29928 Federal Register / Vol. 87, No. 95 / Tuesday, May 17, 2022 / Notices 

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

2 17 CFR 240.19b–4. 

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

a connection to the MIAX Emerald System that 

enables Market Makers to submit simple and 

complex electronic quotes to MIAX Emerald. See 

the Definitions Section of the Fee Schedule. 

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

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

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

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

of the Fee Schedule and Exchange Rule 100. 

5See Securities Exchange Act Release Nos. 91460 

(April 1, 2021), 86 FR 18349 (April 8, 2021) (SR– 

EMERALD–2021–11); 90184 (October 14, 2020), 85 

FR 66636 (October 20, 2020) (SR–EMERALD–2020– 

12); 90600 (December 8, 2020), 85 FR 80831 

(December 14, 2020) (SR–EMERALD–2020–17); 

91032 (February 1, 2021), 86 FR 8428 (February 5, 

2021) (SR–EMERALD–2021–02); and 91200 

(February 24, 2021), 86 FR 12221 (March 2, 2021) 

(SR–EMERALD–2021–07). 

6See id. for a description of each of these ports. 

7See supra note 5. 

8The term ‘‘Member’’ means an individual or 

organization approved to exercise the trading rights 

associated with a Trading Permit. Members are 

deemed ‘‘members’’ under the Exchange Act. See 

Exchange Rule 100. 

9The Exchange’s System Networks consist of the 

Exchange’s extranet, internal network, and external 

network. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94889; File No. SR– 

EMERALD–2022–19] 

Self-Regulatory Organizations; MIAX 

Emerald, LLC; Notice of Filing of a 

Proposed Rule Change To Amend Its 

Fee Schedule To Increase Certain 

Connectivity Fees and Adopt a TieredPricing Structure for Additional 

Limited Service MIAX Emerald Express 

Interface Ports; Suspension of and 

Order Instituting Proceedings To 

Determine Whether To Approve or 

Disapprove the Proposed Rule Change 

May 11, 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 May 2, 

2022, MIAX Emerald, LLC (‘‘MIAX 

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

Securities and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

as described in Items I and II below, 

which Items have been prepared by the 

Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons and is, pursuant 

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

(i) Temporarily suspending the 

proposed rule change; and (ii) 

instituting proceedings to determine 

whether to approve or disapprove the 

proposed rule change. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing a proposal to 

amend the MIAX Emerald Options Fee 

Schedule (the ‘‘Fee Schedule’’) to 

amend certain connectivity and port 

fees. 

The text of the proposed rule change 

is available on the Exchange’s website at 

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

office, and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV [sic] below. 

The Exchange has prepared summaries, 

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

of the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend its 

Fee Schedule to increase the fees for a 

10 gigabit (‘‘Gb’’) ultra-low latency 

(‘‘ULL’’) fiber connection and adopt a 

tiered-pricing structure for Limited 

Service MIAX Emerald Express Interface 

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

Makers.4 The Exchange last increased 

the fees for both 10Gb ULL fiber 

connections and Limited Service MEI 

Ports beginning with a series of filings 

on October 1, 2020 (with the final filing 

made on March 24, 2021).5 Prior to that 

fee change, the Exchange provided 

Limited Service MEI Ports for $50 per 

port, after the first two Limited Service 

MEI Ports that are provided free of 

charge, and the Exchange incurred all 

the costs associated to provide those 

first two Limited Service MEI Ports 

since it commenced operations in 

March 2019. The Exchange then 

increased the fee by $50 to a modest 

$100 fee per Limited Service MEI Port 

and increased the fee for 10Gb ULL fiber 

connections from $6,000 to $10,000 per 

month. 

Also, in that fee change, the Exchange 

adopted fees for providing five different 

types of ports for the first time. These 

ports were FIX Ports, MEI Ports, 

Clearing Trade Drop Ports, FIX Drop 

Copy Ports, and Purge Ports.6 Again, the 

Exchange absorbed all costs associated 

with providing these ports since its 

launch in March 2019. As explained in 

that filing, expenditures, as well as 

research and development (‘‘R&D’’) in 

numerous areas resulted in a material 

increase in expense to the Exchange and 

were the primary drivers for that 

proposed fee change. In that filing, the 

Exchange allocated a total of $9.3 

million in expenses to providing 10Gb 

ULL fiber connectivity, additional 

Limited Service MEI Ports, FIX Ports, 

MEI Ports, Clearing Trade Drop Ports, 

FIX Drop Copy Ports, and Purge Ports.7

Since the time of that filing, the 

Exchange experienced an increase in 

expenses, particularly regarding internal 

expenses. For example, from October 

2020 to March 2022 expenses related to 

employee compensation increased from 

$9,354,900 to $9,900,032 and occupancy 

expense increased from $473,323 to 

$538,916. In addition, from October 

2020 to March 2022, the Exchange’s 

third party related expense increased as 

well. In October 2020, the exchange 

allocated $1,932,519 of its third party 

expenses to providing the following 

seven types of connectivity and access: 

10Gb ULL fiber connectivity, additional 

Limited Service MEI Ports, FIX Ports, 

MEI Ports, Clearing Trade Drop Ports, 

FIX Drop Copy Ports, and Purge Ports. 

