
* * * * *
Approximate Cost per Full Service MEO Port per Month
    The Exchange divided the total monthly cost for Full Service MEO 
Ports of $50,491 by the number of Full Service MEO Ports the Exchange 
anticipates maintaining upon expiration of the Initial Waiver Period at 
the time the proposed pricing was determined (112), to arrive at a cost 
of approximately $451 per month (rounded to the nearest dollar), per 
Full Service MEO Port.
* * * * *
Costs Related to Offering Limited Service MEO Ports
    The following chart details the individual line-item costs 
considered by the Exchange to be related to offering Limited Service 
MEO Ports as well as the percentage of the Exchange's overall costs 
such costs represent for such area (e.g., as set forth below, the 
Exchange allocated approximately 5% of its overall Human Resources cost 
to offering Limited Service MEO Ports).

                                            Limited Service MEO Ports
----------------------------------------------------------------------------------------------------------------
                                                       Allocated annual    Allocated monthly
                    Cost drivers                           cost \a\            cost \b\         Percent of all
----------------------------------------------------------------------------------------------------------------
Human Resources.....................................            $512,844             $42,737                   5
Connectivity (external fees, cabling, switches,                      158                  13                 0.6
 etc.)..............................................
Internet Services and External Market Data..........                 921                  77                 0.6
Data Center.........................................               9,531                 794                 1.6
Hardware and Software Maintenance and Licenses......               3,079                 256                 0.6
Depreciation........................................              27,503               2,292                 2.2
Allocated Shared Expenses...........................              46,572               3,881                 1.7
                                                     -----------------------------------------------------------
    Total...........................................             600,608              50,050                 3.9
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.

    Below are additional details regarding each of the line-item costs 
considered by the Exchange to be related to offering Limited Service 
MEO Ports.
Human Resources
    With respect to Limited Service MEO Ports, the Exchange calculated 
Human Resources cost by taking an allocation of employee time for 
employees whose functions include providing Limited Service MEO Ports 
and maintaining performance thereof (including a broader range of 
employees such as technical operations personnel, market operations 
personnel, and software engineering personnel) as well as a

[[Page 86035]]

limited subset of personnel with ancillary functions related to 
maintaining such connectivity (such as sales, membership, and finance 
personnel). Just as described above for connectivity, the estimates of 
Human Resources cost were again determined by consulting with 
department leaders, determining which employees are involved in tasks 
related to providing Limited Service MEO Ports and maintaining 
performance thereof, and confirming that the proposed allocations were 
reasonable based on an understanding of the percentage of their time 
such employees devote to tasks related to providing Limited Service MEO 
Ports and maintaining performance thereof. This includes personnel from 
the following Exchange departments that are predominately involved in 
providing Limited Service MEO Ports: Business Systems Development, 
Trading Systems Development, Systems Operations and Network Monitoring, 
Network and Data Center Operations, Listings, Trading Operations, and 
Project Management. The Exchange notes that senior level executives 
were allocated Human Resources costs to the extent they are involved in 
overseeing tasks specifically related to providing Limited Service MEO 
Ports. Senior level executives were only allocated Human Resources 
costs to the extent that they are involved in managing personnel 
responsible for tasks integral to providing and maintaining Limited 
Service MEO Ports. The Human Resources cost was again calculated using 
a blended rate of compensation reflecting salary, equity and bonus 
compensation, benefits, payroll taxes, and 401(k) matching 
contributions.
Connectivity (External Fees, Cabling, Switches, etc.)
    The Connectivity cost includes external fees paid to connect to 
other exchanges and cabling and switches, as described above.
Internet Services and External Market Data
    The next cost driver consists of internet services and external 
market data. Internet services includes third-party service providers 
that provide the internet, fiber and bandwidth connections between the 
Exchange's networks, primary and secondary data centers, and office 
locations in Princeton and Miami. For purposes of Limited Service MEO 
Ports, the Exchange also includes a portion of its costs related to 
external market data. External market data includes fees paid to third 
parties, including other exchanges, to receive and consume market data 
from other markets. The Exchange includes external market data costs 
towards the provision of Limited Service MEO Ports because such market 
data is necessary (in addition to physical connectivity) to offer 
certain services related to such ports, such as validating orders on 
entry against the NBBO and checking for other conditions (e.g., halted 
securities).\41\ Thus, since market data from other exchanges is 
consumed at the Exchange's Limited Service MEO Port level in order to 
validate orders, before additional processing occurs with respect to 
such orders, the Exchange believes it is reasonable to allocate a small 
amount of such costs to Limited Service MEI MEO.
---------------------------------------------------------------------------

    \41\ The Exchange notes that MEMX separately allocated 7.5% of 
its external market data costs to providing physical connectivity. 
See Securities Exchange Act Release No. 95936 (September 27, 2022), 
87 FR 59845 (October 3, 2022) (SR-MEMX-2022-26).
---------------------------------------------------------------------------

Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide Limited Service MEO Ports in the third-party data 
centers where it maintains its equipment as well as related costs for 
market data to then enter the Exchange's System via Limited Service MEO 
Ports (the Exchange does not own the primary data center or the 
secondary data center, but instead leases space in data centers 
operated by third parties).
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software 
licenses used to monitor the health of the order entry services 
provided by the Exchange, as described above.
Depreciation
    The vast majority of the software the Exchange uses to provide 
Limited Service MEO Ports has been developed in-house and the cost of 
such development, which takes place over an extended period of time and 
includes not just development work, but also quality assurance and 
testing to ensure the software works as intended, is depreciated over 
time once the software is activated in the production environment. 
Hardware used to provide Limited Service MEO Ports includes equipment 
used for testing and monitoring of order entry infrastructure and other 
physical equipment the Exchange purchased and is also depreciated over 
time.
    All hardware and software, which also includes assets used for 
testing and monitoring of order entry infrastructure, were valued at 
cost, depreciated or leased over periods ranging from three to five 
years. Thus, the depreciation cost primarily relates to servers 
necessary to operate the Exchange, some of which is owned by the 
Exchange and some of which is leased by the Exchange in order to allow 
efficient periodic technology refreshes. The Exchange allocated 2.2% of 
all depreciation costs to providing Limited Service MEO Ports. The 
Exchange allocated depreciation costs for depreciated software 
necessary to operate the Exchange because such software is related to 
the provision of Limited Service MEO Ports. As with the other allocated 
costs in the Exchange's updated Cost Analysis, the Depreciation cost 
driver was therefore narrowly tailored to depreciation related to 
Limited Service MEO Ports.
Allocated Shared Expenses
    Finally, a portion of general shared expenses was allocated to 
overall Limited Service MEO Port costs as without these general shared 
costs the Exchange would not be able to operate in the manner that it 
does and provide Limited Service MEO Ports. The costs included in 
general shared expenses include general expenses of the Exchange, 
including office space and office expenses (e.g., occupancy and 
overhead expenses), utilities, recruiting and training, marketing and 
advertising costs, professional fees for legal, tax and accounting 
services (including external and internal audit expenses), and 
telecommunications costs. The Exchange again notes that the cost of 
paying directors to serve on its Board of Directors is included in the 
calculation of Allocated Shared Expenses, and thus a portion of such 
overall cost amounting to less than 4% of the overall cost for 
directors was allocated to providing Limited Service MEO Ports. The 
Exchange notes that the 1.7% allocation of general shared expenses for 
Limited Service MEO Ports is lower than that allocated to general 
shared expenses for physical connectivity based on its allocation 
methodology that weighted costs attributable to each Core Service based 
on an understanding of each area. While Limited Service MEO Ports have 
several areas where certain tangible costs are heavily weighted towards 
providing such service (e.g., data center, as described above), Limited 
Service MEO Ports require a broader level of support from Exchange 
personnel in different areas, which in turn leads to a

[[Page 86036]]

broader general level of cost to the Exchange.
* * * * *
Approximate Cost per Limited Service MEO Port per Month
    The Exchange divided the total monthly cost for Limited Service MEO 
Ports of $50,050 by the number of Limited Service MEO Ports the 
Exchange anticipates maintaining upon expiration of the Initial Waiver 
Period at the time the proposed pricing was determined (208, for 
charged ports, without the cap on the number of Limited Service MEO 
Ports), to arrive at a cost of approximately $241 per month (rounded to 
the nearest dollar), per Limited Service MEO Port.
* * * * *
Costs Related to Offering FIX, CTD and FXD Ports
    The following charts detail the individual line-item costs 
considered by the Exchange to be related to offering FIX, CTD and FXD 
Ports as well as the percentage of the Exchange's overall costs such 
costs represent for such area (e.g., as set forth below, the Exchange 
allocated approximately 1.3%, 0.9%, and 0.3% of its overall Human 
Resources cost to offering FIX Ports, CTD Ports, and FXD Ports, 
respectively).

