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[Federal Register Volume 89, Number 240 (Friday, December 13, 2024)]
[Notices]
[Pages 101069-101080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29333]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101843; File No. SR-SAPPHIRE-2024-39]

Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Establish Fees for the Exchange's Proprietary Market Data Feeds: (i) 
MIAX Sapphire Top of Market Data Feed; (ii) MIAX Sapphire Complex Top 
of Market Data Feed; and (iii) MIAX Sapphire Liquidity Feed

December 9, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 25, 2024, MIAX Sapphire, LLC (``MIAX Sapphire'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Sapphire 
Options Exchange Fee Schedule (the ``Fee Schedule'') to establish fees 
for the Exchange's proprietary market data feeds: (i) MIAX Sapphire Top 
of Market (``ToM'') data feed; (ii) MIAX Sapphire Complex Top of Market 
(``cToM'') data feed; and (iii) MIAX Sapphire Liquidity Feed (``SLF'').
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings, at MIAX Sapphire's principal office, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    On July 19, 2024, the Exchange filed a proposal to establish the 
ToM, cToM and SLF data feeds (collectively, the ``market data feeds'') 
\3\ for MIAX Sapphire. The Exchange now proposes to amend the Fee 
Schedule to establish fees for each of these market data feeds.\4\ The 
Exchange also proposes to waive such fees during an Initial Waiver 
Period,\5\ which would run for six full calendar months from the 
initial effective date (August 12, 2024) of the proposed fees to 
incentivize market participants to subscribe and make the Exchange's 
proprietary market data more widely available. The Exchange initially 
filed this proposal on August 8, 2024 (SR-SAPPHIRE-2024-18).\6\ The 
Exchange withdrew the Initial Proposal on October 3, 2024 and 
resubmitted its proposal (SR-SAPPHIRE-2024-31).\7\ The Exchange 
withdrew the Second Proposal on November 25, 2024, and resubmitted this 
proposal (SR-SAPPHIRE-2024-39).
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    \3\ See Securities Exchange Act Release No. 100588 (July 25, 
2024), 89 FR 61554 (July 31, 2024) (SR-SAPPHIRE-2024-01).
    \4\ The Exchange established the Definitions section of the Fee 
Schedule in a separate rule filing. See Securities Exchange Act 
Release No. 100683 (August 9, 2024), 89 FR 66467 (August 15, 2024) 
(SR-SAPPHIRE-2024-13).
    \5\ The term ``Initial Waiver Period'' means, for each 
applicable fee, the period of time from the initial effective date 
of the MIAX Sapphire Fee Schedule plus an additional six (6) full 
calendar months after the completion of the partial month of the 
Exchange launch. See the Definitions section of the Fee Schedule.
    \6\ See Securities Exchange Act Release No. 100806 (August 22, 
2024), 89 FR 68964 (August 28, 2024) (SR-SAPPHIRE-2024-18) (the 
``Initial Proposal'').
    \7\ See Securities Exchange Act Release No. 101368 (October 17, 
2024), 89 FR 84646 (October 23, 2024) (SR-SAPPHIRE-2024-31) (the 
``Second Proposal'').
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    The ToM data feed contains top of book quotations based on options

[[Page 101070]]

orders \8\ and quotes \9\ resting on the Exchange's Simple Order Book 
\10\ as well as administrative messages, such as other real-time 
Exchange System \11\ functions.\12\ The cToM data feed includes the 
same types of information as ToM, but for Complex Orders \13\ on the 
Exchange's Strategy Book.\14\ This information includes the Exchange's 
best bid and offer for a complex strategy \15\, with aggregate size, 
based on displayable orders in the complex strategy. The cToM data feed 
also provides subscribers with the following information: (i) the 
identification of the complex strategies currently trading on the 
Exchange; (ii) complex strategy last sale information; and (iii) the 
status of securities underlying the complex strategy (e.g., halted, 
open, or resumed). ToM subscribers are not required to subscribe to 
cToM, and cToM subscribers are not required to subscribe to ToM.
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    \8\ The term ``order'' means a firm commitment to buy or sell 
option contracts. See Exchange Rule 100.
    \9\ The term ``quote'' or ``quotation'' The term ``quote'' or 
``quotation'' means a bid or offer entered by a Market Maker as a 
firm order that updates the Market Maker's previous bid or offer, if 
any. When the term order is used in the Exchange's Rules and a bid 
or offer is entered by the Market Maker in the option series to 
which such Market Maker is registered, such order shall, as 
applicable, constitute a quote or quotation for purposes of the 
Exchange's Rules. See Exchange Rule 100.
    \10\ The ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 100.
    \11\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \12\ See MIAX Sapphire Options Exchange User Manual, Version 
1.0.0, Section 5.06, dated December 11, 2023, available at https://www.miaxglobal.com/miax_sapphire_user_manual.pdf (last visited July 
24, 2024).
    \13\ In sum, a ``Complex Order'' is ``any order involving the 
concurrent purchase and/or sale of two or more different options in 
the same underlying security (the `legs' or `components' of the 
complex order), for the same account . . ..'' See Exchange Rule 
518(a).
    \14\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders. See Exchange Rule 100.
    \15\ The term ``complex strategy'' means a particular 
combination of components and their ratios to one another. New 
complex strategies can be created as the result of the receipt of a 
complex order or by the Exchange for a complex strategy that is not 
currently in the System. The Exchange may limit the number of new 
complex strategies that may be in the System at a particular time 
and will communicate this limitation to Members via Regulatory 
Circular. See Exchange Rule 518(a).
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    The Exchange notes that there is no requirement that any Member 
\16\ or market participant subscribe to the ToM, cToM, or SLF data 
feeds. Instead, a Member may choose to maintain subscriptions to ToM, 
cToM, or SLF based on their trading strategies and individual business 
decisions. Moreover, persons (including broker-dealers) who subscribe 
to any exchange proprietary data feed must also have equivalent access 
to consolidated Options Information \17\ from the Options Price 
Reporting Authority (``OPRA'') for the same classes or series of 
options that are included in the proprietary data feed (including for 
exclusively listed products), and proprietary data feeds cannot be used 
to meet that particular requirement. The proposed fees described below 
would not apply differently based upon the size or type of firm, but 
rather based upon the type of subscription a firm has to ToM, cToM, or 
SLF and their use thereof, which are based upon factors deemed relevant 
by each firm.
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    \16\ The term ``Member'' means an individual or organization 
that is registered with the Exchange pursuant to Chapter II of these 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See Exchange Rule 100.
    \17\ The term ``consolidated Options Information'' means 
``consolidated Last Sale Reports combined with either consolidated 
Quotation Information or the BBO furnished by OPRA. . .'' Access to 
consolidated Options Information is deemed ``equivalent'' if both 
kinds of information are equally accessible on the same terminal or 
work station. See Limited Liability Company Agreement of Options 
Price Reporting Authority, LLC (``OPRA Plan''), Section 5.2(c)(iii). 
The Exchange notes that this requirement under the OPRA Plan is also 
reiterated under the Cboe Global Markets Global Data Agreement and 
Cboe Global Markets North American Data Policies, which subscribers 
to any exchange proprietary product must sign and are subject to, 
respectively. Additionally, the Exchange's Data Order Form (used for 
requesting the Exchange's market data products) requires 
confirmation that the requesting market participant receives data 
from OPRA.
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    The SLF data feed provides market participants with a direct data 
feed that allows subscribers to receive real-time updates of options 
orders, products traded on MIAX Sapphire, MIAX Sapphire System status, 
and MIAX Sapphire underlying trading status. When an order is received 
or an order state changes, published order information will be 
transmitted over SLF, including time stamp, action, product ID, order 
ID, order side, order type, order price, original order size, open 
order size, time in force, origin, open or close, and route 
instruction. For complex orders, complex strategy definition 
notification and complex order notice are also included. Subscribers to 
the SLF will get a list of all options symbols and strategies that will 
be traded and sourced on that feed at the start of every session.
    Each of the proposed fees are described below. Again, the Exchange 
proposes to not charge the proposed fees during the Initial Waiver 
Period. Even though the Exchange proposes to waive these particular 
fees during the Initial Waiver Period, the Exchange believes that it is 
appropriate to provide market participants with the overall structure 
of the fees by outlining the structure and amounts in the Fee Schedule 
so that there is general awareness that the Exchange intends to assess 
such fees upon expiration of the defined term of the Initial Waiver 
Period.
ToM
    The Exchange proposes to charge a monthly fee of $1,200 to Internal 
Distributors \18\ and $2,000 to External Distributors for the ToM data 
feed after the expiration of the Initial Waiver Period. The proposed 
fees are intended to cover the Exchange's costs with compiling and 
producing the ToM data feed described in the Exchange's cost analysis 
detailed below. The Exchange proposes to assess Internal Distributors 
fees that are less than the fees assessed for External Distributors 
because External Distributors may monetize their receipt of the ToM 
data feed by charging their customers fees for receipt of the 
Exchange's data. Internal Distributors do not have the same ability. 
The Exchange does not propose to charge any additional fees based on a 
Distributor's use of the ToM data feed (e.g., displayed versus non-
displayed use), redistribution fees, or individual per user fees.
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    \18\ A ``Distributor'' of MIAX Sapphire data is any entity that 
receives a feed or file of data either directly from MIAX Sapphire 
or indirectly through another entity and then distributes it either 
internally (within that entity) or externally (outside that entity). 
All Distributors are required to execute an Exchange Data Agreement. 
See Fee Schedule, proposed Section 6)a).
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cToM
    The Exchange proposes to charge a monthly fee of $1,200 to Internal 
Distributors and $2,000 to External Distributors for the cToM data feed 
after the expiration of the Initial Waiver Period. The proposed fees 
are intended to cover the Exchange's costs with compiling and producing 
the cToM data feed described in the Exchange's cost analysis detailed 
below. The Exchange proposes to assess Internal Distributors fees that 
are less than the fees assessed for External Distributors because 
External Distributors may monetize their receipt of the cToM data feed 
by charging their customers fees for receipt of the Exchange's data. 
Internal Distributors do not have the same ability. The Exchange does 
not propose to charge any additional fees based on a Distributor's use 
of the cToM data feed (e.g., displayed versus non-displayed use), 
redistribution fees, or individual per user fees.

