Federal Register / Vol. 87, No. 35 / Tuesday, February 22, 2022 / Notices 9695 

118 17 CFR 200.30–3(a)(12), (57) and (58). 

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

2 17 CFR 240.19b–4. 

3The MIAX Emerald Express Interface (‘‘MEI’’) is 

a connection to the MIAX Emerald System that 

enables Market Makers to submit simple and 

complex electronic quotes to MIAX Emerald. See 

the Definitions Section of the Fee Schedule 

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

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

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

(‘‘RMMs’’) collectively. See the Definitions Section 

of the Fee Schedule and Exchange Rule 100. 

5The term ‘‘System’’ means the automated 

trading system used by the Exchange for the trading 

of securities. See the Definitions Section of the Fee 

Schedule and Exchange Rule 100. 

6See Securities Exchange Act Release No. 92662 

(August 13, 2021), 86 FR 46726 (August 19, 2021) 

(SR–EMERALD–2021–25). 

7 Id. 

8See Letter from Richard J. McDonald, 

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

Vanessa Countryman, Secretary, Commission, dated 

September 7, 2021 (‘‘SIG Letter 1’’). 

9See SR–EMERALD–2021–30. 

10See Securities Exchange Act Release No. 93188 

(September 29, 2021), 86 FR 55052 (October 5, 

2021) (SR–EMERALD–2021–31). 

11 Id. 

12See letters from Richard J. McDonald, SIG, to 

Vanessa Countryman, Secretary, Commission, dated 

October 1, 2021 (‘‘SIG Letter 2’’) and October 26, 

2021 (‘‘SIG Letter 3’’); and Ellen Green, Managing 

Director, Equity and Options Market Structure, 

Securities Industry and Financial Markets 

Association (‘‘SIFMA’’), to Vanessa Countryman, 

Secretary, Commission, dated November 26, 2021 

(‘‘SIFMA Letter’’). 

The Exchange notes that the Healthy Markets 

Association (‘‘HMA’’) submitted a comment letter 

on a related filing to amend fees for 10Gb ULL 

connections, on which SIG Letters 1, 2, and 3 as 

well as the SIFMA Letter also commented. See 

letter from Tyler Gellasch, Executive Director, HMA 

(‘‘HMA’’), to Hon. Gary Gensler, Chair, 

Commission, dated October 29, 2021 (commenting 

on SR–CboeEDGA–2021–017, SR–CboeBYX–2021– 

020, SR–Cboe–BZX–2021–047, SR–CboeEDGX– 

2021–030, SR–MIAX–2021–41, SR–PEARL–2021– 

45, and SR–EMERALD–2021–29 and stating that 

‘‘MIAX has repeatedly filed to change its 

connectivity fees in a way that will materially lower 

costs for many users, while increasing the costs for 

some of its heaviest of users. These filings have 

been withdrawn and repeatedly refiled. Each time, 

however, the filings contain significantly greater 

information about who is impacted and how than 

other filings that have been permitted to take effect 

without suspension’’) (emphasis added) (‘‘HMA 

Letter’’). 

13See Securities Exchange Act Release No. 93644 

(November 22, 2021), 86 FR 67745 (November 29, 

2021). 

14See Securities Exchange Act Release No. 93772 

(December 14, 2021), 86 FR 71965 (December 20, 

2021) (SR–EMERALD–2021–43). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.118

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–03652 Filed 2–18–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94260; File No. SR– 

EMERALD–2022–05] 

Self-Regulatory Organizations; MIAX 

Emerald, LLC; Notice of Filing of a 

Proposed Rule Change To Amend Its 

Fee Schedule To Adopt a TieredPricing Structure for Additional 

Limited Service MIAX Emerald Express 

Interface Ports; Suspension of and 

Order Instituting Proceedings To 

Determine Whether To Approve or 

Disapprove the Proposed Rule Change 

February 15, 2022. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on February 

1, 2022, MIAX Emerald, LLC (‘‘MIAX 

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

Securities and Exchange Commission 

(‘‘Commission’’) a 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 and is, pursuant 

to Section 19(b)(3)(C) of the Act, hereby: 

(i) Temporarily suspending the rule 

change; and (ii) instituting proceedings 

to determine whether to approve or 

disapprove the proposed rule change. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing a proposal to 

amend the MIAX Emerald Fee Schedule 

(the ‘‘Fee Schedule’’) to amend certain 

port fees. 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://www.miaxoptions.com/rulefilings, at MIAX’s principal office, and 

at the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV [sic] below. 

The Exchange has prepared summaries, 

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

of the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend the 

Fee Schedule to adopt a tiered-pricing 

structure for additional Limited Service 

MIAX Emerald Express Interface 

(‘‘MEI’’) Ports 3 available to Market 

Makers.4 The Exchange believes a 

tiered-pricing structure will encourage 

Market Makers to be more efficient and 

economical when determining how to 

connect to the Exchange. This should 

also enable the Exchange to better 

monitor and provide access to the 

Exchange’s network to ensure sufficient 

capacity and headroom in the System.5

The Exchange initially filed the 

proposed fee changes on August 2, 

2021, with the changes being 

immediately effective.6 The First 

Proposed Rule Change was published 

for comment in the Federal Register on 

August 19, 2021.7 The Commission 

received one comment letter on the First 

Proposed Rule Change.8 The Exchange 

withdrew the First Proposed Rule 

Change on September 27, 2021 and 

resubmitted its proposal (‘‘Second 

Proposed Rule Change’’).9 On 

September 28, 2021, the Exchange 

withdrew the Second Proposed Rule 

Change and re-submitted the proposal 

on September 28, 2021, with the 

proposed fee changes being immediately 

effective (‘‘Third Proposed Rule 

Change’’).10 The Third Proposed Rule 

Change was published for comment in 

the Federal Register on October 5, 

2021.11 The Third Proposed Rule 

Change provided additional justification 

for the proposed fee changes and 

addressed certain points raised in the 

single comment letter that was 

submitted on the First Proposed Rule 

Change. The Commission received four 

comment letters from three separate 

commenters on the Third Proposed Rule 

Change.12 The Commission suspended 

the Third Proposed Rule Change on 

November 22, 2021.13 The Exchange 

withdrew the Third Proposed Rule 

Change on December 1, 2021 and 

submitted a revised proposal for 

immediate effectiveness (‘‘Fourth 

Proposed Rule Change’’).14 The Fourth 

Proposed Rule Change meaningfully 

attempted to address issues or questions 

that have been raised by providing 

additional justification and explanation 

for the proposed fee changes and 

directly respond to the points raised in 


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9696 Federal Register / Vol. 87, No. 35 / Tuesday, February 22, 2022 / Notices 

15The Exchange notes that while the HMA Letter 

applauds the level of disclosure the Exchange 

included in the First and Second [sic] Proposed 

Rule Changes, the HMA Letter does not raise 

specific issues with the First or Second [sic] 

Proposed Rule Changes. Rather, it references the 

Exchange’s proposals by way of comparison to 

show the varying levels of transparency in exchange 

fees filings and recommends changes to the 

Commission’s review process of exchange fee 

filings generally. Therefore, the Exchange does not 

feel it is necessary to address the issues raised in 

the HMA Letter. 

16See supra note 14. 

17See Securities Exchange Act Release No. 94087 

(January 27, 2022) (Suspension of and Order 

Instituting Proceedings to Determine Whether to 

Approve or Disapprove Proposed Rule Changes to 

Amend Fee Schedules to Adopt Tiered-Pricing 

Structures for Additional Limited Service MIAX 

and MIAX Emerald Express Interface Ports). 

18 ‘‘Full Service MEI Ports’’ means a port which 

provides Market Makers with the ability to send 

Market Maker simple and complex quotes, eQuotes, 

and quote purge messages to the MIAX Emerald 

System. Full Service MEI Ports are also capable of 

receiving administrative information. Market 

Makers are limited to two Full Service MEI Ports 

per Matching Engine. See the Definitions Section of 

the Fee Schedule. 

19 ‘‘Limited Service MEI Ports’’ means a port 

which provides Market Makers with the ability to 

send simple and complex eQuotes and quote purge 

messages only, but not Market Maker Quotes, to the 

MIAX Emerald System. Limited Service MEI Ports 

are also capable of receiving administrative 

information. Market Makers initially receive two 

Limited Service MEI Ports per Matching Engine. 

See the Definitions Section of the Fee Schedule. 

20 ‘‘Matching Engine’’ means a part of the MIAX 

Emerald electronic system that processes options 

orders and trades on a symbol-by-symbol basis. 

Some Matching Engines will process option classes 

with multiple root symbols, and other Matching 

Engines may be dedicated to one single option root 

symbol (for example, options on SPY may be 

processed by one single Matching Engine that is 

dedicated only to SPY). A particular root symbol 

may only be assigned to a single designated 

Matching Engine. A particular root symbol may not 

be assigned to multiple Matching Engines. See the 

Definitions Section of the Fee Schedule. 

21See NYSE American Options Fee Schedule, 

Section V.A., Port Fees. 

22See NYSE Arca Options Fee Schedule, Port 

Fees. 

23See Nasdaq Stock Market, Nasdaq Options 7 

Pricing Schedule, Section 3, Nasdaq Options 

Market—Ports and Other Services. 

24 15 U.S.C. 78f(b). 

25 15 U.S.C. 78f(b)(4). 

26 15 U.S.C. 78f(b)(5). 

SIG Letters 1, 2, and 3, as well as the 

SIFMA Letter submitted on the First and 

Second [sic] Proposed Rule Changes,15

and feedback provided by Commission 

Staff during a telephone conversation on 

November 18, 2021 relating to the Third 

Proposed Rule Change. The Fourth 

Proposed Rule Change was published 

for comment in the Federal Register on 

December 20, 2021.16 The Exchange 

receive no comment letters on the 

Fourth Proposed Rule Change. The 

Commission suspended the Fourth 

Proposed Rule Change on January 27, 

2022.17 The Exchange withdrew the 

Fourth Proposed Rule Change on 

February 1, 2022 and now submits this 

proposal for immediate effectiveness 

(‘‘Fifth Proposed Rule Change’’). This 

Fifth Proposed Rule Change provides 

additional justification and explanation 

for the proposed fee changes. 

Additional Limited Service MEI Port 

Tiered-Pricing Structure 

The Exchange proposes to amend the 

fees for additional Limited Service MEI 

Ports. Currently, the Exchange allocates 

two (2) Full Service MEI Ports 18 and 

two (2) Limited Service MEI Ports 19 per 

matching engine 20 to which each 

Market Maker connects. Market Makers 

may also request additional Limited 

Service MEI Ports for each matching 

engine to which they connect. The Full 

Service MEI Ports, Limited Service MEI 

Ports and the additional Limited Service 

MEI Ports all include access to the 

Exchange’s primary and secondary data 

centers and its disaster recovery center. 

Market Makers may request additional 

Limited Service MEI Ports. Prior to the 

First Proposed Rule Change, Market 

Makers were assessed a $100 monthly 

fee for each additional Limited Service 

MEI Port for each matching engine. 

The Exchange now proposes to move 

from a flat monthly fee per additional 

Limited Service MEI Port for each 

matching engine to a tiered-pricing 

structure for additional Limited Service 

MEI Ports for each matching engine 

under which the monthly fee would 

vary depending on the number of 

additional Limited Service MEI Ports 

the Market Maker elects to purchase. 

Specifically, the Exchange will continue 

to provide the first and second 

additional Limited Service MEI Ports for 

each matching engine free of charge, as 

described above, per the initial 

allocation of Limited Service MEI Ports 

that Market Makers receive. The 

Exchange now proposes the following 

tiered-pricing structure: (i) The third 

and fourth additional Limited Service 

MEI Ports for each matching engine will 

increase from the current flat monthly 

fee of $100 to $200 per port; (ii) the fifth 

and sixth additional Limited Service 

MEI Ports for each matching engine will 

increase from the current flat monthly 

fee of $100 to $300 per port; and (iii) the 

seventh to the twelfth additional 

Limited Service MEI Ports will increase 

from the current monthly flat fee of 

$100 to $400 per port (collectively, the 

‘‘Proposed Access Fees’’). 

The Exchange believes the other 

exchanges’ port fees are a useful 

example of alternative approaches to 

providing and charging for port access 

and provides the below table for 

comparison purposes only to show how 

its proposed fees compare to fees 

currently charged by other options 

exchanges for similar port access. As 

shown by the below table, the 

Exchange’s proposed highest tier is still 

less than fees charged for similar port 

access provided by other options 

exchanges. 

Exchange Type of port Monthly fee 

(per port) 

MIAX Emerald (as proposed) ............................. Additional Limited Service MEI Port ................ 1–2 ports. FREE (not changed in this proposal), 3–4 ports. $200, 5–6 ports. $300, 7– 

12 ports. $400. 

NYSE American, LLC (‘‘Amex’’) 21 ..................... Order/Quote Entry Port .................................... $450. 

NYSE Arca, Inc. (‘‘Arca’’) 22 ............................... Order/Quote Entry Port .................................... $450. 

The NASDAQ Stock Market LLC 

(‘‘NASDAQ’’) 23.

SQF Port .......................................................... 1–5 ports. $1,500.00, 6–20 ports. $1,000.00, 

21 or more ports. $500. 

