5910 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices 

18 15 U.S.C. 78s(b)(3)(A). 

19 17 CFR 240.19b–4(f)(2). 20 15 U.S.C. 78s(b)(2)(B). 

21 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). 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 No. 93776 

(December 14, 2021), 86 FR 71983 (‘‘Notice’’). 

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

between the Exchange and other 

execution venues by encouraging 

additional orders to be sent to the 

Exchange Floor for execution. The 

proposed modifications to the FB 

Prepay Program are designed to 

continue to incent Floor Broker 

participation in the program, including 

by making the incentives more 

achievable and increasing the amounts 

of the rebates available. The Exchange 

thus believes that the proposed change 

would continue to encourage Floor 

Brokers to execute orders on the Floor 

of the Exchange, which would increase 

volume and liquidity, to the benefit of 

all market participants by providing 

more trading opportunities and tighter 

spreads. 

Given the robust competition for 

volume among options markets, 

implementing programs to attract order 

flow, such as the proposed 

modifications to the FB Prepay Program, 

are consistent with the above-mentioned 

goals of the Act. 

The Exchange notes that it operates in 

a highly competitive market in which 

market participants can readily favor 

competing venues. In such an 

environment, the Exchange must 

continually review, and consider 

adjusting, its fees and credits to remain 

competitive with other exchanges. For 

the reasons described above, the 

Exchange believes that the proposed 

rule change reflects this competitive 

environment. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change is effective 

upon filing pursuant to Section 

19(b)(3)(A) 18 of the Act and 

subparagraph (f)(2) of Rule 19b–4 19

thereunder, because it establishes a due, 

fee, or other charge imposed by the 

Exchange. 

At any time within 60 days of the 

filing of such 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 

under Section 19(b)(2)(B) 20 of the Act to 

determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSEAMER–2022–06 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSEAMER–2022–06. 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 (http://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 

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

filing also will be available for 

inspection and copying at the principal 

office of the 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 

Number SR–NYSEAMER–2022–06, and 

should be submitted on or before 

February 23, 2022. 

For the Commission, by the Division 

of Trading and Markets, pursuant to 

delegated authority.21

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–02081 Filed 2–1–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94089; File No. SR– 

EMERALD–2021–42] 

Self-Regulatory Organizations; MIAX 

Emerald, LLC; Suspension of and 

Order Instituting Proceedings To 

Determine Whether To Approve or 

Disapprove Proposed Rule Change To 

Amend the MIAX Emerald Fee 

Schedule To Adopt a Tiered Pricing 

Structure for Certain Connectivity Fees 

January 27, 2022. 

I. Introduction 

On December 1, 2021, MIAX Emerald, 

LLC (‘‘MIAX Emerald’’ or ‘‘Exchange’’) 

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 Number 

SR–EMERALD–2021–42) to amend the 

Exchange’s Fee Schedule (‘‘Fee 

Schedule’’) to adopt a tiered pricing 

structure for certain connectivity fees. 

The proposed rule change was 

immediately effective upon filing with 

the Commission pursuant to Section 

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

rule change was 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 Number 

SR–EMERALD–2021–42; and (ii) 

instituting proceedings to determine 

whether to approve or disapprove File 

Number SR–EMERALD–2021–42. 


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6See Notice, supra note 4 at 71984. 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. 8The Exchange initially filed the proposed fee 

change on July 30, 2021. See Securities Exchange 

Act Release No. 92645 (August 11, 2021), 86 FR 

46048 (August 17, 2021) (SR–EMERALD–2021–23). 

That filing was withdrawn by the Exchange. The 

Exchange filed new proposed fee changes with 

additional justification (SR–EMERALD–2021–29), 

which were the subject of a Suspension of and 

Order Instituting Proceedings. See Securities 

Exchange Act Release No. 93644 (November 22, 

2021), 86 FR 67750 (November 29, 2021). The 

Exchange subsequently withdrew that filing and 

replaced it with the instant filing to provide 

additional information and a revised justification 

for the proposal, which is discussed herein. See 

Securities Exchange Act Release No. 93736 

(December 7, 2021), 86 FR 70878 (December 13, 

2021) (Notice of Withdrawal); see also Notice, supra 

note 4 at 71984. 