                                                    FIX Ports
----------------------------------------------------------------------------------------------------------------
                                                          Allocated annual  Allocated monthly
                      Cost drivers                            cost \a\           cost \b\        Percent of all
----------------------------------------------------------------------------------------------------------------
Human Resources........................................           $135,037            $11,253                1.3
Connectivity (external fees, cabling, switches, etc.)..                 42                  4                0.2
Internet Services and External Market Data.............                243                 20                0.2
Data Center............................................              2,510                209                0.4
Hardware and Software Maintenance and Licenses.........                811                 66                0.2
Depreciation...........................................              7,242                604                0.6
Allocated Shared Expenses..............................             12,263              1,022                0.4
                                                        --------------------------------------------------------
    Total..............................................            158,148             13,178                  1
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.


                                                    CTD Ports
----------------------------------------------------------------------------------------------------------------
                                                          Allocated annual  Allocated monthly
                      Cost drivers                            cost \a\           cost \b\        Percent of all
----------------------------------------------------------------------------------------------------------------
Human Resources........................................            $93,848             $7,821                0.9
Connectivity (external fees, cabling, switches, etc.)..                 29                  2                0.1
Internet Services and External Market Data.............                169                 14                0.1
Data Center............................................              1,744                145                0.3
Hardware and Software Maintenance and Licenses.........                563                 47                0.1
Depreciation...........................................              5,033                419                0.4
Allocated Shared Expenses..............................              8,522                710                0.3
                                                        --------------------------------------------------------
    Total..............................................            109,908              9,158                0.7
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.


                                                    FXD Ports
----------------------------------------------------------------------------------------------------------------
                                                          Allocated annual  Allocated monthly
                      Cost drivers                            cost \a\           cost \b\        Percent of all
----------------------------------------------------------------------------------------------------------------
Human Resources........................................            $31,283             $2,607                0.3
Connectivity (external fees, cabling, switches, etc.)..                 10                  1               0.04
Internet Services and External Market Data.............                 56                  5               0.04
Data Center............................................                581                 48                0.1
Hardware and Software Maintenance and Licenses.........                188                 16               0.04
Depreciation...........................................              1,678                140                0.1
Allocated Shared Expenses..............................              2,841                237                0.1
                                                        --------------------------------------------------------
    Total..............................................             36,637              3,054                0.2
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.


[[Page 86037]]

    Below are additional details regarding each of the line-item costs 
considered by the Exchange to be related to offering FIX, CTD and FXD 
Ports.
Human Resources
    With respect to FIX, CTD and FXD Ports, the Exchange calculated 
Human Resources cost by taking an allocation of employee time for 
employees whose functions include providing FIX, CTD and FXD Ports and 
maintaining performance thereof (including a broader range of employees 
such as technical operations personnel, market operations personnel, 
and software engineering personnel) as well as a limited subset of 
personnel with ancillary functions related to maintaining such 
connectivity (such as sales, membership, and finance personnel). Just 
as described above for connectivity, the estimates of Human Resources 
cost were again determined by consulting with department leaders, 
determining which employees are involved in tasks related to providing 
FIX, CTD and FXD Ports and maintaining performance thereof, and 
confirming that the proposed allocations were reasonable based on an 
understanding of the percentage of their time such employees devote to 
tasks related to providing FIX, CTD and FXD Ports and maintaining 
performance thereof. This includes personnel from the following 
Exchange departments that are predominately involved in providing FIX, 
CTD and FXD Ports: Business Systems Development, Trading Systems 
Development, Systems Operations and Network Monitoring, Network and 
Data Center Operations, Listings, Trading Operations, and Project 
Management. The Exchange notes that senior level executives were 
allocated Human Resources costs to the extent they are involved in 
overseeing tasks specifically related to providing FIX, CTD and FXD 
Ports. Senior level executives were only allocated Human Resources 
costs to the extent that they are involved in managing personnel 
responsible for tasks integral to providing and maintaining FIX, CTD 
and FXD Ports. The Human Resources cost was again calculated using a 
blended rate of compensation reflecting salary, equity and bonus 
compensation, benefits, payroll taxes, and 401(k) matching 
contributions.
    Lastly, the Exchange notes that the Human Resource allocations for 
Full Service MEO Ports and Limited Service MEO Ports are greater than 
the Human Resource allocations for FIX, CTD and FXD Ports. For its 
Human Resource cost driver, the Exchange allocated 5.1% to Full Service 
MEO Ports, 5% to Limited Service MEO Ports, 1.3% to FIX Ports, 0.9% to 
CTD Ports, and 0.3% to FXD Ports. This is because the MEO interface is 
a customized binary interface that the Exchange developed in-house and 
maintains on its own. The FIX interface is the industry standard for 
simple order entry which requires less development, maintenance, and 
support than the MEO interface. Likewise, the CTD and FXD interfaces 
only provide information concerning clearing trade updates and trade 
execution, respectively, which also require less development, 
maintenance and support than the MEO interface. The MEO interface is 
performance oriented and designed to meet the needs of more latency 
sensitive Members. Due to the in-house development of the MEO 
interface, the Exchange was required to expend more internal personnel 
to support the MEO interface than the FIX, CTD or FXD interfaces. 
Because of the materially higher cost associated with maintaining and 
supporting MEO Ports (Full Service and Limited Service) versus FIX, CTD 
and FXD Ports, the Exchange allocates a materially higher percentage of 
Human Resource expense to MEO Ports versus FIX, CTD and FXD Ports.
Connectivity (external fees, cabling, switches, etc.)
    The Connectivity cost includes external fees paid to connect to 
other exchanges and cabling and switches, as described above.
Internet Services and External Market Data
    The next cost driver consists of internet services and external 
market data. Internet services includes third-party service providers 
that provide the internet, fiber and bandwidth connections between the 
Exchange's networks, primary and secondary data centers, and office 
locations in Princeton and Miami. For purposes of FIX, CTD and FXD 
Ports, the Exchange also includes a portion of its costs related to 
external market data. External market data includes fees paid to third 
parties, including other exchanges, to receive and consume market data 
from other markets. The Exchange includes external market data costs 
towards the provision of FIX, CTD and FXD Ports because such market 
data is necessary (in addition to physical connectivity) to offer 
certain services related to such ports, such as validating orders on 
entry against the NBBO and checking for other conditions (e.g., halted 
securities).\42\ Thus, as market data from other exchanges is consumed 
at the port level in order to validate orders before additional 
processing occurs with respect to such orders, the Exchange believes it 
is reasonable to allocate a small amount of such costs to FIX, CTD and 
FXD Ports.
---------------------------------------------------------------------------

    \42\ The Exchange notes that MEMX separately allocated 7.5% of 
its external market data costs to providing physical connectivity. 
See Securities Exchange Act Release No. 95936 (September 27, 2022), 
87 FR 59845 (October 3, 2022) (SR-MEMX-2022-26).
---------------------------------------------------------------------------

Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide physical connectivity in the third-party data centers 
where it maintains its equipment as well as related costs for market 
data to then enter the Exchange's System via FIX, CTD and FXD Ports 
(the Exchange does not own the primary data center or the secondary 
data center, but instead leases space in data centers operated by third 
parties).
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software 
licenses used to monitor the health of the order entry services 
provided by the Exchange, as described above.
Depreciation
    The vast majority of the software the Exchange uses to provide FIX, 
CTD and FXD Ports has been developed in-house and the cost of such 
development, which takes place over an extended period of time and 
includes not just development work, but also quality assurance and 
testing to ensure the software works as intended, is depreciated over 
time once the software is activated in the production environment. 
Hardware used to provide FIX, CTD and FXD 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 0.6%, 
0.4% and 0.1% of all depreciation costs to providing FIX, CTD and FXD 
Ports, respectively. The Exchange allocated depreciation costs