2. Statutory Basis 

The Exchange believes that its 

proposal to amend its Fee Schedule is 

consistent with Section 6(b) of the Act 24

in general, and furthers the objectives of 

Section 6(b)(4) of the Act 25 in 

particular, in that it provides for the 

equitable allocation of reasonable dues, 

fees and other charges among Exchange 

Members and issuers and other persons 

using any facility or system which the 

Exchange operates or controls. The 

Exchange also believes the proposal 

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

of the Act 26 in that it is designed to 

promote just and equitable principles of 

trade, remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general protect investors 


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Federal Register / Vol. 87, No. 35 / Tuesday, February 22, 2022 / Notices 9697 

27See Securities Exchange Act Release No. 85459 

(March 29, 2019), 84 FR 13363 (April 4, 2019) (SR– 

BOX–2018–24, SR–BOX–2018–37, and SR–BOX– 

2019–04) (Order Disapproving Proposed Rule 

Changes to Amend the Fee Schedule on the BOX 

Market LLC Options Facility to Establish BOX 

Connectivity Fees for Participants and NonParticipants Who Connect to the BOX Network). 

28See Staff Guidance on SRO Rule Filings 

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

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

(the ‘‘Guidance’’). 

29See Securities Exchange Act Release Nos. 

90981 (January 25, 2021), 86 FR 7582 (January 29, 

2021) (SR–PEARL–2021–01) (proposal to increase 

connectivity fees); 90980 (January 25, 2021), 86 FR 

7602 (January 29, 2021) (SR–MIAX–2021–02) 

(proposal to increase connectivity fees). 

30See Guidance, supra note 28. 

31 Id. 

32 Id. 

33 Id. 

34 Id. 

35 Id. 

36For example, the Exchange only included the 

costs associated with providing and supporting 

additional Limited Service MEI Ports and excluded 

from its cost calculations any cost not directly 

associated with providing and maintaining such 

ports. Thus, the Exchange notes that this 

methodology underestimates the total costs of 

providing and maintaining additional Limited 

Service MEI Ports. 

and the public interest and is not 

designed to permit unfair 

discrimination between customers, 

issuers, brokers and dealers. 

On March 29, 2019, the Commission 

issued an Order disapproving a 

proposed fee change by the BOX Market 

LLC Options Facility to establish 

connectivity fees for its BOX Network 

(the ‘‘BOX Order’’).27 On May 21, 2019, 

the Commission Staff issued guidance 

‘‘to assist the national securities 

exchanges and FINRA . . . in preparing 

Fee Filings that meet their burden to 

demonstrate that proposed fees are 

consistent with the requirements of the 

Securities Exchange Act.’’ 28 Based on 

both the BOX Order and the Guidance, 

the Exchange believes that the Proposed 

Access Fees are consistent with the Act 

because they (i) are reasonable, 

equitably allocated, not unfairly 

discriminatory, and not an undue 

burden on competition; (ii) comply with 

the BOX Order and the Guidance; (iii) 

are supported by evidence (including 

comprehensive revenue and cost data 

and analysis) that they are fair and 

reasonable because they will not result 

in excessive pricing or supracompetitive profit; and (iv) utilize a 

cost-based justification framework that 

is substantially similar to a framework 

previously used by the Exchange, and 

its affiliates Miami International 

Securities Exchange, LLC (‘‘MIAX’’) and 

MIAX PEARL, LLC (‘‘MIAX Pearl’’), to 

amend other non-transaction fees.29

The Proposed Access Fees Will Not 

Result in a Supra-Competitive Profit 

The Exchange believes that 

exchanges, in setting fees of all types, 

should meet very high standards of 

transparency to demonstrate why each 

new fee or fee amendment meets the 

requirements of the Act that fees be 

reasonable, equitably allocated, not 

unfairly discriminatory, and not create 

an undue burden on competition among 

market participants. The Exchange 

believes this high standard is especially 

important when an exchange imposes 

various access fees for market 

participants to access an exchange’s 

marketplace. The Exchange deems ports 

to be access fees. It records these fees as 

part of its ‘‘Access Fees’’ revenue in its 

financial statements. 

In the Guidance, the Commission 

Staff stated that, ‘‘[a]s an initial step in 

assessing the reasonableness of a fee, 

staff considers whether the fee is 

constrained by significant competitive 

forces.’’ 30 The Guidance further states 

that, ‘‘. . . even where an SRO cannot 

demonstrate, or does not assert, that 

significant competitive forces constrain 

the fee at issue, a cost-based discussion 

may be an alternative basis upon which 

to show consistency with the Exchange 

Act.’’ 31 In its Guidance, the 

Commission Staff further states that, 

‘‘[i]f an SRO seeks to support its claims 

that a proposed fee is fair and 

reasonable because it will permit 

recovery of the SRO’s costs, or will not 

result in excessive pricing or 

supracompetitive profit, specific 

information, including quantitative 

information, should be provided to 

support that argument.’’ 32 The 

Exchange does not assert that the 

Proposed Access Fees are constrained 

by competitive forces. Rather, the 

Exchange asserts that the Proposed 

Access Fees are reasonable because they 

will permit recovery of the Exchange’s 

costs in providing access services to 

supply additional Limited Service MEI 

Ports and will not result in the 

Exchange generating a supracompetitive profit. 

The Guidance defines ‘‘supracompetitive profit’’ as ‘‘profits that 

exceed the profits that can be obtained 

in a competitive market.’’ 33 The 

Commission Staff further states in the 

Guidance that ‘‘the SRO should provide 

an analysis of the SRO’s baseline 

revenues, costs, and profitability (before 

the proposed fee change) and the SRO’s 

expected revenues, costs, and 

profitability (following the proposed fee 

change) for the product or service in 

question.’’ 34 The Exchange provides 

this analysis below. 

Based on this analysis, the Exchange 

believes the Proposed Access Fees are 

reasonable and do not result in a 

‘‘supra-competitive’’ 35 profit. The 

Exchange believes that it is important to 

demonstrate that the Proposed Access 

Fees are based on its costs and 

reasonable business needs. The 

Exchange believes the Proposed Access 

Fees will allow the Exchange to offset 

expenses the Exchange has and will 

incur, and that the Exchange provides 

sufficient transparency (described 

below) into the costs and revenue 

underlying the Proposed Access Fees. 

Accordingly, the Exchange provides an 

analysis of its revenues, costs, and 

profitability associated with the 

Proposed Access Fees. This analysis 

includes information regarding its 

methodology for determining the costs 

and revenues associated with the 

Proposed Access Fees. As a result of this 

analysis, the Exchange believes the 

Proposed Access Fees are fair and 

reasonable as a form of cost recovery 

plus present the possibility of a 

reasonable return for the Exchange’s 

aggregate costs of offering additional 

Limited Service MEI Port access to the 

Exchange. 

The Proposed Access Fees are based 

on a cost-plus model. In determining the 

appropriate fees to charge, the Exchange 

considered its costs to provide port 

access, using what it believes to be a 

conservative methodology (i.e., that 

strictly considers only those costs that 

are most clearly directly related to the 

provision and maintenance of 

additional Limited Service MEI Ports) to 

estimate such costs,36 as well as the 

relative costs of providing and 

maintaining additional Limited Service 

MEI Ports, and set fees that are designed 

to cover its costs with a limited return 

in excess of such costs. However, as 

discussed more fully below, such fees 

may also result in the Exchange 

recouping less than all of its costs of 

providing and maintaining additional 

Limited Service MEI Ports because of 

the uncertainty of forecasting subscriber 

decision making with respect to firms’ 

additional Limited Service MEI Port 

needs and the likely potential for 

increased costs to procure the thirdparty services described below. 

To determine the Exchange’s costs to 

provide access services associated with 

the Proposed Access Fees, the Exchange 

conducted an extensive cost review in 

which the Exchange analyzed nearly 

every expense item in the Exchange’s 

general expense ledger to determine 

whether each such expense relates to 

the Proposed Access Fees, and, if such 

expense did so relate, what portion (or 


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37A description of the Exchange’s methodology 

for determining the portion (or percentage) of each 

expense to allocate to the Proposed Access Fee is 

being provide in response to comments from SIG 

and SIFMA. See SIG Letter 3 and SIFMA Letter, 

supra note 12. 

38See, e.g., Securities Exchange Act Release Nos. 

91339 (March 17, 2021), 86 FR 15524 (March 23, 

2021) (SR–CboeBZX–2021–020) (increasing fees for 

a market data product while not providing a cost 

based justification for the increase); 93293 (October 

21, 2021), 86 FR 57716 (October 18, 2021) (SR– 

PHLX–2021–058) (increasing fees for historical 

market data while not providing a cost based 

justification for the increase); 92970 (September 14, 

2021), 86 FR 52261 (September 20, 2021) (SR– 

CboeBZX–2021–047) (adopting fees for a market 

data related product while not providing a cost 

based justification for the fees); and 89826 

(September 10, 2021), 85 FR 57900 (September 16, 

2021) (SR–CBOE–2020–086) (increasing 

connectivity fees without including a cost based 

justification). 

39See Securities Exchange Act Release No. 89826 

(September 10, 2020), 85 FR 57900 (September 16, 

2020) (SR–CBOE–2020–086) (increasing 

connectivity fees without including a cost based 

justification). 

40See id. at 57909. 41 Id. 

percentage) of such expense actually 

supports access services associated with 

the Proposed Access Fees. 

The Exchange also provides detailed 

information regarding the Exchange’s 

cost allocation methodology—namely, 

information that explains the 

Exchange’s rationale for determining 

that it was reasonable to allocate certain 

expenses described in this filing 

towards the cost to the Exchange to 

provide the access services associated 

with the Proposed Access Fees. The 

Exchange conducted a thorough internal 

analysis to determine the portion (or 

percentage) of each expense to allocate 

to the support of access services 

associated with the Proposed Access 

Fees. This analysis 37 included 

discussions with each Exchange 

department head to determine the 

expenses that support access services 

associated with the Proposed Access 

Fees. This included numerous meetings 

between the Exchange’s Chief 

Information Officer, Chief Financial 

Officer, Head of Strategic Planning and 

Operations, Chief Technology Officer, 

various members of the Legal 

Department, and other group leaders. 

The Exchange reviewed each individual 

expense to determine if such expense 

was related to the Proposed Access 

Fees. Once the expenses were 

identified, the Exchange department 

heads, with the assistance of our 

internal finance department, reviewed 

such expenses holistically on an 

Exchange-wide level to determine what 

portion of that expense supports 

providing access services for the 

Proposed Access Fees. The sum of all 

such portions of expenses represents the 

total cost to the Exchange to provide 

access services associated with the 

Proposed Access Fees. For the 

avoidance of doubt, no expense amount 

was allocated twice. 

The internal cost analysis conducted 

by the Exchange is a proprietary process 

that is designed to make a fair and 

reasonable assessment of costs and 

resources allocated to support the 

provision of access services associated 

with the Proposed Access Fees. The 

Exchange acknowledges that this 

assessment can only capture a moment 

in time and that costs and resource 

allocations may change. That is why the 

Exchange has historically, and on an 

ongoing basis, periodically revisits its 

costs and resource allocations to ensure 

it is appropriately allocating resources 

to properly provide services to the 

Exchange’s constituents. Any 

requirement that an exchange should 

conduct a periodic re-evaluation on a 

set timeline of its cost justification and 

amend its fees accordingly should be 

established by the Commission 

holistically, applied to all exchanges 

and not just pending fee proposals such 

as this filing. In order to be fairly 

applied, such a mandate should be 

applied to existing access fees as well. 

In accordance with the Guidance, the 

Exchange has provided sufficient detail 

to support a finding that the proposed 

fees are consistent with the Exchange 

Act. The proposal includes a detailed 

description of the Exchange’s costs and 

how the Exchange determined to 

allocate those costs related to the 

proposed fees. In fact, the detail and 

analysis provided in this proposed rule 

change far exceed the level of disclosure 

provided in other exchange fee filings 

that have not been suspended by the 

Commission during its 60-day 

suspension period. A finding that this 

proposed rule change is inconsistent 

with the Exchange Act would run 

contrary to the Commission Staff’s 

treatment of other recent exchange fee 

proposals that have not been suspended 

and remain in effect today.38 For 

example, a proposed fee filing that 

closely resembles the Exchange’s 

current filing was submitted in 2020 by 

the Cboe Exchange, Inc. (‘‘Cboe’’) and 

increased fees for Cboe’s 10Gb 

connections.39 This filing was 

submitted on September 2, 2020, nearly 

15 months after the Staff’s Guidance 

was issued. In that filing, the Cboe 

stated that the ‘‘proposed changes were 

not designed with the objective to 

generate an overall increase in access 

fee revenue.’’ 40 This filing provided no 

cost based data to support its assertion 

that the proposal was intended to be 

revenue neutral. Among other things, 

Cboe did not provide a description of 

the costs underlying its provision of 

10Gb connections to show that this 

particular fee did not generate a supracompetitive profit or describe how any 

potential profit may be offset by 

increased costs associated with another 

fee included in its proposal. This filing, 

nonetheless, was not suspended by the 

Commission and remains in effect 

today. 

