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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). A proposed rule change 

may take effect upon filing with the Commission if 

it is designated by the exchange as ‘‘establishing or 

changing a due, fee, or other charge imposed by the 

self-regulatory organization on any person, whether 

or not the person is a member of the self-regulatory 

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

4See Securities Exchange Act Release Nos. 93775 

(December 14, 2021), 86 FR 71996 (‘‘MIAX 

Notice’’); 93774 (December 14, 2021), 86 FR 71952 

(‘‘Pearl Notice’’). For ease of reference, citations to 

statements generally applicable to both notices are 

to the MIAX Notice. 

5 15 U.S.C. 78s(b)(3)(C). 

6See MIAX Notice, supra note 4 at 71998. 

7See id. 1Gb connections to the primary/ 

secondary facility, and 1Gb and 10Gb connections 

to the disaster recovery facility are subject to 

separate monthly charges that are not affected by 

the proposed rule changes. As the MIAX Pearl filing 

relates only the MIAX Pearl Options Fee Schedule, 

fees for the MIAX Pearl Equities facility also are 

outside the scope of the proposed rule changes. 

8The Exchanges initially filed the proposed fee 

changes on July 30, 2021. See Securities Exchange 

Act Release Nos. 92643 (August 11, 2021), 86 FR 

46034 (August 17, 2021) (SR–MIAX–2021–35), 

92644 (August 11, 2021), 86 FR 46055 (August 17, 

2021) (SR–PEARL–2021–36). These filings were 

withdrawn by the Exchanges. The Exchanges filed 

new proposed fee changes with additional 

justification (SR–MIAX–2021–41 and SR–PEARL– 

2021–45), which were the subject of a Suspension 

of and Order Instituting Proceedings. See Securities 

Exchange Act Release No. 93639 (November 22, 

2021), 86 FR 67758 (November 29, 2021). The 

Exchanges subsequently withdrew those filings and 

replaced them with the instant filings to provide 

additional information and a revised justification 

for the proposal, which is discussed herein. See 

Securities Exchange Act Release No. 93733 

(December 7, 2021), 86 FR 71108 (December 14, 

2021) (Notice of Withdrawal); see also MIAX Notice 

and Pearl Notice, supra note 4 at 71997, 71984, 

respectively. 

9See MIAX Notice, supra note 4, at 71998. The 

Exchanges state that they deem connectivity fees to 

be access fees, and records these fees as part of its 

‘‘Access Fees’’ revenue in its financial statements. 

Id. at 71999. 

10 15 U.S.C. 78s(b)(3)(C). 

11 15 U.S.C. 78s(b)(1). 

12See MIAX Notice, supra note 4, at 72004. The 

Exchanges state that approximately 80% of the 

firms that purchased at least one 10Gb ULL 

connection experienced a decrease in their monthly 

connectivity fees, while approximately 20% of 

firms experienced an increase in their monthly 

connectivity fees. See id. 

13See id. 

14See MIAX Notice, supra note 4, at 72004. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.305

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–02086 Filed 2–1–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94088; File Nos. SR–MIAX– 

2021–59, SR–PEARL–2021–57] 

Self-Regulatory Organizations; Miami 

International Securities Exchange, 

LLC, MIAX PEARL, LLC; Suspension of 

and Order Instituting Proceedings To 

Determine Whether To Approve or 

Disapprove Proposed Rule Changes 

To Amend the Fee Schedules To Adopt 

a Tiered-Pricing Structure for Certain 

Connectivity Fees 

January 27, 2022. 

I. Introduction 

On December 1, 2021, Miami 

International Securities Exchange LLC, 

LLC (‘‘MIAX’’) and MIAX PEARL, LLC 

(‘‘MIAX Pearl’’) (collectively, the 

‘‘Exchanges’’) each filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’ or ‘‘Act’’),1 and 

Rule 19b–4 thereunder,2 a proposed rule 

change (File Numbers SR–MIAX–2021– 

59 and SR–PEARL–2021–57) to amend 

the MIAX Fee Schedule and MIAX Pearl 

Options Fee Schedule (collectively, the 

‘‘Fee Schedules’’) to adopt a tiered 

pricing structure for certain connectivity 

fees. The proposed rule changes were 

immediately effective upon filing with 

the Commission pursuant to Section 

19(b)(3)(A) of the Act.3 The proposed 

rule changes were published for 

comment in the Federal Register on 

December 20, 2021.4 Under Section 

19(b)(3)(C) of the Act,5 the Commission 

is hereby: (i) Temporarily suspending 

File Numbers SR–MIAX–2021–59 and 

SR–PEARL–2021–57; and (ii) instituting 

proceedings to determine whether to 

approve or disapprove File Numbers 

SR–MIAX–2021–59 and SR–PEARL– 

2021–57. 