[[Page 101071]]

SLF
    The Exchange proposes to charge a monthly fee of $3,000 to Internal 
Distributors and $3,500 to External Distributors for the SLF data feed 
after the expiration of the Initial Waiver Period. The proposed fees 
are intended to cover the Exchange's costs with compiling and producing 
the SLF data feed described in the Exchange's Cost Analysis detailed 
below. The Exchange proposes to assess Internal Distributors fees that 
are less than the fees assessed for External Distributors because 
External Distributors may monetize their receipt of the SLF data feed 
by charging their customers fees for receipt of the Exchange's data. 
Internal Distributors do not have the same ability. The Exchange does 
not propose to charge any additional fees based on a Distributor's use 
of the SLF data feed (e.g., displayed versus non-displayed use), 
redistribution fees, or individual per user fees.
* * * * *
    The Exchange proposes that each Distributor would be charged for 
each month it is credentialed to receive ToM, cToM, and/or SLF in the 
Exchange's production environment. Fees for each of the market data 
feeds will be reduced for new Distributors who subscribe to a market 
data feed mid-month for the first month they subscribe following the 
expiration of the Initial Waiver Period, as described above. New 
Distributors who subscribe mid-month for each market data feed would be 
assessed a pro-rata percentage of the applicable Distribution fee based 
on the percentage of the number of trading days remaining in the 
affected calendar month as of the date on which they have been first 
credentialed to receive each of the market data feeds in the production 
environment, divided by the total number of trading days in the 
affected calendar month.
    The Exchange believes the proposed fees will allow the Exchange to 
offset the expenses the Exchange has and will continue to incur 
associated with compiling and disseminating the market data feeds. 
Further, the Exchange believes it provided sufficient transparency in 
the Cost Analysis provided below, which provides a basis for how the 
Exchange determined to charge such fees.
    The Exchange issued an alert publicly announcing the proposed fees 
on July 23, 2024.\19\ The proposed fees are immediately effective.
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    \19\ See Fee Change Alert, MIAX Sapphire Options Exchange--
Summary of Proposed Non-Transaction Fees (July 23, 2024), available 
at https://www.miaxglobal.com/alert/2024/07/23/miax-sapphire-options-exchange-summary-proposed-non-transaction-fees?nav=all.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \20\ of the Act in general, and 
furthers the objectives of Section 6(b)(4) \21\ of the Act, in 
particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees and other charges among its Members 
and other persons using its facilities. Additionally, the Exchange 
believes that the proposed fees are consistent with the objectives of 
Section 6(b)(5) \22\ of the Act in that they are designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to a free and open market and 
national market system, and, in general, to protect investors and the 
public interest, and, particularly, are not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \20\ 15 U.S.C. 78f.
    \21\ 15 U.S.C. 78f(b)(4).
    \22\ 15 U.S.C. 78f(b)(5).
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    In 2019, Commission staff published guidance suggesting the types 
of information that self-regulatory organizations (``SROs'') may use to 
demonstrate that their fee filings comply with the standards of the 
Exchange Act (the ``Staff Guidance'').\23\ While the Exchange 
understands that the Staff Guidance does not create new legal 
obligations on SROs, the Staff Guidance is consistent with the 
Exchange's view about the type and level of transparency that exchanges 
should meet to demonstrate compliance with their existing obligations 
when they seek to charge new fees. The Staff Guidance provides that in 
assessing the reasonableness of a fee, the Staff would consider whether 
the fee is constrained by significant competitive forces. To determine 
whether a proposed fee is constrained by significant competitive 
forces, the Staff Guidance further provides that the Staff would 
consider whether the evidence provided by an SRO in a fee filing 
proposal demonstrates (i) that there are reasonable substitutes for the 
product or service that is the subject of a proposed fee; (ii) that 
``platform'' competition constrains the fee; and/or (iii) that the 
revenue and cost analysis provided by the SRO otherwise demonstrates 
that the proposed fee would not result in the SRO taking supra-
competitive profits.\24\ The Exchange provides sufficient evidence 
below to support the findings that the proposed fees are reasonable 
because the projected revenue and cost analysis contained herein 
demonstrates that the proposed fees would not result in the Exchange 
taking supra-competitive profits.
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    \23\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
    \24\ Id.
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Cost Analysis
    In general, the Exchange believes that exchanges, in setting fees 
of all types, should meet very high standards of transparency to 
demonstrate why each new fee or fee increase meets the requirements of 
the Act that fees be reasonable, equitably allocated, not unfairly 
discriminatory, and not create an undue burden on competition among 
Members and markets. The Exchange believes this high standard is 
especially important when an exchange imposes various fees for market 
participants to access an exchange's market data. The Exchange believes 
that it is important to demonstrate that these fees are based on its 
costs and reasonable business needs. Accordingly, the Exchange included 
a cost analysis below in connection with the proposed market data fees 
and the costs associated with compiling and providing the ToM, cToM, 
and SLF feeds (the ``Cost Analysis'').
    Accordingly, in proposing to charge fees for market data, the 
Exchange is especially diligent in assessing those fees in a 
transparent way against its own aggregate costs of providing the 
related service, and in carefully and transparently assessing the 
impact on Members--both generally and in relation to other Members--to 
ensure the fees will not create a financial burden on any participant 
and will not have an undue impact in particular on smaller Members and 
competition among Members in general. The Exchange does not believe it 
needs to otherwise address questions about market competition in the 
context of this filing because the proposed fees are consistent with 
the Act based on the Exchange's Cost Analysis. The Exchange also 
believes that this level of diligence and transparency is called for by 
the requirements of Section 19(b)(1) under the Act,\25\ and Rule 19b-4 
thereunder,\26\ with respect to the types of information SROs should 
provide when filing fee changes, and Section 6(b) of the Act,\27\ which 
requires, among other things, that exchange fees be reasonable and