9See Notice, supra note 4, at 71985. The 

Exchange state that it deems connectivity fees to be 

access fees, and records these fees as part of its 

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

Id. at 71985. 

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

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

12See Notice, supra note 4, at 71990. The 

Exchange states that approximately 60% of the 

firms that purchased at least one 10Gb ULL 

connection experienced a decrease in their monthly 

connectivity fees, while approximately 40% of 

firms experienced an increase in their monthly 

connectivity fees. See id. at 71991. 

13See id. 

14See Notice, supra note 4, at 71992. 

15See id. at 71985, 71987. 

16See id. at 71986. 

17See id. at 71986, 71987, 71988, 71989. The 

2021 costs are projected because the 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 71986. 

18See id. at 71986. 

19See id. at 71987. The Exchange also states that 

the $7.2 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, and does not include 

general costs of operating matching engines and 

other trading technology. Id. at 71987. 

20See id. at 71988–99. 

21For employee compensation and benefit costs, 

for example, the Exchange 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 

Continued 

II. Background and Description of the 

Proposed Rule Change 

MIAX Emerald has a connectivity 

infrastructure that permits Members and 

non-Members to connect directly to the 

Exchange, and access the Exchange’s 

trading platforms, market data systems, 

test systems, and disaster recovery 

facilities.6 Prior to implementation of 

the proposed rule change, a market 

participant connecting to the primary or 

secondary facility of the Exchange 

options platform via a 10 gigabit ultralow latency (‘‘10Gb ULL’’) fiber 

connection was assessed a monthly fee 

of $10,000 per connection.7 The 

Exchange proposes to modify the Fee 

Schedule 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 Exchange’s APIs or 

market data feeds in the Exchange’s 

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 proposal, the 

Exchange argues 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 Exchange 

states 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 

Exchange also maintains that the tiered 

pricing structure will encourage 

Members and non-Members to be more 

efficient and economical when 

determining how to connect to the 

Exchange and should better enable the 

Exchange to monitor and provide access 

to the Exchange’s network to ensure 

sufficient capacity and headroom in the 

System.14

In further support of the proposal, the 

Exchange argues 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 supracompetitive profit.15 Specifically, the 

Exchange states 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 

Exchange, 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,’’ it estimates the total 

projected 2021 cost to offer 10Gb ULL 

connections at $7.2 million, 

representing $1.7 million in third-party 

cost and $5.5 million in internal cost.17

To arrive at these figures, the Exchange 

states that it undertook a thorough 

internal analysis of nearly every 

expense on each Exchange’s 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 The 

Exchange states 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 Exchange states that the $1.7 

million projected 2021 third-party 

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

Equinix, for data center services 

(approximately 62% of the Exchange’s 

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 89%); and (4) various 

other hardware and software providers 

(approximately 51%).20 Likewise, the 

Exchange states that the $5.5 million 

projected 2021 internal expense, is the 

sum of: (1) Employee compensation and 

benefits expense allocated to the 

Proposed Access Fees ($3.2 million, 

which is 33% of the total projected 

expense of $9.7 million for employee 

compensation and benefits); 21 (2) 


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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 71989. 

22See id. at 71990. 

23See id. 

24 Id. 

25 Id. at 71986–87 and 71990. 

26 Id. at 71992. The Exchange asserts 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, the 

Exchange’s proposed tiered pricing structure is 

‘‘significantly lower’’ than these competing options 

exchanges with similar market share. Id. For 

example, the Exchange states 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 Exchange’s proposed fee structure 

is $2,000 less per month. Id. 