II. Background and Description of the 

Proposed Rule Changes 

MIAX and the MIAX Pearl options 

facility have a shared connectivity 

infrastructure that permits Members and 

non-Members to connect directly to 

either or both of the Exchanges, and 

thereby access the associated 

Exchanges’ trading platforms, market 

data systems, test systems, and disaster 

recovery facilities via a single, shared 

connection.6 Prior to implementation of 

the proposed rule changes, a market 

participant connecting to the primary or 

secondary facility of either or both of 

the Exchanges options platforms via a 

10 gigabit ultra-low latency (‘‘10Gb 

ULL’’) fiber connection was assessed a 

monthly fee of $10,000 per connection.7

The Exchanges proposes to modify their 

respective Fee Schedules to adopt a 

tiered pricing structure for 10Gb ULL 

fiber connections as follows: 

• $9,000 each for the 1st and 2nd 

10Gb ULL connections; 

• $11,000 each for the 3rd and 4th 

10Gb ULL connections; and 

• $13,000 for each additional 

connection 10Gb ULL connection.8

These fees (the ‘‘Proposed Access 

Fees’’) are assessed in any month the 

Member or non-Member is credentialed 

to use any of the Exchanges’ APIs or 

market data feeds in the Exchanges’ 

production environment, pro-rated 

when a Member or non-Member adds or 

deletes a connection.9

III. Suspension of the Proposed Rule 

Changes 

Pursuant to Section 19(b)(3)(C) of the 

Act,10 at any time within 60 days of the 

date of filing of an immediately effective 

proposed rule change pursuant to 

Section 19(b)(1) of the Act,11 the 

Commission summarily may 

temporarily suspend the change in the 

rules of a self-regulatory organization 

(‘‘SRO’’) 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. As discussed below, the 

Commission believes a temporary 

suspension of the proposed rule changes 

is necessary and appropriate to allow for 

additional analysis of the proposed rule 

changes’ consistency with the Act and 

the rules thereunder. 

In support of the proposals, the 

Exchanges argue that the proposed 

tiered pricing structure for 10Gb ULL 

connections is reasonable, equitable, 

and not unfairly discriminatory because 

the new tiers result in a majority of 

10Gb ULL purchasers either saving 

money or paying the same amount.12 As 

discussed further below, the Exchanges 

state that ‘‘a higher fee to a Member or 

non-Member that utilizes numerous 

connections is directly related to the 

increased costs the Exchange incurs in 

providing and maintaining those 

additional connections.’’ 13 The 

Exchanges also maintain that the tiered 

pricing structure will encourage 

Members and non-Members to be more 

efficient and economical when 

determining how to connect to the 

Exchanges and should better enable the 

Exchanges to monitor and provide 

access to the Exchanges’ network to 

ensure sufficient capacity and headroom 

in the System.14

In further support of the proposals, 

the Exchanges argue that the Proposed 

Access Fees are reasonable because they 

will permit recovery of the Exchange’s 

costs in providing the associated 

services and will not result in the 

Exchange generating a supraVerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 E:\FR\FM\02FEN1.SGM 02FEN1

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15See id. at 71998, 72003. 

16See id. at 71999. 

17See id. at 72001. The 2021 costs are projected 

because each Exchange’s most recent Audited 

Unconsolidated Financial Statement is for 2020, 

with projections utilizing the same presentation 

methodology as used in their previously-filed 

Audited Financial Statements. See id. at 72000. 

18See id. at 72001. The Exchanges also state that 

expenses associated with the MIAX Pearl equities 

market are accounted for separately. See id.; Pearl 

Notice at 71957. 

19See id. The Exchanges also state that the $15.9 

million in expense is ‘‘directly related to the access 

services associated with the Proposed Access Fees, 

and not any other product or service offered by the 

Exchange or MIAX Pearl, and does not include 

general costs of operating matching engines and 

other trading technology. Id. at 72001. 

20See id. at 72001. 

21For employee compensation and benefit costs, 

for example, the Exchanges included the time spent 

by employees of several departments, including 

Technology, Back Office, Systems Operations, 

Networking, Business Strategy Development (who 

create the business requirement documents that the 

Technology staff use to develop network features 

and enhancements), Trade Operations, Finance 

(who provide billing and accounting services 

relating to the network), and Legal (who provide 

legal services relating to the network, such as rule 

filings and various license agreements and other 

contracts). See id. at 72002. 

22See id. at 72003. 

23See id. at 72003. 

24 Id. 25 Id. at 72000. 26 Id. at 72005. The Exchanges assert that when 

compared to fees charged by and market shares (for 

the month of November 2021, as of November 26, 

2021) for The NASDAQ Stock Market LLC 

(‘‘Nasdaq’’), Nasdaq ISE LLC (‘‘ISE’’), Nasdaq PHLX 

LLC (‘‘Phlx’’), and NYSE American LLC, that the 

Exchanges’ proposed tiered-pricing structure is 

‘‘significantly lower’’ than these competing options 

exchanges with similar market share. Id. For 

example, the Exchanges state that the affiliated 

exchanges Nasdaq, ISE and Phlx charge a monthly 

fee of $10,000 per 10Gb fiber connection and 

$15,000 per 10Gb Ultra fiber connection, while the 

highest tier of the Exchanges’ proposed fee structure 

is $2,000 less per month. Id. 