[[Page 101072]]

equitably allocated,\28\ not designed to permit unfair 
discrimination,\29\ and that they do not impose a burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.\30\ This proposal addresses those requirements, and the 
analysis and data in this section are designed to clearly and 
comprehensively show how they are met.
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    \25\ 15 U.S.C. 78s(b)(1).
    \26\ 17 CFR 240.19b-4.
    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(4).
    \29\ 15 U.S.C. 78f(b)(5).
    \30\ 15 U.S.C. 78f(b)(8).
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    The Exchange's affiliates \31\ previously completed a study of 
their aggregate costs to produce market data and provide connectivity 
and port services, defined above as its Cost Analysis.\32\ Personnel 
began to plan for and develop the Exchange beginning in early 2023, and 
costs included in this Cost Analysis are related to the development and 
buildout of the Exchange since that time. During the Exchange's 
development and buildout that occurred throughout 2023 and continues to 
today, the Exchange routinely studied its aggregate costs to produce 
and disseminate Exchange market data, which were used to determine the 
proposed pricing for the market data feeds as part of the Exchange's 
Cost Analysis. The Cost Analysis required a detailed analysis of the 
Exchange's aggregate baseline costs, including a determination and 
allocation of costs for core services provided by the Exchange--
transaction execution, market data, membership services, physical 
connectivity, and port access (which provide order entry, cancellation 
and modification functionality, risk functionality, the ability to 
receive drop copies, and other functionality). The Exchange separately 
divided its costs between those costs necessary to deliver each of 
these core services, including infrastructure, software, human 
resources (i.e., personnel), and certain general and administrative 
expenses (``cost drivers'').
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    \31\ The affiliated markets include Miami International 
Securities Exchange, LLC (``MIAX''); separately, the options and 
equities markets of MIAX PEARL, LLC (``MIAX Pearl''); and MIAX 
Emerald, LLC (``MIAX Emerald'').
    \32\ See Securities Exchange Act Release Nos. 100041 (April 26, 
2024), 89 FR 35868 (May 2, 2024) (SR-MIAX-2024-25); 100319 (June 12, 
2024), 89 FR 51562 (June 18, 2024) (SR-PEARL-2024-25); 100042 (April 
26, 2024), 89 FR 35879 (May 2, 2024) (SR-EMERALD-2024-15). The 
Exchange frequently updates it Cost Analysis as strategic 
initiatives change, costs increase or decrease, and market 
participant needs and trading activity (once live trading begins) 
changes. The Exchange's most recent Cost Analysis was conducted 
ahead of this filing.
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    As an initial step, the Exchange determined the total cost for the 
Exchange and its affiliated markets for each cost driver as part of the 
Exchange's 2024 budget review process. The 2024 budget review is a 
company-wide process that occurs over the course of many months, 
includes meetings among senior management, department heads, and the 
Finance Team. Each department head is required to send a ``bottom up'' 
budget to the Finance Team allocating costs at the profit and loss 
account and vendor levels for the Exchange and its affiliated markets 
based on a number of factors, including server counts, additional 
hardware and software utilization, current or anticipated functional or 
non-functional development projects, capacity needs, end-of-life or 
end-of-service intervals, number of members, market model (e.g., price 
time or pro-rata, simple only or simple and complex markets, auction 
functionality, etc.), which may impact message traffic, individual 
system architectures that impact platform size,\33\ storage needs, 
dedicated infrastructure versus shared infrastructure allocated per 
platform based on the resources required to support each platform, 
number of available connections, and employees allocated time. All of 
these factors result in different allocation percentages among the 
Exchange and its affiliated markets, i.e., the different percentages of 
the overall cost driver allocated to the Exchange and its affiliated 
markets will cause the dollar amount of the overall cost allocated 
among the Exchange and its affiliated markets to also differ. Because 
the Exchange's parent company currently owns and operates five separate 
and distinct marketplaces,\34\ the Exchange must determine the costs 
associated with each actual market--as opposed to the Exchange's parent 
company simply concluding that all cost drivers are the same at each 
individual marketplace and dividing total cost by five (evenly for each 
marketplace). Rather, the Exchange's parent company determines an 
accurate cost for each marketplace, which results in different 
allocations and amounts across each exchange for the same cost drivers, 
due to the unique factors of each marketplace as described above. This 
allocation methodology also ensures that no cost would be allocated 
twice or double-counted between the Exchange and its affiliated 
markets. The Finance Team then consolidates the budget and sends it to 
senior management, including the Chief Financial Officer and Chief 
Executive Officer, for review and approval. Next, the budget is 
presented to the Board of Directors and the Finance and Audit 
Committees for each exchange for their approval. The above steps 
encompass the first step of the cost allocation process. For the 2024 
budget process for MIAX Sapphire, only costs and anticipated revenues 
associated with the electronic exchange were considered. While MIAX 
Sapphire plans on opening its trading floor in 2025 costs and 
anticipated revenues from the trading floor were not included as part 
of any analysis for MIAX Sapphire for 2024.\35\
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    \33\ For example, MIAX Sapphire maintains 8 matching engines, 
MIAX maintains 24 matching engines, MIAX Pearl Options maintains 12 
matching engines, MIAX Pearl Equities maintains 24 matching engines, 
and MIAX Emerald maintains 12 matching engines.
    \34\ MIAX Options Exchange, MIAX Pearl Options Exchange, MIAX 
Pearl Equities Exchange, MIAX Emerald Exchange, and the MIAX 
Sapphire Exchange.
    \35\ Additionally, while MIAX Sapphire received approval as a 
national securities exchange on July 15, 2024, start-up costs 
associated with the launch of MIAX Sapphire were not included in the 
costs used for the 2024 electronic exchange projections.
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    The next step involves determining what portion of the cost 
allocated to the Exchange pursuant to the above methodology is to be 
allocated to each core service, e.g., market data, connectivity, ports, 
and transaction services. The Exchange and its affiliated markets 
adopted an allocation methodology with thoughtful and consistently 
applied principles to guide how much of a particular cost amount 
allocated to the Exchange should be allocated within the Exchange to 
each core service. This is the final step in the cost allocation 
process and is applied to each of the cost drivers set forth below. For 
instance, fixed costs that are not driven by client activity (e.g., 
message rates), such as data center costs, were allocated more heavily 
to the provision of physical connectivity (for example, 62% of the data 
center total expense amount is allocated to all provisions of 
connectivity), with smaller allocations to ToM, cToM and SLF (2.0% 
combined), and the remainder to the provision of ports, transaction 
execution, and membership services (36%). This next level of the 
allocation methodology at the individual exchange level also took into 
account factors similar to those set forth under the first step of the 
allocation methodology process described above, to determine the 
appropriate allocation to connectivity or market data versus 
allocations for other services. This allocation methodology was 
developed through an assessment of costs with senior management 
intimately familiar with each area of the Exchange's operations. After 
adopting this

[[Page 101073]]

allocation methodology, the Exchange then applied an allocation of each 
cost driver to each core service, resulting in the cost allocations 
described below. Each of the below cost allocations is unique to the 
Exchange and represents a percentage of overall cost that was allocated 
to the Exchange pursuant to the initial allocation described above.
    By allocating segmented costs to each core service, the Exchange 
was able to estimate by core service the potential margin it might earn 
based on different fee models. The Exchange notes that it has five 
primary sources of revenue that it can potentially use to fund its 
operations: transaction fees, connectivity and port service fees, 
membership fees, regulatory fees, and market data fees. Accordingly, 
the Exchange must cover its expenses from these five primary sources of 
revenue. The Exchange also notes that as a general matter each of these 
sources of revenue is based on services that are interdependent. For 
instance, the Exchange's system for executing transactions is dependent 
on physical hardware and connectivity; only Members and parties that 
they sponsor to participate directly on the Exchange may submit orders 
to the Exchange; some Members (but not all) consume market data from 
the Exchange in order to trade on the Exchange; and, the Exchange 
consumes market data from external sources in order to comply with 
regulatory obligations. Accordingly, given this interdependence, the 
allocation of costs to each service or revenue source required judgment 
of the Exchange and was weighted based on estimates of the Exchange 
that the Exchange believes are reasonable, as set forth below. While 
there is no standardized and generally accepted methodology for the 
allocation of an exchange's costs, the Exchange's methodology is the 
result of an extensive review and analysis and will be consistently 
applied going forward for any other cost-justified potential fee 
proposals. In the absence of the Commission attempting to specify a 
methodology for the allocation of exchanges' interdependent costs, the 
Exchange will continue to be left with its best efforts to attempt to 
conduct such an allocation in a thoughtful and reasonable manner.
    Through the Exchange's extensive Cost Analysis, the Exchange 
analyzed nearly every expense item in the Exchange's general expense 
ledger to determine whether each such expense relates to the provision 
of the market data feeds, and, if such expense did so relate, what 
portion (or percentage) of such expense actually supports the provision 
of the market data feeds, and thus bears a relationship that is, ``in 
nature and closeness,'' directly related to the market data feeds. In 
turn, the Exchange allocated certain costs more to physical 
connectivity and others to ports, while certain costs were only 
allocated to such services at a very low percentage or not at all, 
using consistent allocation methodologies as described above. Based on 
this analysis, the Exchange estimates that the aggregate monthly cost 
to provide ToM, cToM, and SLF data feeds is $59,161 (the Exchange 
divided the annual cost for each of ToM, cToM, and SLF by 12 months, 
then added all three numbers together), as further detailed below.
Costs Related to Offering ToM, cToM, and SLF Data Feeds 36
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    \36\ The Exchange notes that in recent non-transaction fee 
filings by the Exchange's affiliated markets, those exchanges 
included a comparison and explanation where certain cost driver 
allocations and expense amounts materially differed for the same 
cost driver among the affiliated markets. See, e.g., Securities 
Exchange Act Release No. 100041 (April 26, 2024), 89 FR 35868 (May 
2, 2024) (SR-MIAX-2024-25). The Exchange believes a similar 
comparison and explanation is not appropriate here because the 
Exchange has yet to commence operations and the allocations provided 
herein may change over time as the Exchange matures and its 
operations adjust based on its trading volumes and number of market 
data subscribers. In contrast, MIAX and MIAX Emerald are more mature 
markets with a steady market data subscriber base and a clearer 
estimation of their costs associated with producing and 
disseminating their market data feeds. Further, as a new exchange, 
MIAX Sapphire proposes to waive the fees for the market data feeds 
for a specified period of time in order to build market share, which 
in turn, should attract more market data subscribers. If the 
Exchange does not attract as many market data subscribers as 
currently projected for the Cost Analysis, the Exchange may need to 
reduce its market data fees or waive the fees for a longer period of 
time. Accordingly, the Exchange believes it is reasonable to not 
provide a similar comparison of cost driver allocations until the 
Exchange has time to build its subscriber base for the market data 
feeds.
---------------------------------------------------------------------------