The Exchange believes exchanges, 

like all businesses, should be provided 

flexibility when allocating costs and 

resources they deem necessary to 

operate their business, including 

providing market data and access 

services. The Exchange notes that costs 

and resource allocations may vary from 

business to business and, likewise, costs 

and resource allocations may differ from 

exchange to exchange when it comes to 

providing market data and access 

services. It is a business decision that 

must be evaluated by each exchange as 

to how to allocate internal resources and 

what costs to incur internally or via 

third parties that it may deem necessary 

to support its business and its provision 

of market data and access services to 

market participants. An exchange’s 

costs may also vary based on fees 

charged by third parties and periodic 

increases to those fees that may be 

outside of the control of an exchange. 

To determine the Exchange’s 

projected revenue associated with the 

Proposed Access Fees, the Exchange 

analyzed the number of Market Makers 

currently utilizing additional Limited 

Service MEI Ports and used a recent 

monthly billing cycle representative of 

2021 monthly revenue. The Exchange 

also provided its baseline by analyzing 

July 2021, the monthly billing cycle 

prior to the Proposed Access Fees going 

into effect, and compared it to its 

expenses for that month.41 As discussed 

below, the Exchange does not believe it 

is appropriate to factor into its analysis 

future revenue growth or decline into its 

projections for purposes of these 

calculations, given the uncertainty of 

such projections due to the continually 

changing access needs of market 

participants and potential increase in 

internal and third party expenses. The 

Exchange is presenting its revenue and 

expense associated with the Proposed 

Access Fees in this filing in a manner 

that is consistent with how the 

Exchange presents its revenue and 

expense in its Audited Unconsolidated 

Financial Statements. The Exchange’s 

most recent Audited Unconsolidated 

Financial Statement is for 2020. 

However, since the revenue and 


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Federal Register / Vol. 87, No. 35 / Tuesday, February 22, 2022 / Notices 9699 

42See ‘‘Supply chain chaos is already hitting 

global growth. And it’s about to get worse’’, by 

Holly Ellyatt, CNBC, available at https://

www.cnbc.com/2021/10/18/supply-chain-chaos-ishitting-global-growth-and-could-get-worse.html 

(October 18, 2021); and ‘‘There will be things that 

people can’t get, at Christmas, White House warns’’ 

by Jarrett Renshaw and Trevor Hunnicutt, Reuters, 

available at https://www.reuters.com/world/us/ 

americans-may-not-get-some-christmas-treatswhite-house-officials-warn-2021-10-12/ (October 12, 

2021). 

43For example, on October 20, 2021, ICE Data 

Services announced a 3.5% price increase effective 

January 1, 2022 for most services. The price 

increase by ICE Data Services includes their SFTI 

network, which is relied on by a majority of market 

participants, including the Exchange. See email 

from ICE Data Services to the Exchange, dated 

October 20, 2021. The Exchange further notes that 

on October 22, 2019, the Exchange was notified by 

ICE Data Services that it was raising its fees charged 

to the Exchange by approximately 11% for the SFTI 

network. 

44The Exchange has incurred a cumulative loss 

of $22 million since its inception in 2019 to 2020, 

the last year for which the Exchange’s Form 1 data 

is available. See Exchange’s Form 1/A, Application 

for Registration or Exemption from Registration as 

a National Securities Exchange, filed July 28, 2021, 

available at https://sec.report/Document/ 

9999999997-21-004557/. 

expense associated with the Proposed 

Access Fees were not in place in 2020 

or for the first seven months of 2021, the 

Exchange believes its 2020 Audited 

Unconsolidated Financial Statement is 

not representative of its current total 

annualized revenue and costs associated 

with the Proposed Access Fees. 

Accordingly, the Exchange believes it is 

more appropriate to analyze the 

Proposed Access Fees utilizing its 2021 

revenue and costs, as described herein, 

which utilize the same presentation 

methodology as set forth in the 

Exchange’s previously-issued Audited 

Unconsolidated Financial Statements. 

Based on this analysis, the Exchange 

believes that the Proposed Access Fees 

are reasonable because they will allow 

the Exchange to recover its costs 

associated with providing access 

services related to the Proposed Access 

Fees and not result in excessive pricing 

or supra-competitive profit. 

As outlined in more detail below, the 

Exchange projects that the final 

annualized expense for 2021 to provide 

additional Limited Service MEI Ports to 

be approximately $880,000 per annum 

or an average of $73,333.33 per month. 

The Exchange implemented the 

Proposed Access Fees on August 1, 2021 

in the First Proposed Rule Change. For 

July 2021, prior to the Proposed Access 

Fees, the Exchange Members and nonMembers purchased a total of 625 

additional Limited Service MEI Ports for 

which the Exchange charged 

approximately $62,500. This resulted in 

a loss of $10,833.33 for that month (a 

loss margin of approximately 17.3%). 

For the month of November 2021, which 

includes the tiered rates for additional 

Limited Service MEI Ports for the 

Proposed Access Fees, Exchange 

Members and non-Members increased 

the number of additional Limited 

Service MEI Ports they purchased 

resulting in a total of 860 additional 

Limited Service MEI Ports for which the 

Exchange charged approximately 

$216,600 for that month. This resulted 

in a profit of $143,266.67 for that month 

(a profit margin of approximately 66%, 

after experiencing monthly losses prior 

to the Proposed Access Fees. The 

Exchange believes that the Proposed 

Access Fees are reasonable because they 

are designed to generate a revenue permonth after experiencing monthly 

losses prior to the Proposed Access 

Fees. The Exchange cautions that this 

profit margin is likely to fluctuate from 

month to month based on the 

uncertainty of predicting how many 

ports may be purchased from month to 

month as Members and non-Members 

are able to add and drop ports at any 

time based on their own business 

decisions. This profit margin may also 

decrease due to the significant 

inflationary pressure on capital items 

that the Exchange needs to purchase to 

maintain the Exchange’s technology and 

systems.42 The Exchange has been 

subject to price increases upwards of 

30% during the past year on network 

equipment due to supply chain 

shortages. This, in turn, results in higher 

overall costs for ongoing system 

maintenance, but also to purchase the 

items necessary to ensure ongoing 

system resiliency, performance, and 

determinism. These costs are expected 

to continue to go up as the U.S. 

economy continues to struggle with 

supply chain and inflation related 

issues. 

Further, the Exchange chose to 

provide additional Limited Service MEI 

Ports at a discounted price to attract 

order flow and encourage market 

participants to experience the 

determinism and resiliency of the 

Exchange’s trading systems. This 

resulted in the Exchange forgoing 

revenue it could have generated from 

assessing higher fees. The Exchange 

could have sought to charge higher fees 

at the outset, but that could have served 

to discourage participation on the 

Exchange. Instead, the Exchange chose 

to provide a low cost exchange 

alternative to the options industry 

which resulted in lower initial 

revenues, or in this case, a monthly loss. 

The Exchange is now trying to amend 

its fee structure to enable it to continue 

to maintain and improve its overall 

market and systems while also 

providing a highly reliable and 

deterministic trading system to the 

marketplace. 

As mentioned above, the Exchange 

projects that its annualized expense for 

2021 to provide additional Limited 

Service MEI Ports to be approximately 

$880,000 per annum or an average of 

$73,333.33 per month and that these 

costs are expected to increase not only 

due to anticipated significant 

inflationary pressure, but also periodic 

fee increases by third parties.43 The 

Exchange notes that there are material 

costs associated with providing the 

infrastructure and headcount to fullysupport access to the Exchange. The 

Exchange incurs technology expense 

related to establishing and maintaining 

Information Security services, enhanced 

network monitoring and customer 

reporting, as well as Regulation SCI 

mandated processes, associated with its 

network technology. While some of the 

expense is fixed, much of the expense 

is not fixed, and thus increases the cost 

to the Exchange to provide access 

services associated with the Proposed 

Access Fees. For example, new 

Members to the Exchange may require 

the purchase of additional hardware to 

support those Members as well as 

enhanced monitoring and reporting of 

customer performance that the 

Exchange and its affiliates provide. 

Further, as the total number Members 

increases, the Exchange and its affiliates 

may need to increase their data center 

footprint and consume more power, 

resulting in increased costs charged by 

their third-party data center provider. 

Accordingly, the cost to the Exchange 

and its affiliates to provide access to its 

Members is not fixed. The Exchange 

believes the Proposed Access Fees are a 

reasonable attempt to offset a portion of 

the costs to the Exchange associated 

with providing access to its network 

infrastructure. 

The Exchange only has four primary 

sources of revenue and cost recovery 

mechanisms to fund all of its 

operations: Transaction fees, access fees 

(which includes the Proposed Access 

Fees), regulatory fees, and market data 

fees. Accordingly, the Exchange must 

cover all of its expenses from these four 

primary sources of revenue and cost 

recovery mechanisms. Until recently, 

the Exchange has operated at a 

cumulative net annual loss since it 

launched operations in 2019.44 This is 

a result of providing a low cost 

alternative to attract order flow and 

encourage market participants to 

experience the high determinism and 

resiliency of the Exchange’s trading 


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45The Exchange has not yet finalized its 2021 

year end results. 

46The percentage allocations used in this 

proposed rule change may differ from past filings 

from the Exchange or its affiliates due to, among 

other things, changes in expenses charged by thirdparties, adjustments to internal resource allocations, 

and different system architecture of the Exchange 

as compared to its affiliates. 

47For example, the Exchange previously noted 

that all third-party expense described in its prior fee 

filing was contained in the information technology 

and communication costs line item under the 

section titled ‘‘Operating Expenses Incurred 

Directly or Allocated From Parent,’’ in the 

Exchange’s 2019 Form 1 Amendment containing its 

financial statements for 2018. See Securities 

Exchange Act Release No. 87877 (December 31, 

2019), 85 FR 738 (January 7, 2020) (SR–EMERALD– 

2019–39). Accordingly, the third-party expense 

described in this filing is attributed to the same line 

item for the Exchange’s 2021 Form 1 Amendment, 

which will be filed in 2022. 

48 In fact, on October 22, 2019, the Exchange was 

notified by SFTI that it is again raising its fees 

charged to the Exchange by approximately 11%, 

without having to show that such fee change 

complies with the Act by being reasonable, 

equitably allocated, and not unfairly 

discriminatory. It is unfathomable to the Exchange 

that, given the critical nature of the infrastructure 

services provided by SFTI, that its fees are not 

required to be rule-filed with the Commission 

pursuant to Section 19(b)(1) of the Act and Rule 

19b–4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 

CFR 240.19b–4, respectively. 

Systems. To do so, the Exchange chose 

to waive the fees for some nontransaction related services or provide 

them at a very marginal cost, which was 

not profitable to the Exchange. This 

resulted in the Exchange forgoing 

revenue it could have generated from 

assessing higher fees. 

The Exchange believes that the 

Proposed Access Fees are fair and 

reasonable because they will not result 

in excessive pricing or supracompetitive profit, when comparing the 

total annual expense that the Exchange 

projects to incur in connection with 

providing these access services versus 

the total annual revenue that the 

Exchange projects to collect in 

connection with services associated 

with the Proposed Access Fees. As 

mentioned above, for 2021,45 the total 

annual expense for providing the access 

services associated with the Proposed 

Access Fees is projected to be 

approximately $880,000.00, or 

approximately $73,333.33 per month. 

This projected total annual expense is 

comprised of the following, all of which 

are directly related to the access services 

associated with the Proposed Access 

Fees: (1) Third-party expense, relating to 

fees paid by the Exchange to thirdparties for certain products and services; 

and (2) internal expense, relating to the 

internal costs of the Exchange to 

provide the services associated with the 

Proposed Access Fees.46 As noted 

above, the Exchange believes it is more 

appropriate to analyze the Proposed 

Access Fees utilizing its 2021 revenue 

and costs, which utilize the same 

presentation methodology as set forth in 

the Exchange’s previously-issued 

Audited Unconsolidated Financial 

Statements.47 The $880,000 projected 

total annual 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. It does not include general 

costs of operating matching engines and 

other trading technology. No expense 

amount was allocated twice. 

As discussed above, the Exchange 

conducted an extensive cost review in 

which the Exchange analyzed nearly 

every expense item in the Exchange’s 

general expense ledger (this includes 

over 150 separate and distinct expense 

items) to determine whether each such 

expense relates to the access services 

associated with the Proposed Access 

Fees, and, if such expense did so relate, 

what portion (or percentage) of such 

expense actually supports those 

services, and thus bears a relationship 

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

directly related to those services. In 

performing this calculation, the 

Exchange considered other services and 

to which the expense may be applied 

and how much of the expense is directly 

and or indirectly utilized in providing 

those other services. The sum of all such 

portions of expenses represents the total 

cost of the Exchange to provide access 

services associated with the Proposed 

Access Fees. 

External Expense Allocations 

For 2021, total third-party expense, 

relating to fees paid by the Exchange to 

third-parties for certain products and 

services for the Exchange to be able to 

provide the access services associated 

with the Proposed Access Fees, is 

projected to be $0.05 million. This 

includes, but is not limited to, a portion 

of the fees paid to: (1) Equinix, for data 

center services, for the primary, 

secondary, and disaster recovery 

locations of the Exchange’s trading 

system infrastructure; (2) Zayo Group 

Holdings, Inc. (‘‘Zayo’’) for network 

services (fiber and bandwidth products 

and services) linking the Exchange’s 

office locations in Princeton, New Jersey 

and Miami, Florida, to all data center 

locations; (3) Secure Financial 

Transaction Infrastructure (‘‘SFTI’’),48

which supports connectivity and feeds 

for the entire U.S. options industry; (4) 

various other services providers 

(including Thompson Reuters, NYSE, 

Nasdaq, and Internap), which provide 

content, connectivity services, and 

infrastructure services for critical 

components of options connectivity and 

network services; and (5) various other 

hardware and software providers 

(including Dell and Cisco, which 

support the production environment in 

which Members connect to the network 

to trade, receive market data, etc.). For 

clarity, only a portion of all fees paid to 

such third-parties is included in the 

third-party expense herein, and no 

expense amount is allocated twice. 

