[Federal Register Volume 87, Number 76 (Wednesday, April 20, 2022)]
[Notices]
[Pages 23674-23687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-08379]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94715; File No. SR-EMERALD-2022-14]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing of a Proposed Rule Change To Establish Fees for the Exchange's 
cToM Market Data Product; Suspension of and Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove the Proposed 
Rule Change

April 14, 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 April 1, 2022, MIAX Emerald, LLC (``MIAX Emerald'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Item II below, which Item has been 
prepared by the Exchange. The Exchange filed the proposed rule change 
pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\ and Rule 19b-4(f)(2) 
thereunder.\4\ 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 proposed rule change; and (ii) instituting proceedings 
to determine whether to approve or disapprove the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 Exchange's Fee 
Schedule (``Fee Schedule'') to establish fees for the market data 
product known as MIAX Emerald Complex Top of Market (``cToM''). The 
fees became operative on April 1, 2022. The text of the proposed rule 
change is available on the Exchange's website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX's principal office, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Description of 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 Section 6)(a) of the Fee Schedule to 
establish fees for the cToM data product. The Exchange initially filed 
this proposal on June 30, 2021 with the proposed fees to be effective 
beginning July 1, 2021 (``First Proposed Rule Change'').\5\ The First 
Proposed Rule Change was published for comment in the Federal Register 
on July 15, 2021.\6\ Although no comment letters were submitted, the 
Commission suspended the First Proposed Rule Change on August 27, 
2021.\7\ The Exchange withdrew the First Proposed Rule Change on 
September 30, 2021 \8\ and re-

[[Page 23675]]

submitted the proposal, with the proposed fee changes being immediately 
effective (``Second Proposed Rule Change'').\9\ The Second Proposed 
Rule Change provided additional justification for the proposed fee 
changes and addressed comments provided by the Commission Staff. On 
October 14, 2021, the Exchange withdrew the Second Proposed Rule Change 
and submitted a revised proposal to again provide additional 
justification for the proposed fee changes and address additional 
comments provided by the Commission Staff (``Third Proposed Rule 
Change'').\10\ The Third Proposed Rule Change was published for comment 
in the Federal Register on November 1, 2021.\11\ Although the 
Commission did not again receive any comment letters on the Third 
Proposed Rule Change, the Exchange withdrew the Third Proposed Rule 
Change on December 10, 2021 and submitted a revised proposal for 
immediate effectiveness (``Fourth Proposed Rule Change'').\12\ The 
Fourth Proposed Rule Change was published for comment in the Federal 
Register on December 23, 2021.\13\ Although the Commission did not 
again receive any comment letters on the Fourth Proposed Rule Change, 
the Exchange withdrew the Fourth Proposed Rule Change on February 7, 
2022 and submitted a revised proposal for immediate effectiveness, 
which was noticed and immediately suspended by the Commission on 
February 15, 2022 (``Fifth Proposed Rule Change'').\14\ Although the 
Commission did not again receive any comment letters on the Fifth 
Proposed Rule Change, the Exchange withdrew the Fifth Proposed Rule 
Change on March 30, 2022 and submits this revised proposal to be 
effective April 1, 2022 (``Sixth Proposed Rule Change'').
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    \5\ See Securities Exchange Act Release No. 92358 (July 9, 
2021), 86 FR 37361 (July 15, 2021) (SR-EMERALD-2021-21).
    \6\ Id.
    \7\ See Securities Exchange Act Release No. 92789 (August 27, 
2021), 86 FR 49364 (September 2, 2021) (SR-MIAX-2021-28, SR-EMERALD-
2021-21) (the ``Suspension Order'').
    \8\ See Securities Exchange Act Release No. 93471 (October 29, 
2021), 86 FR 60947 (November 4, 2021).
    \9\ See SR-EMERALD-2021-32.
    \10\ See Securities Exchange Act Release No. 93427 (October 26, 
2021), 86 FR 60310 (November 1, 2021) (SR-EMERALD-2021-34).
    \11\ Id.
    \12\ See Securities Exchange Act Release No. 93811 (December 17, 
2021), 86 FR 73051 (December 23, 2021) (SR-EMERALD-2021-44).
    \13\ Id.
    \14\ See Securities Exchange Act Release No. 94263 (February 15, 
2022), 87 FR 9766 (February 22, 2022) (SR-EMERALD-2022-06) (Notice 
of Filing of a Proposed Rule Change To Establish Fees for the 
Exchange's cToM Market Data Product; Suspension of and Order 
Instituting Proceedings To Determine Whether To Approve or 
Disapprove the Proposed Rule Change).
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Background
    The Exchange previously adopted rules governing the trading of 
Complex Orders \15\ on the MIAX Emerald System \16\ in 2018,\17\ ahead 
of the Exchange's planned launch, which took place on March 1, 2019. 
Shortly thereafter, the Exchange adopted the market data product, cToM, 
and provided cToM free of charge to incentivize market participants to 
subscribe.\18\ The Exchange provided cToM free of charge for nearly 
three years and absorbed all costs associated with producing the cToM 
data product.
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    \15\ See Exchange Rule 518(a)(5) for the definition of Complex 
Orders.
    \16\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \17\ See Securities Exchange Act Release Nos. 84891 (December 
20, 2018), 83 FR 67421 (December 28, 2018) (In the Matter of the 
Application of MIAX EMERALD, LLC for Registration as a National 
Securities Exchange; Findings, Opinion, and Order of the 
Commission); and 85345(March 18, 2019), 84 FR 10848 (March 22, 2019) 
(SR-EMERALD-2019-13) (Notice of Filing and Immediate Effectiveness 
of a Proposed Rule Change To Amend Exchange Rule 518, Complex 
Orders).
    \18\ See Securities Exchange Act Release No. 85207 (February 27, 
2019), 84 FR 7963 (March 5, 2019) (SR-EMERALD-2019-09) (providing a 
complete description of the cToM data feed).
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    In summary, cToM provides subscribers with the same information as 
the MIAX Emerald Top of Market (``ToM'') data product as it relates to 
the Strategy Book,\19\ i.e., the Exchange's best bid and offer for a 
complex strategy, with aggregate size, based on displayable order and 
quoting interest in the complex strategy on the Exchange. However, cToM 
provides subscribers with the following additional information that is 
not included in ToM: (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). cToM is therefore a distinct 
market data product from ToM in that it includes additional information 
that is not available to subscribers that receive only the ToM data 
feed. ToM subscribers are not required to subscribe to cToM, and cToM 
subscribers are not required to subscribe to ToM.\20\
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    \19\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \20\ See supra note 18.
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Proposal
    The Exchange now proposes to amend Section 6)a) of the Fee Schedule 
to charge monthly fees to Distributors \21\ of cToM. Specifically, the 
Exchange proposes to assess Internal Distributors $1,250 per month and 
External Distributors $1,750 per month for the cToM data feed.\22\ The 
Exchange notes that the proposed monthly cToM fees for Internal and 
External Distributors are identical to the prices the Exchange 
currently charges for its ToM data product and the prices the 
Exchange's affiliate, MIAX, charges for its ToM product, both of which 
were previously published by the Commission and remain in effect 
today.\23\
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    \21\ A ``Distributor'' of MIAX Emerald data is any entity that 
receives a feed or file of data either directly from MIAX Emerald 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 a MIAX Emerald Distributor 
Agreement. See Section 6)a) of the Fee Schedule.
    \22\ The Exchange also proposes to make a minor related change 
to remove ``(as applicable)'' from the explanatory paragraph in 
Section 6)a) as it will not change fees for both the ToM and cToM 
data feeds.
    \23\ See Securities Exchange Act Release Nos. 91145 (February 
17, 2021), 86 FR 11033 (February 23, 2021) (SR-EMERALD-2021-05); 
73942 (December 24, 2014), 80 FR 71 (January 2, 2015) (SR-MIAX-2014-
66).
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    As it does today for ToM, the Exchange proposes to assess cToM fees 
on Internal and External Distributors in each month the Distributor is 
credentialed to use cToM in the production environment. Also, as the 
Exchange does today for ToM, market data fees for cToM will be reduced 
for new Distributors for the first month during which they subscribe to 
cToM, based on the number of trading days that have been held during 
the month prior to the date on which that subscriber has been 
credentialed to use cToM in the production environment. Such new 
Distributors will be assessed a pro-rata percentage of the fees in the 
table in Section 6)a) of the Fee Schedule, which is the percentage of 
the number of trading days remaining in the affected calendar month as 
of the date on which they have been credentialed to use cToM in the 
production environment, divided by the total number of trading days in 
the affected calendar month.
    The Exchange believes that other exchanges' fees for complex market 
data are useful examples and provides the below table for comparison 
purposes only to show how the Exchange's proposed fees compare to fees 
currently charged by other options exchanges for similar complex market 
data. As shown by the below table, the Exchange's proposed fees for 
cToM are similar to or less than fees charged for similar data products 
provided by other options exchanges.
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    \24\ See NYSE American Options Proprietary Market Data Fees, 
American Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf.
    \25\ See NYSE Arca Options Proprietary Market Data Fees, Arca 
Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
    \26\ See PHLX Price List--U.S. Derivatives Data, PHLX Orders 
Fees, at http://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX.