    The following chart details the individual line-item (annual) costs 
considered by the Exchange to be related to offering the ToM, cToM, and 
SLF data feeds to its Members and other customers, as well as the 
percentage of the Exchange's overall costs that such costs represent 
for such area (e.g., as set forth below, the Exchange allocated 
approximately 6.2% of its overall Human Resources cost to offering ToM, 
cToM, and SLF data feeds).

----------------------------------------------------------------------------------------------------------------
                                                          Allocated annual   Allocted monthly
                      Cost drivers                            cost \a\           cost \b\           % of all
----------------------------------------------------------------------------------------------------------------
Human Resources........................................           $631,203            $52,600                6.2
Connectivity (external fees, cabling, switches, etc.)..                511                 43                2.0
Internet Services and External Market Data.............               0.00               0.00                0.0
Data Center............................................             12,298              1,025                2.0
Hardware and Software Maintenance & Licenses...........              9,933                828                2.0
Depreciation...........................................             13,656              1,138                1.1
Allocated Shared Expenses..............................             42,326              3,527                1.5
                                                        --------------------------------------------------------
    Total..............................................            709,927             59,161                4.6
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.

    Below are additional details regarding each of the line-item costs 
considered by the Exchange to be related to offering the market data 
feeds.
Human Resources
    The Exchange notes that it and its affiliated markets anticipate 
that by year-end 2024, there will be 289 employees (excluding employees 
at non-options/equities exchange subsidiaries of Miami International 
Holdings, Inc. (``MIH''), the holding company of the Exchange and its 
affiliated markets), and each department leader has direct knowledge of 
the time spent by each employee with respect to the various tasks 
necessary to operate the Exchange. Specifically, twice a year, and as 
needed with additional new hires and new project initiatives, in 
consultation with employees as needed,

[[Page 101074]]

managers and department heads assign a percentage of time to every 
employee and then allocate that time amongst the Exchange and its 
affiliated markets to determine each market's individual Human 
Resources expense. Then, managers and department heads assign a 
percentage of each employee's time allocated to the Exchange into 
buckets including network connectivity, ports, market data, and other 
exchange services. This process ensures that every employee is 100% 
allocated, ensuring there is no double counting between the Exchange 
and its affiliated markets.
    For personnel costs (Human Resources), the Exchange calculated an 
allocation of employee time for employees whose functions include 
providing and maintaining the market data feeds and performance thereof 
(primarily the Exchange's network infrastructure team, which spends a 
portion of their time performing functions necessary to provide market 
data). As described more fully above, the Exchange's parent company 
allocates costs to the Exchange and its affiliated markets and then a 
portion of the Human Resources costs allocated to the Exchange is then 
allocated to the market data feeds. From that portion allocated to the 
Exchange that applied to the market data feeds, the Exchange then 
allocated a weighted average of 7.3% of each employee's time from the 
above group to the market data feeds (which excludes an allocation for 
the recently hired Head of Data Services for the Exchange and its 
affiliates).
    The Exchange also allocated Human Resources costs to provide the 
market data feeds to a limited subset of personnel with ancillary 
functions related to establishing and maintaining such market data 
feeds (such as information security, sales, membership, and finance 
personnel). The Exchange allocated cost on an employee-by-employee 
basis (i.e., only including those personnel who support functions 
related to providing market data feeds) and then applied a smaller 
allocation to such employees' time to the market data feeds (4.9%, 
which includes an allocation for the Head of Data Services). This other 
group of personnel with a smaller allocation of Human Resources costs 
also have a direct nexus to providing the market data feeds, whether it 
is a sales person selling a market data feed, finance personnel billing 
for market data feeds or providing budget analysis, or information 
security ensuring that such market data feeds are secure and adequately 
defended from an outside intrusion.
    The estimates of Human Resources cost were therefore determined by 
consulting with such department leaders, determining which employees 
are involved in tasks related to providing market data feeds, and 
confirming that the proposed allocations were reasonable based on an 
understanding of the percentage of time such employees devote to those 
tasks. This includes personnel from the Exchange departments that are 
predominately involved in providing the market data feeds: Business 
Systems Development, Trading Systems Development, Systems Operations 
and Network Monitoring, Network and Data Center Operations, Listings, 
Trading Operations, and Project Management. Again, the Exchange 
allocated 7.3% of each of their employee's time assigned to the 
Exchange for the market data feeds, as stated above. Employees from 
these departments perform numerous functions to support the market data 
feeds, such as the configuration and maintenance of the hardware 
necessary to support the market data feeds. This hardware includes 
servers, routers, switches, firewalls, and monitoring devices. These 
employees also perform software upgrades, vulnerability assessments, 
remediation and patch installs, equipment configuration and hardening, 
as well as performance and capacity management. These employees also 
engage in research and development analysis for equipment and software 
supporting the market data feeds and design, and support the 
development and on-going maintenance of internally-developed 
applications as well as data capture and analysis, and Member and 
internal Exchange reports related to network and system performance. 
The above list of employee functions is not exhaustive of all the 
functions performed by Exchange employees to support the market data 
feeds, but illustrates the breath of functions those employees perform 
in support of the above cost and time allocations.
    Lastly, the Exchange notes that senior level executives' time was 
only allocated to the market data feeds related Human Resources costs 
to the extent that they are involved in overseeing tasks related to 
providing market data. The Human Resources cost was calculated using a 
blended rate of compensation reflecting salary, equity and bonus 
compensation, benefits, payroll taxes, and 401(k) matching 
contributions.
Connectivity (External Fees, Cabling, Switches, etc.)
    The Connectivity cost driver includes cabling and switches required 
to generate and disseminate the market data feeds and operate the 
Exchange. The Connectivity cost driver is more narrowly focused on 
technology used to complete Member subscriptions to the market data 
feeds and the servers used at the Exchange's primary and back-up data 
centers specifically for the market data feeds. Further, as certain 
servers are only partially utilized to generate and disseminate the 
market data feeds, only the percentage of such servers devoted to 
generating and disseminating the market data feeds was included (i.e., 
the capacity of such servers allocated to the ToM, cToM, and SLF data 
feeds).\37\
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    \37\ The Exchange understands that the Investors Exchange, Inc. 
(``IEX'') and MEMX LLC (``MEMX'') both allocated a percentage of 
their servers to the production and dissemination of market data to 
support market data fee proposals in 2022 and 2023. See Securities 
Exchange Act Release Nos. 94630 (April 7, 2022), 87 FR 21945, at 
page 21949 (April 13, 2022) (SR-IEX-2022-02) and 97130 (March 13, 
2023), 88 FR 16491 (March 17, 2023) (SR-MEMX-2023-04). The Exchange 
does not have insight into either IEX's or MEMX's technology 
infrastructure or what their determinations were based on. However, 
the Exchange reviewed its own technology infrastructure and believes 
based on its design, it is more appropriate for the Exchange to 
allocate a portion of its Connectivity cost driver to market data 
based on a percentage of overall cost, not on a per server basis.
---------------------------------------------------------------------------