[[Page 86038]]

for depreciated software necessary to operate the Exchange because such 
software is related to the provision of FIX, CTD and FXD 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 FIX, CTD and FXD Ports.
    Lastly, the Exchange notes that the Depreciation allocations for 
MEO Ports (Full Service and Limited Service) are greater than the 
Depreciation allocations for FIX, CTD and FXD Ports. For its 
Depreciation cost driver, the Exchange allocated 2.3% to Full Service 
MEO Ports, 2.2% to Limited Service MEO Ports, 0.6% to FIX Ports, 0.4% 
to CTD Ports, and 0.1% to FXD Ports. As discussed above, this is 
because the MEO interface is a customized binary interface that the 
Exchange developed in-house and maintains on its own. The FIX interface 
is the industry standard for simple order entry which requires less 
development, maintenance, and support than the MEO interface. Likewise, 
the CTD and FXD interfaces only provide information concerning clearing 
trade updates and trade execution, respectively, which also require 
less development, maintenance and support than the MEO interface. The 
Exchange maintains more dedicated hardware per port for the MEO 
interface compared to the FIX, CTD and FXD interfaces. As a result, the 
MEO interface is supported by more dedicated in-house hardware and 
software than the FIX, CTD and FXD interfaces that is subject to 
depreciation. Thus, there is a greater amount of equipment supporting 
the MEO interface than the FIX, CTD and FXD interfaces, resulting in 
higher depreciation costs.
Allocated Shared Expenses
    Finally, a portion of general shared expenses was allocated to 
overall FIX, CTD and FXD Port costs as without these general shared 
costs the Exchange would not be able to operate in the manner that it 
does and provide FIX, CTD and FXD Ports. The costs included in general 
shared expenses include general expenses of the Exchange, including 
office space and office expenses (e.g., occupancy and overhead 
expenses), utilities, recruiting and training, marketing and 
advertising costs, professional fees for legal, tax and accounting 
services (including external and internal audit expenses), and 
telecommunications costs. The Exchange again notes that the cost of 
paying directors to serve on its Board of Directors is included in the 
calculation of Allocated Shared Expenses, and thus a portion of such 
overall cost amounting to less than 2% of the overall cost for 
directors was allocated to providing FIX, CTD and FXD Ports. The 
Exchange notes that the 0.4%, 0.3% and 0.1% allocations of general 
shared expenses for FIX, CTD and FXD Ports, respectively, are lower 
than that allocated to general shared expenses for physical 
connectivity based on its allocation methodology that weighted costs 
attributable to each Core Service based on an understanding of each 
area. While MEO Ports (Full Service and Limited Service) have several 
areas where certain tangible costs are heavily weighted towards 
providing such service (e.g., data center, as described above), FIX, 
CTD and FXD Ports 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 notes that the Allocated Shared Expense 
allocations for MEO Ports (Full Service and Limited Service) are 
greater than the same allocations for FIX, CTD and FXD Ports. For its 
Allocated Shared Expense cost driver, the Exchange allocated 1.7% to 
Full Service MEO Ports, 1.7% to Limited Service MEO Ports, 0.4% to FIX 
Ports, 0.3% to CTD Ports, and 0.1% to FXD Ports. As discussed above, 
this is because the MEO interface is a customized binary interface that 
the Exchange developed in-house and maintains on its own. The FIX 
interface is the industry standard for simple order entry which 
requires less development, maintenance, and support than the MEO 
interface. Likewise, the CTD and FXD interfaces only provide 
information concerning clearing trade updates and trade execution, 
respectively, which also require less development, maintenance and 
support than the MEO interface. The FIX interface is the industry 
standard for simple order entry which requires less development, 
maintenance, and support than the MEO interface. The MEO interface is 
performance oriented and designed to meet the needs of more latency 
sensitive Members. This required more internal personnel and resources 
to support than the FIX, CTD and FXD interfaces. Because of the 
materially higher cost associated with maintaining and supporting MEO 
Ports versus FIX, CTD and FXD Ports, the Exchange allocates a 
materially higher percentage of Allocated Shared expense to MEO Ports 
versus FIX, CTD and FXD Ports, which are less complex, standardized 
solutions.
Approximate Cost Per FIX, CTD and FXD Port Per Month
    The Exchange divided the total monthly cost for FIX Ports of 
$13,178 by the number of FIX Ports the Exchange anticipates maintaining 
upon expiration of the Initial Waiver Period at the time the proposed 
pricing was determined (25), to arrive at a cost of approximately $527 
per month (rounded to the nearest dollar), per FIX Port.
    Similarly, the Exchange divided the total monthly cost for CTD 
Ports of $9,158 by the number of CTD Ports the Exchange anticipates 
maintaining upon expiration of the Initial Waiver Period at the time 
the proposed pricing was determined (10), to arrive at a cost of 
approximately $916 per month (rounded to the nearest dollar), per CTD 
Port.
    Finally, the Exchange divided the total monthly cost for FXD Ports 
of $3,054 by the number of FXD Ports the Exchange anticipates 
maintaining upon expiration of the Initial Waiver Period at the time 
the proposed pricing was determined (6), to arrive at a cost of 
approximately $509 per month (rounded to the nearest dollar), per FXD 
Port.
* * * * *
Cost Analysis--Additional Discussion
    In conducting its Cost Analysis, the Exchange did not allocate any 
of its expenses in full to any core services (including physical 
connectivity or ports) and did not double-count any expenses. Instead, 
as described above, the Exchange allocated applicable cost drivers 
across its core services and used the same Cost Analysis to form the 
basis of this proposal and the separate filings the Exchange submitted 
(or plans to submit) proposing fees for proprietary market data feeds 
offered by the Exchange, as well as for Purge Ports. For instance, in 
calculating the Human Resources expenses to be allocated to physical 
connections based upon the above described methodology, the Exchange 
has a team of employees dedicated to network infrastructure and with 
respect to such employees the Exchange allocated network infrastructure 
personnel with a high percentage of the cost of such personnel (49.1%) 
given their focus on functions necessary to provide 10Gb ULL physical 
connections. The salaries of those same personnel were allocated only 
6.8% to Full Service MEO Ports and 6.7% to Limited Service MEO Ports 
and the remaining 37.4% was allocated to 1Gb connectivity, other port 
services, transaction services, membership services and market data. 
The Exchange

[[Page 86039]]