[[Page 23676]]



------------------------------------------------------------------------
             Exchange                            Monthly fee
------------------------------------------------------------------------
MIAX Emerald (as proposed)........  $1,250--Internal Distributor;
                                     $1,750--External Distributor.
NYSE American, LLC (``Amex'') \24\  $1,500 Access Fee; $1,000
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution).
NYSE Arca, Inc. (``Arca'') \25\...  $1,500 Access Fee; $1,000
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution)
NASDAQ PHLX LLC (``PHLX'') \26\...  $3,000--Internal Distributor;
                                     $3,500--External Distributor.
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    The Exchange also proposes to amend the paragraph below the table 
of fees for ToM and cToM in Section 6)a) of the Fee Schedule to make a 
minor, non-substantive correction by deleting the phrase ``(as 
applicable)'' in the first sentence following the table of fees for ToM 
and cToM. The purpose of this proposed change is to remove unnecessary 
text from the Fee Schedule.
cToM Content Is Available From Alternative Sources
    cToM is also not the exclusive source for Complex Order information 
from the Exchange and market participants may choose to subscribe to 
the Exchange's other data products to receive such information. It is a 
business decision of market participants whether to subscribe to the 
cToM data product or not. Market participants that choose not to 
subscribe to cToM can derive much, if not all, of the same information 
provided in the cToM feed from other Exchange sources, including, for 
example, the MIAX Emerald Order Feed (``MOR'').\27\ The following cToM 
information is provided to subscribers of MOR: The Exchange's best bid 
and offer for a complex strategy, with aggregate size, based on 
displayable order and quoting interest in the complex strategy on the 
Exchange; the identification of the complex strategies currently 
trading on the Exchange; and the status of securities underlying the 
complex strategy (e.g., halted, open, or resumed). In addition to the 
cToM information contained in MOR, complex strategy last sale 
information can be derived from the Exchange's ToM data feed. 
Specifically, market participants may deduce that last sale information 
for multiple trades in related options series that are disseminated via 
the ToM data feed with the same timestamp are likely part of a Complex 
Order transaction and last sale.
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    \27\ See MIAX website, Market Data & Offerings, at https://www.miaxoptions.com/market-data-offerings (last visited April 1, 
2022). In general, MOR provides real-time ulta-low latency updates 
on the following information: New Simple Orders added to the MIAX 
Emerald Order Book; updates to Simple Orders resting on the MIAX 
Emerald Order Book; new Complex Orders added to the Strategy Book 
(i.e., the book of Complex Orders); updates to Complex Orders 
resting on the Strategy Book; MIAX Emerald listed series updates; 
MIAX Emerald Complex Strategy definitions; the state of the MIAX 
Emerald System; and MIAX Emerald's underlying trading state.
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Implementation
    The proposed rule change will be effective April 1, 2022.
2. Statutory Basis
    The Exchange believes that the proposed fees are consistent with 
Section 6(b) of the Act \28\ in general, and furthers the objectives of 
Section 6(b)(4) of the Act \29\ in particular, in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among Members and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposed 
fees further the objectives of Section 6(b)(5) of the Act \30\ in that 
they are designed to promote just and equitable principles of trade, 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general protect investors 
and the public interest and are not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers.
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    \28\ 15 U.S.C. 78f(b).
    \29\ 15 U.S.C. 78f(b)(4).
    \30\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the information provided to justify the 
proposed fees meets or exceeds the amount of detail required in respect 
of proposed fee changes as set forth in recent Commission and 
Commission Staff guidance. 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'').\31\ 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.'' \32\ Based on both the BOX Order and the Guidance, the 
Exchange believes that the proposed fees are consistent with the Act 
because they are: (i) Reasonable, equitably allocated, not unfairly 
discriminatory, and not an undue burden on competition; (ii) comply 
with the BOX Order and the Guidance; (iii) supported by evidence 
(including comprehensive revenue and cost data and analysis) that they 
are fair and reasonable and will not result in excessive pricing or 
supra-competitive profit; and (iv) identical to the prices the Exchange 
currently charges for its ToM data product and the prices the 
Exchange's affiliate, MIAX, charges for its ToM product, both of which 
were previously published by the Commission and remain in effect 
today.\33\
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    \31\ See 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 Non-
Participants Who Connect to the BOX Network).
    \32\ See 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'').
    \33\ See supra note 23.
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    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations (``SROs'') and broker-dealers increased authority and 
flexibility to offer new and unique market data to the public. It was 
believed that this authority would expand the amount of data available 
to consumers, and also spur innovation and competition for the 
provision of market data. Particularly, cToM further broadens the 
availability of U.S. option market data to investors consistent with 
the principles of Regulation NMS. The data product also promotes 
increased transparency through the dissemination of cToM. Particularly, 
cToM provides subscribers with the same information as ToM, but 
includes the following additional 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). The

[[Page 23677]]