As described more fully below, the 

Exchange is now allocating $2,011,286 

of its third party expense to the 

following two types of connectivity and 

access: 10Gb ULL connectivity and 

Limited Service MEI Ports, which 

represents only a portion of its total 

third party expense of $3,108,431. As 

discussed more fully below, the 

Exchange recently calculated its annual 

aggregate costs for providing 10Gb ULL 

connectivity and Limited Service MEI 

Ports to be $10,483,343, or $873,612 per 

month. The Exchange now proposes to 

amend the Fee Schedule to amend the 

fees for 10Gb ULL connectivity and 

Limited Service MEI Port in order to 

recoup these ongoing costs and as a 

result of the increase in expenses 

described above. 

First, the Exchange proposes to 

amend the Fee Schedule to increase the 

fees for Members 8 and non-Members to 

access the Exchange’s System 

Networks 9 via a 10Gb ULL fiber 

connection. Specifically, the Exchange 

proposes to amend Sections (5)(a)–(b) of 

the Fee Schedule to increase the 10Gb 

ULL connectivity fee for Members and 

non-Members from $10,000 per month 

to $12,000 per month (‘‘10Gb ULL 

Fee’’). Prior to the proposed fee change, 

the Exchange assessed Members and 


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10The Exchange notes that it employed a tiered 

pricing structure for 10Gb ULL connectivity from 

August 2021 through March 2022 (except for certain 

months where the Exchange’s 10Gb ULL 

connectivity fee was rolled-back to $10,000 per 

month). See infra notes 26 to 28. 

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

provides Market Makers with the ability to send 

Market Maker simple and complex quotes, eQuotes, 

and quote purge messages to the MIAX Emerald 

System. Full Service MEI Ports are also capable of 

receiving administrative information. Market 

Makers are limited to two Full Service MEI Ports 

per Matching Engine. See the Definitions Section of 

the Fee Schedule. 

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

which provides Market Makers with the ability to 

send simple and complex eQuotes and quote purge 

messages only, but not Market Maker Quotes, to the 

MIAX Emerald System. Limited Service MEI Ports 

are also capable of receiving administrative 

information. Market Makers initially receive two 

Limited Service MEI Ports per Matching Engine. 

See the Definitions Section of the Fee Schedule. 

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

Emerald electronic system that processes options 

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

Some Matching Engines will process option classes 

with multiple root symbols, and other Matching 

Engines may be dedicated to one single option root 

symbol (for example, options on SPY may be 

processed by one single Matching Engine that is 

dedicated only to SPY). A particular root symbol 

may only be assigned to a single designated 

Matching Engine. A particular root symbol may not 

be assigned to multiple Matching Engines. See the 

Definitions Section of the Fee Schedule. 

14As noted in the Fee Schedule, Market Makers 

will continue to be limited to fourteen Limited 

Service MEI Ports per Matching Engine. The 

Exchange also proposes to make a ministerial 

clarifying change to remove the defined term 

‘‘Additional Limited Service MEI Ports’’ as a result 

of moving to a tiered pricing structure where the 

first two Limited Service MEI Ports continue to be 

provided free of charge. The Exchange proposes to 

make a related change to add the term ‘‘Limited 

Service MEI Ports’’ after the word ‘‘fourteen’’ in the 

Fee Schedule. 

15The term ‘‘System’’ means the automated 

trading system used by the Exchange for the trading 

of securities. See the Definitions Section of the Fee 

Schedule and Exchange Rule 100. 