27See MIAX Notice, supra note 4, at 72004. The 

Exchanges state that approximately 80% of the 

firms that purchased at least one 10Gb ULL 

connection experienced a decrease in their monthly 

connectivity fees, while approximately 20% of 

firms experienced an increase in their monthly 

connectivity fees as a result of the proposed tieredpricing structure when compared to the flat 

monthly fee structure. See id. 

28See id. at 72004. 

competitive profit.15 Specifically, the 

Exchanges state that the Proposed 

Access Fees are based on a ‘‘cost-plus 

model,’’ designed to result in ‘‘cost 

recovery plus present the possibility of 

a reasonable return.’’ 16 According to the 

Exchanges, employing a ‘‘conservative 

methodology’’ that ‘‘strictly considers 

only those costs that are most clearly 

directly related to the provision and 

maintenance of 10Gb ULL 

connectivity,’’ they estimate the total 

projected 2021 cost to offer 10Gb ULL 

connections at $15.9 million, 

representing $3.9 in third-party cost and 

$12 million in internal cost.17 To arrive 

at these figures, the Exchanges state that 

they undertook a thorough internal 

analysis of nearly every expense on each 

Exchanges’ general expense ledger to 

determine whether each such expense 

related to the Proposed Access Fees, 

and, if such expense did so relate, to 

determine what portion (or percentage) 

of such expense supported the access 

services.18 They state that this process 

entailed discussions with each 

Exchange department head to identify 

the expenses that support the access 

services associated with the Proposed 

Access Fees, review of the expenses 

holistically on an Exchange-wide level 

with assistance from the internal 

finance department, and then 

assessment of the total expense, with no 

expense allocated twice.19

The Exchanges state that the $3.9 

million projected 2021 third-party 

expense is the sum of fees paid to: (1) 

Equinix, for data center services 

(approximately 62% of the Exchanges’ 

total applicable Equinix expense); (2) 

Zayo Group Holdings, Inc. for network 

services (approximately 62%); (3) 

various other services providers, 

including ‘‘Secure Financial 

Transaction Infrastructure’’ (‘‘SFTI’’) 

(approximately 75%); and (4) various 

other hardware and software providers 

(approximately 51%).20 Likewise, the 

Exchanges state that the $12 million 

projected 2021 internal expense, is the 

sum of: (1) Employee compensation and 

benefits expense allocated to the 

Proposed Access Fees ($6.1 million, 

which is 28% of the total projected 

expense of $12.6 million for MIAX and 

$9.2 million for MIAX Pearl for 

employee compensation and 

benefits); 21 (2) depreciation and 

amortization expense allocated to the 

Proposed Access Fees ($5.3 million, 

which the Exchanges estimated as 70% 

of the total projected expense of $4.8 

million for MIAX and $2.9 million for 

MIAX Pearl for depreciation and 

amortization); and (3) occupancy 

expense ($0.6 million, which the 

Exchanges estimated as 53% of the 

Exchanges’ total projected expense of 

$0.6 million for MIAX and $0.5 million 

for MIAX Pearl for occupancy). 

Converting the projected annualized 

expense figure to a monthly figure, the 

Exchanges estimate an average monthly 

cost of offering the services associated 

with the Proposed Access Fees at 

$1,325,000.22

Regarding revenue, the Exchanges 

represent that revenue for the month of 

October 2021 was approximately 

$1,684,000 (including pro-rated 

charges), attributable to the purchase of 

154 10Gb ULL connections at the 

proposed tiered rates. Accordingly, the 

Exchanges calculated a $359,000 

monthly profit for October 2021 and a 

profit margin of 21.3%. As a baseline, 

the Exchanges used revenue for July 

2021 before introduction of the 

Proposed Access Fees, which they 

represented was $1,547,620, attributable 

to the purchases of a total of 156 10Gb 

ULL connections, to calculate the 

baseline monthly profit margin of 

14.4%. 

The Exchanges maintain that a 6.9% 

profit margin increase from July 2021 

(before introduction of the Proposed 

Access Fees) to October 2021 (after the 

introduction of the Proposed Access 

Fees) is reasonable.23 They also argue 

that a 21.3% rate of return is reasonable 

because it will allow them to ‘‘to 

continue to recoup [their] expenses and 

continue to invest in [their] technology 

infrastructure.’’ 24 They add that this 

profit margin does not take into account: 