Internet Services and External Market Data
    The next cost driver consists of internet services and external 
market data. Internet services includes third-party service providers 
that provide the internet, fiber and bandwidth connections between the 
Exchange's networks, primary and secondary data centers, and office 
locations in Princeton and Miami. External market data includes fees 
paid to third parties, including other exchanges, to receive market 
data. The Exchange did not allocate any costs associated with internet 
services or external market data to the ToM, cToM or SLF data feeds.
Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide the market data feeds in the third-party data centers 
where the Exchange maintains its equipment (such as dedicated space, 
security services, cooling and power). The Exchange does not own the 
primary data center or the secondary data center, but instead leases 
space in data centers operated by third parties. As the Data Center 
costs are primarily for space, power, and cooling of servers, the 
Exchange allocated 2.0%

[[Page 101075]]

to the applicable Data Center costs to the market data feeds. The 
Exchange believes it is reasonable to apply the same proportionate 
percentage of Data Center costs to that of the Connectivity cost 
driver.
Hardware and Software Maintenance and Licenses
    Hardware and Software Maintenance and Licenses includes hardware 
and software licenses used to operate and monitor physical assets 
necessary to offer the market data feeds. Because the hardware and 
software license fees are correlated to the servers used by the 
Exchange, the Exchange again applied an allocation of 2.0% of its costs 
for Hardware and Software Maintenance and Licenses to the market data 
feeds.
Depreciation
    All physical assets, software, and hardware used to provide the 
market data feeds, which also includes assets used for testing and 
monitoring of Exchange infrastructure to provide market data, were 
valued at cost, and depreciated or leased over periods ranging from 
three to five years. Thus, the depreciation cost primarily relates to 
servers necessary to operate the Exchange, some of which are owned by 
the Exchange and some of which are leased by the Exchange in order to 
allow efficient periodic technology refreshes. The vast majority of the 
software the Exchange uses for its operations to generate and 
disseminate the market data feeds has been developed in-house over an 
extended period. This software development also requires quality 
assurance and thorough testing to ensure the software works as 
intended. The Exchange also included in the Depreciation cost driver 
certain budgeted improvements that the Exchange intends to capitalize 
and depreciate with respect to the market data feeds in the near-term. 
As with the other allocated costs in the Exchange's updated Cost 
Analysis, the Depreciation cost was therefore narrowly tailored to 
depreciation related to the market data feeds. As noted above, the 
Exchange allocated 1.1% of its allocated depreciation costs to 
providing the market data feeds.
Allocated Shared Expenses
    Finally, as with other exchange products and services, a portion of 
general shared expenses was allocated to the provision of the market 
data feeds. These general shared costs are integral to exchange 
operations, including its ability to provide the market data feeds. 
Costs included in general shared expenses include office space and 
office expenses (e.g., occupancy and overhead expenses), utilities, 
recruiting and training, marketing and advertising costs, professional 
fees for legal, tax and accounting services (including external and 
internal audit expenses), and telecommunications. Similarly, the cost 
of paying directors to serve on the Exchange's Board of Directors is 
also included in the Exchange's general shared expense cost driver.\38\ 
These general shared expenses are incurred by the Exchange's parent 
company, MIH, as a direct result of operating the Exchange and its 
affiliated markets.
---------------------------------------------------------------------------

    \38\ The Exchange notes that MEMX allocated a precise amount of 
10% of the overall cost for directors in a similar non-transaction 
fee filing. See Securities Exchange Act Release No. 97130 (March 13, 
2023), 88 FR 16491 (March 17, 2023) (SR-MEMX-2023-04). The Exchange 
does not calculate is expenses at that granular a level. Instead, 
director costs are included as part of the overall general 
allocation.
---------------------------------------------------------------------------

    The Exchange employed a process to determine a reasonable 
percentage to allocate general shared expenses to the market data feeds 
pursuant to its multi-layered allocation process. First, general 
expenses were allocated among the Exchange and affiliated markets as 
described above. Then, the general shared expense assigned to the 
Exchange was allocated across core services of the Exchange, including 
market data. Then, these costs were further allocated to sub-categories 
within the final categories, i.e., ToM, cToM, and SLF, as sub-
categories of market data. In determining the percentage of general 
shared expenses allocated to market data that ultimately apply to the 
market data feeds, the Exchange looked at the percentage allocations of 
each of the cost drivers and determined a reasonable allocation 
percentage. The Exchange also held meetings with senior management, 
department heads, and the Finance Team to determine the proper amount 
of the shared general expense to allocate to the market data feeds. The 
Exchange, therefore, believes it is reasonable to assign an allocation, 
in the range of allocations for other cost drivers, while continuing to 
ensure that this expense is only allocated once. Again, the general 
shared expenses are incurred by the Exchange's parent company as a 
result of operating the Exchange and its affiliated markets and it is 
therefore reasonable to allocate a percentage of those expenses to the 
Exchange and ultimately to specific product offerings such as ToM, cToM 
and SLF.
    Again, a portion of all shared expenses were allocated to the 
Exchange (and its affiliated markets) which, in turn, allocated a 
portion of that overall allocation to all market data products offered 
by the Exchange. The Exchange believes this allocation percentage is 
reasonable because, while the overall dollar amount may be higher than 
other cost drivers, the 1.5% is based on and in line with the 
percentage allocations of each of the Exchange's other cost drivers. 
The percentage allocated to the market data feeds also reflects its 
importance to the Exchange's strategy and necessity towards the nature 
of the Exchange's overall operations, which is to provide a resilient, 
highly deterministic trading system that relies on faster market data 
feeds than the Exchange's competitors to maintain premium performance. 
This allocation reflects the Exchange's focus on providing and 
maintaining high performance market data services, of which ToM, cToM, 
and SLF are main contributors.
* * * * *
Approximate Cost for ToM, cToM, and SLF per Month
    After determining the approximate allocated monthly cost related to 
the market data feeds combined, the total monthly cost for the market 
data feeds of $59,161 was divided by the total number of projected 
subscribers \39\ to ToM, cToM and SLF that the Exchange anticipates 
will maintain market data subscriptions following the expiration of the 
waiver periods for each respective market data feed (29 Internal 
Distributors + 4 External Distributors = 33 total Distributors), to 
arrive at a cost of approximately $1,793 per month per subscription 
(rounded to the nearest dollar). Due to the nature of this particular 
cost, this allocation methodology results in an allocation among the 
Exchange and its affiliated markets based on set quantifiable criteria, 
i.e., projected number of ToM, cToM, and SLF subscribers.
---------------------------------------------------------------------------

    \39\ The methodology used by the Exchange to project the number 
of subscribers for each of the market data feeds once the Initial 
Waiver Period expires can be found under the section titled 
``Projected Revenue'', below.
---------------------------------------------------------------------------

Cost Analysis--Additional Discussion
    In conducting its Cost Analysis, the Exchange did not allocate any 
of its expenses in full to any core service (including market data) and 
did not double-count any expenses. Instead, as described above, the 
Exchange allocated applicable cost drivers across its core services and 
used the same Cost Analysis to form the basis of this proposal. For 
instance, in calculating the Human Resources expenses to be allocated 
to market data based upon the