Accordingly, the Exchange does not 

allocate its entire information 

technology and communication costs to 

the access services associated with the 

Proposed Access Fees. 

For clarity, the Exchange took a 

conservative approach in determining 

the expense and the percentage of that 

expense to be allocated to providing 

access services in connection with the 

Proposed Access Fees. Only a portion of 

all fees paid to such third-parties is 

included in the third-party expenses 

described herein, and no expense 

amount is allocated twice. Accordingly, 

the Exchange does not allocate its entire 

information technology and 

communication costs to the access 

services associated with the Proposed 

Access Fees. Further, the Exchange 

notes that, with respect to the expenses 

included herein, those expenses only 

cover the MIAX Emerald market; 

expenses associated with MIAX Pearl 

for its options and equities markets and 

MIAX, are accounted for separately and 

are not included within the scope of this 

filing. As noted above, the percentage 

allocations used in this proposed rule 

change may differ from past filings from 

the Exchange or its affiliates due to, 

among other things, changes in 

expenses charged by third-parties, 

adjustments to internal resource 

allocations, and different system 

architecture of the Exchange as 

compared to its affiliates. Further, as 

part its ongoing assessment of costs and 

expenses, the Exchange recently 

conducted a periodic thorough review 

of its expenses and resource allocations 

which, in turn, resulted in a revised 

percentage allocations in this filing. 

The Exchange believes it is reasonable 

to allocate such third-party expense 

described above towards the total cost to 

the Exchange to provide the access 

services associated with the Proposed 

Access Fees. In particular, the Exchange 

believes it is reasonable to allocate the 

identified portion of the Equinix 

expense because Equinix operates the 

data centers (primary, secondary, and 

disaster recovery) that host the 

Exchange’s network infrastructure. This 

includes, among other things, the 

necessary storage space, which 


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49As noted above, the percentage allocations used 

in this proposed rule change may differ from past 

filings from the Exchange or its affiliates due to, 

among other things, changes in expenses charged by 

third-parties, adjustments to internal resource 

allocations, and different system architecture of the 

Exchange as compared to its affiliates. Again, as 

part its ongoing assessment of costs and expenses, 

the Exchange recently conducted a periodic 

thorough review of its expenses and resource 

allocations which, in turn, resulted in a revised 

percentage allocations in this filing. 

50 Id. 

51 Id. 52 Id. 

continues to expand and increase in 

cost, power to operate the network 

infrastructure, and cooling apparatuses 

to ensure the Exchange’s network 

infrastructure maintains stability. 

Without these services from Equinix, 

the Exchange would not be able to 

operate and support the network and 

provide the access services associated 

with the Proposed Access Fees to its 

Members and their customers. The 

Exchange did not allocate all of the 

Equinix expense toward the cost of 

providing the access services associated 

with the Proposed Access Fees, only 

that portion which the Exchange 

identified as being specifically mapped 

to providing the access services 

associated with the Proposed Access 

Fees. According to the Exchange’s 

calculations, it allocated approximately 

2.05% of the total applicable Equinix 

expense to providing the access services 

associated with the Proposed Access 

Fees. The Exchange believes this 

allocation is reasonable because it 

represents the Exchange’s actual cost to 

provide the access services associated 

with the Proposed Access Fees, and not 

any other service, as supported by its 

cost review.49

The Exchange believes it is reasonable 

to allocate the identified portion of the 

Zayo expense because Zayo provides 

the internet, fiber and bandwidth 

connections with respect to the 

network, linking the Exchange with its 

affiliates, MIAX Pearl and MIAX, as 

well as the data center and disaster 

recovery locations. As such, all of the 

trade data, including the billions of 

messages each day per exchange, flow 

through Zayo’s infrastructure over the 

Exchange’s network. Without these 

services from Zayo, the Exchange would 

not be able to operate and support the 

network and provide the access services 

associated with the Proposed Access 

Fees. The Exchange did not allocate all 

of the Zayo expense toward the cost of 

providing the access services associated 

with the Proposed Access Fees, only the 

portion which the Exchange identified 

as being specifically mapped to 

providing the Proposed Access Fees. 

According to the Exchange’s 

calculations, it allocated approximately 

1.64% of the total applicable Zayo 

expense to providing the access services 

associated with the Proposed Access 

Fees. The Exchange believes this 

allocation is reasonable because it 

represents the Exchange’s actual cost to 

provide the access services associated 

with the Proposed Access Fees, and not 

any other service, as supported by its 

cost review.50

The Exchange believes it is reasonable 

to allocate the identified portions of the 

SFTI expense and various other service 

providers’ (including Thompson 

Reuters, NYSE, Nasdaq, and Internap) 

expense because those entities provide 

connectivity and feeds for the entire 

U.S. options industry, as well as the 

content, connectivity services, and 

infrastructure services for critical 

components of the network. Without 

these services from SFTI and various 

other service providers, the Exchange 

would not be able to operate and 

support the network and provide access 

to its Members and their customers. The 

Exchange did not allocate all of the SFTI 

and other service providers’ expense 

toward the cost of providing the access 

services associated with the Proposed 

Access Fees, only the portions which 

the Exchange identified as being 

specifically mapped to providing the 

access services associated with the 

Proposed Access Fees. According to the 

Exchange’s calculations, it allocated 

approximately 2.05% of the total 

applicable SFTI and other service 

providers’ expense to providing the 

access services associated with the 

Proposed Access Fees. The Exchange 

believes this allocation is reasonable 

because it represents the Exchange’s 

actual cost to provide the access 

services associated with the Proposed 

Access Fees.51

The Exchange believes it is reasonable 

to allocate the identified portion of the 

other hardware and software provider 

expense because this includes costs for 

dedicated hardware licenses for 

switches and servers, as well as 

dedicated software licenses for security 

monitoring and reporting across the 

network. Without this hardware and 

software, the Exchange would not be 

able to operate and support the network 

and provide access to its Members and 

their customers. The Exchange did not 

allocate all of the hardware and software 

provider expense toward the cost of 

providing the access services associated 

with the Proposed Access Fees, only the 

portions which the Exchange identified 

as being specifically mapped to 

providing the access services associated 

with the Proposed Access Fees. 

According to the Exchange’s 

calculations, it allocated approximately 

1.23% of the total applicable hardware 

and software provider expense to 

providing the access services associated 

with the Proposed Access Fees. The 

Exchange believes this allocation is 

reasonable because it represents the 

Exchange’s actual cost to provide the 

access services associated with the 

Proposed Access Fees.52

Internal Expense Allocations 

For 2021, total projected internal 

expense, relating to the Exchange 

providing the access services associated 

with the Proposed Access Fees, is 

projected to be $0.83 million. This 

includes, but is not limited to, costs 

associated with: (1) Employee 

compensation and benefits for full-time 

employees that support the access 

services associated with the Proposed 

Access Fees, including staff in network 

operations, trading operations, 

development, system operations, and 

business that support those employees 

and functions (including an increase as 

a result of the higher determinism 

project); (2) depreciation and 

amortization of hardware and software 

used to provide the access services 

associated with the Proposed Access 

Fees, including equipment, servers, 

cabling, purchased software and 

internally developed software used in 

the production environment to support 

the network for trading; and (3) 

occupancy costs for leased office space 

for staff that provide the access services 

associated with the Proposed Access 

Fees. The breakdown of these costs is 

more fully-described below. 

For clarity, and as stated above, the 

Exchange took a conservative approach 

in determining the expense and the 

percentage of that expense to be 

allocated to providing access services in 

connection with the Proposed Access 

Fees. Only a portion of all such internal 

expenses are included in the internal 

expense herein, and no expense amount 

is allocated twice. Accordingly, the 

Exchange does not allocate its entire 

costs contained in those items to the 

access services associated with the 

Proposed Access Fees. This may result 

in the Exchange under allocating an 

expense to the provision of access 

services in connection with the 

Proposed Access Fees and such 

expenses may actually be higher or 

increase above what the Exchange 

utilizes within this proposal. Further, as 

part its ongoing assessment of costs and 

expenses (described above), the 

Exchange recently conducted a periodic 


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53 Id. 54 Id. 55 Id. 

thorough review of its expenses and 

resource allocations which, in turn, 

resulted in a revised percentage 

allocations in this filing. 

The Exchange believes it is reasonable 

to allocate such internal expense 

described above towards the total cost to 

the Exchange to provide the access 

services associated with the Proposed 

Access Fees. In particular, the 

Exchange’s employee compensation and 

benefits expense relating to providing 

the access services associated with the 

Proposed Access Fees is projected to be 

approximately $0.76 million, which is 

only a portion of the $9.74 million total 

projected expense for employee 

compensation and benefits. The 

Exchange believes it is reasonable to 

allocate the identified portion of such 

expense because this includes 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), and Trade 

Operations. As part of the extensive cost 

review conducted by the Exchange, the 

Exchange reviewed the amount of time 

spent by each employee on matters 

relating to the provision of access 

services associated with the Proposed 

Access Fees. Without these employees, 

the Exchange would not be able to 

provide the access services associated 

with the Proposed Access Fees to its 

Members and their customers. The 

Exchange did not allocate all of the 

employee compensation and benefits 

expense toward the cost of the access 

services associated with the Proposed 

Access Fees, only the portion which the 

Exchange identified as being 

specifically mapped to providing the 

access services associated with the 

Proposed Access Fees. According to the 

Exchange’s calculations, it allocated 

approximately 7.81% of the total 

applicable employee compensation and 

benefits expense to providing the access 

services associated with the Proposed 

Access Fees. The Exchange believes this 

allocation is reasonable because it 

represents the Exchange’s actual cost to 

provide the access services associated 

with the Proposed Access Fees, and not 

any other service, as supported by its 

cost review.53

The Exchange’s depreciation and 

amortization expense relating to 

providing the services associated with 

the Proposed Access Fees is projected to 

be $0.06 million, which is only a 

portion of the $3.13 million total 

projected expense for depreciation and 

amortization. The Exchange believes it 

is reasonable to allocate the identified 

portion of such expense because such 

expense includes the actual cost of the 

computer equipment, such as dedicated 

servers, computers, laptops, monitors, 

information security appliances and 

storage, and network switching 

infrastructure equipment, including 

switches and taps that were purchased 

to operate and support the network and 

provide the access services associated 

with the Proposed Access Fees. Without 

this equipment, the Exchange would not 

be able to operate the network and 

provide the access services associated 

with the Proposed Access Fees to its 

Members and their customers. The 

Exchange did not allocate all of the 

depreciation and amortization expense 

toward the cost of providing the access 

services associated with the Proposed 

Access Fees, only the portion which the 

Exchange identified as being 

specifically mapped to providing the 

access services associated with the 

Proposed Access Fees. According to the 

Exchange’s calculations, it allocated 

approximately 1.92% of the total 

applicable depreciation and 

amortization expense to providing the 

access services associated with the 

Proposed Access Fees, as these access 

services would not be possible without 

relying on such. The Exchange believes 

this allocation is reasonable because it 

represents the Exchange’s actual cost to 

provide the access services associated 

with the Proposed Access Fees, and not 

any other service, as supported by its 

cost review.54

The Exchange’s occupancy expense 

relating to providing the services 

associated with the Proposed Access 

Fees is projected to be $0.01 million, 

which is only a portion of the $0.52 

million total projected expense for 

occupancy. The Exchange believes it is 

reasonable to allocate the identified 

portion of such expense because such 

expense represents the portion of the 

Exchange’s cost to rent and maintain a 

physical location for the Exchange’s 

staff who operate and support the 

network, including providing the access 

services associated with the Proposed 

Access Fees. This amount consists 

primarily of rent for the Exchange’s 

Princeton, NJ office, as well as various 

related costs, such as physical security, 

property management fees, property 

taxes, and utilities. The Exchange 

operates its Network Operations Center 

(‘‘NOC’’) and Security Operations 

Center (‘‘SOC’’) from its Princeton, New 

Jersey office location. A centralized 

office space is required to house the 

staff that operates and supports the 

network. The Exchange currently has 

approximately 200 employees. 