did not allocate any other Human Resources expense for providing 
physical connections to any other employee group, outside of a smaller 
allocation of 18.4% for 10Gb ULL connectivity or 19.7% for the entire 
network (i.e., 18.4% for 10Gb ULL, 0.7% for Test Bed Connectivity, and 
0.6% for 1Gb for a total of 19.7%), of the cost associated with certain 
specified personnel who work closely with and support network 
infrastructure personnel. In contrast, the Exchange allocated much 
smaller percentages of costs (3.1% for Full Service MEO Ports and 0.6% 
for Limited Service MEO Ports) across a wider range of personnel groups 
in order to allocate Human Resources costs to providing Full Service 
MEO Ports and Limited Service MEO Ports (0.2% for FIX Ports, 0.1% for 
CTD Ports, and 0.04% for FXD Ports). This is because a much wider range 
of personnel are involved in functions necessary to offer, monitor and 
maintain Full Service MEO Ports and Limited Service MEO Ports but the 
tasks necessary to do so are not a primary or full-time function.
    In total, the Exchange allocated 35.7% of its personnel costs to 
providing 10Gb ULL and 1Gb ULL connectivity, 5.1% of its personnel 
costs to providing Full Service MEO Ports, 5% of its personnel costs to 
providing Limited Service MEO Ports, 1.3% of its personnel costs to 
providing FIX Ports, 0.9% of its personnel costs to providing CTD 
Ports, and 0.3% of its personnel costs to providing FXD Ports, for a 
total allocation of 48.3% Human Resources expense to provide these 
specific connectivity and port services. In turn, the Exchange 
allocated the remaining 51.7% of its Human Resources expense to 
membership services, transaction services, other port services and 
market data. Thus, again, the Exchange's allocations of cost across 
core services were based on real costs of operating the Exchange and 
were not double-counted across the core services or their associated 
revenue streams.
    As another example, the Exchange allocated depreciation expense to 
all core services, including physical connections and ports, but in 
different amounts. The Exchange believes it is reasonable to allocate 
the identified portion of such expense because such expense includes 
the actual cost of the computer equipment, such as dedicated servers, 
computers, laptops, monitors, information security appliances and 
storage, and network switching infrastructure equipment, including 
switches and taps that were purchased to operate and support the 
network. Without this equipment, the Exchange would not be able to 
operate the network and provide connectivity and port services to its 
Members and non-Members and their customers. However, the Exchange did 
not allocate all of the depreciation and amortization expense toward 
the cost of providing connectivity services, but instead allocated 
approximately 65.9% of the Exchange's overall depreciation and 
amortization expense to connectivity services (63.6% attributed to 10Gb 
ULL physical connections, 2.3% to 1Gb physical connections, and 5.6% 
attributed to Full Service MEO Ports, Limited Service MEO Ports, FIX 
Ports, CTD Ports, and FXD Ports, combined). The Exchange allocated the 
remaining depreciation and amortization expense (approximately 28.5%) 
toward the cost of providing transaction services, membership services, 
other port services, and market data.
    The Exchange notes that its revenue estimates are based on 
projections across all potential revenue streams and will only be 
realized to the extent such revenue streams actually produce the 
revenue estimated once the waiver periods expire for each applicable 
proposed fee. The Exchange does not yet know whether such expectations 
will be realized. For instance, in order to generate the revenue 
expected from connectivity, the Exchange will have to be successful in 
retaining existing clients that wish to maintain physical connectivity 
and/or ports or in obtaining new clients that will purchase such 
services. Similarly, the Exchange will have to be successful in 
retaining a positive net capture on transaction fees in order to 
realize the anticipated revenue from transaction pricing.
    The Exchange notes that personnel began to plan for and develop the 
Exchange beginning in early 2023, and costs included in this Cost 
Analysis are related to the development and buildout of the Exchange 
since that time. During the Exchange's development and buildout that 
occurred throughout 2023 and continues to today, the Exchange routinely 
studied its aggregate costs to provide connectivity and port services, 
which were used to determine the proposed pricing for the provisions of 
connectivity and port services that are part of the Exchange's Cost 
Analysis, including projections. It is possible, however, that actual 
costs may be higher or lower. To the extent the Exchange sees growth in 
use of connectivity or port services it will receive additional revenue 
to offset future cost increases. However, if use of connectivity or 
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 then-current fees are 
becoming dislocated from the prior cost-based analysis) and would 
propose to increase fees in the event that revenues fail to cover its 
costs and a reasonable mark-up, or decrease fees in the event that 
revenue or the mark-up materially exceeds our current projections. In 
the event that the Exchange determines to propose a fee change, the 
results of a timely review, including an updated cost estimate, will be 
included in the rule filing proposing the fee change. More generally, 
the Exchange believes that it is appropriate for an exchange to refresh 
and update information about its relevant costs and revenues in seeking 
any future changes to fees, and the Exchange commits to do so.
Projected Revenue
    The proposed fees will allow the Exchange to cover certain costs 
incurred by the Exchange associated with providing and maintaining 
necessary hardware and other network infrastructure as well as network 
monitoring and support services; without such hardware, infrastructure, 
monitoring and support the Exchange would be unable to provide the 
connectivity and port services. Much of the cost relates to monitoring 
and analysis of data and performance of the network via the 
subscriber's connection(s). The above costs, 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

[[Page 86040]]

network is a significant expense for the Exchange, and thus the 
Exchange believes that it is reasonable and appropriate to help offset 
those costs by amending fees for connectivity services. Subscribers, 
particularly those of 10Gb ULL connectivity, expect the Exchange to 
provide this level of support to connectivity so they continue to 
receive the performance they expect. This differentiates the Exchange 
from its competitors. As detailed above, the Exchange has five primary 
sources of revenue that it can potentially use to fund its operations: 
transaction fees, fees for connectivity services, membership and 
regulatory fees, and market data fees. Accordingly, the Exchange must 
cover its expenses from these five primary sources of revenue.
    All revenue projections are based upon an annual return for each of 
the proposed fees once the relevant waiver periods expire.
    The Exchange's Cost Analysis estimates the annual cost to provide 
1Gb connectivity services will equal $226,461. Based on projected 1Gb 
connectivity services usage, the Exchange would generate annual revenue 
of approximately $241,200. The Exchange believes this represents a 
modest profit of 6.1% when compared to the cost of providing 1Gb 
connectivity services.
    The Exchange's Cost Analysis estimates the annual cost to provide 
10Gb ULL connectivity services will equal $6,393,839. Based on 
projected 10Gb ULL connectivity services usage, the Exchange would 
generate annual revenue of approximately $6,810,000. The Exchange 
believes this represents a modest profit of 6.1% when compared to the 
cost of providing 10Gb connectivity services.
    The Exchange's Cost Analysis estimates the annual cost to provide 
Full Service MEO Port services will equal $605,907. Based on projected 
Full Service MEO Port service usage, the Exchange would generate annual 
revenue of approximately $399,000. The Exchange believes this 
represents a loss of 51.9% when compared to the cost of providing Full 
Service MEO Port services.
    The Exchange's Cost Analysis estimates the annual cost to provide 
Limited Service MEO Port services will equal $600,608. Since launch, 
taking into account the proposal to remove the cap on the number of 
Limited Service MEO Ports available and based on projected Limited 
Service MEO Port service usage, the Exchange would generate annual 
revenue of approximately $624,000. The Exchange believes this 
represents a modest profit of 3.7% for providing Limited Service MEO 
Port services.
    The Exchange's Cost Analysis estimates the annual cost to provide 
FIX Port services will equal $158,148. Based on projected FIX Port 
service usage, the Exchange would generate annual revenue of 
approximately $77,700. The Exchange estimates that its costs to provide 
FIX Port services will exceed its revenues by 103.5%.
    The Exchange's Cost Analysis estimates the annual cost to provide 
CTD Port services will equal $109,908. Based on projected CTD Port 
service usage, the Exchange would generate annual revenue of 
approximately $54,000. The Exchange estimates that its costs to provide 
CTD Port services will exceed its revenues by 103.5%.
    The Exchange's Cost Analysis estimates the annual cost to provide 
FXD Port services will equal $36,637. Based on projected FXD Port 
service usage, the Exchange would generate annual revenue of 
approximately $18,000. The Exchange estimates that its costs FXD Port 
services will exceed its revenues by 103.5%.
    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 each of the proposed connectivity and port 
services versus the total projected revenue of the Exchange associated 
with connectivity and port services. The Exchange's affiliated options 
markets recently filed to raise certain connectivity and port fees to 
the same, or similar, rates as proposed herein and those filings were 
not suspended by the Commission.\43\
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    \43\ See Securities Exchange Act Release Nos. 99822 (March 21, 
2024), 89 FR 21337 (March 27, 2024) (SR-MIAX-2024-16) (raising 
monthly 10Gb ULL connectivity fee to $13,500 per connection and 
raising fee for Limited Service MEI Ports to $275 per month per 
port); 99823 (March 21, 2024), 89 FR 21312 (March 27, 2024) (SR-
PEARL-2024-14) (raising monthly 10Gb ULL connectivity fee to $13,500 
per connection and establishing tiered fees for Full Service MEO 
Ports ranging from $5,000 to $12,000 per month); and 99824 (March 
21, 2024), 89 FR 21379 (March 27, 2024) (SR-EMERALD-2024-12) 
(raising monthly 10Gb ULL connectivity fee to $13,500 per connection 
and raising fee for Limited Service MEI Ports to $420 per month per 
port).
---------------------------------------------------------------------------