(i) Fluctuations in revenue as a result of 

Members and non-Members adding and 

dropping connections at any time based 

on their own business decisions, which 

they frequently do; (ii) future price 

increases from third parties; and (iv) 

inflationary pressure on capital items 

that they need to purchase to maintain 

the Exchanges’ technology and systems, 

which have resulted in price increases 

upwards of 30% on network equipment 

due to supply chain shortages, and in 

turn result in higher overall costs 

associated with ongoing system 

maintenance.25 In addition, although 

they do not assert that competitive 

forces constrain the Proposed Access 

Fees, they maintain that the Proposed 

Access Fees are reasonable when 

compared to the fees of other options 

exchanges, as the Exchanges’ proposed 

fees for 10Gb ULL connections even at 

the proposed highest tier are lower than 

those of other options exchanges with 

similar market share.26

As noted above, the Exchanges also 

argue that the tiered structure of the 

Proposed Access Fees results in an 

equitable allocation of fees that are not 

unfairly discriminatory, noting that after 

implementation of the Proposed Access 

Fees, a majority of 10Gb ULL purchasers 

either were saving money or paying the 

same amount.27 They further explain 

that firms that primarily route orders for 

best execution generally only need a 

limited number of connections to fulfill 

that obligation and connectivity costs 

will likely to be lower for these firms.28

Addressing the fee increases 

experienced by some 10Gb ULL 

purchasers, the Exchanges urge that the 

increases for these firms are justified 

because the new fees ‘‘apply to all 


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29See id. 

30See id. at 72004, 72006. 

31See id. at 72004, 72008. 

32See id. at 72004. 

33See id. 

34See id. at 72005. 

35See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose 

of, and Statutory Basis for, the Proposed Rule 

Change’’). 

36 Id. 

37 15 U.S.C. 78f(b)(4). 

38 15 U.S.C. 78f(b)(5). 

39 15 U.S.C. 78f(b)(8). 

40See 15 U.S.C. 78f(b)(4), (5), and (8), 

respectively. 

41For purposes of temporarily suspending the 

proposed rule changes, the Commission has 

considered the proposed rules’ impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

42 15 U.S.C. 78s(b)(3)(C). Once the Commission 

temporarily suspends a proposed rule change, 

Section 19(b)(3)(C) of the Act requires that the 

Commission institute proceedings under Section 

19(b)(2)(B) to determine whether a proposed rule 

change should be approved or disapproved. 

43 15 U.S.C. 78s(b)(2)(B). 

44 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the 

Act also provides that proceedings to determine 

whether to disapprove a proposed rule change must 

be concluded within 180 days of the date of 

publication of notice of the filing of the proposed 

rule change. See id. The time for conclusion of the 

proceedings may be extended for up to 60 days if 

the Commission finds good cause for such 

extension and publishes its reasons for so finding, 

or if the exchange consents to the longer period. See 

id. 

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

46 15 U.S.C. 78f(b)(5). 

47 15 U.S.C. 78f(b)(8). 

Members and non-Members in the same 

manner based on the amount of 10Gb 

ULL connectivity they require based on 

their own business decisions and usage 

of Exchange resources.’’ 29 They explain 

that the firms experiencing higher fees 

are those engaged in advanced trading 

strategies that typically require multiple 

connections and generate higher costs 

for the Exchanges by utilizing more of 

the Exchanges’ resources.30 Responding 

to prior comment that the Exchanges 

had not demonstrated that a firm 

purchasing more than two or four 10Gb 

ULL connections would use Exchange 

resources at a greater rate per 

connection than those purchasing fewer, 

the Exchanges state that ‘‘more 

connections purchased by a firm likely 

results in greater expenditure of 

Exchange resources and increased cost 

to the Exchange.’’ 31 The Exchanges 

describe firms that primarily route 

orders seeking best-execution and 

purchase only a limited number of 

connections as those that ‘‘also 

generally send less orders and messages 

over those connections, resulting in less 

strain on Exchange resources.’’ 32 In 

contrast the Exchanges describe firms 

that purchase more than two to four 

10Gb ULL connections as those that 

‘‘essentially do so for competitive 

reasons amongst themselves and choose 

to utilize numerous connections based 

on their business needs and desire to 

attempt to access the market quicker by 

using the connection with the least 

amount of latency.’’ 33 According to the 

Exchanges, these firms are generally 

engaged in sending liquidity-removing 

orders to the Exchange and seek to add 

more connections so they can access 

resting liquidity ahead of their 

competitors, and this type of usage of 

the 10Gb ULL connections is more 

costly to the Exchange, as a result of, 

among other things, frequently adding 

and dropping connections mid-month to 

determine which connections have the 

least latency, which results in increased 

costs to the Exchange to constantly 

make changes in the data center which 

results in ‘‘disproportionate pull on 

Exchange resources to provide the 

additional connectivity.’’ 34

To date, the Commission has not 

received any comment letters on the 

revised justifications for the Proposed 

Access Fees. 