[[Page 101076]]

above described methodology, the Exchange allocated a higher percentage 
of dedicated network infrastructure personnel (7.3%) due to their focus 
on functions necessary to provide market data. The remaining 92.7% of 
the Human Resources expense was then allocated to connectivity 
services, port services, transaction services, and membership services. 
The Exchange did not allocate any other Human Resources expense for 
providing market data to any other employee group, outside of a smaller 
allocation of 4.9% for costs associated with certain specified 
personnel who work closely with and support network infrastructure 
personnel.
    In total, the Exchange allocated 6.2% of its personnel costs (Human 
Resources) to providing the market data feeds. In turn, the Exchange 
allocated the remaining 93.8% of its Human Resources expense to 
membership services, transaction services, connectivity services, and 
port services. Thus, again, the Exchange's allocations of cost across 
core services were based on real costs of operating the Exchange and 
were not double-counted across the core services or their associated 
revenue streams.
    As another example, the Exchange allocated depreciation expense to 
all core services, including market data, but in different amounts. The 
Exchange believes it is reasonable to allocate the identified portion 
of such expense because such expense includes the actual cost of the 
computer equipment, such as dedicated servers, computers, laptops, 
monitors, information security appliances and storage, and network 
switching infrastructure equipment, including switches and taps that 
were purchased to operate and support the network. Without this 
equipment, the Exchange would not be able to operate the network and 
provide the market data feeds to its Members and their customers. 
However, the Exchange did not allocate all of the depreciation and 
amortization expense toward the cost of providing the market data 
feeds, but instead allocated approximately 1.1% of the Exchange's 
overall depreciation and amortization expense to the market data feeds 
combined. The Exchange allocated the remaining depreciation and 
amortization expense (98.9%) toward the cost of providing transaction 
services, membership services, connectivity services, and port 
services.
    The Exchange notes that its revenue estimates are based on 
projections across all potential revenue streams and will only be 
realized to the extent such revenue streams actually produce the 
revenue estimated. The revenue estimates are based upon the Exchange's 
projected number of Internal and External Distributors for each of the 
ToM, cToM, and SLF data feeds upon the expiration of the fee waiver 
periods for each market data feed and then annualized. The Exchange 
does not yet know whether such expectations will be realized. For 
instance, in order to generate the revenue expected from the market 
data feeds, the Exchange will have to be successful in attracting 
customers to a new exchange and then successfully retain those 
customers that wish to maintain subscriptions to the market data feeds 
or obtain new customers that will purchase such services. Similarly, 
the Exchange will have to be successful in retaining a positive net 
capture on transaction fees in order to realize the anticipated revenue 
from transaction pricing.
    The Exchange notes that the Cost Analysis is based on the 
Exchange's 2024 fiscal year of operations and projections, which will 
only be for part of the year. It is possible, however, that actual 
costs may be higher or lower. The proposed fee waivers for the market 
data feeds mean that the Exchange will receive no revenue from market 
data distribution in 2024. To the extent the Exchange sees growth in 
use of market data services in 2025, following the expiration of the 
Initial Waiver Period, it will begin to receive revenue to offset 
future cost increases. However, if use of market data services is 
static or decreases, the Exchange might not realize the revenue that it 
anticipates or needs in order to cover applicable costs. Accordingly, 
the Exchange is committing to conduct a one-year review after 
implementation of these fees and expiration of the fee waivers. The 
Exchange expects that it may propose to adjust fees at that time, to 
increase fees in the event that revenues fail to cover costs and a 
reasonable mark-up of such costs. Similarly, the Exchange may propose 
to decrease fees in the event that revenue materially exceeds our 
current projections. In addition, the Exchange will periodically 
conduct a review to inform its decision making on whether a fee change 
is appropriate (e.g., to monitor for costs increasing/decreasing or 
subscribers increasing/decreasing, etc. in ways that suggest the then-
current fees are becoming dislocated from the prior cost-based 
analysis) and would propose to increase fees in the event that revenues 
fail to cover its costs and a reasonable mark-up, or decrease fees in 
the event that revenue or the mark-up materially exceeds our current 
projections. In the event that the Exchange determines to propose a fee 
change, the results of a timely review, including an updated cost 
estimate, will be included in the rule filing proposing the fee change. 
More generally, the Exchange believes that it is appropriate for an 
exchange to refresh and update information about its relevant costs and 
revenues in seeking any future changes to fees, and the Exchange 
commits to do so.
Projected Revenue 40
---------------------------------------------------------------------------

    \40\ For purposes of calculating projected annualized revenue 
for the market data feeds, the Exchange used projected monthly 
revenues for the market data feeds once the Initial Waiver Period 
expires.
---------------------------------------------------------------------------

    The proposed fees will allow the Exchange to cover certain costs 
incurred by the Exchange associated with creating, generating, and 
disseminating the market data feeds and the fact that the Exchange will 
need to fund future expenditures (increased costs, improvements, etc.). 
The Exchange routinely works to improve the performance of the 
network's hardware and software. The costs associated with maintaining 
and enhancing a state-of-the-art exchange network is a significant 
expense for the Exchange, and thus the Exchange believes that it is 
reasonable and appropriate to help offset those costs by establishing 
fees for market data subscribers. Subscribers to the ToM, cToM and SLF 
data feeds expect the Exchange to provide this level of support so they 
continue to receive the performance they expect. This differentiates 
the Exchange from its competitors. As detailed above, the Exchange has 
five primary sources of revenue that it can potentially use to fund its 
operations: transaction fees, connectivity service fees, membership and 
regulatory fees, and market data fees. Accordingly, the Exchange must 
cover its expenses from these five primary sources of revenue.
    The Exchange's Cost Analysis estimates the annual cost to provide 
the market data feeds will equal $709,927. Based on projected ToM, cToM 
and SLF subscribers once the waiver periods expire for the market data 
feeds, the Exchange projects to generate annual revenue of 
approximately $726,000 for the market data feeds combined. The Exchange 
believes this represents a modest profit of 2.2% when compared to the 
cost of providing the market data feeds on an annualized basis once the 
waiver periods expire, which the Exchange believes is fair and 
reasonable after taking into account the costs related to creating, 
generating, and disseminating the market data feeds and the fact that 
the Exchange will need to fund future expenditures (increased

[[Page 101077]]

costs, improvements, etc.). To determine the projected number of 
Distributors for each of the market data feeds, the Exchange reviewed 
its anticipated Distributor population from July 2024 based on 
Distributor on-boarding documents the Exchange received that showed 
interest in the market data products in the month preceding when the 
Exchange filed its proposal to implement the proposed fees, and assumed 
a 5% attrition rate. The 5% attrition rate is based upon the Exchange's 
experience on its affiliate exchanges where it has been observed that a 
percentage of subscribers do not continue their market data 
subscriptions after the expiration of fee waivers.
    Based on the above discussion, the Exchange believes that even if 
the Exchange earns the above revenue or incrementally more or less, the 
proposed fees are fair and reasonable because they will not result in 
pricing that deviates from that of other exchanges or a supra-
competitive profit, when comparing the total expense of the Exchange 
associated with providing the market data feeds versus the total 
projected revenue of the Exchange associated with the market data 
feeds.
    The Exchange's affiliated markets, MIAX and MIAX Emerald, charge 
similar or higher rates for their respective ToM, cToM and MOR data 
feeds.\41\ The Exchange's proposed fees for its market data feeds are 
also comparable to, or lower than, the fees for similar products 
charged by competing options exchanges. For example, for Internal 
Distributors of ToM and cToM, the Exchange proposes a lower fee than 
the fees charged by Nasdaq ISE, LLC (``ISE'') for ISE's Top Quote Feed 
\42\ and NYSE Arca, Inc. (``Arca'') for Arca's Top Datafeed \43\ and 
Complex Order Book data feed.\44\ Additionally, Nasdaq PHLX LLC 
(``PHLX'') assesses the same fees for the PHLX Orders data feed as 
proposed by the Exchange for its SLF data feed.\45\
---------------------------------------------------------------------------