Exchange believes cToM provides a valuable tool that subscribers can 
use to gain substantial insight into the trading activity in Complex 
Orders, but also emphasizes such data is not necessary for trading. 
Moreover, other exchanges offer similar data products.\34\
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    \34\ See supra notes 24 through 26.
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The Proposed 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 fees for market participants to access an 
exchange's marketplace.
    In the Guidance, the Commission Staff states that, ``[a]s an 
initial step in assessing the reasonableness of a fee, staff considers 
whether the fee is constrained by significant competitive forces.'' 
\35\ 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.'' \36\ In the 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 supra-competitive profit, 
specific information, including quantitative information, should be 
provided to support that argument.'' \37\ The Exchange does not assert 
that the proposed fees are constrained by competitive forces. Rather, 
the Exchange asserts that the proposed fees are reasonable because they 
will permit recovery of the Exchange's costs in providing cToM data and 
will not result in the Exchange generating a supra-competitive profit.
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    \35\ See Guidance, supra note 32.
    \36\ Id.
    \37\ Id.
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    The Guidance defines ``supra-competitive profit'' as ``profits that 
exceed the profits that can be obtained in a competitive market.'' \38\ 
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.'' \39\ The Exchange provides 
this analysis below.
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    \38\ Id.
    \39\ Id.
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    The proposed fees are based on a cost-plus model. The Exchange 
believes that it is important to demonstrate that the proposed fees are 
based on its costs and reasonable business needs and believes the 
proposed fees will allow the Exchange to begin to offset expenses. 
However, as discussed more fully below, such fees may also result in 
the Exchange recouping less than all of its costs of providing the cToM 
data feed because of the uncertainty of forecasting subscriber decision 
making with respect to firms' market data needs. The Exchange believes 
that the proposed fees will not result in excessive pricing or supra-
competitive profit based on the total expenses the Exchange incurs 
versus the total revenue the Exchange projects to collect, and 
therefore meets the standards in the Act as interpreted by the 
Commission and the Commission Staff in the BOX Order and the Guidance.
    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 
cToM data feed, and, if such expense did so relate, what portion (or 
percentage) of such expense actually supports t [sic] providing the 
cToM data feed. In determining what portion (or percentage) to allocate 
to access services, each Exchange department head, in coordination with 
other Exchange personnel, determined the expenses that support access 
services and System Networks associated with the cToM data feed. 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 analysis also included each 
department head meeting with the divisions of teams within each 
department to determine the amount of time and resources allocated by 
employees within each division towards the access services and System 
Networks associated with the cToM data feed. The Exchange reviewed each 
individual expense to determine if such expense was related to the cToM 
data feed. 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 and the 
System Networks. The sum of all such portions of expenses represents 
the total cost to the Exchange to provide access services associated 
with the cToM market data feed. For the avoidance of doubt, no expense 
amount is allocated twice. In the Suspension Order, the Commission 
questioned whether further explanation of the Exchange's cost analysis 
was necessary. The Exchange provides further details concerning its 
cost analysis in response to this question.
    The 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 cToM data feed. 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 historically, 
and on an ongoing annual basis, will continue to review its costs and 
resource allocations to ensure it appropriately allocates resources to 
properly provide services to the Exchange's constituents.
    The Exchange believes exchanges, like all businesses, should be 
provided flexibility when developing and applying a methodology to 
allocate 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.
    The Exchange notes that there are material costs associated with 
providing the infrastructure and headcount to fully support access to 
the cToM data feed. 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. Both fixed 
and variable expenses have significant impact on the Exchange's

[[Page 23678]]

overall costs to provide the cToM data feed. For example, to 
accommodate new Members, the Exchange may need to purchase additional 
hardware to support those Members and provide the cToM data feed. 
Further, as the total number of 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 cToM market data feed is a reasonable attempt to offset a 
portion of those costs associated with providing access to and 
maintaining its System Networks' infrastructure.
    The Exchange estimated its total annual expense to provide the cToM 
data feed based on the following general expense categories: (1) 
External expenses, which include fees paid to third parties for certain 
products and services; (2) internal expenses relating to the internal 
costs to provide the services associated with the cToM data feed; and 
(3) general shared expenses.\40\ The Guidance does not include any 
information regarding the methodology that an exchange should use to 
determine its cost associated with a proposed fee change. The Exchange 
utilized a methodology in this proposed fee change that it believes is 
reasonable because the Exchange analyzed its entire cost structure, 
allocated a percentage of each cost attributable to providing the cToM 
data feed, then divided those costs according to the cost methodology 
outlined below.
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    \40\ 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.
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    For 2022, the total annual expense for providing the access 
services associated with providing the cToM data feed is estimated to 
be $236,284, or $19,690 per month. The Exchange believes it is more 
appropriate to analyze the cToM market data feed utilizing its 
estimated 2022 revenue and costs, which utilize the same presentation 
methodology as set forth in the Exchange's previously-issued Audited 
Unconsolidated Financial Statements.\41\ The $236,284 estimated total 
annual expense is directly related to the access to the cToM data feed, 
and not any other product or service offered by the Exchange. For 
example, it does not include general costs of operating matching 
engines and other trading technology. No expense amount was allocated 
twice. Each of the categories of expenses are set forth in the 
following table and details of the individual line-item costs 
considered by the Exchange for each category are described further 
below.
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    \41\ For 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 2022 Form 1 Amendment, which will be filed in 2023. In 
its Suspension Order, the Commission also asked should the Exchange 
to use cost projections or actual costs estimated for 2021 in a 
filing made in 2022, or make cost projections for 2022. The Exchange 
utilized expenses from its most recent audited financial statement 
as those numbers are more reliable than more recent unaudited 
numbers, which may be subject to change.

------------------------------------------------------------------------
                            External expenses
-------------------------------------------------------------------------
                                                         Percentage of
                      Category                           total expense
                                                       amount allocated
------------------------------------------------------------------------
Data Center Provider................................               0.20%
Fiber Connectivity Provider.........................               0.20%
Security Financial Transaction Infrastructure                         0%
 (``SFTI''), and Other Connectivity and Content
 Service Providers..................................
Hardware and Software Providers.....................               0.20%
                                                     -------------------
    Total of External Expenses......................         \42\ $5,434
------------------------------------------------------------------------
                            Internal expenses
------------------------------------------------------------------------
Category                                                Expense amount
                                                               allocated
------------------------------------------------------------------------
Employee Compensation...............................            $209,610
Depreciation and Amortization.......................               4,055
Occupancy...........................................              11,410
                                                     -------------------
    Total of Internal Expenses......................             225,075
------------------------------------------------------------------------
Allocated Shared Expenses...........................               5,775
------------------------------------------------------------------------

    In its Suspension Order, the Commission solicited commenters' views 
on whether the Exchange has provided sufficient detail on the identity 
and nature of services provided by third parties. The Commission 
further solicited commenters' views on whether the Exchange has 
provided sufficient detail on the elements that go into connectivity 
costs, including how shared costs are allocated and attributed to 
connectivity expenses, to permit an independent review and assessment 
of the reasonableness of purported cost-based fees and the 
corresponding profit margin thereon. Based on the below analysis, the 
Exchange believes that the cToM market data fees are fair and 
reasonable and that the Exchange has provided sufficient detail 
surrounding the Commission's questions. 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

[[Page 23679]]

how the Exchange determined to allocate those costs related to the 
proposed fees. The Exchange notes that its only has a single source of 
revenue, distribution fees, to recover those costs associated with 
providing the cToM data feed. The Exchange notes that, without the 
specific third party and internal expense items, the Exchange would not 
be able to provide and maintain the System Networks and access to the 
System Networks. Each of these expense items, including physical 
hardware, software, employee compensation and benefits, occupancy 
costs, and the depreciation and amortization of equipment, has been 
identified through a line-by-line item analysis to be integral to 
providing the cToM data feed.
---------------------------------------------------------------------------