When exchanges file their proposed 

rule changes with the Commission, 

including fee filings like the Exchanges’ 

present proposal, they are required to 

provide a statement supporting the 

proposal’s basis under the Act and the 

rules and regulations thereunder 

applicable to the exchange.35 The 

instructions to Form 19b–4, on which 

exchanges file their proposed rule 

changes, specify that such statement 

‘‘should be sufficiently detailed and 

specific to support a finding that the 

proposed rule change is consistent with 

[those] requirements.’’ 36

Section 6 of the Act, including 

Sections 6(b)(4), (5), and (8), require the 

rules of an exchange to (1) provide for 

the equitable allocation of reasonable 

fees among members, issuers, and other 

persons using the exchange’s 

facilities; 37 (2) perfect the mechanism of 

a free and open market and a national 

market system, protect investors and the 

public interest, and not be designed to 

permit unfair discrimination between 

customers, issuers, brokers, or 

dealers; 38 and (3) not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.39

In temporarily suspending the 

Exchanges’ fee changes, the Commission 

intends to further consider whether the 

proposals to modify fees for certain 

connectivity options and implement a 

tiered pricing fee structure is consistent 

with the statutory requirements 

applicable to a national securities 

exchange under the Act. In particular, 

the Commission will consider whether 

the proposed rule changes satisfy the 

standards under the Act and the rules 

thereunder requiring, among other 

things, that an exchange’s rules provide 

for the equitable allocation of reasonable 

fees among members, issuers, and other 

persons using its facilities; not permit 

unfair discrimination between 

customers, issuers, brokers or dealers; 

and do not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.40

Therefore, the Commission finds that 

it is appropriate in the public interest, 

for the protection of investors, and 

otherwise in furtherance of the purposes 

of the Act, to temporarily suspend the 

proposed rule changes.41

IV. Proceedings To Determine Whether 

To Approve or Disapprove the 

Proposed Rule Changes 

In addition to temporarily suspending 

the proposals, the Commission also 

hereby institutes proceedings pursuant 

to Sections 19(b)(3)(C) 42 and 

19(b)(2)(B) 43 of the Act to determine 

whether the Exchanges’ proposed rule 

changes should be approved or 

disapproved. Institution of such 

proceedings is appropriate at this time 

in view of the legal and policy issues 

raised by the proposed rule changes. 

Institution of proceedings does not 

indicate that the Commission has 

reached any conclusions with respect to 

any of the issues involved. Rather, as 

described below, the Commission seeks 

and encourages interested persons to 

provide comments on the proposed rule 

changes to inform the Commission’s 

analysis of whether to approve or 

disapprove the proposed rule changes. 

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

Act,44 the Commission is providing 

notice of the grounds for possible 

disapproval under consideration. The 

Commission is instituting proceedings 

to allow for additional analysis of 

whether the Exchanges have sufficiently 

demonstrated how the proposed rule 

changes are consistent with Sections 

6(b)(4),45 6(b)(5),46 and 6(b)(8) 47 of the 

Act. Section 6(b)(4) of the Act requires 

that the rules of a national securities 

exchange provide for the equitable 

allocation of reasonable dues, fees, and 

other charges among its members and 

issuers and other persons using its 

facilities. Section 6(b)(5) of the Act 

requires that the rules of a national 

securities exchange be designed, among 


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48See MIAX Notice, supra note 4, at 71999 and 

n.28. 

49See MIAX Notice, supra note 4, at 71999, 

72000. 

50See id. 

other things, to promote just and 

equitable principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest, and not be designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

Section 6(b)(8) of the Act requires that 

the rules of a national securities 

exchange not impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

The Commission asks that 

commenters address the sufficiency of 

the Exchanges’ statements in support of 

the proposals, which are set forth in the 

MIAX Notice and the Pearl Notice, in 

addition to any other comments they 

may wish to submit about the proposed 

rule changes. In particular, the 

Commission seeks comment on the 

following aspects of the proposals and 

asks commenters to submit data where 

appropriate to support their views: 

1. Cost Estimates and Allocation. The 

Exchanges state that they are not 

asserting that the Proposed Access Fees 

are constrained by competitive forces, 

but rather set forth a ‘‘cost-plus model,’’ 

employing a ‘‘conservative 

methodology’’ that ‘‘strictly considers 

only those costs that are most clearly 

directly related to the provision and 

maintenance of 10Gb ULL connectivity 

to estimate such costs.’’ 48 Setting forth 

their costs in providing 10Gb ULL 

connectivity, and as summarized in 

greater detail above, the Exchanges 

project $15.9 million in aggregate 

annual estimated costs for 2021 as the 

sum of: (1) $3.9 million in third-party 

expenses paid in total to Equinix (62% 

of the total applicable expense) for data 

center services; Zayo Group Holdings, 

for network services (62% of the total 

applicable expense); SFTI for 

connectivity support, Thompson 

Reuters, NYSE, Nasdaq, and Internap 

and others (75% of the total applicable 

expense) for content, connectivity 

services, and infrastructure services; 

and various other hardware and 

software providers (51% of the total 

applicable expense) supporting the 

production environment, and (2) $12 

million in internal expenses, allocated 

to (a) employee compensation and 

benefit costs ($6.1 million, 

approximately 28% of the Exchanges’ 

total applicable employee compensation 

and benefits expense); (b) depreciation 

and amortization ($5.3 million, 

approximately 70% of the Exchanges’ 

total applicable depreciation and 

amortization expense); and (c) 

occupancy costs ($0.6 million, 

approximately 53% of the Exchanges’ 

total applicable occupancy expense). Do 

commenters believe that the Exchanges 

have provided sufficient detail about 

how they determined which costs are 

most clearly directly associated with 

providing and maintaining 10Gb ULL 

connectivity? The Exchanges describe a 

process involving all Exchange 

department heads, including the finance 

department, but do not specify further 

what principles were applied in making 

these determinations or arriving at 

particular allocations. Do commenters 

believe further explanation is necessary? 