27See id. at 71991. The Exchange state that 

approximately 60% of the firms that purchased at 

least one 10Gb ULL connection experienced a 

decrease in their monthly connectivity fees, while 

approximately 40% of firms experienced an 

increase in their monthly connectivity fees as a 

result of the proposed tiered pricing structure when 

compared to the flat monthly fee structure. See id. 

28See id. at 71991. 

29See id. 

30See id. 

31See id. 

32See id. 

33See id. 

34See id. at 71991–92. 

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. 

depreciation and amortization expense 

allocated to the Proposed Access Fees 

($2 million, which the Exchange 

estimated as 63% of the total projected 

expense of $3.1 million for depreciation 

and amortization); and (3) occupancy 

expense ($0.3 million, which the 

Exchange estimated as 53% of the 

Exchange’s total projected expense of 

$0.5 million for occupancy). Converting 

the projected annualized expense figure 

to a monthly figure, the Exchange 

estimates an average monthly cost of 

offering the services associated with the 

Proposed Access Fees at $600,000.22

Regarding revenue, the Exchange 

represents that revenue for the month of 

October 2021 was approximately 

$1,146,714 (including pro-rated 

charges), attributable to the purchase of 

100 10Gb ULL connections at the 

proposed tiered rates. Accordingly, the 

Exchange calculated a $546,714 

monthly profit for October 2021 and a 

profit margin of 47%. As a baseline, the 

Exchange used revenue for July 2021 

before introduction of the Proposed 

Access Fees, which it represented was 

$971,905, attributable to the purchases 

of a total of 98 10Gb ULL connections, 

to calculate the baseline monthly profit 

margin of 38%. 

The Exchange maintains that a 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 The Exchange also 

argues that a 47% rate of return is 

reasonable because it will allow them to 

‘‘to continue to recoup its expenses and 

continue to invest in its technology 

infrastructure.’’ 24 The Exchange adds 

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 it needs to purchase to 

maintain the Exchange’s 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 the Exchange does not assert 

that competitive forces constrain the 

Proposed Access Fees, it maintains that 

the Proposed Access Fees are reasonable 

when compared to the fees of other 

options exchanges, as the Exchange’s 

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 Exchange also 

argues 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 The Exchange further 

explains 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 Exchange urges that the 

increases for these firms are justified 

because the new fees ‘‘apply to all 

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 The 

Exchange explains that the firms 

experiencing higher fees are those 

engaged in advanced trading strategies 

that typically require multiple 

connections and generate higher costs 

for the Exchange by utilizing more of 

the Exchange’s resources.30 Responding 

to prior comment that the Exchange 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 Exchange states that ‘‘more 

connections purchased by a firm likely 

results in greater expenditure of 

Exchange resources and increased cost 

to the Exchange.’’ 31 The Exchange 

describes 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 Exchange describes 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 

Exchange, 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 Exchange’s 

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


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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). 48See Notice, supra note 4, at 71986 and n.28. 

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 

Exchange’s 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 Change 

In addition to temporarily suspending 

the proposal, 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 proposed rule change 

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 change. 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 

change to inform the Commission’s 

analysis of whether to approve or 

disapprove the proposed rule change. 

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 Exchange has sufficiently 

demonstrated how the proposed rule 

change is 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 

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 Exchange’s statements in support of 

the proposal, which are set forth in the 

Notice, in addition to any other 

comments they may wish to submit 

about the proposed rule change. 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 

Exchange states that it is not asserting 

that the Proposed Access Fee are 

constrained by competitive forces, but 

rather sets 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 

its costs in providing 10Gb ULL 

connectivity, and as summarized in 

greater detail above, the Exchange 

projects $7.2 million in aggregate annual 

estimated costs for 2021 as the sum of: 

(1) $1.7 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 (89% 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) $5.5 

million in internal expenses, allocated 

to (a) employee compensation and 

benefit costs ($3.2 million, 

approximately 33% of the Exchange’s 

total applicable employee compensation 

and benefits expense); (b) depreciation 

and amortization ($2 million, 

approximately 63% of the Exchange’s 

total applicable depreciation and 

amortization expense); and (c) 

occupancy costs ($0.3 million, 

approximately 53% of the Exchange’s 

total applicable occupancy expense). Do 

commenters believe that the Exchange 

has provided sufficient detail about how 

it determined which costs are most 

clearly directly associated with 

providing and maintaining 10Gb ULL 

connectivity? The Exchange describes 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 Exchange 

calculated an allocation of employee 

time in several departments, including 


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5914 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices 

49See Notice, supra note 4, at 71986, 71990. 