    \42\ The Exchange does not believe it is appropriate to disclose 
the actual amount it pays to each individual third party provider as 
those fee arrangements are competitive or the Exchange is 
contractually prohibited from disclosing that number.
---------------------------------------------------------------------------

    For clarity, the Exchange took a conservative approach in 
determining the expense and the percentage of that expense to be 
allocated to providing the cToM data feed. The Exchange describes the 
analysis conducted for each expense and the resources or determinations 
that were considered when determining the amount necessary to allocate 
to each expense. 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 
providing the cToM data feed. This may result in the Exchange under 
allocating an expense to provide the cToM data feed, and such expenses 
may actually be higher than what the Exchange allocated as part of this 
proposal. The Exchange notes that expenses associated with its 
affiliates, MIAX and MIAX Pearl (the options and equities markets), are 
accounted for separately and are not included within the scope of this 
filing.
    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 resulted in revised percentage 
allocations in this filing. The revised percentages are, among other 
things, the result of the shuffling of internal resources in response 
to business objectives and changes to fees charged and services 
provided by third parties. Therefore, 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.\43\
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    \43\ The Exchange notes that the expense allocations differ from 
the Exchange's filing earlier in 2021, SR-EMERALD-2021-11, because 
that prior filing pertained to several different access fees, which 
the Exchange had not been charging for since the Exchange launched 
operations in March 2019. See Securities Exchange Act Release No. 
91460 (April 2, 2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-
11). In SR-EMERALD-2021-11, the Exchange sought to adopt fees for 
FIX Ports, MEI Ports, Purge Ports, Clearing Trade Drop Ports, and 
FIX Drop Copy Ports, all of which had been free for market 
participants for over two years since inception.
---------------------------------------------------------------------------

External Expense Allocations
    For 2022, expenses relating to fees paid by the Exchange to third 
parties for products and services necessary to provide the cToM market 
data feed are estimated to be $5,434.\44\ This includes, but is not 
limited to, a portion of the fees paid to: (1) A third party data 
center provider, including for the primary, secondary, and disaster 
recovery locations of the Exchange's trading system infrastructure; (2) 
a fiber connectivity provider for network services (fiber and bandwidth 
products and services) linking the Exchange's and its affiliates' 
office locations in Princeton, New Jersey and Miami, Florida, to all 
data center locations; (3) various other content and connectivity 
service providers, which provide content, connectivity services, and 
infrastructure services for critical components of options connectivity 
and network services; and (4) various other hardware and software 
providers which support the production environment in which Members and 
non-Members connect to the network to trade and receive market 
data.\45\
---------------------------------------------------------------------------

    \44\ See supra note 42.
    \45\ Id.
---------------------------------------------------------------------------

Data Center Space and Operations Provider
    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 where the Exchange houses servers, switches and related 
equipment. Data center costs include an allocation of the costs the 
Exchange incurs to provide physical connectivity in the third party 
data centers where it maintains its equipment as well as related costs. 
The data center provider operates the data centers (primary, secondary, 
and disaster recovery) that host the Exchange's network infrastructure. 
Without the retention of a third party data center, the Exchange would 
not be able to operate its systems and provide a trading platform for 
market participants. The Exchange does not employ a separate fee to 
cover its data center expense and recoups that expense, in part, by 
charging for the cToM data feed.
    The Exchange reviewed its data center footprint, including its 
total rack space, cage usage, number of servers, switches, cabling 
within the data center, heating and cooling of physical space, storage 
space, and monitoring and divided its data center expenses among 
providing transaction services, market data, and connectivity. Based on 
this review, the Exchange determined that 0.20% of the total applicable 
data center provider expense is applicable to providing the cToM data 
feed. The Exchange believes this allocation is reasonable because it 
represents the costs associated with the Exchange's servers and 
internal cabling dedicated to processing and disseminating market data. 
The Exchange excluded from this allocation portion of the Exchange's 
data center expense that is due to providing and maintaining 
connectivity to the Exchange's System Networks, including providing 
cabling within the data center between market participants and the 
Exchange. The Exchange also did not allocate the remainder of the data 
center expense because it pertains to other areas of the Exchange's 
operations, such as ports and transaction services.
Fiber Connectivity Provider
    The Exchange engages a third-party service provider that provides 
the internet, fiber and bandwidth connections between the Exchange's 
networks, primary and secondary data center, and office locations in 
Princeton and Miami. Fiber connectivity is necessary for the Exchange 
to switch to its secondary data center in the case of an outage in its 
primary data center. Fiber connectivity also allows the Exchange's 
National Operations & Control Center (``NOCC'') and Security Operations 
Center (``SOC'') in Princeton to communicate with the Exchange's 
primary and secondary data centers. As such, all trade data, including 
the billions of messages each day, flow through this third-party 
provider's infrastructure over the Exchange's network. Without these 
services, the Exchange would not be able to operate and support the 
network and provide the cToM data feed. Without the retention of a 
third party fiber connectivity provider, they Exchange would not be 
able to communicate between its data centers and office locations. The 
Exchange does not employ a separate fee to cover its fiber connectivity 
expense and recoups that expense, in part, by charging for cToM data 
feeds.

[[Page 23680]]