* * * * *
    The Exchange notes that its revenue estimate is based on 
projections and will only be realized to the extent customer activity 
produces the revenue estimated. As a competitor in the hyper-
competitive exchange environment, and an exchange focused on driving 
competition, the Exchange does not yet know whether such projections 
will be realized. For instance, in order to generate the revenue 
expected from 10Gb ULL connectivity and Ports, the Exchange will have 
to be successful in retaining existing clients that wish to utilize 
10Gb ULL connectivity and Ports and/or obtaining new clients that will 
purchase such access. To the extent the Exchange is successful in 
encouraging new clients to utilize 10Gb ULL connectivity and Ports, the 
Exchange does not believe it should be penalized for such success. To 
the extent the Exchange has mispriced and experiences a net loss in 
connectivity clients or in transaction activity, the Exchange could 
experience a net reduction in revenue. While the Exchange is supportive 
of transparency around costs and potential margins (applied across all 
exchanges), as well as periodic review of revenues and applicable costs 
(as discussed below), the Exchange does not believe that these 
estimates should form the sole basis of whether or not a proposed fee 
is reasonable or can be adopted. Instead, the Exchange believes that 
the information should be used solely to confirm that an Exchange is 
not earning--or seeking to earn--supra-competitive profits. The 
Exchange believes the Cost Analysis and related projections in this 
filing demonstrate this fact.
    The Exchange is owned by a holding company that is the parent 
company of five exchange markets and, therefore, the Exchange and its 
affiliated markets must allocate shared costs across all of those 
markets accordingly, pursuant to the above-described allocation 
methodology. In contrast, the IEX, which currently operates only one 
exchange, and MEMX, which just started operating two exchanges, in 
their recent non-transaction fee filings allocate the entire amount of 
that same cost to a single exchange. This can result in lower profit 
margins for the non-transaction fees established by IEX and MEMX 
because the single allocated cost does not experience the efficiencies 
and synergies that result from sharing costs across multiple exchanges. 
The Exchange and its affiliated markets often share a single cost, 
which results in cost efficiencies that can cause a broader gap between 
the allocated cost amount and projected revenue, even though the fee 
levels being proposed are lower or competitive with competing markets 
(as described above). To the extent that the application of a cost-
based standard

[[Page 86041]]

results in Commission Staff making determinations as to the 
appropriateness of certain profit margins, the Exchange believes that 
Commission Staff should also consider whether the proposed fee level is 
comparable to, or competitive with, the same fee charged by competing 
exchanges and how different cost allocation methodologies (such as 
across multiple markets) may result in different profit margins for 
comparable fee levels. Further, if Commission Staff is making 
determinations as to appropriate profit margins in their approval of 
exchange fees, the Exchange believes that the Commission should be 
clear to all market participants as to what they have determined is an 
appropriate profit margin and should apply such determinations 
consistently and, in the case of certain legacy exchanges, 
retroactively, if such standards are to avoid having a discriminatory 
effect.
    Further, as is reflected in the proposal, the Exchange continuously 
and aggressively works to control its costs as a matter of good 
business practice. A potential profit margin should not be evaluated 
solely on its size; that assessment should also consider cost 
management and whether the ultimate fee reflects the value of the 
services provided. For example, a profit margin on one exchange should 
not be deemed excessive where that exchange has been successful in 
controlling its costs, but not excessive on another exchange where that 
exchange is charging comparable fees but has a lower profit margin due 
to higher costs. Doing so could have the perverse effect of not 
incentivizing cost control where higher costs alone could be used to 
justify fees increases.
The Proposed Pricing Is Not Unfairly Discriminatory and Provides for 
the Equitable Allocation of Fees, Dues, and Other Charges
    The Exchange believes that the proposed fees for connectivity and 
ports are reasonable, fair, equitable, and not unfairly discriminatory 
because they are designed to align fees with services provided and will 
apply equally to all subscribers.
Connectivity
    The Exchange believes that the proposed fees are equitably 
allocated among anticipated users of the network connectivity and port 
alternatives, as the Exchange expects that users of 10Gb ULL 
connections will consume substantially more bandwidth and network 
resources than users of 1Gb ULL connection. It is the experience of the 
Exchange's affiliates that this is the case as 10Gb ULL connection 
users account for more than 99% of message traffic over the network on 
those markets, which drives other costs that are linked to capacity 
utilization, as described above, while the users of the 1Gb ULL 
connections account for less than 1% of message traffic over the 
network. In the experience of the Exchange's affiliates, users of the 
1Gb connections do not have the same business needs for the high-
performance network as 10Gb ULL users.
    The Exchange's high-performance network and supporting 
infrastructure (including employee support), will provide unparalleled 
system throughput with the network ability to support access to several 
distinct options markets. To achieve a consistent, premium network 
performance, the Exchange must build out and maintain a network that 
has the capacity to handle the message rate requirements of its most 
heavy network consumers. These billions of messages per day will 
consume the Exchange's resources and significantly contribute to the 
overall network connectivity expense for storage and network transport 
capabilities, just as they do for the Exchange's affiliate markets. The 
Exchange must then purchase additional storage capacity on an ongoing 
basis to ensure it has sufficient capacity to store these messages to 
satisfy its record keeping requirements under the Exchange Act.\44\ 
Thus, as the number of messages an entity increases, certain other 
costs incurred by the Exchange that are correlated to, though not 
directly affected by, connection costs (e.g., storage costs, 
surveillance costs, service expenses) will likely also increase. Given 
this anticipated difference in network utilization rate, the Exchange 
believes that it is reasonable, equitable, and not unfairly 
discriminatory that the 10Gb ULL users pay for the vast majority of the 
shared network resources from which all market participants' will 
benefit.
---------------------------------------------------------------------------

    \44\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

Full Service MEO Ports
    The proposed fees for Full Service MEO Ports are not unfairly 
discriminatory because they would apply to all Market Makers equally. 
The Exchange proposes a pricing structure for Full Service MEO Ports 
that is the same as that used by the Exchange's affiliates, MIAX, MIAX 
Pearl, and MIAX Emerald, except with lower pricing for each tier.\45\ 
In the experience of the Exchange's affiliated markets, Members that 
are frequently in the highest tier for Full Service MEO/MEI Ports 
consume the most bandwidth and resources of the network. For example, 
the Exchange's affiliate, MIAX Pearl, recently noted that Market Makers 
who reach the highest tier for Full Service MEO Ports accounted for 
greater than 84% of ADV on MIAX Pearl, while Market Makers that are 
typically in the lowest Tier for Full Service MEO Ports, accounted for 
less than 14% of ADV on the Exchange.\46\ Further, as noted by MIAX 
Pearl, the remaining 1% was accounted for by Market Makers who are 
frequently in the middle Tier for Full Service MEO Ports.\47\
---------------------------------------------------------------------------

    \45\ See MIAX Fee Schedule, Section 5)d)ii), MIAX Pearl Fee 
Schedule, Section 5)d), and MIAX Emerald Fee Schedule, Section 
5)d)ii).
    \46\ See Securities Exchange Act Release No. 99823 (March 21, 
2024), 89 FR 21312 (March 27, 2024) (SR-PEARL-2024-14).
    \47\ Id.
---------------------------------------------------------------------------

    To achieve a consistent, premium network performance, the Exchange 
must build out and maintain a network that has the capacity to handle 
the message rate requirements of its most heavy network consumers 
during anticipated peak market conditions. The need to support billions 
of messages per day will consume the Exchange's resources and 
significantly contribute to the overall network connectivity expense 
for storage and network transport capabilities. The Exchange may have 
to purchase additional storage capacity on an ongoing basis to ensure 
it has sufficient capacity to store these messages as part of it 
surveillance program and to satisfy its record keeping requirements 
under the Exchange Act.\48\ Thus, as the number of connections a Market 
Maker has increases, the related pull on Exchange resources may also 
increase once the Exchange launches operations. The Exchange sought to 
design the proposed tiered-pricing structure to set the amount of the 
fees to relate to the number of ports a firm purchases. The more ports 
purchased by a Market Maker likely results in greater expenditure of 
Exchange resources and increased cost to the Exchange.
---------------------------------------------------------------------------