Approximately two-thirds of the 

Exchange’s staff are in the Technology 

department, and the majority of those 

staff have some role in the operation 

and performance of the access services 

associated with the Proposed Access 

Fees. Accordingly, the Exchange 

believes it is reasonable to allocate the 

identified portion of its occupancy 

expense because such amount 

represents the Exchange’s actual cost to 

house the equipment and personnel 

who operate and support the Exchange’s 

network infrastructure and the access 

services associated with the Proposed 

Access Fees. The Exchange did not 

allocate all of the occupancy expense 

toward the cost of providing the access 

services associated with the Proposed 

Access Fees, only the portion which the 

Exchange identified as being 

specifically mapped to operating and 

supporting the network. According to 

the Exchange’s calculations, it allocated 

approximately 1.93% of the total 

applicable occupancy expense to 

providing the access services associated 

with the Proposed Access Fees. The 

Exchange believes this allocation is 

reasonable because it represents the 

Exchange’s cost to provide the access 

services associated with the Proposed 

Access Fees, and not any other service, 

as supported by its cost review.55

The Exchange notes that a material 

portion of its total overall expense is 

allocated to the provision of access 

services (including connectivity, ports, 

and trading permits). The Exchange 

believes this is reasonable and in line, 

as the Exchange operates a technologybased business that differentiates itself 

from its competitors based on its more 

deterministic and resilient trading 

systems that rely on access to a high 

performance network, resulting in 

significant technology expense. Over 

two-thirds of Exchange staff are 

technology-related employees. The 

majority of the Exchange’s expense is 

technology-based. As described above, 

the Exchange has only four primary 

sources of fees to recover their costs; 

thus, the Exchange believes it is 

reasonable to allocate a material portion 

of its total overall expense towards 

access fees. 

Based on the above, the Exchange 

believes that its provision of access 

services associated with the Proposed 

Access Fees will not result in excessive 

pricing or supra-competitive profit. As 

discussed above, the Exchange projects 


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56See supra note 42. 

that its annualized expense for 2021 to 

provide the access services associated 

with the Proposed Access Fees to be 

approximately $880,000 per annum or 

an average of $73,333.33 per month. The 

Exchange implemented the Proposed 

Access Fees on August 1, 2021 in the 

First Proposed Rule Change. For July 

2021, prior to the Proposed Access Fees, 

the Exchange Members and nonMembers purchased a total of 625 

additional Limited Service MEI Ports for 

which the Exchange charged 

approximately $62,500. This resulted in 

a loss of $10,833.33 for that month (a 

loss margin of approximately 17.3%). 

For the month of November 2021, which 

includes the tiered rates for additional 

Limited Service MEI Ports for the 

Proposed Access Fees, Exchange 

Members and non-Members increased 

the number of additional Limited 

Service MEI Ports they purchased 

resulting in a total of 860 additional 

Limited Service MEI Ports for which the 

Exchange charged approximately 

$216,600 for that month. This resulted 

in a profit of $143,266.67 for that month 

(a profit margin of approximately 66%), 

after experiencing monthly losses prior 

to the Proposed Access Fees. The 

Exchange believes that the Proposed 

Access Fees are reasonable because they 

are designed to generate a revenue permonth after experiencing monthly 

losses prior to the Proposed Access 

Fees. The Exchange believes this profit 

margin will allow it to begin to recoup 

its expenses and continue to invest in 

its technology infrastructure. Therefore, 

the Exchange also believes that this 

proposed profit margin increase is 

reasonable because it represents a 

reasonable rate of return. 

Again, the Exchange cautions that this 

profit margin may fluctuate from month 

to month based in the uncertainty of 

predicting how many ports may be 

purchased from month to month as 

Members and non-Members are free to 

add and drop ports at any time based on 

their own business decisions. 

Notwithstanding that the revenue (and 

profit margin) may vary from month to 

month due to changes in ports and to 

changes to the Exchange’s expenses, the 

number of ports has not materially 

changed over the previous months. 

Consequently, the Exchange believes 

that the months it has used as a baseline 

to perform its assessment are 

representative of reasonably anticipated 

costs and expenses. This profit margin 

may also decrease due to the significant 

inflationary pressure on capital items 

that it needs to purchase to maintain the 

Exchange’s technology and systems.56

Accordingly, the Exchange believes its 

total projected revenue for the providing 

the access services associated with the 

Proposed Access Fees will not result in 

excessive pricing or supra-competitive 

profit. 

The Exchange believes that 

conducting the above analysis on a per 

month basis is reasonable as the revenue 

generated from access services subject to 

the proposed fee generally remains 

static from month to month. The 

Exchange also conducted the above 

analysis on a per month basis to comply 

with the Commission Staff’s Guidance, 

which requires a baseline analysis to 

assist in determining whether the 

proposal generates a supra-competitive 

profit. This monthly analysis was also 

provided in response to comment 

received on prior submissions of this 

proposed rule change. 

The Exchange reiterates that it only 

has four primary sources of revenue and 

cost recovery mechanisms: Transaction 

fees, access fees (which includes the 

Proposed Access Fees), regulatory fees, 

and market data fees. Accordingly, the 

Exchange must cover all of its expenses 

from these four primary sources of 

revenue and cost recovery mechanisms. 

As a result, each of these fees cannot be 

‘‘flat’’ and cover only the expenses 

directly related to the fee that is 

charged. The above revenue and 

associated profit margin therefore are 

not solely intended to cover the costs 

associated with providing access 

services subject to the Proposed Access 

Fees. 

The Exchange believes it is 

reasonable, equitable and not unfairly 

discriminatory to allocate the respective 

percentages of each expense category 

described above towards the total cost to 

the Exchange of operating and 

supporting the network, including 

providing the access services associated 

with the Proposed Access Fees because 

the Exchange performed a line-by-line 

item analysis of nearly every expense of 

the Exchange, and has determined the 

expenses that directly relate to 

providing access to the Exchange. 

Further, the Exchange notes that, 

without the specific third-party and 

internal expense items listed above, the 

Exchange would not be able to provide 

the access services associated with the 

Proposed Access Fees to its Members 

and their customers. Each of these 

expense items, including physical 

hardware, software, employee 

compensation and benefits, occupancy 

costs, and the depreciation and 

amortization of equipment, have been 

identified through a line-by-line item 

analysis to be integral to providing 

access services. The Proposed Access 

Fees are intended to recover the costs of 

providing access to the Exchange’s 

System. Accordingly, the Exchange 

believes that the Proposed Access Fees 

are fair and reasonable because they do 

not result in excessive pricing or supracompetitive profit, when comparing the 

actual costs to the Exchange versus the 

projected annual revenue from the 

Proposed Access Fees. 

The Proposed Tiered-Pricing Structure 

Is Not Unfairly Discriminatory and 

Provides for the Equitable Allocation of 

Fees, Dues, and Other Charges 

The Exchange believes the proposed 

tiered-pricing structure is reasonable, 

fair, equitable, and not unfairly 

discriminatory because it will apply to 

all Members and non-Members in the 

same manner based on the amount of 

Limited Service MEI Ports they require 

based on their own business decisions 

and usage of Exchange resources. All 

similarly situated Members and nonMembers would be subject to the same 

fees. The fees do not depend on any 

distinction between Members and nonMembers because they are solely 

determined by the individual Members’ 

or non-Members’ business needs and its 

impact on Exchange resources. 

The proposed tiered-pricing structure 

is not unfairly discriminatory and 

provides for the equitable allocation of 

fees, dues, and other charges because it 

is designed to encourage Members and 

non-Members to be more efficient and 

economical when determining how to 

connect to the Exchange and the amount 

of the fees are based on the number of 

ports a Market Maker utilizes. Charging 

an incrementally higher fee to a Market 

Maker that utilizes numerous ports is 

directly related to the increased costs 

the Exchange incurs in providing and 

maintaining those additional ports. The 

proposed tiered pricing structure should 

also enable the Exchange to better 

monitor and provide access to the 

Exchange’s network to ensure sufficient 

capacity and headroom in the System 

while still providing the first and 

second additional Limited Service MEI 

Ports for each matching engine free of 

charge. 

To achieve a consistent, premium 

network performance, the Exchange 

must build out and continue to maintain 

a network that has the capacity to 

handle the message rate requirements of 

not only firms that consume minimal 

Exchange access resources, but also 

those firms that most heavily consume 

Exchange access resources, network 

consumers, and purchasers of Limited 

Service MEI Ports. Limited Service MEI 

Ports is not an unlimited resource as the 

Exchange needs to purchase additional 


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9704 Federal Register / Vol. 87, No. 35 / Tuesday, February 22, 2022 / Notices 

57 17 CFR 240.17a–1 (recordkeeping rule for 

national securities exchanges, national securities 

associations, registered clearing agencies and the 

Municipal Securities Rulemaking Board). 58 15 U.S.C. 78f(b)(5). 

equipment to satisfy requests for 

additional ports. The Exchange also 

needs to provide personnel to set up 

new ports, service requests related to 

adding new and/or deleting existing 

ports, respond to performance queries, 

and to maintain those ports on behalf of 

Members and non-Members. Also, those 

firms that utilize additional Limited 

Service MEI Ports typically generate a 

disproportionate amount of messages 

and order traffic, usually billions per 

day across the Exchange. These billions 

of messages per day consume the 

Exchange’s resources and significantly 

contribute to the overall network access 

expense for storage and network 

transport capabilities. The Exchange 

also has to purchase additional storage 

capacity on an ongoing basis to ensure 

it has sufficient capacity to store these 

messages as part of it surveillance 

program and to satisfy its record 

keeping requirements under the 

Exchange Act.57 Thus, as the number of 

ports an entity has increases, certain 

other costs incurred by the Exchange 

that are correlated to, though not 

directly affected by, port costs (e.g., 

storage costs, surveillance costs, service 

expenses) also increase. 

The Exchange sought to design the 

proposed tiered-pricing structure to set 

the amount of the fee to relate to the 

number of ports a firm purchases. The 

Exchange notes that Limited Service 

MEI Ports are primarily utilized by firms 

that engage in advanced trading 

strategies and typically request multiple 

Limited Service MEI Ports, beyond the 

two per matching engine that are 

currently provided free of charge. 

Accordingly, the firms engaged in 

advanced trading strategies generate 

higher costs by utilizing more of the 

Exchange’s resources. Those firms 

purchase higher amounts of Limited 

Service MEI Ports tend to have specific 

business oriented market making and 

trading strategies, as opposed to firms 

engaging solely in order routing as part 

of their best-execution obligations. 

The use of such additional Limited 

Service MEI Ports is a voluntary 

business decision of each Market Maker. 

Additional Limited Service MEI Ports 

are primarily used by Market Makers 

seeking to remove liquidity and, for 

competitive reasons, a Market Maker 

may choose to utilize numerous ports in 

an attempt to access the market quicker 

by using one port that may have less 

latency. The more ports purchased by a 

Market Maker likely results in greater 

expenditure of Exchange resources and 

increased cost to the Exchange. With 

this in mind, the Exchange will 

continue to provide the first and second 

additional Limited Service MEI Ports 

free of charge. The Exchange notes that 

firms that primarily route orders seeking 

best-execution generally do not utilize 

additional Limited Service MEI Ports. 

Those firms also generally send less 

orders and messages over those 

connections, resulting in less strain on 

Exchange resources. 

On a similar note, the Exchange 

proposes to increase the fee for those 

firms that purchase more ports resulting 

in greater expenditure of Exchange 

resources and increased cost to the 

Exchange. The Exchange notes that 

these firms that purchase numerous 

additional Limited Service MEI Ports 

essentially do so for competitive reasons 

amongst themselves and choose to 

utilize numerous ports based on their 

business needs and desire to attempt to 

access the market quicker by using the 

connection with the least amount of 

latency. These firms are generally 

engaged in sending liquidity removing 

orders to the Exchange and seek to add 

more ports so they can access resting 

liquidity ahead of their competitors. For 

instance, a Member may have just sent 

numerous messages and/or orders over 

one or more of their additional Limited 

Service MEI Ports that are in queue to 

be processed. That same Member then 

seeks to enter an order to remove 

liquidity from the Exchange’s Book. 

That Member may choose to send that 

order over one or more of their other 

additional Limited Service MEI Ports 

with less message and/or order traffic to 

ensure that their liquidity taking order 

accesses the Exchange quicker because 

that connection’s queue is shorter. 

These firms also tend to frequently add 

and drop ports mid-month to determine 

which ports have the least latency, 

which results in increased costs to the 

Exchange to constantly make changes in 

the data center. 

The firms that engage in the abovedescribed liquidity removing and 

advanced trading strategies typically 

require multiple ports and, therefore, 

generate higher costs by utilizing more 

of the Exchange’s resources. Those firms 

may also conduct other latency 

measurements over their ports and drop 

and simultaneously add ports midmonth based on their own assessment of 

their performance. This results in 

Exchange staff processing such requests, 

potentially purchasing additional 

equipment, and performing the 

necessary network engineering to 

replace those ports in the data center. 

Therefore, the Exchange believes it is 

equitable for these firms to experience 

increased port costs based on their 

disproportionate pull on Exchange 

resources to provide the additional port 

access. 

In addition, the proposed tieredpricing structure is equitable because it 

is designed to encourage Members and 

non-Members to be more efficient and 

economical when determining how to 

connect to the Exchange. Section 6(b)(5) 

of the Exchange Act requires the 

Exchange to provide access on terms 

that are not unfairly discriminatory.58

As stated above, Additional Limited 

Service MEI Ports are not an unlimited 

resource and the Exchange’s network is 

limited in the amount of ports it can 

provide. However, the Exchange must 

accommodate requests for additional 

Limited Service MEI Ports and access to 

the Exchange’s System to ensure that 

the Exchange is able to provide access 

on non-discriminatory terms and ensure 

sufficient capacity and headroom in the 

System. To accommodate requests for 

additional Limited Service MEI Ports on 

top of current network capacity 

constraints, requires that the Exchange 

to purchase additional equipment to 

satisfy these requests. The Exchange 

also needs to provide personnel to set 

up new ports and to maintain those 

ports on behalf of Members and nonMembers. The proposed tiered-pricing 

structure is equitable because it is 

designed to encourage Market Makers to 

be more efficient and economical in 

selecting the amount of additional 

Limited Service MEI Ports they request 

while balancing that against the 

Exchange’s increased expenses when 

expanding its network to accommodate 

additional Limited Service MEI Ports. 