16See 15 U.S.C. 78f(b). The Exchange may offer 

access on terms that are not unfairly discriminatory 

among its Members, and ensure sufficient capacity 

and headroom in the System. The Exchange 

monitors the System’s performance and makes 

adjustments to its System based on market 

conditions and Member demand. 

non-Members a flat monthly fee of 

$10,000 per 10Gb ULL connection for 

access to the Exchange’s primary and 

secondary facilities.10

The Exchange will continue to assess 

monthly Member and non-Member 

network connectivity fees for 

connectivity to the primary and 

secondary facilities in any month the 

Member or non-Member is credentialed 

to use any of the Exchange APIs or 

market data feeds in the production 

environment. The Exchange proposes to 

pro-rate the fees when a Member or nonMember makes a change to the 

connectivity (by adding or deleting 

connections) with such pro-rated fees 

based on the number of trading days 

that the Member or non-Member has 

been credentialed to utilize any of the 

Exchange APIs or market data feeds in 

the production environment through 

such connection, divided by the total 

number of trading days in such month 

multiplied by the applicable monthly 

rate. The Exchange will continue to 

assess monthly Member and nonMember network connectivity fees for 

connectivity to the disaster recovery 

facility in each month during which the 

Member or non-Member has established 

connectivity with the disaster recovery 

facility. 

Second, the Exchange proposes to 

amend Section (5)(d) of the Fee 

Schedule to adopt a tiered-pricing 

structure for Limited Service MEI Ports 

available to Market Makers. The 

Exchange allocates two (2) Full Service 

MEI Ports 11 and two (2) Limited Service 

MEI Ports 12 per matching engine 13 to 

which each Market Maker connects. 

Market Makers may also request 

additional Limited Service MEI Ports for 

each matching engine to which they 

connect. The Full Service MEI Ports and 

Limited Service MEI Ports all include 

access to the Exchange’s primary and 

secondary data centers and its disaster 

recovery center. Market Makers may 

request additional Limited Service MEI 

Ports above the first two that are 

included for free for each matching 

engine. Prior to the proposed fee 

change, Market Makers were assessed a 

$100 monthly fee for each Limited 

Service MEI Port for each matching 

engine above the first two Limited 

Service MEI Ports that are included for 

free. 

The Exchange now proposes to move 

from a flat monthly fee per Limited 

Service MEI Port for each matching 

engine to a tiered-pricing structure for 

Limited Service MEI Ports for each 

matching engine under which the 

monthly fee would vary depending on 

the number of Limited Service MEI 

Ports each Market Maker elects to 

purchase. Specifically, the Exchange 

will continue to provide the first and 

second Limited Service MEI Ports for 

each matching engine free of charge. For 

Limited Service MEI Ports, the 

Exchange proposes to adopt the 

following tiered-pricing structure: (i) 

The third and fourth Limited Service 

MEI Ports for each matching engine will 

increase from the current flat monthly 

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

and sixth Limited Service MEI Ports for 

each matching engine will increase from 

the current flat monthly fee of $100 to 

$300 per port; and (iii) the seventh or 

more Limited Service MEI Ports will 

increase from the current monthly flat 

fee of $100 to $400 per port.14 The 

Exchange believes a tiered-pricing 

structure will encourage Market Makers 

to be more efficient when determining 

how to connect to the Exchange. This 

should also enable the Exchange to 

better monitor and provide access to the 

Exchange’s network to ensure sufficient 

capacity and headroom in the System 15

in accordance with its fair access 

requirements under Section 6(b)(5) of 

the Act.16

The Exchange believes that other 

exchanges’ connectivity and port fees 

are useful examples and provides the 

following table for comparison purposes 

only to show how the Exchange’s 

proposed fees compare to fees currently 

charged by other options exchanges for 

similar connectivity and port access. As 

shown by the below table, the 

Exchange’s proposed fees are similar to 

or less than fees charged for similar 

access to other options exchanges. 

Exchange Type of connection or port Monthly fee 

(per connection or per port) 

MIAX Emerald (as proposed) (equity options market share of 

4.49% as of April 12, 2022 for the month of April) 17.

10Gb ULL connection ...............

Limited Service MEI Port ..........

$12,000. 

1–2 ports. FREE (not changed in this proposal). 

3–4 ports. $200. 

5–6 ports. $300. 

7 or more ports. $400. 

The NASDAQ Stock Market LLC (‘‘NASDAQ’’) 18 (equity options 

market share of 8.31% as of April 12, 2022 for the month of 

April) 19.

10Gb Ultra fiber connection ...... $15,000. 


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17See ‘‘The market at a glance,’’ available at 

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

12, 2022). 

18See NASDAQ Pricing Schedule, Options 7, 

Section 3, Ports and Other Services and NASDAQ 

Rules, General 8: Connectivity, Section 1. CoLocation Services. 

19See supra note 17. 

20See ISE Pricing Schedule, Options 7, Section 7, 

Connectivity Fees and ISE Rules, General 8: 

Connectivity. 