    The Exchange reviewed it costs to retain fiber connectivity from a 
third party, including the ongoing costs to support fiber connectivity, 
ensuring adequate bandwidth and infrastructure maintenance to support 
exchange operations, and ongoing network monitoring and maintenance and 
determined that 0.20% of the total fiber connectivity expense was 
applicable to providing the cToM data feed. The Exchange believes this 
allocation is reasonable because it reflects the portion of the fiber 
connectivity expense that relates to maintaining and providing the cToM 
data feed. The Exchange excluded a large portion of the Exchange's 
fiber connectivity expense that is due to providing and maintaining 
connectivity between the Exchange's System Networks, data centers, and 
office locations and is core to the daily operation of the Exchange. 
Fiber connectivity is a necessary integral means to disseminate 
information from the Exchange's primary data center to other Exchange 
locations. The Exchange excluded from this allocation fiber 
connectivity usage related to system connectivity or other business 
lines. The Exchange also did not allocate the remainder of this expense 
because it pertains to other areas of the Exchange's operations and 
does not directly relate to providing the cToM data feed. The Exchange 
believes this allocation is reasonable because it represents the 
Exchange's actual cost to provide the cToM data feed.
Connectivity and Content Services Provided by SFTI and Other Providers
    The Exchange did not allocate any expense associated with the 
proposed fees towards SFTI and various other service providers' because 
the Exchange's architecture takes advantage of an advance in design to 
eliminate the need for a market data distribution gateway layer. The 
computation and dissemination via an API is done solely within the 
match engine environment and is then delivered via the Member and non-
Member connectivity infrastructure. This architecture delivers a market 
data system that is more efficient both in cost and performance. 
Accordingly, the Exchange determined not to allocate any expense 
associated with SFTI and various other service providers.
Hardware and Software Providers
    The Exchange relies on dozens of third-party hardware and software 
providers for equipment necessary to operate is System Networks. This 
includes either the purchase or licensing of physical equipment, such 
as servers, switches, cabling, and monitoring devices. It also includes 
the purchase or license of software necessary for security monitoring, 
data analysis and Exchange operations. Hardware and software providers 
are necessary to maintain its System Networks and provide the cToM data 
feed. Hardware and software equipment and licenses for that equipment 
are also necessary to operate and monitor physical assets necessary to 
offer the cToM data feed. Hardware and software equipment and licenses 
are key to the operation of the Exchange and without them the Exchange 
would not be able to operate and support the cToM data feed. The 
Exchange does not employ a separate fee to cover its hardware and 
software expense and recoups that expense, in part, by charging for 
cToM data feed dissemination.
    The Exchange reviewed its hardware and software related costs, 
including software patch management, vulnerability management, 
administrative activities related to equipment and software management, 
professional services for selection, installation and configuration of 
equipment and software supporting exchange operations and determined 
that 0.20% of the total applicable hardware and software expense is 
allocated to providing the cToM data feed. Hardware and software 
equipment and licenses are key to the operation of the Exchange and its 
System Networks. Without them, the Exchange would not be able to 
develop and market participants would not be able to purchase the cToM 
data feed. The Exchange only allocated the portion of this expense to 
the hardware and software that is related to the cToM data feed, such 
as operating servers and equipment necessary to produce the cToM data 
feed. The Exchange, therefore, did not allocate portions of its 
hardware and software expense that related to other areas of the 
Exchange's business, such as hardware and software used for 
connectivity or unrelated administrative services. The Exchange also 
did not allocate the remainder of this expense because it pertains to 
other areas of the Exchange's operations, such as ports or transaction 
services, and does not directly relate to providing the cToM data feed. 
The Exchange believes this allocation is reasonable because it 
represents the Exchange's cost to the cToM data feed, and not any other 
service, as supported by its cost review.
Internal Expense Allocations
    For 2022, total internal expenses relating to the Exchange 
providing and maintaining its System Networks and access to its System 
Networks for cToM data feeds are estimated to be $225,075. This 
includes, but is not limited to, costs associated with: (1) Employee 
compensation and benefits for full-time employees that support the 
System Networks and access to System Networks, including staff in 
network operations, trading operations, development, system operations, 
business, as well as staff in general corporate departments (such as 
legal, regulatory, and finance) that support those employees and 
functions as well as important system upgrades; (2) depreciation and 
amortization of hardware and software used to provide and maintain 
access services and System Networks associated with the cToM data feed, 
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 cToM data feed. The breakdown 
of these costs is more fully described below.
Employee Compensation and Benefits
    Human personnel are key to exchange operations and supporting the 
Exchange's ongoing provision the cToM data feed. The Exchange's 
reviewed its employee compensation and benefits expense and the portion 
of that expense allocated to providing the cToM data feed. As part of 
this review, the Exchange considered employees whose functions include 
providing and maintaining the cToM data feed and used a blended rate of 
compensation reflecting salary, stock and bonus compensation, bonuses, 
benefits, payroll taxes, and 401K matching contributions.\46\
---------------------------------------------------------------------------

    \46\ For purposes of this allocation, the Exchange did not 
consider expenses related to supporting employees who support cToM 
data feeds, such as office space and supplies. The Exchange 
determined cost allocation for employees who perform work in support 
of offering access services and System Networks to arrive at a full 
time equivalent (``FTE'') of 0.6 FTEs across all the identified 
personnel. The Exchange then multiplied the FTE times a blended 
compensation rate for all relevant Exchange personnel to determine 
the personnel costs associated with providing the access services 
and System Networks associated with the cToM data feeds.
---------------------------------------------------------------------------

    Based on this review, the Exchange determined to allocate $209,610 
in employee compensation and benefits expense to providing the cToM 
data feeds. To determine the appropriate allocation the Exchange 
reviewed the time employees allocated to supporting the cToM data 
feeds. Senior staff also reviewed these time allocations with 
department heads and team leaders to

[[Page 23681]]

determine whether those allocations were appropriate. These employees 
are critical to the Exchange to provide the cToM data feeds. The 
Exchange determined the above allocation based on the personnel whose 
work focused on functions necessary to provide and maintain the cToM 
data feeds. The Exchange does not charge a separate fee regarding 
employees who support the cToM data feeds and the Exchange seeks to 
recoup that expense, in part, by charging for the cToM data feeds.
Depreciation and Amortization
    A key expense incurred by the Exchange relates to the depreciation 
and amortization of equipment that the Exchange procured to provide and 
maintain the cToM data feeds. The Exchange reviewed all of its physical 
assets and software, owned and leased, and determined whether each 
asset is related to providing and maintaining the cToM data feeds, and 
added up the depreciation of those assets. All physical assets and 
software, which includes assets used for testing and monitoring of 
Exchange infrastructure, were valued at cost, depreciated or leased 
over periods ranging from three to five years. In determining the 
amount of depreciation and amortization to apply to providing the cToM 
data feeds, the Exchange considered the depreciation of hardware and 
software that are key to the operation of the Exchange and its 
provision of the cToM data feeds. This includes servers, computers, 
laptops, monitors, information security appliances and storage, and 
network switching infrastructure equipment, including switches and taps 
that were previously purchased to maintain and provide the cToM data 
feeds. Without them, market participants would not be able to receive 
the cToM data feeds. The Exchange seeks to recoup a portion of its 
depreciation expense by charging for the cToM data feeds.
    Based on this review, the Exchange determined to allocate $4,055 in 
depreciation and amortization expense to providing the cToM data feeds. 
The Exchange only allocated the portion of this depreciation expense to 
the hardware and software related to providing the cToM data feeds. The 
Exchange, therefore, did not allocate portions of depreciation expense 
that relates to other areas of the Exchange's business, such as the 
depreciation of hardware and software used for connectivity or 
unrelated administrative services.\47\
---------------------------------------------------------------------------

    \47\ All of the expenses outlined in this proposed fee change 
refer to the operating expenses of the Exchange. The Exchange did 
not included any future capital expenditures within these costs. 
Depreciation and amortization represent the expense of previously 
purchased hardware and internally developed software spread over the 
useful life of the assets. Due to the fact that the Exchange has 
only included operating expense and historical purchases, there is 
no double counting of expenses in the Exchange's cost estimates.
---------------------------------------------------------------------------