The Proposed Fees Are Reasonable 

When Compared to the Fees of Other 

Options Exchanges With Similar Market 

Share 

The Exchange does not have visibility 

into other equities exchanges’ costs to 

provide port access or their fee markup 

over those costs, and therefore cannot 

use other exchange’s port fees as a 

benchmark to determine a reasonable 

markup over the costs of providing port 

access. Nevertheless, the Exchange 

believes the other exchange’s port fees 

are a useful example of alternative 

approaches to providing and charging 

for port access. To that end, the 

Exchange believes the proposed tieredpricing structure for Limited Service 

MEI Ports is reasonable because the 

proposed highest tier is still less than 

fees charged for similar port access 

provided by other options exchanges 


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59See ‘‘The market at a glance,’’ available at 

https://www.miaxoptions.com/ (last visited 

November 26, 2021). 

60See id. 

61See NYSE American Options Fee Schedule, 

Section V.A., Port Fees; NYSE Arca Options Fee 

Schedule, Port Fees. 

62See NYSE Technology FAQ and Best Practices: 

Options, Section 5.1 (How many matching engines 

are used by each exchange?) (September 2020) 

(providing a link to an Excel file detailing the 

number of matching engines per options exchange). 

63See supra note 59. 

64See NASDAQ Stock Market, NASDAQ Options 

7 Pricing Schedule, Section 3, NASDAQ Options 

Market—Ports and Other Services. 

65See NASDAQ Specialized Quote Interface 

(SQF) Specification, Version 6.4 (October 2017), 

Section 2, Architecture (the ‘‘NASDAQ SQF 

Interface Specification’’). 

66See id. 

67See supra note 8. 

68See supra note 12. 

with comparable market shares. For 

example, Amex (equity options market 

share of 5.05% as of November 26, 2021 

for the month of November) 59 and Arca 

(equity options market share of 14.88% 

as of November 26, 2021 for the month 

of November) 60 both charge $450 per 

port for order/quote entry ports 1–40 

and $150 per port for ports 41 and 

greater,61 all on a per matching engine 

basis, with Amex and Arca having 17 

match engines and 19 match engines, 

respectively.62 Similarly, NASDAQ 

(equity options market share of 8.88% 

as of November 23, 2021 for the month 

of November) 63 charges $1,500 per port 

for SQF ports 1–5, $1,000 per SQF port 

for ports 6–20, and $500 per SQF port 

for ports 21 and greater,64 all on a per 

matching engine basis, with NASDAQ 

having multiple matching engines.65

The NASDAQ SQF Interface 

Specification provides that PHLX/NOM/ 

BX Options trading infrastructures may 

consist of multiple matching engines 

with each matching engine trading only 

a range of option underlyings. Further, 

the SQF infrastructure is such that the 

firms connect to one or more servers 

residing directly on the matching engine 

infrastructure. Since there may be 

multiple matching engines, firms will 

need to connect to each engine’s 

infrastructure in order to establish the 

ability to quote the symbols handled by 

that engine.66

In the each of the above cases, the 

Exchange’s highest tier in the proposed 

tiered-pricing structure is similar to or 

significantly lower than that of 

competing options exchanges with 

similar market share. Despite proposing 

lower or similar fees to that of 

competing options exchanges with 

similar market share, the Exchange 

believes that it provides a premium 

network experience to its Members and 

non-Members via a highly deterministic 

System, enhanced network monitoring 

and customer reporting, and a superior 

network infrastructure than markets 

with higher market shares and more 

expensive port alternatives. Each of the 

port rates in place at competing options 

exchanges were filed with the 

Commission for immediate effectiveness 

and remain in place today. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

With respect to intra-market 

competition, the Exchange does not 

believe that the proposed rule change 

would place certain market participants 

at the Exchange at a relative 

disadvantage compared to other market 

participants or affect the ability of such 

market participants to compete. As 

stated above, the Exchange does not 

believe its proposed pricing will impose 

a barrier to entry to smaller participants 

and notes that the proposed pricing 

structure is associated with relative 

usage of the various market participants. 

Firms that are primarily order routers 

seeking best-execution do not utilize 

Limited Service MEI Ports on MIAX 

Emerald and therefore will not pay the 

fees associated with the tiered-pricing 

structure. Rather, the fees described in 

the proposed tiered-pricing structure 

will only be allocated to Market Making 

firms that engage in advanced trading 

strategies and typically request multiple 

Limited Service MEI Ports, beyond the 

two that are free. Accordingly, the firms 

engaged in a Market Making business 

generate higher costs by utilizing more 

of the Exchange’s resources. Those 

Market Making firms that purchase 

higher amounts of additional Limited 

Service MEI Ports tend to have specific 

business oriented market making and 

trading strategies, as opposed to firms 

engaging solely in best-execution order 

routing business. Additionally, the use 

of such additional Limited Service MEI 

Ports is entirely voluntary. 

The Exchange also does not believe 

that the proposed rule change will result 

in any burden on inter-market 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. As discussed 

above, options market participants are 

not forced to access all options 

exchanges. The Exchange operates in a 

highly competitive environment, and as 

discussed above, its ability to price 

access and ports is constrained by 

competition among exchanges and third 

parties. There are other options markets 

of which market participants may access 

in order to trade options. There is also 

a possible range of alternative strategies, 

including routing to the exchange 

through another participant or market 

center or accessing the Exchange 

indirectly. For example, there are 15 

other U.S. options exchanges, which the 

Exchange must consider in its pricing 

discipline in order to compete for 

market participants. In this competitive 

environment, market participants are 

free to choose which competing 

exchange to use to satisfy their business 

needs. As a result, the Exchange 

believes this proposed rule change 

permits fair competition among national 

securities exchanges. Accordingly, the 

Exchange does not believe its proposed 

fee changes impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

Regrettably, the Exchange believes 

that the application of the Guidance to 

date has adversely affected inter-market 

competition by impeding the ability of 

smaller, low cost exchanges to adopt or 

increase fees for their market data and 

access services (including connectivity 

and port products and services). Since 

the adoption of the Guidance, and even 

more so recently, it has become harder, 

particularly for smaller, low cost 

exchanges, to adopt or increase fees to 

generate revenue necessary to invest in 

systems, provide innovative trading 

products and solutions, and improve 

competitive standing to the benefit of 

the affected exchanges’ market 

participants. Although the Staff 

Guidance has served an important 

policy goal of improving disclosures 

and requiring exchanges to justify that 

their market data and access fee 

proposals are fair and reasonable, it has 

also negatively impacted exchanges, and 

particularly many smaller, low cost 

exchanges, that seek to adopt or increase 

fees despite providing enhanced 

disclosures and rationale to support 

their proposed fee changes. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

As described above, the Exchange 

received one comment letter on the First 

Proposed Rule Change 67 and three 

comment letters on the Second [sic] 

Proposed Rule Change.68 The Exchange 

responded to the comment letters in the 

Fourth Proposed Rule Change and 

repeats its response in is filing. No 

comment letters were received in 


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69See SIG Letter 2, supra note 12, at page 1. 

70 17 CFR 201.700(b)(3). 

71See supra note 44. 

72See Securities Exchange Act Release Nos. 

91858 (May 12, 2021), 86 FR 26967 (May 18, 2021) 

(SR–PEARL–2021–23) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

to Amend the MIAX Pearl Fee Schedule to Remove 

the Cap on the Number of Additional Limited 

Service Ports Available to Market Makers); 91460 

(April 2, 2021), 86 FR 18349 (April 8, 2021) (SR– 

EMERALD–2021–11) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

To Amend Its Fee Schedule To Adopt Port Fees, 

Increase Certain Network Connectivity Fees, and 

Increase the Number of Additional Limited Service 

MIAX Emerald Express Interface Ports Available to 

Market Makers); and 91857 (May 12, 2021), 86 FR 

26973 (May 18, 2021) (SR–MIAX–2021–19) (Notice 

of Filing and Immediate Effectiveness of a Proposed 

Rule Change To Amend Its Fee Schedule To 

Remove the Cap on the Number of Additional 

Limited Service Ports Available to Market Makers). 

73See, e.g., Securities Exchange Act Release No. 

90196 (October 15, 2020), 85 FR 67064 (October 21, 

2020) (SR–EMERALD–2020–11) (Notice of Filing 

and Immediate Effectiveness of a Proposed Rule 

Change To Amend Its Fee Schedule To Adopt OneTime Membership Application Fees and Monthly 

Trading Permit Fees). See Securities Exchange Act 

Release Nos. 90601 (December 8, 2020), 85 FR 

80864 (December 14, 2020) (SR–EMERALD–2020– 

18) (re-filing with more detail added in response to 

Commission Staff’s feedback and after withdrawing 

SR–EMERALD–2020–11); and 91033 (February 1, 

2021), 86 FR 8455 (February 5, 2021) (SR– 

EMERALD–2021–03) (re-filing with more detail 

added in response to Commission Staff’s feedback 

and after withdrawing SR–EMERALD–2020–18). 

The Exchange initially filed a proposal to remove 

the cap on the number of additional Limited 

Service MEO Ports available to Members on April 

9, 2021. See SR–PEARL–2021–17. On April 22, 

2021, the Exchange withdrew SR–PEARL–2021–17 

and refiled that proposal (without increasing the 

actual fee amounts) to provide further clarification 

regarding the Exchange’s revenues, costs, and 

profitability any time more Limited Service MEO 

Ports become available, in general, (including 

information regarding the Exchange’s methodology 

for determining the costs and revenues for 

additional Limited Service MEO Ports). See SR– 

PEARL–2021–20. On May 3, 2021, the Exchange 

withdrew SR–PEARL–2021–20 and refiled that 

proposal to further clarify its cost methodology. See 

SR–PEARL–2021–22. On May 10, 2021, the 

Exchange withdrew SR–PEARL–2021–22 and 

refiled SR–PEARL–2021–23. See Securities 

Exchange Act Release No. 91858 (May 12, 2021), 86 

FR 26967 (May 18, 2021) (SR–PEARL–2021–23). 

74See HMA Letter, supra note 12. 

75 Id. (providing examples where non-transaction 

fee filings by other exchanges have been permitted 

to remain effective and not suspended by the 

Commission despite less disclosure and 

justification). 

response to the Fourth Proposed Rule 

Change. 

SIG Letter 2 

SIG Letter 2 argues that the Exchange, 

in withdrawing the First Proposed Rule 

Change and refiling the Second [sic] 

Proposed Rule Change, ‘‘improperly 

circumvent[ed] the procedural 

protections embedded in Exchange Act 

Section 19(b)(3)(C), and subvert[ed] the 

balance of interests upheld therein.’’ 69

SIG’s assertion that the Exchange’s 

entire reason for withdrawing and 

refiling was to subvert the protections of 

the Exchange Act are entirely without 

merit. The Exchange withdrew the First 

Proposed Rule Change and replaced it 

with the Second [sic] Proposed Rule 

Change in good faith to provide 

additional justification and explanation 

for the proposed fee changes and did so 

in compliance with the Exchange Act. 

The same is true in this filing, where the 

Exchange withdrew the Second [sic] 

Proposed Rule Change and submitted 

this filing to provide additional 

justification and explanation for the 

proposed fee changes and directly 

responds to certain points raised in SIG 

Letters 1, 2, and 3, as well as the SIFMA 

Letter submitted on the First and 

Second [sic] Proposed Rule Changes. 

As SIG well knows, exchanges are 

able withdraw and refile various 

proposals (including fee changes and 

other rule changes) with the 

Commission for a multitude of reasons, 

not the least of which is to address 

feedback and comments from market 

participants and Commission Staff. The 

Exchange is well within the bounds of 

the Act and the rules and regulations 

thereunder to withdraw a proposed rule 

change and replace it with a new 

proposed rule change in good faith and 

to enhance the filing to ensure it 

complies with the requirements of the 

Act. 

SIG Letters 1 and 3 

As an initial matter, SIG Letter 1 cites 

Rule 700(b)(3) of the Commission’s 

Rules of Fair Practice which places ‘‘the 

burden to demonstrate that a proposed 

rule change is consistent with the Act 

on the self-regulatory organization that 

proposed the rule change’’ and states 

that a ‘‘mere assertion that the proposed 

rule change is consistent with those 

requirements . . . is not sufficient.’’ 70

SIG Letter 1’s assertion that the 

Exchange has not met this burden is 

without merit, especially considering 

the overwhelming amounts of revenue 

and cost information the Exchange 

included in the First and Second [sic] 

Proposed Rule Changes and this filing. 

Until recently, the Exchange operated 

at a net annual loss since it launched 

operations in 2019.71 As stated above, 

the Exchange believes that exchanges in 

setting fees of all types should meet very 

high standards of transparency to 

demonstrate why each new fee or fee 

increase meets the requirements of the 

Act that fees be reasonable, equitably 

allocated, not unfairly discriminatory, 

and not create an undue burden on 

competition among market participants. 