    \48\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    The Exchange further believes that the proposed fees are 
reasonable, equitably allocated and not unfairly discriminatory 
because, for the flat fee in each tier, the Exchange provides each 
Member two (2) Full Service MEO Ports for each matching engine to which 
that

[[Page 86042]]

Member is connected. Unlike other options exchanges that provide 
similar port functionality and charge fees on a per port basis,\49\ the 
Exchange offers Full Service MEO Ports as a package and provides Market 
Makers with the option to receive up to two Full Service MEO Ports per 
matching engine to which it connects. The Exchange currently has eight 
matching engines, which means Market Makers may receive up to sixteen 
Full Service MEO Ports for a single monthly fee, that can vary based on 
certain volume percentages or classes the Market Maker is registered 
in. Assuming a Market Maker connects to all eight matching engines 
during the month, and achieves the highest Tier for that month, with 
two Full Service MEO Ports per matching engine, this would result in a 
cost of $375 per Full Service MEO Port ($6,000 divided by 16).
---------------------------------------------------------------------------

    \49\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports 
and Other Services and NASDAQ Rules, General 8: Connectivity, 
Section 1. Co-Location Services (similar to the MIAX Pearl Options' 
MEO Ports, SQF ports are primarily utilized by Market Makers); ISE 
Pricing Schedule, Options 7, Section 7, Connectivity Fees and ISE 
Rules, General 8: Connectivity; NYSE American Options Fee Schedule, 
Section V.A. Port Fees and Section V.B. Co-Location Fees; GEMX 
Pricing Schedule, Options 7, Section 6, Connectivity Fees and GEMX 
Rules, General 8: Connectivity.
---------------------------------------------------------------------------

    The Exchange believes its proposal to provide a reduced Full 
Service MEO Port fee to Market Makers that fall within the 3rd and 4th 
levels of the proposed fee table is not unfairly discriminatory because 
this proposed lower monthly fee is designed to provide a lower fixed 
cost to those Market Makers who are willing to quote the entire 
Exchange market (or substantial amount of the Exchange market), as 
objectively measured by either number of classes assigned or national 
ADV, but who do not otherwise execute a significant amount of volume on 
the Exchange. The Exchange believes that, by offering lower fixed costs 
to Market Makers that execute less volume, the Exchange will retain and 
attract smaller-scale Market Makers, which are an integral component of 
the option industry marketplace, but have been decreasing in number in 
recent years, due to industry consolidation and lower market maker 
profitability. The Exchange believes it is beneficial to incentivize 
these additional Market Makers to register to make markets on the 
Exchange to increase liquidity as the Exchange begins operations. 
Increased liquidity from a diverse set of market participants helps 
facilitate price discovery and the interaction of orders, which 
benefits all market participants of the Exchange. Since these smaller-
scale Market Makers may utilize less Exchange capacity due to lower 
overall volume executed, the Exchange believes it is reasonable, 
equitably allocated and not unfairly discriminatory to offer such 
Market Makers a lower fixed cost. The Exchange notes that its 
affiliated markets, MIAX, MIAX Pearl, and MIAX Emerald, offer a similar 
reduced fee for their Full Service MEO/MEI Ports for smaller-scale 
Market Makers.\50\
---------------------------------------------------------------------------

    \50\ See MIAX Fee Schedule, Section 5)d)ii), note ``*''; MIAX 
Pearl Fee Schedule, Section 5)d), page 20, note ``**''; and MIAX 
Emerald Fee Schedule, Section 5)d)ii), note [ssquf].
---------------------------------------------------------------------------

Limited Service MEO Ports
    The proposed fees for Limited Service MEO Ports are not unfairly 
discriminatory because they would apply to all Market Makers equally. 
All Market Makers will be eligible to receive four (4) free Limited 
Service MEO Ports per matching engine and those that elect to purchase 
more would be subject to the same monthly rate upon the expiration of 
the Initial Waiver Period, regardless of the number of additional 
Limited Service MEO Ports they purchase. In the experience of the 
Exchange's affiliated markets, certain market participants choose to 
purchase additional Limited Service MEO Ports based on their own 
particular trading/quoting strategies and feel they need a certain 
number of connections to the Exchange to execute on those strategies. 
Other market participants may continue to choose to only utilize the 
free Limited Service MEO Ports to accommodate their own trading or 
quoting strategies, or other business models. All market participants 
elect to receive or purchase the amount of Limited Service MEO Ports 
they require based on their own business decisions and all market 
participants would be subject to the same fee structure and flat fee. 
Every market participant may receive up to four (4) free Limited 
Service MEO Ports and those that choose to purchase additional Limited 
Service MEO Ports may elect to do so based on their own business 
decisions and would continue to be subject to the same monthly fee.
    The Exchange believes that its proposed fee for Limited Service MEO 
Ports is reasonable, equitable, and not unfairly discriminatory because 
it is designed to align fees with services provided, will apply equally 
to all Members that are assigned Limited Service MEO Ports (either 
directly or through a Service Bureau), and will minimize barriers to 
entry by providing all Members with four free Limited Service MEO Ports 
from the time the Exchange launches operations.\51\ As a result of the 
proposed fee structure, a significant majority of Members may not be 
subject to any fee. In contrast, other exchanges generally charge in 
excess of $450 per port without providing any free ports.\52\ Even for 
Members that choose to maintain more than four Limited Service MEI 
Ports, the Exchange believes that the cost-based fee proposed herein is 
low enough that it will not operate to restrain any Member's ability to 
maintain the number of Limited Service MEO Ports that it determines are 
consistent with its business objectives. Although the Exchange projects 
that no Members will utilize more than the four free Limited Service 
MEO Ports, if there is a small number of Members that do utilize more 
ports and are subject to the proposed fee of $250 per port, those 
Members will still pay considerably less for such ports as compared to 
the fees that competing exchanges charge.\53\ Further, the number of 
assigned Limited Service MEO Ports will continue to be based on 
decisions by each Member, including the ability to reduce fees by 
discontinuing unused Limited Service MEO Ports.
---------------------------------------------------------------------------

    \51\ The following rationale to support providing a certain 
number of Limited Service MEI Ports for free prior to applying a fee 
is similar to that used by the IEX in a 2020 proposal to do the same 
as proposed herein. See Securities Exchange Act Release No. 86626 
(August 9, 2019), 84 FR 41793 (August 15, 2019) (SR-IEX-2019-07).
    \52\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports 
and Other Services and NASDAQ Rules, General 8: Connectivity, 
Section 1. Co-Location Services (similar to the Exchange's MEI 
Ports, SQF ports are primarily utilized by Market Makers); ISE 
Pricing Schedule, Options 7, Section 7, Connectivity Fees and ISE 
Rules, General 8: Connectivity; NYSE American Options Fee Schedule, 
Section V.A. Port Fees and Section V.B. Co-Location Fees; GEMX 
Pricing Schedule, Options 7, Section 6, Connectivity Fees and GEMX 
Rules, General 8: Connectivity.
    \53\ Assuming a Member selects five Limited Service MEO Ports 
based on their business needs that Member on MIAX Sapphire would be 
charged only for the fifth Limited Service MEO Port and pay only the 
$250 monthly fee, as the first four Limited Service MEO Ports would 
be free. Meanwhile, a Member that purchases five ports on NYSE Arca 
Options would pay $450 per port per month, resulting in a total 
charge of $2,250 per month. On Cboe BZX Options, that same member 
would pay $750 per port per month, resulting in a total charge of 
$3,750 per months for five ports. See NYSE Arca Options Fees and 
Charges, dated March 1, 2024, available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf and Cboe BZX Options Fee Schedule 
available at https://www.cboe.com/us/options/membership/fee_schedule/.
---------------------------------------------------------------------------

    The Exchange believes that providing four free Limited Service MEO 
Ports is reasonable, equitable, and not unfairly discriminatory because 
it will enable Members to access the Exchange on this basis without 
having to pay for Limited Service MEO Ports, thereby encouraging