For employee compensation and benefit 

costs, for example, the Exchanges 

calculated an allocation of employee 

time in several departments, including 

Technology, Back Office, Systems 

Operations, Networking, Business 

Strategy Development, Trade 

Operations, Finance, and Legal, but do 

not provide the job titles and salaries of 

persons whose time was accounted for, 

or explain the methodology used to 

determine how much of an employee’s 

time is devoted to that specific activity. 

What are commenters’ views on 

whether the Exchanges have provided 

sufficient detail on the identity and 

nature of services provided by third 

parties? Across all of the Exchanges’ 

projected costs, what are commenters’ 

views on whether the Exchanges have 

provided sufficient detail on the 

elements that go into connectivity costs, 

including how shared costs are 

allocated and attributed to connectivity 

expenses, to permit an independent 

review and assessment of the 

reasonableness of purported cost-based 

fees and the corresponding profit 

margin thereon? Should the Exchanges 

be required to identify for what services 

or fees the remaining percentage of unallocated expenses are attributable to 

(e.g., what services or fees are associated 

with the 30% of applicable depreciation 

and amortization expenses the 

Exchanges do not allocate to the 

Proposed Access Fees)? Do commenters 

believe that the costs projected for 2021 

are generally representative of expected 

costs going forward (to the extent 

commenters consider 2021 to be a 

typical or atypical year), or should an 

exchange present an estimated range of 

costs with an explanation of how profit 

margins could vary along the range of 

estimated costs? 

2. Revenue Estimates and Profit 

Margin Range. The Exchanges provide a 

single monthly revenue figure as the 

basis for calculating the profit margin of 

21.3%. Do commenters believe this is 

reasonable? If not, why not? The 

Exchanges state that their proposed fee 

structure is ‘‘designed to cover [their] 

costs with a limited return in excess of 

such costs,’’ and believes that a 21.3% 

margin is such a limited return over 

such costs.49 The profit margin is also 

dependent on the accuracy of the cost 

projections which, if inflated 

(intentionally or unintentionally), may 

render the projected profit margin 

meaningless. The Exchanges 

acknowledge that this margin may 

fluctuate from month to month due to 

changes in the number of connections 

purchased, and that costs may 

increase.50 The Exchanges do not 

account for the possibility of cost 

decreases, however. What are 

commenters’ views on the extent to 

which actual costs (or revenues) deviate 

from projected costs (or revenues)? Do 

commenters believe that the Exchanges’ 

methodology for estimating the profit 

margin is reasonable? Should the 

Exchanges provide a range of profit 

margins that they believe are reasonably 

possible, and the reasons therefor? 

3. Reasonable Rate of Return. Do 

commenters agree with the Exchanges 

that their expected 21.3% profit margin 

would constitute a reasonable rate of 

return over cost for 10GB ULL 

connectivity? If not, what would 

commenters consider to be a reasonable 

rate of return and/or what methodology 

would they consider to be appropriate 

for determining a reasonable rate of 

return? What are commenters’ views 

regarding what factors should be 

considered in determining what 

constitutes a reasonable rate of return 

for 10Gb ULL connectivity fees? Do 

commenters believe it relevant to an 

assessment of reasonableness that the 

Exchanges’ proposed fees for 10Gb ULL 

connections, even at the highest tier, are 

lower than those of other options 

exchanges to which the Exchanges have 

compared the Proposed Access Fees? 

Should an assessment of reasonable rate 

of return include consideration of 

factors other than costs; and if so, what 

factors should be considered, and why? 

4. Periodic Reevaluation. The 

Exchanges have not addressed whether 

they believe a material deviation from 

the anticipated profit margin would 

warrant the need to make a rule filing 

pursuant to Section 19(b) of the Act to 

increase or decrease the fees 

accordingly. In light of the impact that 

the number of subscribers has on 

connectivity profit margins, and the 


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Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices 5905 

51See MIAX Notice, supra note 4, at 72004. 

52See id. 

53See id. 

54 17 CFR 201.700(b)(3). 

55See id. 

56See id. 

57See Susquehanna Int’l Group, LLP v. Securities 

and Exchange Commission, 866 F.3d 442, 446–47 

(D.C. Cir. 2017) (rejecting the Commission’s reliance 

on an SRO’s own determinations without sufficient 

evidence of the basis for such determinations). 

58 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act 

grants the Commission flexibility to determine what 

type of proceeding—either oral or notice and 

opportunity for written comments—is appropriate 

for consideration of a particular proposal by an 

SRO. See Securities Acts Amendments of 1975, 

Report of the Senate Committee on Banking, 

Housing and Urban Affairs to Accompany S. 249, 

S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 

potential for costs to decrease (or 

increase) over time, what are 

commenters’ views on the need for 

exchanges to commit to reevaluate, on 

an ongoing and periodic basis, their 

cost-based connectivity fees to ensure 

that they stay in line with their stated 

profitability target and do not become 

unreasonable over time, for example, by 

failing to adjust for efficiency gains, cost 

increases or decreases, and changes in 

subscribers? How formal should that 

process be, how often should that 

reevaluation occur, and what metrics 

and thresholds should be considered? 