The Exchange believes this high 

standard is especially important when 

an exchange imposes various access fees 

for market participants to access an 

exchange’s marketplace. The Exchange 

believes it has achieved this standard in 

this filing and in the First and Second 

[sic] Proposed Rule Changes. Similar 

justifications for the proposed fee 

change included in the First and Second 

[sic] Proposed Rule Changes, but also in 

this filing, were previously included in 

similar fee changes filed by the 

Exchange and its affiliates, MIAX and 

MIAX Pearl, and SIG did not submit a 

comment letter on those filings.72 Those 

filings were not suspended by the 

Commission and continue to remain in 

effect. The justification included in each 

of the prior filings was the result of 

numerous withdrawals and re-filings of 

the proposals to address comments 

received from Commission Staff over 

many months. The Exchange and its 

affiliates have worked diligently with 

Commission Staff on ensuring the 

justification included in past fee filings 

fully support an assertion that those fee 

changes are consistent with the Act.73

The Exchange leveraged its past work 

with Commission Staff to ensure the 

justification provided herein and in the 

First and Second [sic] Proposed Rule 

Changes include the same level of detail 

(or more) as the prior fee changes that 

survived Commission scrutiny. The 

Exchange’s detailed disclosures in fee 

filings have also been applauded by one 

industry group which noted, ‘‘[the 

Exchange’s] filings contain significantly 

greater information about who is 

impacted and how than other filings 

that have been permitted to take effect 

without suspension.’’ 74 That same 

commenter also noted their ‘‘worry that 

the Commission’s process for reviewing 

and evaluating exchange filings may be 

inconsistently applied.’’ 75

Therefore, a finding by the 

Commission that the Exchange has not 

met its burden to show that the 

proposed fee change is consistent with 

the Act would be different than the 

Commission’s treatment of similar past 

filings, would create further ambiguity 

regarding the standards exchange fee 

filings should satisfy, and is not 

warranted here. 

In addition, the arguments in SIG 

Letter 1 do not support their claim that 

the Exchange has not met its burden to 

show the proposed rule change is 

consistent with the Act. Prior to, and 

after submitting the First Proposed Rule 

Change, the Exchange solicited feedback 

from its Members, including SIG. SIG 

relayed their concerns regarding the 

proposed change. The Exchange then 

sought to work with SIG to address their 


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Federal Register / Vol. 87, No. 35 / Tuesday, February 22, 2022 / Notices 9707 

76See SIG Letter 3, supra note 12. 

77See SIG Letter 1 at page 2, supra note 12. 

78 Id. 

79See Guidance, supra note 28. 

80See supra note 12. 

concerns and gain a better 

understanding of the access/ 

connectivity/quoting infrastructure of 

other exchanges. In response, SIG 

provided no substantive suggestions on 

how to amend the First Proposed Rule 

Change to address their concerns and 

instead chose to submit three comment 

letters. One could argue that SIG is 

using the comment letter process not to 

raise legitimate regulatory concerns 

regarding the proposal, but to inhibit or 

delay proposed fee changes by the 

Exchange. With regards to the First and 

Second [sic] Proposed Rule Changes, the 

SIG Letter does not directly address the 

proposed fees or lay out specific 

arguments as to why the proposal is not 

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

Act. Rather, it simply describes the 

proposed fee change and flippantly 

states that its claims concerning the 

10Gb ULL fee change proposals by the 

Exchange, and its affiliates, apply to 

these changes. Nonetheless, the 

Exchange submits the below response to 

the SIG Letter concerning the First 

Proposed Rule Change. 

Furthermore, the Exchange has 

enhanced its cost and revenue analysis 

and data in this Fourth [sic] Proposed 

Rule Change to further justify that the 

Proposed Access Fees are reasonable in 

accordance with the Commission Staff’s 

Guidance. Among other things, these 

enhancements include providing 

baseline information in the form of data 

from the month before the Proposed 

Access Fees became effective. 

The Exchange now responds to SIG’s 

remaining claims below. SIG Letter 3 

first summarizes its arguments made in 

SIG Letters 1 and 2 and incorporates 

those arguments by reference. The 

Exchange responded to the arguments in 

SIG Letter 2 above. SIG Letter 3 

incorporates the following arguments 

regarding additional Limited Service 

MEI Port fees from SIG Letter 1 (while 

excluding arguments that pertain solely 

to connectivity), which the Exchange 

will first respond to in turn, below: 

‘‘(1) The prospect that a member may 

withdraw from the Exchanges if a fee is too 

costly is not a basis for asserting that the fee 

is reasonable; (2) profit margin comparisons 

do not support the Exchanges’ claims that 

they will not realize a supracompetitive 

profit . . . and comparisons to competing 

exchanges’ overall operating profit margins 

are an inapt ‘‘apples-to-oranges’’ comparison 

. . . (7) the recoupment of investment for 

exchange infrastructure has no supporting 

nexus with the claim that the proposed fees 

are reasonable, equitably allocated, and not 

unfairly discriminatory . . . .’’ 76

General 

First, the SIG Letter 1 states that 

additional Limited Service MEI Ports 

‘‘are critical to Exchange members to be 

competitive and to provide essential 

protection from adverse market events’’ 

(emphasis added).77 The Exchange 

notes that this statement is generally not 

true for additional Limited Service MEI 

Ports as those ports are completely 

voluntary and used primarily for 

entering liquidity removing orders and 

not risk protection activities like 

purging quotes resting on the MIAX 

Emerald Book. Additional Limited 

Service MEI Ports are essentially used 

for competitive reasons and Market 

Makers may choose to utilize one or two 

Limited Service MEI Ports that are 

provided for free, or purchase additional 

Limited Service MEI Ports based on 

their business needs and desire to 

attempt to access the market quicker by 

using one port that may have less 

latency. For instance, a Market Maker 

may have just sent numerous messages 

and/or orders over one of their 

additional Limited Service MEI Ports 

that are in queue to be processed. That 

same Market Maker then seeks to enter 

an order to remove liquidity from the 

Exchange’s Book. That Market Maker 

may choose to send that order 

simultaneously over all of their Limited 

Service MEI Ports that they elected to 

purchase to ensure that their liquidity 

taking order accesses the Exchange as 

quickly as possible. 

If the Exchanges Were To Attempt To 

Establish Unreasonable Pricing, Then 

No Market Participant Would Join or 

Connect to the Exchange, and Existing 

Market Participants Would Disconnect 

SIG asserts that ‘‘the prospect that a 

member may withdraw from the 

Exchanges if a fee is too costly is not a 

basis for asserting that the fee is 

reasonable.’’ 78 SIG misinterprets the 

Exchange’s argument here. The 

Exchange provided the examples of 

firms terminating access to certain 

markets due to fees to support its 

assertion that firms, including market 

makers, are not required to connect to 

all markets and may drop access if fees 

become too costly for their business 

models and alternative or substitute 

forms of access are available to those 

firms who choose to terminate access. 

The Commission Staff Guidance also 

provides that ‘‘[a] statement that 

substitute products or services are 

available to market participants in the 

relevant market (e.g., equities or 

options) can demonstrate competitive 

forces if supported by evidence that 

substitute products or services exist.’’ 79

Nonetheless, the Fourth [sic] Proposed 

Rule Change no longer makes this 

assertion as a basis for the proposed fee 

change and, therefore, the Exchange 

believes it is not necessary to respond 

to this portion of SIG Letters 1 and 3. 

The Proposed Access Fees Will Not 

Result in Excessive Pricing or SupraCompetitive Profit 

Next, SIG asserts that the Exchange’s 

‘‘profit margin comparisons do not 

support the Exchanges’ claims that they 

will not realize a supracompetitive 

profit,’’ and ‘‘comparisons to competing 

exchanges’ overall operating profit 

margins are an inapt ‘apples-to-oranges’ 

comparison.’’ 80

The Exchange has provided ample 

data that the Proposed Access Fees 

would not result in excessive pricing or 

a supra-competitive profit. In this 

Fourth [sic] Proposed Rule Change, the 

Exchange no longer utilizes a 

comparison of its profit margin to that 

of other options exchanges as a basis 

that the Proposed Access Fees are 

reasonable. Rather, the Exchange has 

enhanced its cost and revenue analysis 

and data in this Fourth [sic] Proposed 

Rule Change to further justify that the 

Proposed Access Fees are reasonable in 

accordance with the Commission Staff’s 

Guidance. Therefore, the Exchange 

believes it is no longer necessary to 

respond to this portion of SIG Letters 1 

and 3. 

Recoupment of Exchange Infrastructure 

Costs 

Nowhere in this proposal or in the 

First, Second [sic], or Third [sic] 

Proposed Rule Changes did the 

Exchange assert that it benefits 

competition to allow a new exchange 

entrant to recoup their infrastructure 

costs. Rather, the Exchange asserts 

above that its ‘‘proposed fees are 

reasonable, equitably allocated and not 

unfairly discriminatory because the 

Exchange, and its affiliates, are still 

recouping the initial expenditures from 

building out their systems while the 

legacy exchanges have already paid for 

and built their systems.’’ The Exchange 

no longer makes this assertion in this 

filing and, therefore, does not believe is 

it necessary to respond to SIG’s 

assertion here. 


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9708 Federal Register / Vol. 87, No. 35 / Tuesday, February 22, 2022 / Notices 

81Pursuant to the Guidance, ‘‘platform theory 

generally asserts that when a business offers 

facilities that bring together two or more distinct 

types of customers, it is the overall return of the 

platform, rather than the return of any particular 

fees charged to a type of customer, that should be 

used to assess the competitiveness of the platform’s 

market.’’ See Guidance, supra note 28. 

82See SIFMA Letter, supra note 12. 

83 15 U.S.C. 78s(b)(3)(C). 

84 15 U.S.C. 78s(b)(1). 

85See Securities Exchange Act Release No. 92662 

(August 13, 2021), 86 FR 46726 (August 19, 2021) 

(SR–EMERALD–2021–25). The Commission 

received one comment letter on that proposal. 

Comment on SR–EMERALD–2021–25 can be found 

at: https://www.sec.gov/comments/sr-emerald-2021- 

25/sremerald202125.htm. 

86See Securities Exchange Act Release No. 93188 

(September 29, 2021), 86 FR 55052 (October 5, 

2021) (SR–EMERALD–2021–31). 

87Comment on SR–EMERALD–2021–31 can be 

found at: https://www.sec.gov/comments/sremerald-2021-31/sremerald202131.htm. 

88See Securities Exchange Act Release No. 93640 

(November 22, 2021), 86 FR 67745 (November 29, 

2021). 

89See text accompanying supra note 15. 

90See Securities Exchange Act Release No. 93772 

(December 14, 2021), 86 FR 71965 (December 20, 

2021). 

91See Securities Exchange Act Release No. 94087 

(January 27, 2022), 87 FR 5918 (February 2, 2022). 

The Proposed Tiered Pricing Structure 

Is Not Unfairly Discriminatory 

SIG challenges the proposed fees by 

arguing that ‘‘the Exchange[ ] provide[s] 

no support for [its] claim that [the] 

proposed tiered pricing structure is 

needed to encourage efficiency in 

connectivity usage and the Exchange[ ] 

provided no support for [the] claim that 

the tiered pricing structure allows them 

to better monitor connectivity usage, nor 

that this is an appropriate basis for the 

pricing structure in any event.’’ The 

Exchange provided additional 

justification to support that the 

Proposed Access Fees are equitable and 

not unfairly discriminatory above in 

response to SIG’s assertions. 

SIFMA Letter 

In sum, the SIFMA Letter asserts that 

the Exchange has failed to demonstrate 

that the Proposed Access Fees are 

reasonable for three reasons: 

(i) ‘‘The Exchanges’ ‘‘platform 

competition’’ argument that competition for 

order flow constrains pricing for market data 

or other products and services exclusively 

offered by an exchange does not demonstrate 

that the fees are reasonable.’’ 

(ii) ‘‘. . . order flow competition alone 

between exchanges does not demonstrate that 

the fees for the products and services subject 

to the Proposal are reasonable.’’ 

(iii) ‘‘the Exchanges’ argument that the 

products and services subject to the 

Proposals are optional does not reflect 

marketplace reality, nor does it demonstrate 

that the proposed fees are reasonable.’’ 

The Exchange responds to each of 

SIFMA’s challenges in turn below. 

The Exchange Never Set Forth a 

‘‘Platform Competition’’ Argument 

The SIFMA Letter asserts that the 

Exchange’s ‘‘platform competition’’ 

argument that competition for order 

flow constrains pricing for market data 

or other products and services 

exclusively offered by an exchange does 

not demonstrate that the fees are 

reasonable.’’ The Exchange does not 

believe it is necessary to respond to this 

assertion because it has never set forth 

a ‘‘platform competition’’ 81 argument to 

justify the Proposed Access Fees in the 

First or Second [sic] Proposed Rule 

Changes nor does it do so in this filing. 

The Exchange Is Not Arguing That 

Order Flow Competition Alone 

Demonstrates That the Proposed Fees 

Are Reasonable 

The SIFMA Letter asserts that ‘‘order 

flow competition alone between 

exchanges does not demonstrate that the 

fees for the products and services 

subject to the Proposal are 

reasonable.’’ 82 The Exchange never 

directly asserted in the First or Second 

[sic] Proposed Rule Changes, nor does it 

do so in this filing, that order flow 

competition, alone, demonstrated that 

the Proposed Access Fees are reasonable 

and has removed any language that 

could imply this argument from this 

filing. 