21See supra note 17. 

22See NYSE American Options Fee Schedule, 

Section V.A. Port Fees and Section V.B. CoLocation Fees. 

23See supra note 17. 

24See GEMX Pricing Schedule, Options 7, 

Section 6, Connectivity Fees and GEMX Rules, 

General 8: Connectivity. 

25See supra note 17. 

26See letters from Richard J. McDonald, 

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

Vanessa Countryman, Secretary, Commission, dated 

September 7, 2021, October 1, 2021, October 26, 

2021, and March 15, 2022 (‘‘SIG Letters’’). See also 

letter from Tyler Gellasch, Executive Director, 

Healthy Markets Association (‘‘HMA’’), to Hon. 

Gary Gensler, Chair, Commission, dated October 29, 

2021 (‘‘HMA Letter’’); and letter from Ellen Green, 

Managing Director, Equity and Options Market 

Structure, Securities Industry and Financial 

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

Countryman, Secretary, Commission, dated 

November 26, 2021 (‘‘SIFMA Letter’’). 

27See Securities Exchange Act Release Nos. 

93644 (November 22, 2021), 86 FR 67750 

(November 29, 2021) (SR–EMERALD–2021–29); 

94089 (January 27, 2022); 87 FR 5910 (February 2, 

2022) (SR–EMERALD–2021–42); 94257 (February 

15, 2022), 87 FR 9678 (February 22, 2022) (SR– 

EMERALD–2022–04); 93640 (November 22, 2021), 

86 FR 67745 (November 29, 2021) (SR–EMERALD– 

2021–31); 94087 (January 27, 2022), 87 FR 5918 

(February 2, 2022) (SR–EMERALD–2021–43); and 

94260 (February 15, 2022), 87 FR 9695 (February 

22, 2022) (SR–EMERALD–2022–05). 

28See Securities Exchange Act Release Nos. 

94717 (April 14, 2022), 87 FR 23648 (April 20, 

2022) (SR–EMERALD–2022–13); and 94718 (April 

14, 2022), 87 FR 23633 (April 20, 2022) (SR– 

EMERALD–2022–15). 

29 15 U.S.C. 78f(b). 

30 15 U.S.C. 78f(b)(4). 

31 15 U.S.C. 78f(b)(5). 

32See Securities Exchange Act Release No. 85459 

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

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

2019–04) (Order Disapproving Proposed Rule 

Changes to Amend the Fee Schedule on the BOX 

Market LLC Options Facility to Establish BOX 

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

33See 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’’). 

Exchange Type of connection or port Monthly fee 

(per connection or per port) 

SQF Port ................................... 1–5 ports. $1,500. 

6–20 ports. $1,000. 

21 or more ports. $500. 

Nasdaq ISE LLC (‘‘ISE’’) 20 (equity options market share of 

5.28% as of April 12, 2022 for the month of April) 21.

10Gb Ultra fiber connection ......

SQF Port ...................................

$15,000. 

$1,100. 

NYSE American LLC (‘‘NYSE American’’) 22 (equity options market share of 7.86% as of April 12, 2022 for the month of 

April) 23.

10Gb LX LCN connection .........

Order/Quote Entry Port .............

$22,000. 

Ports 1–40. $450. 

Ports 41 and greater. $150. 

Nasdaq GEMX, LLC (‘‘GEMX’’) 24 (equity options market share of 

2.31% as of April 12, 2022 for the month of April) 25.

10Gb Ultra connection ..............

SQF Port ...................................

$15,000. 

$1,250. 

Implementation and Procedural History 

The proposed rule change will be 

effective May 2, 2022. The Exchange 

initially filed proposals to adopt tieredpricing structures for the 10Gb ULL 

connections and Limited Service MEI 

Ports, with the proposed fees being 

effective beginning August 1, 2021. 

Between August 2021 and February 

2022, the Exchange withdrew and 

refiled the proposed rule changes, each 

time to meaningfully attempt to provide 

additional justification for the proposed 

fee changes, provide enhanced details 

regarding the Exchange’s cost 

methodology, and address questions 

contained in the Commission’s 

suspension orders. The Exchange 

received six comment letters from three 

separate commenters on the filings.26

This revised proposal provided 

additional details regarding the 

Exchange’s cost methodology, revenue 

projections, and responded to various 

questions and requests for information 

contained in the Commission’s 

suspension orders.27 On April 1, 2022, 

the Exchange submitted revised 

proposals (separate filings for 10Gb ULL 

connectivity and Limited Service MEI 

Ports) to provide additional clarity 

regarding the Exchange’s cost 

justifications and those proposals were 

subsequently suspended by the 

Commission.28 The Exchange withdrew 

those proposals and submitted this 

revised filing on May 2, 2022. This 

newest revised filing builds upon the 

additional details regarding the 

Exchange’s cost methodology and 

revenue projections, and includes the 

Exchange’s responses to various 

questions and requests for information 

contained in the Commission’s 

suspension orders. 