    \41\ See MIAX Fee Schedule, Sections 6)a) and c); and MIAX 
Emerald Fee Schedule, Sections (6)(a) and (c).
    \42\ See ISE Options 7: Pricing Schedule, Section 10, Market 
Data, Section H. Nasdaq ISE Top Quote Feed, available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207 (last 
visited June 13, 2024) (assessing Professional internal and external 
distributors $3,000 per month, plus $20 per month per controlled 
device).
    \43\ See NYSE Proprietary Market Data Pricing Guide, Section 
6.3, NYSE Arca Options (dated May 4, 2022), available at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf (last 
visited June 13, 2024). Fees for the NYSE Arca Options Top Datafeed, 
which is the comparable product to ToM, are $3,000 per month for 
access (internal use) and an additional $2,000 per month for 
redistribution (external distribution), compared to the Exchange's 
proposed fees of $1,200 and $2,000 for Internal and External 
Distributors, respectively. In addition, for its NYSE Arca Options 
Top Datafeed, NYSE Arca charges for three different categories of 
non-display usage, and user fees, both of which the Exchange does 
not propose to charge, causing the overall cost of NYSE Arca Options 
Top Datafeed to far exceed the Exchange's proposed rates.
    \44\ See NYSE Proprietary Market Data Pricing Guide, Section 
6.4, NYSE Arca Options Complex Order Book (dated May 4, 2022), 
available at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf (last visited June 13, 2024) (assessing 
an access fee of $1,500 per month, plus a $1,000 redistribution fee, 
$1,000 non-display fee, and $20 fee per professional user).
    \45\ See PHLX Options 7: Pricing Schedule, Section 10. 
Proprietary Data Feed Fees, PHLX Orders, available at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207 
(last visited June 13, 2024) (assessing internal distributors $3,000 
per month and external distributors $3,500 per month for the PHLX 
Orders data feed).
---------------------------------------------------------------------------

    Accordingly, the Exchange believes that comparable and competitive 
pricing are key factors in determining whether a proposed fee meets the 
requirements of the Act, regardless of whether that same fee across the 
Exchange's affiliated markets leads to slightly different profit 
margins due to factors outside of the Exchange's control (i.e., more 
subscribers to ToM, cToM, and/or SLF).
    The Exchange also reiterates that it proposes to waive the fees for 
the market data feeds for a defined period of time. The Exchange is 
owned by a holding company that is the parent company of five exchange 
markets and, therefore, the Exchange and its affiliated markets must 
allocate shared costs across all of those markets accordingly, pursuant 
to the above-described allocation methodology. In contrast, IEX, which 
currently operates only one exchange, in its recent non-transaction fee 
filing allocated the entire amount of that same cost to a single 
exchange. This can result in lower profit margins for the non-
transaction fees proposed by IEX because the single allocated cost does 
not experience the efficiencies and synergies that result from sharing 
costs across multiple platforms.\46\ The Exchange and its affiliated 
markets often share a single cost, which results in cost efficiencies 
that can cause a broader gap between the allocated cost amount and 
projected revenue, even though the fee levels being proposed are lower 
or competitive with competing markets (as described above). To the 
extent that the application of a cost-based standard results in 
Commission Staff making determinations as to the appropriateness of 
certain profit margins, the Commission Staff should consider whether 
the proposed fee level is comparable to, or competitive with, the same 
fee charged by competing exchanges and how different cost allocation 
methodologies (such as across multiple markets) may result in different 
profit margins for comparable fee levels. If Commission Staff is making 
determinations as to appropriate profit margins, the Exchange believes 
that the Commission should be clear to all market participants as to 
what they have determined is an appropriate profit margin and should 
apply such determinations consistently and, in the case of certain 
legacy exchanges, retroactively, if such standards are to avoid having 
a discriminatory effect.
---------------------------------------------------------------------------

    \46\ The Exchange acknowledges that IEX included in its proposal 
to adopt market data fees after offering market data for free an 
analysis of what its projected revenue would be if all of its 
existing customers continued to subscribe versus what its projected 
revenue would be if a limited number of customers subscribed due to 
the new fees. See Securities Exchange Act Release No. 94630 (April 
7, 2022), 87 FR 21945 (April 13, 2022) (SR-IEX-2022-02). MEMX did 
not include a similar analysis in either of its recent non-
transaction fee proposals. See, e.g., supra notes 37 and 38. The 
Exchange does not believe a similar analysis would be useful here 
because it is part of a holding company that operates five different 
markets.
---------------------------------------------------------------------------

    Further, the proposal reflects the Exchange's efforts to control 
its costs, which the Exchange does on an ongoing basis as a matter of 
good business practice. A potential profit margin should not be judged 
alone based on its size, but is also indicative of costs management and 
whether the ultimate fee reflects the value of the services provided. 
For example, a profit margin on one exchange should not be deemed 
excessive where that exchange has been successful in controlling its 
costs, but not excessive where on another exchange where that exchange 
is charging comparable fees but has a lower profit margin due to higher 
costs. Doing so could have the perverse effect of not incentivizing 
cost control where higher costs alone are used to justify fees 
increases.
    Accordingly, while the Exchange is supportive of transparency 
around costs and potential margins (applied across all exchanges), as 
well as periodic review of revenues and applicable costs (as discussed 
below), the Exchange does not believe that these estimates should form 
the sole basis of whether or not a proposed fee is reasonable or can be 
adopted. Instead, the Exchange believes that the information should be 
used solely to confirm that an Exchange is not earning--or seeking to 
earn--supra-competitive profits, the standard set forth in the Staff 
Guidance. The Exchange believes the Cost Analysis and related 
projections in this filing demonstrate this fact.
Reasonableness
    Overall. With regard to reasonableness, the Exchange

[[Page 101078]]

understands that the Commission has traditionally taken a market-based 
approach to examine whether the exchange making the fee proposal was 
subject to significant competitive forces in setting the terms of the 
proposal. The Exchange understands that in general the analysis 
considers whether the exchange has demonstrated in its filing that (i) 
there are reasonable substitutes for the product or service; (ii) 
``platform'' competition constrains the ability to set the fee; and/or 
(iii) revenue and cost analysis shows the fee would not result in the 
exchange taking supra-competitive profits. If the exchange demonstrates 
that the fee is subject to significant competitive forces, the Exchange 
understands that in general the analysis will next consider whether 
there is any substantial countervailing basis to suggest the fee's 
terms fail to meet one or more standards under the Exchange Act. The 
Exchange further understands that if the filing fails to demonstrate 
that the fee is constrained by competitive forces, the exchange must 
provide a substantial basis, other than competition, to show that it is 
consistent with the Exchange Act, which may include production of 
relevant revenue and cost data pertaining to the product or service.
    The Exchange has not determined its proposed overall market data 
fees based on assumptions about market competition, instead relying 
upon a cost-plus model to determine a reasonable fee structure that is 
informed by the Exchange's understanding of different uses of the 
products by different types of participants. In this context, the 
Exchange believes the proposed fees overall are fair and reasonable as 
a form of cost recovery plus the possibility of a reasonable return for 
the Exchange's aggregate costs of offering the market data feeds. The 
Exchange believes the proposed fees are reasonable because they are 
designed to generate annual revenue to recoup some or all of Exchange's 
annual costs of providing the market data feeds with a reasonable mark-
up. As discussed above, the Exchange estimates this fee filing will 
result in annual revenue of approximately $726,000 once the fee waivers 
expire for the market data feeds, representing a potential mark-up of 
just 2.2% over the cost of providing the market data feeds. 
Accordingly, the Exchange believes that this fee methodology is 
reasonable because it allows the Exchange to recoup all of its expenses 
for providing the market data feeds (with any additional revenue 
representing no more than what the Exchange believes to be a reasonable 
rate of return). The Exchange also believes that the proposed fees are 
reasonable because they are generally less than the fees charged by 
competing options exchanges for comparable market data products, 
notwithstanding that the competing exchanges may have different system 
architectures that may result in different cost structures for the 
provision of market data.
    The Exchange believes the proposed fees for the market data 
products are reasonable when compared to fees for comparable products, 
compared to which the Exchange's proposed fees are generally lower, as 
well as other comparable data feeds priced significantly higher than 
the Exchange's proposed fees for the market data feeds.
    Internal Distribution Fees. The Exchange believes it is reasonable 
to charge Internal Distribution fees because such data assists Internal 
Distributors in their profit-generating activities. The Exchange also 
believes that the proposed monthly Internal Distribution fees for ToM, 
cToM, and SLF are reasonable as they are similar to the amounts charged 
by at least one other exchange of comparable size for comparable data 
products, and lower than the fees charged by other exchanges for 
comparable data products.\47\
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    \47\ See supra notes 44 and 45.
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    External Distribution Fees. The Exchange believes that it is 
reasonable to charge External Distribution fees for the market data 
feeds because vendors receive enumeration from redistributing the data 
in their business products provided to their customers. The Exchange 
believes that charging External Distribution fees is reasonable because 
the vendors that would be charged such fees profit by re-transmitting 
the Exchange's market data to their customers. These fees would be 
charged only once per month to each vendor account that redistributes 
any ToM, cToM, or SLF data feeds, regardless of the number of customers 
to which that vendor redistributes the data.
    For all of the foregoing reasons, the Exchange believes that the 
proposed fees for the market data feeds are reasonable.
Equitable Allocation and Not Unfairly Discriminatory
    Overall. The Exchange believes that its proposed fees are 
reasonable, equitable, and not unfairly discriminatory because they are 
designed to align the proposed fees with services provided. The 
Exchange believes the proposed fees for the market data feeds are 
allocated fairly and equitably among the various categories of users of 
the feeds, and any differences among categories of users are justified 
and appropriate.
    The Exchange believes that the proposed fees are equitably 
allocated because they will apply uniformly to all data recipients that 
choose to subscribe to the market data feeds. Any subscriber or vendor 
that chooses to subscribe to the market data feeds is subject to the 
same Fee Schedule, regardless of what type of business they operate, 
and the decision to subscribe to one or more of the ToM, cToM or SLF 
data feeds is based on objective differences in usage of each market 
data feed among different Members, which are still ultimately in the 
control of any particular Member. The Exchange believes the proposed 
pricing of the market data feeds is equitably allocated because it is 
based, in part, upon the amount of information contained in each data 
feed, which may have additional value to market participants.
    Internal Distribution Fees. The Exchange believes the proposed 
monthly fees for Internal Distribution of the market data feeds are 
equitably allocated and not unfairly discriminatory because they would 
be charged on an equal basis to all data recipients that receive the 
market data feeds for internal distribution, regardless of what type of 
business they operate.
    External Distribution Fees. The Exchange believes the proposed 
monthly fees for External Distribution of the market data feeds are 
equitably allocated and not unfairly discriminatory because they would 
be charged on an equal basis to all data recipients that receive the 
market data feeds that choose to redistribute the feeds externally, 
regardless of what business they operate. The Exchange also believes 
that the proposed monthly fees for External Distribution are equitably 
allocated when compared to lower proposed fees for Internal 
Distribution because data recipients that are externally distributing 
ToM, cToM, and/or SLF data feeds are able to monetize such distribution 
and spread such costs amongst multiple third party data recipients, 
whereas the Internal Distribution fee is applicable to use by a single 
data recipient (and its affiliates).
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to assess Internal Distributors fees that are 
less than the fees assessed for External Distributors for subscriptions 
to the ToM, cToM and SLF data feeds because Internal Distributors have 
limited, restricted