Occupancy
    The Exchange rents and maintains multiple physical locations to 
house staff and equipment necessary to support access services, System 
Networks, and exchange operations. The Exchange's occupancy expense is 
not limited to the housing of personnel and includes locations used to 
store equipment necessary for Exchange operations. In determining the 
amount of its occupancy related expense, the Exchange considered actual 
physical space used to house employees whose functions include 
providing and maintaining the cToM data feeds. Similarly, the Exchange 
also considered the actual physical space used to house hardware and 
other equipment necessary to provide and maintain the cToM data feeds. 
This equipment includes computers, servers, and accessories necessary 
to support the System Networks and cToM data feeds. Based on this 
review, the Exchange determined to allocate $11,410 of its occupancy 
expense to provide and maintain the cToM data feeds. The Exchange 
believes this allocation is reasonable because it represents the 
Exchange's cost to rent and maintain a physical location for the 
Exchange's staff who operate and support the cToM data feeds. The 
Exchange considered the rent paid for the Exchange's Princeton and 
Miami offices, as well as various related costs, such as physical 
security, property management fees, property taxes, and utilities at 
each of those locations. The Exchange did not include occupancy 
expenses related to housing employees and equipment related to other 
Exchange operations, such as transaction and administrative services.
Allocated Shared Expense
    Finally, a limited portion of general shared expenses was allocated 
to overall the cToM data feed costs as without these general shared 
costs, the Exchange would not be able to operate in the manner that it 
does and provide the cToM data feeds. The costs included in general 
shared expenses include recruiting and training, marketing and 
advertising costs, professional fees for legal, tax and accounting 
services, and telecommunications costs. For 2022, the Exchange's 
general shared expense allocated to the cToM data feeds is estimated to 
be $5,755. The Exchange used the weighted average of the above 
allocations to determine the amount of general shared expenses to 
allocate to the Exchange. Next, based on additional management and 
expense analysis, these fees are allocated to the proposal.
Revenue and Estimated Profit Margin
    The Exchange only has four primary sources of revenue and cost 
recovery mechanisms to fund all of its operations: Transaction fees, 
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.
    To determine the Exchange's estimated revenue associated with the 
cToM data feed, the Exchange analyzed the number of Members and non-
Members currently receiving the cToM data feed and used a recent 
monthly billing cycle representative of current monthly revenue. The 
Exchange also provided its baseline by analyzing March 2022, the 
monthly billing cycle prior to the proposed cToM data fee, and compared 
this to its expenses for that month. As discussed below, the Exchange 
does not believe it is appropriate to factor into its analysis future 
revenue growth or decline into its estimates for purposes of these 
calculations, given the uncertainty of such estimates due to the 
continually changing access needs of market participants and potential 
changes in internal and third party expenses.
    For March 2022, prior to the proposed the cToM data fee, Members 
and non-Members purchased a total of 13 cToM data feeds, for which the 
Exchange anticipates charging $0. This will result in a loss of $19,690 
for that month. For April 2022, the Exchange anticipates Members and 
non-Members purchasing a total of 13 cToM data feeds. Assuming the 
Exchange charges its proposed fees for Distributors, the Exchange would 
generate revenue of $16,250 for that month. This would result in a loss 
of $3,440 ($16,250 minus $19,690) for that month (a negative 21% margin 
from March 2022 to April 2022).
    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. The Exchange cautions that this

[[Page 23682]]

profit margin may also fluctuate from month to month based on the 
uncertainty of predicting how many connections may be purchased from 
month to month as Members and non-Members are free to add and drop 
connections at any time based on their own business decisions.
    The Exchange believes the proposed margin is reasonable and will 
not result in a ``supra-competitive'' profit. The Guidance defines 
``supra-competitive profit'' as ``profits that exceed the profits that 
can be obtained in a competitive market.'' \48\ Until recently, the 
Exchange has operated at a cumulative net annual loss since it launched 
operations in 2019.\49\ The Exchange has operated at a net loss due to 
a number of factors, one of which is choosing to forgo revenue by 
offering certain products, such as market data, at lower rates than 
other options exchanges to attract order flow and encourage market 
participants to experience the high determinism, low latency, and 
resiliency of the Exchange's trading systems. The Exchange previously 
provided the cToM data feed free of charge and absorbed all costs 
associated with providing the cToM data feed to market participants. In 
this proposal, the Exchange would continue to offer the cToM data feed 
for a fee that that still falls short of covering the Exchange's 
expenses. The Exchange is not generating a profit, and therefore, 
cannot be deemed to be generating a ``supra-competitive'' profit by now 
charging for the cToM data feed. The Exchange should not now be 
penalized for now seeking to raise it fees to at least cover a portion 
of its costs after offering the cToM data feed free of charge.
---------------------------------------------------------------------------

    \48\ See Guidance, supra note 32.
    \49\ The 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/.
---------------------------------------------------------------------------

    The Exchange notes that its revenue estimate is based on 
projections and will only be realized to the extent such revenue 
actually produces the revenue estimated. As a generally new entrant to 
the hyper-competitive exchange environment, and an exchange focused on 
driving competition, the Exchange does not yet know whether such 
expectations will be realized. For instance, in order to generate the 
revenue expected from the cToM data feed, the Exchange will have to be 
successful in retaining existing clients that wish to receive the cToM 
data feed or obtaining new clients that will purchase such data. To the 
extent the Exchange is successful in encouraging new clients to receive 
the cToM data feed, the Exchange does not believe it should be 
penalized for such success. The Exchange, like other exchanges, is, 
after all, a for-profit business. While the Exchange believes in 
transparency around costs and potential margins, 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 supra-competitive profits, and the 
Exchange believes its cost analysis and related estimates demonstrate 
this fact.
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 market data or their fee markup over those 
costs, and therefore cannot use other exchange's market data fees as a 
benchmark to determine a reasonable markup over the costs of providing 
market data. Nevertheless, the Exchange believes the other exchanges' 
market data fees are a useful example of alternative approaches to 
providing and charging for connectivity notwithstanding that the 
competing exchanges may have different system architectures that may 
result in different cost structures for the provision of market data. 
To that end, the Exchange believes the proposed cToM market data fees 
are reasonable because the proposed fees are still less than fees 
charged for similar connectivity provided by other options exchanges 
with comparable market shares.
    As described in the below table, the Exchange's proposed fee 
remains less than fees charged for similar market data products 
provided by other options exchanges with similar market share. In the 
each of the above cases, the Exchange's proposed fees are still 
significantly lower than that of competing options exchanges with 
similar market share. Each of the market data rates in place at 
competing options exchanges were filed with the Commission for 
immediate effectiveness and remain in place today.
---------------------------------------------------------------------------

    \50\ See NYSE American Options Proprietary Market Data Fees, 
American Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf.
    \51\ See NYSE Arca Options Proprietary Market Data Fees, Arca 
Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
    \52\ See PHLX Price List--U.S. Derivatives Data, PHLX Orders 
Fees, at http://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX.

------------------------------------------------------------------------
             Exchange                            Monthly fee
------------------------------------------------------------------------
MIAX Emerald (as proposed)........  $1,250--Internal Distributor;
                                     $1,750--External Distributor.
Amex \50\.........................  $1,500 Access Fee; $1,000
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution).
Arca \51\.........................  $1,500 Access Fee; $1,000
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution).
PHLX \52\.........................  $3,000--Internal Distributor;
                                     $3,500--External Distributor.
------------------------------------------------------------------------

The Proposed Pricing Is Not Unfairly Discriminatory and Provides for 
the Equitable Allocation of Fees, Dues, and Other Charges
    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 cToM data feed because Internal Distributors have limited, 
restricted usage rights to the market data, as compared to External 
Distributors, which have more expansive usage rights. All Members and 
non-Members that determine to receive any market data feed of the 
Exchange (or its affiliates, MIAX Pearl and MIAX), must first execute, 
among other things, the MIAX Exchange Group Exchange Data Agreement 
(the ``Exchange Data Agreement'').\53\ Pursuant to the Exchange Data

[[Page 23683]]