2. Statutory Basis 

The Exchange believes that the 

proposed fees are consistent with 

Section 6(b) of the Act 29 in general, and 

furthers the objectives of Section 6(b)(4) 

of the Act 30 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 31 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. 

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’’).32 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.’’ 33 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; and (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 supracompetitive profit. 


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34See id. 

35 Id. 

36 Id. 

37 Id. 38 Id. 39See supra notes 18 and 22. 

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.’’ 34 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.’’ 35 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 supracompetitive profit, specific information, 

including quantitative information, 

should be provided to support that 

argument.’’ 36 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 access 

services to supply 10Gb ULL 

connectivity and Limited Service MEI 

Ports and will not result in the 

Exchange generating a supracompetitive profit. 

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

exceed the profits that can be obtained 

in a competitive market.’’ 37 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.’’ 38 The Exchange provides 

this analysis below. 

The proposed fees are based on a costplus 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, or more 

than, all of its costs of providing 10Gb 

ULL connectivity and Limited Service 

MEI Ports because of the uncertainty of 

forecasting subscriber decision making 

with respect to firms’ access 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 suspension orders sought 

additional information and comments 

on various aspects of the prior proposed 

fee changes. In many respects, the 

Commission’s questions about the prior 

proposed fee changes raise broader 

questions around the factors the 

Commission should consider and the 

type of data and analysis an exchange 

should provide in considering whether 

market data, port fees, or connectivity 

fees are fair and reasonable under a costbased methodology. The suspension 

orders also sought 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 

and percentage allocation or statements 

regarding the Exchange’s overall 

estimated costs for the internal expense 

categories and general shared expenses 

figure. The Exchange added this 

additional information below. 

In this filing, the Exchange offers a 

conceptual framework for further 

considering the Commission’s questions 

that draws on the Exchange’s own 

experience over several years of 

analyzing its own costs. The elements of 

that framework are as follows: 

First, the Exchange proposes a flat, 

simple 10Gb ULL Fee that imposes a 

single monthly fee for Members and 

non-Members. The Exchange believes 

this relatively simple, flat fee structure 

is transparent and easy for users to 

apply, and also helps show that it meets 

the objectives of the Act. The Exchange 

also proposes a tiered-pricing structure 

for its Limited Service MEI Ports that 

continues to provide the first and 

second Limited Service MEI Ports free 

of charge for each matching engine. The 

Exchange believes the proposed tieredpricing structure for Limited Service 

MEI Ports is also transparent and easy 

for users to apply, and is a common 

pricing method used by other options 

exchanges when charging for port 

connectivity.39

The Exchange then 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 providing 

10Gb ULL connectivity and Limited 

Service MEI Ports. That methodology 

does not allow for ‘‘double-counting’’ of 

the same costs for different classes of 

exchange products—for example 

transaction services, market data, 

physical connectivity, ‘‘logical’’ port 

connections or regulatory resources. As 

a result of this review, the Exchange 

determined that it experienced an 

increase in costs since October 2020 as 

set forth above and determined to 

propose to increase select connectivity 

fees as described herein to attempt to 

recoup this increased expense. 

The Exchange then sought to 

narrowly allocate specific costs to 10Gb 

ULL connectivity and Limited Service 

MEI Ports to which the proposed fees 

would apply. In this filing, the 

Exchange provided more detail about 

how that allocation was determined and 

included information about tangential 

cost items that were not included. 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 

10Gb ULL connectivity and Limited 

Service MEI Ports. 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 10Gb ULL 

connectivity and Limited Service MEI 

Ports. The Exchange reviewed each 


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40The Exchange is not considering future costs 

associated with accommodating new 10Gb ULL 

connectivity and Limited Service MEI Ports 

subscriptions. 

41The percentage allocations used in this 

proposed rule change may differ from past filings 

from the Exchange or its affiliates due to 

adjustments to internal resource allocations, and 

different system architecture of the Exchange as 

compared to its affiliates. 

42For 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 

orders, the Commission also asked should the 

Exchange 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. 

individual expense to determine if such 

expense was related to 10Gb ULL 

connectivity and Limited Service MEI 

Ports. Once the expenses were 

identified, the Exchange department 

heads, with the assistance of the 

Exchange’s 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 10Gb ULL 

connectivity and Limited Service MEI 

Ports. For the avoidance of doubt, no 

expense amount is allocated twice. 