How soon after a new connectivity fee 

change is implemented should an 

exchange assess whether its subscriber 

estimates were accurate and at what 

threshold should an exchange commit 

to file a fee change if its estimates were 

inaccurate? Should an initial review 

take place within the first 30 days after 

a connectivity fee is implemented? 60 

days? 90 days? Some other period? 

5. Tiered Structure for 10Gb ULL 

Connections. The Exchanges state that 

the proposed tiered fee structure is 

designed to decrease the monthly fees 

for those firms that connect to the 

Exchange(s) as part of their best 

execution obligations and generally tend 

to send the least amount of orders and 

messages over those connections, 

because such firms generally only 

purchase a limited number of 

connections, and also ‘‘generally send 

less orders and messages over those 

connections, resulting in less strain on 

Exchange resources.’’ 51 According to 

the Exchanges, 80% of firms have not 

experienced a fee increase as a result of 

the tiered structure. However, firms that 

purchase five or more connections will 

see a 30% increase in their fees for each 

connection above the fourth. Regarding 

these firms, the Exchanges have not 

asserted that it is 30% more costly for 

the Exchanges to offer such connections 

to these firms, but instead argue 

generally that these firms are ‘‘likely’’ to 

result in greater expenditure of 

Exchange resources and increased cost 

to the Exchange.52 Do commenters 

believe that the price differences 

between the tiers are supported by the 

Exchanges’ assertions that it set the 

level of its proposed fees in a manner 

that it is equitable and not unfairly 

discriminatory? Do commenters believes 

the Exchanges should demonstrate how 

the proposed tiered fee levels correlate 

with tiered costs (e.g., by providing cost 

information broken down by tier, 

messaging and order volumes through 

the additional 10Gb ULL connections by 

tier, and/or mid-month add/drop of 

connection rates by tier)? Do 

commenters believe that the Exchanges 

should provide more detail about the 

costs that firms purchasing three or 

more or five or more 10Gb ULL 

connections impose on the Exchanges, 

to permit an assessment of the 

Exchanges’ statement that the Proposed 

Access Fees ‘‘do not depend on any 

distinctions between Members, 

customers, broker-dealers, or any other 

entity, because they are solely 

determined by the individual Member’s 

or non-Member’s business needs and its 

impact on the Exchanges resources?’’ 53

Under the Commission’s Rules of 

Practice, the ‘‘burden to demonstrate 

that a proposed rule change is 

consistent with the Exchange Act and 

the rules and regulations issued 

thereunder . . . is on the [SRO] that 

proposed the rule change.’’ 54 The 

description of a proposed rule change, 

its purpose and operation, its effect, and 

a legal analysis of its consistency with 

applicable requirements must all be 

sufficiently detailed and specific to 

support an affirmative Commission 

finding,55 and any failure of an SRO to 

provide this information may result in 

the Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Act and the applicable rules 

and regulations.56 Moreover, 

‘‘unquestioning reliance’’ on an SRO’s 

representations in a proposed rule 

change would not be sufficient to justify 

Commission approval of a proposed rule 

change.57

The Commission believes it is 

appropriate to institute proceedings to 

allow for additional consideration and 

comment on the issues raised herein, 

including as to whether the proposals 

are consistent with the Act, any 

potential comments or supplemental 

information provided by the Exchanges, 

and any additional independent 

analysis by the Commission. 

V. Request for Written Comments 

The Commission requests written 

views, data, and arguments with respect 

to the concerns identified above as well 

as any other relevant concerns. In 

particular, the Commission invites the 

written views of interested persons 

concerning whether the proposal is 

consistent with Sections 6(b)(4), 6(b)(5), 

and 6(b)(8), or any other provision of the 

Act, or the rules and regulations 

thereunder. The Commission asks that 

commenters address the sufficiency and 

merit of the Exchanges’ statements in 

support of the proposals, in addition to 

any other comments they may wish to 

submit about the proposed rule changes. 

Although there do not appear to be any 

issues relevant to approval or 

disapproval that would be facilitated by 

an oral presentation of views, data, and 

arguments, the Commission will 

consider, pursuant to Rule 19b–4, any 

request for an opportunity to make an 

oral presentation.58

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposals should be approved or 

disapproved by February 23, 2022. Any 

person who wishes to file a rebuttal to 

any other person’s submission must file 

that rebuttal by March 9, 2022. 

Comments may be submitted by any 

of the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Nos. SR– 

MIAX–2021–59 and SR–PEARL–2021– 

57 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Numbers SR–MIAX–2021–59 and SR– 

PEARL–2021–57. These file numbers 

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 (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

changes that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule changes between the 


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5906 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices 

59 15 U.S.C. 78s(b)(3)(C). 