50See id. 

51See Notice, supra note 4, at 71991. 

52See id. 

Technology, Back Office, Systems 

Operations, Networking, Business 

Strategy Development, Trade 

Operations, Finance, and Legal, but did 

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 Exchange has provided 

sufficient detail on the identity and 

nature of services provided by third 

parties? Across all of the Exchange’s 

projected costs, what are commenters’ 

views on whether the Exchange has 

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 Exchange 

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 37% of applicable depreciation 

and amortization expenses the Exchange 

does 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 Exchange provides a 

single monthly revenue figure as the 

basis for calculating the profit margin of 

47%. Do commenters believe this is 

reasonable? If not, why not? The 

Exchange states that their proposed fee 

structure is ‘‘designed to cover its costs 

with a limited return in excess of such 

costs,’’ and believes that a 47% 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 Exchange 

acknowledges 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 Exchange does 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 Exchange’s 

methodology for estimating the profit 

margin is reasonable? Should the 

Exchange provide a range of profit 

margins that it believes are reasonably 

possible, and the reasons therefor? 

3. Reasonable Rate of Return. Do 

commenters agree with the Exchange 

that its expected 47% 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 

Exchange’s proposed fees for 10Gb ULL 

connections, even at the highest tier, are 

lower than those of other options 

exchanges to which the Exchange has 

compared the Proposed Access Fees? 

What are commenters’ views regarding 

the difference in profit margins between 

the Exchange, at 47%, and that of its 

affiliates (MIAX and PEARL Options), at 

21.3%? Do commenters believe that this 

profit margin difference between 

affiliates for the same Proposed Access 

Fees is appropriate given the Exchange’s 

Proposed Access Fees are not for shared 

10Gb ULL connectivity; why or why 

not? 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 

Exchange has not addressed whether it 

believes 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 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 Exchange states that 

the proposed tiered fee structure is 

designed to decrease the monthly fees 

for those firms that connect to the 

Exchange 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 

Exchange, 60% 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 Exchange has not 

asserted that it is 30% more costly for 

the Exchange 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 

Exchange’s assertion that it set the level 

of its proposed fees in a manner that it 

is equitable and not unfairly 

discriminatory? Do commenters believe 

the Exchange 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 Exchange 

should provide more detail about the 

costs that firms purchasing three or 

more or five or more 10Gb ULL 

connections impose on the Exchange, to 

permit an assessment of the Exchange’s 

statement that the Proposed Access Fees 

‘‘do not depend on any distinctions 

between Members, customers, brokerdealers, or any other entity, because 

they are solely determined by the 

individual Member’s or non-Member’s 


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Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices 5915 

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). 

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. 

business needs and its impact on the 

Exchange 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 Exchange, 

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 Exchange’s statements in 

support of the proposal, in addition to 

any other comments they may wish to 

submit about the proposed rule change. 

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 

proposal 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 No. SR– 

EMERALD–2021–42 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–EMERALD–2021–42. 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 (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 

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 

Number SR–EMERALD–2021–42 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 

Number SR–EMERALD–2021–42 be, 

and hereby is, temporarily suspended. 

In addition, the Commission is 

instituting proceedings to determine 

whether the proposed rule change 

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. 2022–02084 Filed 2–1–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94075; File No. SR–NYSE– 

2022–03] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change to Adopt a 

Listing Standard for Rights 

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 

13, 2022, New York Stock Exchange 

LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to adopt a 

listing standard for rights. The proposed 

rule change is available on the 

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

the principal office of the Exchange, and 


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