Specifically, no expense amount is 

allocated to more than one expense 

category within this filing and no 

expense amount that is allocated as a 

cost to provide and maintain access to 

the 10Gb ULL connectivity and Limited 

Service MEI Ports in this filing have 

been or will be allocated as a cost to 

provide any other exchange product or 

service in any other fee filing. In the 

suspension orders, 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 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. 

Finally, the Exchange acknowledges 

that it is difficult to predict how much 

revenue the Exchange will receive from 

the proposed fees with precision. The 

analysis conducted by the Exchange is 

designed to make a fair and reasonable 

assessment of costs and resources 

allocated to support the provision of 

access services associated with the 

proposed fees. The Exchange further 

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 basis, 

reviews its costs and resource 

allocations to ensure it appropriately 

allocates resources to properly provide 

services to the Exchange’s constituents. 

As part of this proposed rule change, 

and as described further below, the 

Exchange is committing to conduct an 

annual cost review with respect to fees 

that are cost justified in this proposed 

rule change beginning one year from the 

date of this proposal, and annually 

thereafter. The Exchange expects that it 

may propose to adjust fees at that time, 

either to increase fees in the event that 

revenues fail to reasonably cover costs 

at the estimated margin set forth below, 

or to decrease fees in the event that 

revenue materially exceeds the 

Exchange’s current projections. In the 

event that the Exchange determines to 

propose a fee change, updated cost 

estimates will be included in a rule 

filing proposing the fee change. 

The Exchange believes applying this 

framework to the proposed fees shows 

that they are consistent with the 

requirements of the Act, leaving aside 

that the proposed fees are relatively 

similar to fees charged by other 

exchanges for connectivity and port 

access. 

Exchange Costs and Cost Methodology 

The Exchange notes that there are 

material costs associated with providing 

the infrastructure and headcount to 

fully support access to the Exchange via 

connectivity and ports. As described 

below, 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 

overall costs to provide 10Gb ULL 

connectivity and Limited Service MEI 

Ports. For example, to accommodate 

new Members, the Exchange may need 

to purchase additional hardware to 

support those Members and provide 

access through 10Gb ULL connectivity 

and Limited Service MEI Ports.40

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 proposed fees are a 

reasonable attempt to offset those costs 

associated with providing access to and 

maintaining its System Networks’ 

infrastructure. 

The Exchange estimated its total 

annual expense to provide 10Gb ULL 

connectivity and Limited Service MEI 

Ports 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 10Gb ULL 

connectivity and Limited Service MEI 

Ports; and (3) general shared expenses.41

The below table details each of these 

individual external and internal annual 

costs considered by the Exchange to be 

directly related to offering 10Gb ULL 

connectivity and Limited Service MEI 

Ports, and not any other product or 

service offered by the Exchange. The 

below table also details the general 

shared expense allocated to this 

proposal. Each of these expenses are 

discussed in more detail further below. 

For 2022, the total annual expense for 

providing the access services associated 

with providing 10Gb ULL connectivity 

and Limited Service MEI Ports is 

estimated to be $10,483,343, or 

$873,612 per month. The Exchange 

utilized its estimated 2022 revenue and 

costs, which utilize the same 

methodology set forth in the Exchange’s 

previously-issued Audited 

Unconsolidated Financial Statements.42


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43The 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. 

44The 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. 45The 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 

Continued 

External expenses 

Category 

Percentage of total expense amount allocated 

10Gb ULL connectivity Limited service MEI ports 

Data Center Provider .............................................................................. 62% ................................................ 2.4%. 

Fiber Connectivity Provider ..................................................................... 62% ................................................ 1.9%. 

Security Financial Transaction Infrastructure (‘‘SFTI’’), and Other 

Connectivity and Content Service Providers.

89% ................................................ 2.4%. 

Hardware and Software Providers .......................................................... 51% ................................................ 1.5%. 

Total of External Expenses .............................................................. $2,011,286.43

Internal expenses 

Category 

Expense amount allocated 

10Gb ULL connectivity Limited service MEI ports 

Employee Compensation ........................................................................ $3,259,251 (representing 33% of 

total $9,900,032 expense).

$916,303 (representing 9.3% of 

total $9,900,032 expense). 

Depreciation and Amortization ................................................................ $2,164,610 (representing 64.3% of 

total $3,363,841 expense).

$81,932 (representing 2.4% of 

total $3,363,841 expense). 