Other SIFMA Assertions 

SIFMA also challenges or asserts: (i) 

Whether the Exchange has shown that 

the fees are equitable and nondiscriminatory; (ii) that a tiered pricing 

structure will encourage market 

participants to be more economical with 

the usage; (iii) greater number of ports 

use greater Exchange resources; and (iv) 

that the Exchange has not provided 

extensive information regarding its cost 

data and how it determined it cost 

analysis. The Exchange believes that 

these assertions by SIFMA basically 

echo assertions made in SIG Letters 1 

and 3 and that it provided a response to 

these assertions under its response to 

SIG above or in provided enhanced 

transparency and justification in this 

filing. 

III. Suspension of the Proposed Rule 

Change 

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

Act,83 at any time within 60 days of the 

date of filing of a proposed rule change 

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

Act,84 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 change 

is necessary and appropriate to allow for 

additional analysis of the proposed rule 

change’s consistency with the Act and 

the rules thereunder. 

As the Exchange further details above, 

the Exchange first filed a proposed rule 

change proposing fee changes as 

proposed herein on August 2, 2021. 

That proposal, SR–EMERALD–2021–25, 

was published for comment in the 

Federal Register on August 19, 2021.85

On September 24, 2021 the Exchange 

withdrew SR–EMERALD–2021–25 and 

re-filed its proposal on September 27, 

2021 (SR–EMERALD–2021–30). On 

September 28, 2021, the Exchange 

withdrew SR–EMERALD–2021–30 and 

filed a proposed rule change proposing 

fee changes as proposed herein. That 

proposal, SR–EMERALD–2021–31, was 

published for comment in the Federal 

Register on October 5, 2021.86 The 

Commission received three comment 

letters from two separate commenters on 

SR–EMERALD–2021–31.87 On 

November 22, 2021, pursuant to Section 

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

(1) Temporarily suspended the 

proposed rule change; and (2) instituted 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change.88 On December 1, 2021, the 

Exchange withdrew SR–EMERALD– 

2021–31 and filed a proposed rule 

change proposing fee changes as 

proposed herein. That filing, SR– 

EMERALD–2021–43,89 was published 

for comment in the Federal Register on 

December 20, 2021.90 On January 27, 

2022, pursuant to Section 19(b)(3)(C) of 

the Act, the Commission: (1) 

Temporarily suspended the proposed 

rule change (SR–EMERALD–2021–43); 

and (2) instituted proceedings to 

determine whether to approve or 

disapprove the proposal.91 On February 

1, 2022, the Exchange withdrew SR– 

EMERALD–2021–43 and filed the 

instant filing, which is substantially 

similar. 

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 


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92See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose 

of, and Statutory Basis for, the Proposed Rule 

Change’’). 

93See id. 

94 15 U.S.C. 78f(b)(4). 

95 15 U.S.C. 78f(b)(5). 

96 15 U.S.C. 78f(b)(8). 

97See 15 U.S.C. 78f(b)(4), (5), and (8), 

respectively. 

98For purposes of temporarily suspending the 

proposed rule change, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

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

99 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. 

100 15 U.S.C. 78s(b)(2)(B). 

101 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. 

102 15 U.S.C. 78f(b)(4). 

103 15 U.S.C. 78f(b)(5). 

104 15 U.S.C. 78f(b)(8). 105See supra Section II.A.2. 

applicable to the exchange.92 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.’’ 93

Among other things, exchange 

proposed rule changes are subject to 

Section 6 of the Act, including Sections 

6(b)(4), (5), and (8), which requires 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; 94 (2) perfect the mechanism of 

a free and open market and a national 

market system, protect investors and the 

public interest, and not permit unfair 

discrimination between customers, 

issuers, brokers, or dealers; 95 and (3) 

not impose any burden on competition 

not necessary or appropriate in 

furtherance of the purposes of the Act.96

In temporarily suspending the 

Exchange’s fee change, the Commission 

intends to further consider whether the 

proposed additional Limited Service 

MEI Port fees are consistent with the 

statutory requirements applicable to a 

national securities exchange under the 

Act. In particular, the Commission will 

consider whether the proposed rule 

change satisfies 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 be designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers; 

and not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.97

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 change.98

IV. Proceedings To Determine Whether 

To Approve or Disapprove the 

Proposed Rule Change 

The Commission is instituting 

proceedings pursuant to Sections 

19(b)(3)(C) 99 and 19(b)(2)(B) 100 of the 

Act to determine whether the 

Exchange’s 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,101 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),102 6(b)(5),103 and 6(b)(8) 104 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, 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 

proposal 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 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 additional Limited Service 

MEI Ports.’’ 105 As described above by the 

Exchange, MIAX Emerald projects $0.88 

million in aggregate annual estimated costs 

for 2021 for additional Limited Service MEI 

Ports. Do commenters believe that the 

Exchange has provided sufficient detail about 

how it determined (a) which categories and 

sub-categories of third-party and internal 

expenses are most clearly directly associated 

with providing and maintaining additional 

Limited Service MEI Ports, (b) the total 

annual expenses associated with such 

categories/sub-categories, and (c) what 

percentage of each such expense should be 

allocated as actually supporting the 

additional Limited Service MEI Ports (as 

opposed to, for example, allocated to the first 

two ‘‘free’’ Limited Service MEI Ports or 

other types of ports or connectivity services 

offered by the Exchange)? The Exchange 

describes a ‘‘proprietary’’ process involving 

all Exchange department heads, including 

the finance department and numerous 

meetings between the Exchange’s Chief 

Information Officer, Chief Financial Officer, 

Head of Strategic Planning and Operations, 

Chief Technology Officer, various members 

of the Legal Department, and other group 

leaders, but does 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 Technology, Back Office, Systems 

Operations, Networking, Business Strategy 

Development, and Trade Operations, but 

does 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 providing and maintaining additional 

Limited Service MEI Ports. What are 


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9710 Federal Register / Vol. 87, No. 35 / Tuesday, February 22, 2022 / Notices 

106See id. 

107See id. 

108See id. 

109See id. 

110See id. 

111See id. 

112See id. 

113See id. 

114See id. 

115See id. 

116See id. 

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 categories and subcategories of third-party and internal 

expenses that the Exchange identified as 

being clearly directly associated with 

providing and maintaining additional 

Limited Service MEI Ports, what are 

commenters’ views on whether the Exchange 

has provided sufficient detail on how it 

selected such categories/sub-categories and 

how shared costs within or among such 

categories/sub-categories are allocated to 

additional Limited Service MEI Ports, 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 the 

categories/sub-categories of expenses that it 

deemed not to be clearly directly associated 

with additional Limited Service MEI Ports, 

and/or what Exchange products or services 

account for the un-allocated percentage of 

those categories/sub-categories of expenses 

that were deemed to be associated with 

additional Limited Service MEI Ports (e.g., 

what products or services are associated with 

the approximately 98 percent of applicable 

depreciation and amortization expenses that 

MIAX Emerald 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? Should the 

Exchange use cost projections or actual cost 

estimates for 2021 in a filing made in 2022, 

or make cost projections for 2022? 

2. Revenue Estimates and Profit Margin 

Range. The Exchange uses a single monthly 

revenue figure (November 2021) as the basis 

for calculating its projected profit margin of 

66 percent. The Exchange argues that 

projecting revenues on a per month basis is 

reasonable ‘‘as the revenue generated from 

access services subject to the proposed fee 

generally remains static from month to 

month.’’ 106 Yet the Exchange also 

acknowledges that ‘‘the revenue . . . may 

vary from month to month due to changes in 

ports.’’ 107 Similarly, the Exchange states that 

‘‘the number of ports has not materially 

changed over the previous months,’’ yet also 

states that firms ‘‘frequently add and drop 

ports mid-month.’’ 108 Do commenters 

believe a single month provides a reasonable 

basis for a revenue projection? If not, why 

not? 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 ports 

purchased, and that costs may increase.109

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. The 

Exchange states that its Proposed Access Fees 

are ‘‘designed to cover its costs with a limited 

return in excess of such costs,’’ that ‘‘revenue 

and associated profit margin . . . are not 

solely intended to cover the costs associated 

with providing access services subject to the 

Proposed Access Fees,’’ and that a 66 percent 

margin is a limited return over such costs.110

Do commenters agree with the Exchange that 

its expected 66 percent profit margin would 

constitute a reasonable rate of return over 

costs for additional Limited Service MEI 

Ports? 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? The Exchange 

states that it chose to initially provide 

additional Limited Service MEI Ports at a 

discounted price and to forego revenue that 

it otherwise could have generated from 

assessing higher fees.111 Do commenters 

believe that this should be considered in the 

‘‘reasonableness’’ assessment? Do 

commenters believe it relevant to an 

assessment of reasonableness that, according 

to the Exchange, the Proposed Access Fees 

are similar to or lower than fees charged by 

competing options exchanges with similar 

market share? 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 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, 

stating that ‘‘[a]ny requirement that an 

exchange should conduct a periodic reevaluation on a set timeline of its cost 

justification and amend its fees accordingly 

should be established by the Commission 

holistically, applied to all exchanges and not 

just pending fee proposals such as this 

filing,’’ and that ‘‘[i]n order to be fairly 

applied, such a mandate should be applied 

to existing access fees as well.’’ 112 In light of 

the impact that the number of ports 

purchased has on 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 the fees stay in line with their stated 

profitability projections 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 

revenue and/or cost 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 Additional Limited 

Service MEI Ports. The Exchange states that 

the proposed tiered fee structure is designed 

to set the amount of the fees to relate to the 

number of ports a firm purchases 113 and that 

‘‘[c]harging an incrementally higher fee to a 

Market Maker that utilizes numerous ports is 

directly related to the increased costs the 

Exchange incurs in providing and 

maintaining those additional ports.’’ 114

According to the Exchange, firms that 

purchase numerous Limited Service MEI 

Ports are primarily those that engage in 

advanced trading strategies, typically 

generate a disproportionate amount of 

messages and order traffic, and frequently 

add or drop ports mid-month, and thus that 

‘‘it is equitable for these firms to experience 

increased port costs based on their 

disproportionate pull on Exchange resources 

to provide the additional port access.’’ 115

The Proposed Access Fees would not just 

increase the previous $100 per additional 

Limited Service MEI Port fee, but would 

progressively increase the fee up to four-fold 

(up to $400 per port for seven or more ports). 

However, the Exchange has not specifically 

asserted that it is, for example, four times 

more costly to provide the seventh or more 

ports. Instead, the Exchange argues generally 

that the more ports purchased by a Market 

Maker ‘‘likely’’ results in greater expenditure 

of Exchange resources and increased cost to 

the Exchange, and that as the number of ports 

an entity has increases, certain other costs 

incurred by the Exchange that are correlated 

to, though not directly affected by, port costs 

(e.g., storage costs, surveillance costs, service 

expenses) also increase.116 Do commenters 

believe that the fees for each tier, as well as 

the fee differences between the tiers, are 

supported by the Exchange’s assertions that 

it set the tiered-pricing structure in a manner 

that is equitable and not unfairly 

discriminatory? Do commenters believe that 

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 

volumes through the additional Limited 

Service MEI Ports by tier, and/or mid-month 

add/drop rates by tier) to better substantiate, 

by tier, the ‘‘disproportionate pull’’ on the 

Exchange’s resources as a firm increases the 

number of additional Limited Service MEI 

Ports that it purchases and to permit an 

assessment of the Exchange’s statement that 


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Federal Register / Vol. 87, No. 35 / Tuesday, February 22, 2022 / Notices 9711 

117See id. 

118 17 CFR 201.700(b)(3). 

119See id. 

120See id. 

121See 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). 

122 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). 

123 15 U.S.C. 78s(b)(3)(C). 

124 17 CFR 200.30–3(a)(12), (57) and (58). 

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

2 17 CFR 240.19b–4. 

the Proposed Access Fees ‘‘are solely 

determined by the individual Members’ or 

non-Members’ business needs and its impact 

on Exchange resources’’? 117

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.’’ 118 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,119 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.120 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.121

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 proposal is 

consistent with the Act, any potential 

comments or supplemental information 

provided by the Exchange, and any 

additional independent analysis by the 

Commission. 

V. Commission’s Solicitation of 

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.122

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposal should be approved or 

disapproved by March 15, 2022. Any 

person who wishes to file a rebuttal to 

any other person’s submission must file 

that rebuttal by March 29, 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–2022–05 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File No. 

SR–EMERALD–2022–05. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (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 No. 

SR–EMERALD–2022–05 and should be 

submitted on or before March 15, 2022. 

Rebuttal comments should be submitted 

by March 29, 2022. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(3)(C) of the Act,123 that 

File No. SR–EMERALD–2022–05 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.124

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–03655 Filed 2–18–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94256; File No. SR–MIAX– 

2022–07] 

Self-Regulatory Organizations; Miami 

International Securities Exchange, 

LLC; Notice of Filing of a Proposed 

Rule Change To Amend the MIAX Fee 

Schedule To Adopt a Tiered-Pricing 

Structure for Certain Connectivity 

Fees; Suspension of and Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove the 

Proposed Rule Change 

February 15, 2022. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on February 

1, 2022, Miami International Securities 

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

filed with the Securities and Exchange 

Commission (‘‘Commission’’) a 

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 and is, 

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


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