[[Page 101079]]

usage rights to the market data, as compared to External Distributors, 
which have more expansive usage rights. All Members and non-Members 
that decide to receive any market data feed of the Exchange (or its 
affiliates, MIAX, MIAX Pearl and MIAX Emerald), must first execute, 
among other things, the MIAX Exchange Group Data Agreement (the 
``Exchange Data Agreement'').\48\ Pursuant to the Exchange Data 
Agreement, Internal Distributors are restricted to the ``internal use'' 
of any market data they receive. This means that Internal Distributors 
may only distribute the Exchange's market data to the recipient's 
officers and employees and its affiliates.\49\ External Distributors 
may distribute the Exchange's market data to persons who are not 
officers, employees or affiliates of the External Distributor,\50\ and 
may charge their own fees for the redistribution of such market data. 
External Distributors may monetize their receipt of the ToM, cToM and 
SLF data feeds by charging their customers fees for receipt of the 
Exchange's market data. Internal Distributors do not have the same 
ability to monetize the Exchange's market data feeds. Accordingly, the 
Exchange believes it is fair, reasonable and not unfairly 
discriminatory to assess External Distributors a higher fee for the 
Exchange's market data feeds as External Distributors have greater 
usage rights to commercialize such market data and can adjust their own 
fee structures if necessary.
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    \48\ See Exchange Data Agreement, available at https://www.miaxglobal.com/markets/us-options/all-options/market-data-vendor-agreements.
    \49\ See id.
    \50\ See id.
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    The Exchange believes it is reasonable and equitable to charge 
different fees for different market data products. While the ToM and 
cToM feeds provide top of market data for the Simple Order Book and 
Strategy Book, respectively, and have identical fees, the SLF provides 
a different data set and is thus priced accordingly. The Exchange 
believes it is reasonable, equitable and not unfairly discriminatory to 
base pricing upon the amount of information contained in each data feed 
and the importance of that information to market participants. The ToM 
and cToM data feeds can be utilized to trade on the Exchange but 
contain less information than the information that is available via the 
SLF data feed. Thus, the Exchange believes it is reasonable, equitable 
and not unfairly discriminatory for the products to be priced as 
proposed, with ToM and cToM having a lower price as compared to the SLF 
proposed pricing.
    The Exchange also believes the proposed pricing is reasonable and 
not unfairly discriminatory because the Exchange proposes to assess 
fees for its market data products that are comparable to, or lower 
than, the comparable products offered by competing exchanges, which 
will allow the Exchange to properly compete with those markets.\51\
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    \51\ See supra note 45.
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    The Exchange also utilizes more resources to support External 
Distributors versus Internal Distributors, as External Distributors 
have reporting and monitoring obligations that Internal Distributors do 
not have, thus requiring additional time and effort of Exchange staff. 
For example, External Distributors have monthly reporting requirements 
under the Exchange's Market Data Policies.\52\ Exchange staff must 
then, in turn, process and review information reported by External 
Distributors to ensure the External Distributors are redistributing 
market data in compliance with the Exchange Data Agreement and Market 
Data Policies.
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    \52\ See Section 6 of the Exchange's Market Data Policies, 
available at https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Exchange_Group_Market_Data_Policies_07202021.pdf.
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    The Exchange believes the proposed market data fees are equitable 
and not unfairly discriminatory because the fee level results in a 
reasonable and equitable allocation of fees amongst subscribers for 
similar services, depending on whether the subscriber is an Internal or 
External Distributor. Moreover, the decision as to whether or not to 
purchase market data is entirely optional to all market participants. 
Potential purchasers are not required to purchase the market data, and 
the Exchange is not required to make the market data available. 
Purchasers may request the data at any time or may decline to purchase 
such data. The allocation of fees among users is fair and reasonable 
because, if market participants decide not to subscribe to the data 
feed, firms can discontinue their use of any of the market data feeds.
    For all of the foregoing reasons, the Exchange believes that the 
proposed fees are equitably allocated and not unfairly discriminatory.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\53\ the Exchange 
does not believe that the proposed rule change would impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act.
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    \53\ 15 U.S.C. 78f(b)(8).
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Intra-Market Competition
    The Exchange does not believe that the proposed fees place certain 
market participants at a relative disadvantage to other market 
participants because, as noted above, the proposed fees are associated 
with usage of the data feed by each market participant based on whether 
the market participant internally or externally distributes the 
Exchange data, which are still ultimately in the control of any 
particular Member, and such fees do not impose a barrier to entry to 
smaller participants. Accordingly, the proposed fees do not favor 
certain categories of market participants in a manner that would impose 
a burden on competition; rather, the allocation of the proposed fees 
reflects the types of data consumed by various market participants and 
their usage thereof.
Inter-Market Competition
    The Exchange does not believe the proposed fees place an undue 
burden on competition on other exchanges that is not necessary or 
appropriate. In particular, market participants are not forced to 
subscribe to any of the market data feeds. Additionally, other 
exchanges have similar market data fees with comparable rates in place 
for their participants.\54\ The proposed fees are based on actual costs 
and are designed to enable the Exchange to recoup its applicable costs 
with the possibility of a reasonable profit on its investment as 
described in the Purpose and Statutory Basis sections. Competing 
exchanges are free to adopt comparable fee structures subject to the 
Commission's rule filing process. Allowing the Exchange, or any new 
market entrant, to waive fees (as the Exchange proposes here for all 
three of its market data feeds) for a period of time to allow it to 
become established encourages market entry and thereby ultimately 
promotes competition.
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    \54\ See supra notes 44 and 45.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\55\ and Rule

[[Page 101080]]

19b-4(f)(2) \56\ thereunder. At any time within 60 days of the filing 
of the proposed rule change, the Commission summarily may temporarily 
suspend such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.
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    \55\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \56\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-SAPPHIRE-2024-39 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-SAPPHIRE-2024-39. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-SAPPHIRE-2024-39 and should 
be submitted on or before January 3, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\57\
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    \57\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29333 Filed 12-12-24; 8:45 am]
BILLING CODE 8011-01-P
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