Occupancy ............................................................................................... $284,947 (representing 53% of 

total $538,916 expense).

$10,501 (representing 1.9% of 

total $538,916 expense). 

Total of Internal Expenses ............................................................... $6,717,544. 

Total Allocated Shared Expenses .................................................... $1,754,513 (representing 61% of total $2,872,232 expense). 

Total External + Internal + Allocated Shared Expenses .......... $10,483,343. 

In its suspension orders, 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 and port costs, 

including how shared costs are 

allocated and attributed to connectivity 

and port expenses, to permit an 

independent review and assessment of 

the reasonableness of purported costbased fees and the corresponding profit 

margin thereon. In response, the 

Exchange provides additional detail 

regarding the identity and nature of 

services provided by third parties, the 

elements that go into connectivity and 

port costs, and how expenses are 

allocated. The Exchange believes this 

additional detail is sufficient to support 

a finding that the proposed fees are 

consistent with the Exchange Act. 

For clarity, the Exchange took a 

conservative approach in determining 

the expense and the percentage of that 

expense to be allocated to providing 

10Gb ULL connectivity and Limited 

Service MEI Ports. The Exchange 

describes below the analysis conducted 

for each expense and the resources or 

determinations that were considered 

when determining the amount necessary 

to allocate to each expense. The 

Exchange notes that, without the 

specific external and internal expense 

items, the Exchange would not be able 

to provide access to its System 

Networks through 10Gb ULL 

connectivity and Limited Service MEI 

Ports. Each of these expense items, 

including physical hardware, software, 

employee compensation and benefits, 

occupancy costs, and the depreciation 

and amortization of equipment, were 

identified through a line-by-line cost 

analysis and determined to be integral 

to providing access to its System 

Networks through 10Gb ULL 

connectivity and Limited Service MEI 

Ports for the reasons discussed below. 

Only a portion of all fees paid to such 

third parties are included in the third 

party expenses described herein, and, 

again, no expense amount is allocated 

twice. For example, the Exchange does 

not allocate its entire information 

technology and communication costs to 

providing access to its System Networks 

through 10Gb ULL connectivity and 

Limited Service MEI Ports because it 

determined that a portion of those costs 

are attributable to other areas of the 

Exchange’s operations, such as 

transaction services, market data, and 

other forms of connectivity offered by 

the Exchange. This may result in the 

Exchange under allocating an expense 

to provide access to its System 

Networks through 10Gb ULL 

connectivity and Limited Service MEI 

Ports, and such expenses may actually 

be higher than what the Exchange 

allocated as part of this proposal.44

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 as compared to prior versions of 

this proposed fee change that were 

previously withdrawn by the Exchange. 

The revised percentages are, among 

other things, the result of the shifting of 

internal resources in response to 

business objectives. Therefore, the 

percentage allocations used in this 

proposed rule change may differ from 

past filings from the Exchange or its 

affiliates due to adjustments to internal 

resource allocations, and different 

system architecture of the Exchange as 

compared to its affiliates.45


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

EMERALD–2021–11) (adopting 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). 

46See supra note 43. 

47 Id. 

48The Investors Exchange, Inc. (‘‘IEX’’) also 

allocated data center costs to produce market data 

based on space utilized. See Securities Exchange 

Act Release No. 94630 (April 7, 2022), 87 FR 21945, 

at page 21949 (April 13, 2022) (SR–IEX–2022–02) 

(‘‘IEX Market Data Fee Proposal’’) (noting that 

‘‘[d]ata Center costs consist of the fees charged by 

the third-party data centers used by IEX and 

represent less than 10% the Exchange’s total data 

center costs based on space utilized’’ (emphasis 

added)). 

The Exchange believes it is reasonable 

to consider the expense and revenue for 

10Gb ULL connectivity and Limited 

Service MEI Ports together because ports 

and connectivity are inextricably linked 

components of the network 

infrastructure, and that both are 

necessary for a market participant to 

access the Exchange. The various types 

of connectivity and port alternatives 

that the Exchange offers provide a wide 

array of access alternatives necessary for 

a market participant to conduct its 

business using the Exchange, which is 

a business decision to be made by each 

particular type of market participant. 

The different types of connectivity and 

port alternatives allows Members to 

conduct their different business 

strategies—some Members put an 

emphasis on speed, while others 

emphasize other strategies, such as 

redundancy and certainty of execution. 

The Exchange does not require a 

Member to have a certain framework for 

accessing the Exchange, but provides 

various connectivity and port 

alternatives for each Member’s distinct 

business lines. 