60 17 CFR 200.30–3(a)(57) and (58). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4The Exchange originally filed to amend the Fee 

Schedule on December 29, 2021 (SR–NYSEAmer– 

2021–50), with an effective date of January 3, 2022, 

then withdrew such filing and amended the Fee 

Schedule on January 12, 2022 (SR–NYSEAmer– 

2022–02), which latter filing the Exchange 

withdrew on January 21, 2022. 

5See Fee Schedule, Section III.E.1, Floor Broker 

Fixed Cost Prepayment Incentive Program (the ‘‘FB 

Prepay Program’’), available here: https://

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

Schedule.pdf. ‘‘Eligible Fixed Costs’’ include 

monthly ATP Fees, the Floor Access Fee, and 

certain monthly Floor communication, 

connectivity, equipment and booth or podia fees, as 

set forth in the table in Section III.E.1. 

6See id. The Percentage Growth Incentive 

excludes Customer volume, Firm Facilitation 

trades, and QCCs. Any volume calculated to 

achieve the Firm Monthly Fee Cap and the Strategy 

Execution Fee Cap, regardless of whether either of 

these caps is achieved, will likewise be excluded 

from the Percentage Growth Incentive because fees 

on such volume are already capped and therefore 

do not increase billable manual volume. See id. 

7See Fee Schedule, Section III.E.1. 

8See id. 

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 

10:00 a.m. and 3:00 p.m. Copies of the 

filings also will be available for 

inspection and copying at the principal 

office of each Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Numbers SR–MIAX–2021–59 and SR– 

PEARL–2021–57 and should be 

submitted on or before February 23, 

2022. Rebuttal comments should be 

submitted by March 9, 2022. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(3)(C) of the Act,59 that File 

Numbers SR–MIAX–2021–59 and SR– 

PEARL–2021–57 be, and hereby are, 

temporarily suspended. In addition, the 

Commission is instituting proceedings 

to determine whether the proposed rule 

changes should be approved or 

disapproved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.60

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–02083 Filed 2–1–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94086; File No. SR– 

NYSEAMER–2022–06] 

Self-Regulatory Organizations; NYSE 

American LLC; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend the NYSE 

American Options Fee Schedule 

January 27, 2022. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on January 

21, 2022, NYSE American LLC (‘‘NYSE 

American’’ or the ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the selfregulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend the 

NYSE American Options Fee Schedule 

(the ‘‘Fee Schedule’’) regarding the 

Floor Broker Fixed Cost Prepayment 

Incentive Program. The Exchange 

proposes to implement the fee change 

effective January 21, 2022.4 The 

proposed change is available on the 

Exchange’s website at www.nyse.com, at 

the principal office of the Exchange, 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 

self-regulatory organization 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 those 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 parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of this filing is to modify 

the Floor Broker Fixed Cost Prepayment 

Incentive Program (the ‘‘FB Prepay 

Program’’), a prepayment incentive 

program that allows Floor Broker 

organizations (each, a ‘‘Floor Broker’’) to 

prepay certain of their annual Eligible 

Fixed Costs in exchange for volume 

rebates, as set forth in the Fee 

Schedule.5

Currently, the FB Prepay Program 

offers participating Floor Brokers an 

opportunity to qualify for rebates by 

achieving growth in billable manual 

volume by a certain percentage as 

measured against one of two 

benchmarks (the ‘‘Percentage Growth 

Incentive’’). Specifically, the Percentage 

Growth Incentive is designed to 

encourage Floor Brokers to increase 

their average daily volume (‘‘ADV’’) in 

billable manual contract sides to qualify 

for a Tier; each Tier of the FB Prepay 

Program corresponds to an annual 

rebate equal to the greater of the ‘‘Total 

Percentage Reduction of pre-paid 

annual Eligible Fixed Costs’’ or the 

annualization of the monthly 

‘‘Alternative Rebate.’’ 6 In either case, 

participating Floor Brokers receive their 

annual rebate amount in the following 

January.7 Floor Brokers that wish to 

participate in the FB Prepay Program for 

the following calendar year must notify 

the Exchange no later than the last 

business day of December in the current 

year.8

As further described below, the 

Exchange proposes to modify the 

qualifying benchmarks, growth 

percentage requirements, and rebate 

amounts for the FB Prepay Program, and 

further proposes to offer Floor Brokers 

that participate in the FB Prepay 

Program additional per contract credits 

for certain QCC trades. The Exchange 

also proposes to adjust the basis for the 

calculation of a participating Floor 

Broker’s Eligible Fixed Costs for the 

following calendar year. 

The Exchange proposes to implement 

the fee changes effective January 21, 

2022. 

Proposed Rule Change 

The Exchange proposes to modify the 

benchmarks that Floor Brokers that 

participate in the FB Prepay Program 

must meet to qualify for the Percentage 

Growth Incentive. Currently, to qualify 

for the Percentage Growth Incentive, a 

Floor Broker must increase their ADV 

for the calendar year above the greater 


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