[[Page 86043]]

order flow and liquidity from a diverse set of market participants, 
facilitating price discovery and the interaction of orders. The 
Exchange believes that four Limited Service MEO Ports is an appropriate 
number to provide for free because it aligns with the maximum number of 
free Limited Service MEO/MEI Ports offered by each of the Exchange's 
affiliated options markets, and the Exchange believes will align with 
the amount of such ports that will be maintained by a substantial 
majority of Members once the Exchange launches operations.
    Based on an initial survey of market participants that the Exchange 
anticipates will utilize Limited Service MEO Ports, the Exchange 
projects that only a few Members will be subject to any Limited Service 
MEO Port fees following the expiration of the Initial Waiver Period. In 
determining the appropriate number of Limited Service MEO Ports to 
provide for free, the Exchange considered several factors. First, the 
Exchange believes that, with respect to Limited Service MEO Port usage, 
Members will prefer at least two Limited Service MEO Ports, for 
redundancy purposes. Second, from a review of the number of Limited 
Service MEI Ports currently requested, the median number of ports per 
Member that will utilize Limited Service MEO Ports upon the launch of 
the Exchange is approximately eight. Thus, the Exchange believes that 
having four ports appears to be reasonably sufficient for the majority 
of Members to access the Exchange. On that basis, the Exchange chose 
four Limited Service MEO Ports as the maximum number of ports for which 
it will not charge to access the Exchange. The Exchange notes that some 
Members may use more Limited Service MEO Ports than other Members (and 
the four provided for free), which will be driven by the nature and 
volume of the business they conduct on the Exchange, and the choices 
they make in segmenting that business across different Limited Service 
MEO Ports. Allowing for this expansive use of Exchange capacity 
represents an aggregate cost that the Exchange seeks to recover through 
charging for ports five and higher.
    The proposed fee structure is also designed to encourage Members to 
be efficient with their Limited Service MEO Port 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 Limited Service MEO Ports. There is no requirement that any 
Member maintain a specific number of Limited Service MEO Ports and a 
Member may choose to maintain as many or as few of such ports as each 
Member deems appropriate.
    The Exchange assessed the impact of the structure and amount of the 
proposed fee on all Members that the Exchange anticipates will utilize 
Limited Service MEO Ports. The Exchange believes that the proposed fee 
is fair and equitably allocated across all Members. As a threshold 
matter, the fee will not by design apply differently to different types 
or sizes of Members. Nonetheless, upon launch, the Exchange will be 
able to assess whether there may be any differences in the amount of 
the projected fee that correlates to the type and/or size of different 
Members. This assessment will help determine whether the number of 
assigned Limited Service MEO Ports, and thus projected fees, correlates 
closely to a Member's inbound message volume to the Exchange. This is a 
similar assessment as that performed by the Exchange's affiliates, MIAX 
and MIAX Emerald, prior to changing their respective Limited Service 
MEI Port fees recently. Based on the experience of the Exchange's 
affiliates, as inbound message volume increases per Member, the number 
of requested and assigned Limited Service MEO Ports increases. As the 
Exchange has not launched operations at the time of this filing, the 
Exchange does not have data to show any correlation between a Member's 
inbound message volume and the number of Limited Service MEO Port 
assigned to the Member. However, based on the experience of the 
Exchange's affiliates, MIAX and MIAX Emerald, Members with relatively 
higher inbound message volume were projected to pay higher fees because 
they requested more Limited Service MEI Ports for those exchanges.
    To achieve consistent, premium network performance, the Exchange 
must build and maintain a network that has the capacity to handle the 
message rate requirements of its heaviest network consumers during 
anticipated peak market conditions. The resultant need to support the 
anticipated amount of billions of messages per day will consume the 
Exchange's resources and significantly contribute to the overall 
network connectivity expense for storage and network transport 
capabilities. This need will also require the Exchange to purchase 
additional storage capacity on an ongoing basis to ensure it has 
sufficient capacity to store these messages as part of it surveillance 
program and to satisfy its record keeping requirements under the 
Exchange Act.\54\ Thus, as the number of connections per Market Maker 
increases, other costs incurred by the Exchange will likely also 
increase, e.g., storage costs, surveillance costs, service expenses.
---------------------------------------------------------------------------

    \54\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    The Exchange further believes that the proposed fees are 
reasonable, fair and equitable, and non-discriminatory because they 
will apply to all Members in the same manner and are not targeted at a 
specific type or category of market participant engaged in any 
particular trading strategy. All Members will receive four free Limited 
Service MEO Ports and pay the same proposed fee per Limited Service MEO 
Port for each additional Limited Service MEO Port. Each Limited Service 
MEO Port is identical, providing connectivity to the Exchange on 
identical terms. While the proposed fee will result in a different 
effective ``per unit'' rate for different Members after factoring in 
the four free Limited Service MEO Ports, the Exchange does not believe 
that this difference is material given the overall low proposed fee per 
Limited Service MEO Port. Because the first four Limited Service MEO 
Ports are free of charge, each entity will have a ``per unit'' rate of 
less than the proposed fee. Further, the fee is not connected to volume 
based tiers. All Members will be subject to the same fee schedule, 
regardless of the volume sent to or executed on the Exchange. The fee 
also does not depend on any distinctions between Members, customers, 
broker-dealers, or any other entity. The fee will be assessed solely 
based on the number of Limited Service MEO Ports an entity selects and 
not on any other distinction applied by the Exchange. While entities 
that send relatively more inbound messages to the Exchange may select 
more Limited Service MEO Ports, thereby resulting in higher fees, that 
distinction is based on decisions made by each Member and the extent 
and nature of the Member's business on the Exchange rather than 
application of the fee by the Exchange. Members can determine how many 
Limited Service MEO Ports they need to implement their trading 
strategies effectively. The Exchange proposes to offer additional 
Limited Service MEO Ports at a low fee to enable all Members to 
purchase as many Limited Service MEO Ports as their business needs 
dictate in order to optimize throughput and manage latency across the 
Exchange.

[[Page 86044]]

    Notwithstanding that Members with the highest number of Limited 
Service MEO Ports will pay a greater percentage of the total projected 
fees than is represented by their Limited Service MEO Port usage, the 
Exchange does not believe that the proposed fee is unfairly 
discriminatory. It is not possible to fully synchronize the Exchange's 
objective to provide four free Limited Service MEO Ports to all 
Members, thereby minimizing barriers to entry and incentivizing 
liquidity on the Exchange, with an approach that exactly aligns the 
projected per Member fee with each Member's number of requested Limited 
Service MEO Ports. As proposed, the Exchange is providing a reasonable 
number of Limited Service MEO Ports to each Member without charge. Any 
variance between projected fees and Limited Service MEO Port usage is 
attributable to objective differences among Members in terms of the 
number of Limited Service MEO Ports they determine are appropriate 
based on their trading on the Exchange. Further, the Exchange believes 
that the low amount of the proposed fee (which in the aggregate is 
projected to only partially recover the Exchange's directly-related 
costs as described herein) mitigates any disparate impact.
    Further, the fee will help to encourage Limited Service MEO Port 
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'').\55\ 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.\56\ By encouraging Members 
to be efficient with their Limited Service MEO Ports usage, the 
proposed fee will support the Exchange's Reg SCI obligations in this 
regard by ensuring that unused Limited Service MEO Ports are available 
to be allocated based on individual Members needs and as the Exchange's 
overall order and trade volumes increase. Additionally, because the 
Exchange will continue not to charge connectivity testing and 
certification fees to its disaster recovery facility or where the 
Exchange requires testing and certification, 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 without incurring any port fee 
costs.\57\
---------------------------------------------------------------------------

    \55\ 17 CFR 242.1000-1007.
    \56\ 17 CFR 242.1001(a).
    \57\ By comparison, some other exchanges charge less to connect 
to their disaster recovery facilities, but still charge an amount 
that could both recoup costs and potentially be a source of profits. 
See, e.g., Nasdaq Stock Market LLC Equity 7, Section 115 (Ports and 
other Services).
---------------------------------------------------------------------------