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.\54\ External Distributors 
may distribute the Exchange's market data to persons who are not 
officers, employees or affiliates of the External Distributor,\55\ and 
may charge their own fees for the redistribution of such market data. 
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 products as External Distributors have 
greater usage rights to commercialize such market data and can adjust 
their own fee structures if necessary. 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. The Exchange believes the 
proposed cToM 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 
determine not to subscribe to the data feed, firms can discontinue 
their use of the cToM data.
---------------------------------------------------------------------------

    \53\ See Exchange Data Agreement, available at https://miaxweb2.pairsite.com/sites/default/files/page-files/MIAX_Exchange_Group_Data_Agreement_09032020.pdf.
    \54\ See id.
    \55\ See id.
---------------------------------------------------------------------------

    Further, the Exchange believes that the proposal is equitable and 
not unfairly discriminatory because the proposed cToM fees will apply 
to all market participants of the Exchange on a uniform basis. The 
Exchange also notes that the proposed monthly cToM fees for Internal 
and External Distributors are the same prices that the Exchange charges 
for its ToM data product.
    The Exchange believes the proposed change to delete certain text 
from Section 6)a) of the Fee Schedule promotes just and equitable 
principles of trade and removes impediments to and perfects the 
mechanism of a free and open market and a national market system 
because the proposed change is a non-substantive edit to the Fee 
Schedule to remove unnecessary text. The Exchange believes that this 
proposed change will provide greater clarity to Members and the public 
regarding the Exchange's Fee Schedule and that it is in the public 
interest for the Fee Schedule to be accurate and concise so as to 
eliminate the potential for confusion.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes the proposed fees will not result in any 
burden on intra-market competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because the proposed fees 
will allow the Exchange to recoup some of its costs in providing cToM 
to market participants. As described above, the Exchange has operated 
at a cumulative net annual loss since it launched operations in 2019 
\56\ due to 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 Systems. To do so, the Exchange 
chose to waive the fees for some non-transaction related services and 
Exchange products 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 any fees or 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. An 
example of this is cToM, for which the Exchange only now seeks to adopt 
fees at a level similar to or lower than those of other options 
exchanges.
---------------------------------------------------------------------------

    \56\ See supra note 49.
---------------------------------------------------------------------------

    Since the Exchange initially launched operations with the cToM data 
product in 2019, all Exchange Members and non-Members have had the 
ability to receive the Exchange's cToM data free of charge for the past 
three years.\57\ Since 2019, when the Exchange adopted Complex Order 
functionality, the Exchange has spent time and resources building out 
various Complex Order functionality in its System to provide better 
trading strategies and risk functionality for market participants in 
order to better compete with other exchanges' complex functionality and 
similar data products focused on complex orders.\58\ The Exchange now 
seeks to recoup its costs for providing cToM to market participants and 
believes the proposed fees will not result in excessive pricing or 
supra-competitive profit.
---------------------------------------------------------------------------

    \57\ See supra note 18.
    \58\ See supra note 15.
---------------------------------------------------------------------------

Inter-Market Competition
    The Exchange also does not believe the proposed fees would cause 
any unnecessary or in appropriate burden on intermarket competition as 
other exchanges are free to introduce their own comparable data product 
and lower their prices to better compete with the Exchange's offering. 
There is no reason to believe that the newly proposed fees for receive 
the cToM data feed would impair other exchange's ability to compete or 
cause any unnecessary or inappropriate burden on inter-market 
competition. Particularly, the proposed product and fees apply 
uniformly to any purchaser, in that it does not differentiate between 
subscribers that purchase cToM. The proposed fees are set at a modest 
level that would allow any interested Member or non-Member to purchase 
such data based on their business needs.
    The Exchange does not believe that the proposed rule change to make 
a minor, non-substantive edit to Section 6)a) of the Fee Schedule by 
deleting unnecessary text will result in any burden on competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act. This proposed rule change is not being made for competitive 
reasons, but rather is designed to remedy a minor non-substantive issue 
and will provide added clarity to the Fee Schedule. The Exchange 
believes that it is in the public interest for the Fee Schedule to be 
accurate and concise so as to eliminate the potential for confusion on 
the part of market participants. In addition, the Exchange does not 
believe the proposal will impose any burden on inter-market competition 
as the proposal does not address any competitive issues and is intended 
to protect investors by providing further transparency regarding the 
Exchange's Fee Schedule.

[[Page 23684]]

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. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\59\ 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,\60\ 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.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78s(b)(3)(C).
    \60\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    As the Exchange further details above, the Exchange first filed a 
proposed rule change proposing fee changes as proposed herein on June 
30, 2021, with the proposed fee changes effective beginning July 1, 
2021. That proposal, EMERALD-2021-21, was published for comment in the 
Federal Register on July 15, 2021.\61\ On August 27, 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 proposal.\62\ On 
September 30, 2021, the Exchange withdrew the proposed rule change,\63\ 
and filed two other proposed rule changes proposing fee changes as 
proposed herein,\64\ which were each also subsequently withdrawn. On 
February 7, 2022, the Exchange filed a proposed rule change proposing 
fee changes as proposed herein and, on February 15, 2022, the 
Commission issued a notice of the proposed rule change and, pursuant to 
Section 19(b)(3)(C) of the Act, simultaneously: (1) Temporarily 
suspended the proposed rule change; and (2) instituted proceedings to 
determine whether to approve or disapprove the proposal.\65\ The 
instant filing is substantially similar.\66\
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    \61\ See supra note 5, and accompanying text.
    \62\ See Securities Exchange Act Release No. 92789, 86 FR 49364 
(September 2, 2021).
    \63\ See Securities Exchange Act Release No. 93471 (October 29, 
2021), 86 FR 60947 (November 4, 2021).
    \64\ See Securities Exchange Act Release Nos. 93427 (October 26, 
2021), 86 FR 60310 (November 1, 2021); 93811 (December 17, 2021), 86 
FR 73051 (December 23, 2021).
    \65\ See Securities Exchange Act Release No. 94263 (February 15, 
2022), 87 FR 9766 (February 22, 2022).
    \66\ See id.
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    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\67\ 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.'' \68\
---------------------------------------------------------------------------

    \67\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \68\ Id.
---------------------------------------------------------------------------

    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; \69\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \70\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\71\
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78f(b)(4).
    \70\ 15 U.S.C. 78f(b)(5).
    \71\ 15 U.S.C. 78f(b)(8).
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    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether the proposed fees for the cToM 
market data feed 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 permit unfair discrimination 
between customers, issuers, brokers or dealers; and do not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\72\
---------------------------------------------------------------------------

    \72\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    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.\73\
---------------------------------------------------------------------------

    \73\ For 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).
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\74\ and 19(b)(2)(B) of the Act \75\ to determine whether the proposed 
rule change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change to inform the Commission's analysis of whether to 
disapprove the proposed rule change.
---------------------------------------------------------------------------

    \74\ 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.
    \75\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\76\ 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),\77\ 6(b)(5),\78\ and 6(b)(8) \79\ 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

[[Page 23685]]