    Finally, the Exchange believes that the proposed fee is consistent 
with Section 11A of the Exchange Act in that it is designed to 
facilitate the economically efficient execution of securities 
transactions, fair competition among brokers and dealers, exchange 
markets and markets other than exchange markets, and the practicability 
of brokers executing investors' orders in the best market. 
Specifically, the proposed low, cost-based fee will enable a broad 
range of the Exchange Members to continue to connect to the Exchange, 
thereby facilitating the economically efficient execution of securities 
transactions on the Exchange, fair competition between and among such 
Members, and the practicability of Members that are brokers executing 
investors' orders on the Exchange when it is the best market.
FIX, CTD, and FXD Ports
    To achieve consistent, premium network performance, the Exchange 
must build and maintain a network that has the capacity to handle the 
message rate requirements of its heaviest network consumers during 
anticipated peak market conditions. The resultant need to support the 
anticipated amount of billions of messages per day will consume the 
Exchange's resources and significantly contribute to the overall 
network connectivity expense for storage and network transport 
capabilities. This need will also require the Exchange to purchase 
additional storage capacity on an ongoing basis to ensure it has 
sufficient capacity to store these messages as part of it surveillance 
program and to satisfy its record keeping requirements under the 
Exchange Act.\58\ Thus, as the number of connections per Market Maker 
increases, other costs incurred by the Exchange will likely also 
increase, e.g., storage costs, surveillance costs, service expenses.
---------------------------------------------------------------------------

    \58\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    The Exchange further believes that the proposed fees for FIX, CTD 
and FXD Ports are reasonable, fair and equitable, and non-
discriminatory because they will apply to all Members in the same 
manner and are not targeted at a specific type or category of market 
participant engaged in any particular trading strategy. The fee for 
each type of port does not depend on any distinctions between Members, 
customers, broker-dealers, or any other entity. The fee will be 
assessed solely based on the number of FIX, CTD or FXD Ports an entity 
selects and not on any other distinction applied 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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes the proposed fees will not result in any 
burden on intra-market competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because the proposed fees 
will allow the Exchange to recoup its costs with a small profit for 
providing 1Gb and 10Gb ULL connectivity, while recouping some of its 
costs for a negative margin for providing Full Service MEO Ports, 
Limited Service MEO Ports, FIX Ports, CTD Ports and FXD Ports, 
following expiration of the respective waiver periods for each fee. As 
described above, the Exchange anticipates operating at a loss for the 
majority of the above services in order to provide a low-cost 
alternative to attract order flow and encourage market participants to 
experience the high determinism and resiliency of the Exchange's 
trading Systems. To do so, the Exchange chooses to waive the fees for 
all of the connectivity and port services for a specified time period. 
This will likely result in the Exchange forgoing revenue it could 
generate from assessing any fees without a waiver period or higher fees 
upon expiration of the waiver periods. The Exchange could seek to 
charge higher fees upon launch, but that could serve to discourage 
participation on the Exchange. Instead, the Exchange chooses to provide 
a low-cost exchange alternative to the options industry, which may 
result in lower initial revenues.
    Further, the Exchange does not believe that the proposed fees would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete. The proposed fees will 
apply uniformly to all market participants regardless of the number of

[[Page 86045]]

1Gb or 10Gb ULL connections they choose to purchase. The proposed fees 
do not favor certain categories of market participants in a manner that 
would impose an undue burden on competition.
    The Exchange does not believe that the proposed rule change would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete. In particular, Exchange 
personnel has been informally discussing potential fees for 
connectivity services with a diverse group of market participants that 
are likely to connect to the Exchange for launch (including large and 
small firms, firms with large connectivity service footprints and small 
connectivity service footprints, as well as extranets and service 
bureaus) for several months leading up to that time. The Exchange does 
not believe the proposed fees for connectivity services would 
negatively impact the ability of Members, non-Members (extranets or 
service bureaus), third-parties that purchase the Exchange's 
connectivity and resell it, and customers of those resellers to compete 
with other market participants or that they are placed at a 
disadvantage.
    The Exchange does anticipate, however, that some market 
participants may reduce or discontinue use of connectivity services 
provided directly by the Exchange once the relevant waiver periods 
expire. The Exchange's affiliates have experienced similar reductions 
in use by their members for similar non-transaction fee increases. For 
example, one MIAX Pearl Options Market Maker terminated their MIAX 
Pearl Options membership on January 1, 2023 as a direct result of the 
similar proposed fee changes by MIAX Pearl Options.\59\
---------------------------------------------------------------------------

    \59\ The Exchange acknowledges that IEX included in its proposal 
to adopt market data fees after offering market data for free an 
analysis of what its projected revenue would be if all of its 
existing customers continued to subscribe versus what its projected 
revenue would be if a limited number of customers subscribed due to 
the new fees. See Securities Exchange Act Release No. 94630 (April 
7, 2022), 87 FR 21945 (April 13, 2022) (SR-IEX-2022-02). MEMX did 
not include a similar analysis in its recent non-transaction fee 
proposal. See supra note 41. The Exchange does not believe a similar 
analysis would be useful here because it is amending existing fees, 
not proposing to charge a new fee where existing subscribers may 
terminate connections because they are no longer enjoying the 
service at no cost.
---------------------------------------------------------------------------

    The Exchange does not believe that the proposed fees for 
connectivity services place certain market participants at a relative 
disadvantage to other market participants because the proposed 
connectivity pricing is associated with relative usage of the Exchange 
by each market participant and does not impose a barrier to entry to 
smaller participants. The Exchange believes its proposed pricing is 
reasonable and, when coupled with the availability of third-party 
providers that also offer connectivity solutions, that participation on 
the Exchange is affordable for all market participants, including 
smaller trading firms. As described above, the connectivity services 
purchased by market participants typically increase based on their 
additional message traffic and/or the complexity of their operations. 
The market participants that utilize more connectivity services 
typically utilize the most bandwidth, and those are the participants 
that consume the most resources from the network. Accordingly, the 
proposed fees for connectivity services do not favor certain categories 
of market participants in a manner that would impose a burden on 
competition; rather, the allocation of the proposed connectivity fees 
reflects the network resources consumed by the various size of market 
participants and the costs to the Exchange of providing such 
connectivity services.
    The Exchange does not believe its proposed fees for Limited Service 
MEO Ports will place certain market participants at a relative 
disadvantage to other market participants. All market participants 
would be eligible to receive four (4) free Limited Service MEO Ports 
and those that elect to purchase more would be subject to the same flat 
fee regardless of the number of additional Limited Service MEO Ports 
they purchase. All firms purchase the amount of Limited Service MEO 
Ports they require based on their own business decisions and similarly 
situated firms are subject to the same fees.
Inter-Market Competition
    The Exchange also does not believe that the proposed rule change 
and price increase will result in any burden on inter-market 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. As this is a fee increase, arguably if set too 
high, this fee would make it easier for other exchanges to compete with 
the Exchange. Only if this were a substantial fee decrease could this 
be considered a form of predatory pricing. In contrast, the Exchange 
believes that, without this fee increase, we are potentially at a 
competitive disadvantage to certain other exchanges that have in place 
higher fees for similar services. As we have noted, the Exchange 
believes that connectivity fees can be used to foster more competitive 
transaction pricing and additional infrastructure investment and there 
are other options markets of which market participants may connect to 
trade options at higher rates than the Exchange's. Accordingly, the 
Exchange does not believe its proposed fee changes impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\60\ and Rule 19b-4(f)(2) \61\ 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.
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \61\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#e193948d84cc828e8c8c848f9592a1928482cf868e97"><span class="__cf_email__" data-cfemail="c2b0b7aea7efa1adafafa7acb6b182b1a7a1eca5adb4">[email protected]</span></a>. Please include 
file number SR-SAPPHIRE-2024-32 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.


[[Page 86046]]


All submissions should refer to file number SR-SAPPHIRE-2024-32. 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-SAPPHIRE-2024-32 and should 
be submitted on or before November 19, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\62\
---------------------------------------------------------------------------

    \62\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-25056 Filed 10-28-24; 8:45 am]
BILLING CODE 8011-01-P


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