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

    \76\ Id.
    \77\ 15 U.S.C. 78f(b)(4).
    \78\ 15 U.S.C. 78f(b)(5).
    \79\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
above, 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 fees are constrained by competitive 
forces, but rather sets forth a ``cost-plus model,'' and states that 
the proposed fees are ``reasonable because they will permit recovery of 
the Exchange's costs in providing cToM data and will not result in the 
Exchange generating a supra-competitive profit.'' \80\ Setting forth 
its costs in providing the cToM data product, and as summarized in 
greater detail above, MIAX Emerald projects $236,284 in aggregate 
annual estimated costs for 2022 as the sum of: (1) $5,434 in external 
expenses paid in total to its data center provider (0.20% of the total 
applicable expense) for data center services; its fiber connectivity 
provider for network services (0.20% of the total applicable expense); 
and various other hardware and software providers (0.20% of the total 
applicable expense) supporting the production environment; (2) $225,075 
in internal expenses, allocated to (a) employee compensation costs 
($209,610); (b) depreciation and amortization ($4,055); and (c) 
occupancy costs ($11,410); and (3) $5,775 in allocated shared expenses, 
including recruiting and training, marketing and advertising costs, 
professional fees for legal, tax and accounting services, and 
telecommunications costs. Do commenters believe that these allocations 
are reasonable? Should the Exchange be required to provide more 
specific information regarding the allocation of third-party expenses, 
such as the overall estimated cost for each category of external 
expenses or at minimum the total applicable third-party expenses? 
Should the Exchange have provided either a percentage allocation or 
statements regarding the Exchange's overall estimated costs for the 
internal expense categories and general shared expenses figure? Do 
commenters believe that the Exchange has provided sufficient detail 
about how it determined which costs are associated with providing and 
maintaining the cToM data product and why? Do commenters believe that 
the Exchange provided sufficient detail or explanation to support its 
claim that ``no expense amount is allocated twice,'' \81\ whether among 
the sub-categories of expenses in this filing, across the Exchange's 
fee filings for other products or services, or over time? Do commenters 
believe that the Exchange has provided sufficient detail about how it 
determined ``general shared expenses'' and how it determined what 
portion should be associated with providing and maintaining the cToM 
data product? The Exchange describes a ``proprietary'' process that was 
applied in making these determinations or arriving at particular 
allocations. Do commenters believe further explanation is necessary? 
What are commenters' views on whether the Exchange has provided 
sufficient detail on the identity and nature of services provided by 
third parties? Across all of the Exchange's projected costs, what are 
commenters' views on whether the Exchange has provided sufficient 
detail on the elements that go into market data costs, including how 
shared costs are allocated and attributed to market data expenses, to 
permit an independent review and assessment of the reasonableness of 
purported cost-based fees and the corresponding profit margin thereon?
---------------------------------------------------------------------------

    \80\ See supra Section II.A.2.
    \81\ See id.
---------------------------------------------------------------------------

    2. Revenue Estimates and Profit Margin Range. The Exchange provides 
a single monthly revenue figure from March 2022 as the basis for 
calculating the profit margin of -21%. Do commenters believe this is 
reasonable? 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 as Members and non-Members add and drop subscriptions,\82\ and 
that costs may increase. 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?
---------------------------------------------------------------------------

    \82\ See id.
---------------------------------------------------------------------------

    3. Reasonable Rate of Return. The Exchange states that its expected 
profit margin is -21% and that the proposed fees are reasonable because 
the Exchange is operating at a negative margin for this product. 
Further, the Exchange states that it chose to initially provide the 
cToM data product for free and to forego revenue that they otherwise 
could have generated from assessing any fees.\83\ What are commenters' 
views regarding what factors should be considered in determining what 
constitutes a reasonable rate of return for the cToM market data 
product? Do commenters believe it relevant to an assessment of 
reasonableness that, according to the Exchange, the Exchange's proposed 
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?
---------------------------------------------------------------------------

    \83\ See id.
---------------------------------------------------------------------------

    4. Periodic Reevaluation. The Exchange has not stated that it would 
reevaluate the appropriate level of cToM data product fees if there is 
a material deviation from the anticipated profit margin. In light of 
the impact that the number of subscriptions 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 data 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 data 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 data fee is implemented? 60 
days? 90 days? Some other period?

[[Page 23686]]

    5. Fees for Internal Distributors versus External Distributors. The 
Exchange argues that it is reasonable, equitable, and not unfairly 
discriminatory to assess Internal Distributors fees that are lower than 
the fees assessed for External Distributors for subscriptions to the 
cToM data feed ($1,250 per month for Internal Distributors versus 
$1,750 per month for External Distributors), since Internal 
Distributors have limited, restricted usage rights to the market data, 
as compared to External Distributors, which have more expansive usage 
rights, including rights to commercialize such market data.\84\ In 
addition, the Exchange states that it ``utilizes more resources'' to 
support External Distributors as compared to Internal Distributors, as 
External Distributors have reporting and monitoring obligations that 
Internal Distributors do not have, thus requiring ``additional time and 
effort'' of the Exchange's staff.\85\ What are commenters' views on the 
adequacy of the information the Exchange provides regarding the 
differential between the Internal Distributor and External Distributor 
fees? Do commenters believe that the fees for Internal Distributors and 
External Distributors, as well as the fee differences between 
Distributors, are supported by the Exchange's assertions that it sets 
the differentiated pricing structure in a manner that is equitable and 
not unfairly discriminatory? Do commenters believe that the Exchange 
should demonstrate how the proposed Distributor fee levels correlate 
with different costs to better substantiate how the Exchange ``utilizes 
more resources'' to support External Distributors versus Internal 
Distributors and permit an assessment of the Exchange's statement that 
``External Distributors have reporting and monitoring obligations that 
Internal Distributors do not have, thus requiring additional time and 
effort of Exchange staff''? \86\
---------------------------------------------------------------------------

    \84\ See text accompanying supra notes 53-55.
    \85\ See id.
    \86\ See id.
---------------------------------------------------------------------------

    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \87\ 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,\88\ 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.\89\ 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.\90\
---------------------------------------------------------------------------

    \87\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \88\ See id.
    \89\ See id.
    \90\ See 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).
---------------------------------------------------------------------------

    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. Request for Written Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above, as well as any other relevant 
concerns. In particular, the Commission invites the written views of 
interested persons concerning whether the proposal is consistent with 
Sections 6(b)(4), 6(b)(5), and 6(b)(8), or any other provision of the 
Act, or the rules and regulations thereunder. The Commission asks that 
commenters address the sufficiency and merit of the Exchange's 
statements in support of the proposal, in addition to any other 
comments they may wish to submit about the proposed rule change. 
Although there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral presentation.\91\
---------------------------------------------------------------------------

    \91\ 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).
---------------------------------------------------------------------------

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

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#0173746d642c626e6c6c646f7572417264622f666e77"><span class="__cf_email__" data-cfemail="295b5c454c044a4644444c475d5a695a4c4a074e465f">[email protected]</span></a>. Please include 
File Number SR-EMERALD-2022-14 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EMERALD-2022-14. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-EMERALD-2022-14 and should be submitted 
on or before May 11, 2022. Rebuttal comments should be submitted by May 
25, 2022.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\92\ that File Number SR-EMERALD-2022-14 be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the

[[Page 23687]]

proposed rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \92\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\93\
---------------------------------------------------------------------------

    \93\ 17 CFR 200.30-3(a)(12), (57), and (58).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08379 Filed 4-19-22; 8:45 am]
BILLING CODE 8011-01-P


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