External Expense Allocations 

For 2022, annual expenses relating to 

fees paid by the Exchange to third 

parties for products and services 

necessary to provide 10Gb ULL 

connectivity and Limited Service MEI 

Ports are estimated to be $2,011,286.46

This includes 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) 

SFTI, which supports connectivity feeds 

for the entire U.S. options industry and 

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) 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.47

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, provide a 

trading platform for market participants, 

and produce and distribute market data. 

The Exchange does not employ a 

separate fee to cover its data center 

expense and recoups that expense, in 

part, by charging for 10Gb ULL 

connectivity and Limited Service MEI 

Ports. 

The Exchange reviewed its data center 

footprint and space utilized, 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, connectivity 

(10Gb ULL and 1Gb ULL separately), 

and ports based on space utilized by 

each area.48 Based on this review, the 

Exchange determined that 62% of the 

total applicable data center provider 

expense is applicable to providing 10Gb 

ULL connectivity and 2.4% Limited 

Service MEI Ports. The Exchange 

reviewed space utilized to house rack 

space, cage usage, servers, switches, 

cabling, storage space, heating and 

cooling of physical space, and 

monitoring, and identified that a small 

portion of that footprint is dedicated to 

equipment used to support 10Gb ULL 

connectivity and Limited Service MEI 

Ports. 

The Exchange believes this allocation 

is reasonable because it represents the 

costs associated with housing the 

Exchange’s equipment dedicated to 

supporting 10Gb ULL connectivity and 

Limited Service MEI Ports. 10Gb ULL 

connectivity and Limited Service MEI 

Ports are core means of access to the 

Exchange’s network, providing several 

methods for market participants to send 

and receive order and trade messages, as 

well as receive market data. A large 

portion of the Exchange’s data center 

expense is due to space utilized to 

provide and maintain connectivity and 

port access to the Exchange’s System 

Networks, including providing cabling 

within the data center between market 

participants and the Exchange. The 

Exchange excluded from this allocation 

servers and space that are dedicated to 

market data. The Exchange also did not 

allocate the remainder of the data center 

expense because it pertains to space 

utilized by other areas of the Exchange’s 

operations, such as 1Gb ULL 

connectivity, other types of ports, 

market data, 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 

System Networks, primary and 

secondary data centers, 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. Fiber connectivity 

is also necessary for personnel 

responsible for overseeing and 

providing customer service related to 

supporting 10Gb ULL connectivity and 

Limited Service MEI Ports, receiving 

relevant data and being able to 

communicate between the Exchange’s 

various locations and data centers. 

Without these services, the Exchange 

would not be able to operate and 

support the network and provide and 

maintain access services and System 

Networks associated with the 10Gb ULL 

connectivity and Limited Service MEI 

Ports to its Members and their 

customers. Without the retention of a 

third party fiber connectivity provider, 

the Exchange would not be able to 


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communicate between its data centers 

and office locations in a manner 

necessary to maintain and support 10Gb 

ULL connectivity and Limited Service 

MEI Ports. Fiber connectivity is a 

necessary integral means to disseminate 

information, including data related to 

supporting 10Gb ULL connectivity and 

Limited Service MEI Ports, from the 

Exchange’s primary data center to other 

Exchange locations. It is necessary for 

Exchange employees located in various 

locations to be able to communicate and 

receive the necessary data to maintain 

and provide customer support related to 

10Gb ULL connectivity and Limited 

Service MEI Ports. The Exchange would 

not be able to operate and support the 

network and provide and maintain 

access services and System Networks 

associated with 10Gb ULL connectivity 

and Limited Service MEI Ports without 

third party fiber connectivity. The 

Exchange does not employ a separate 

fee to cover its fiber connectivity 

expense and recoups that expense, in 

part, by charging for 10Gb ULL 

connectivity and Limited Service MEI 

Ports. 

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. Based on 

this review, the Exchange determined 

that 62% of the total fiber connectivity 

expense was applicable to providing 

and maintaining access services and 

System Networks associated with 10Gb 

ULL connectivity and 1.9% to Limited 

Service MEI Ports. The Exchange 

reviewed its total fiber connectivity 

expense and allocated it among 

transaction services, connectivity, ports, 

market data, and administrative 

operations, based on usage. The 

Exchange then further divided up its 

fiber connectivity costs related to 

connectivity and ports and identified 

the portion that is attributable to 

supporting 10Gb ULL connectivity and 

Limited Service MEI Ports, also based 

on usage. This allocation is, therefore, 

based on the amount of bandwidth and 

fiber connectivity the Exchange 

calculated is utilized to support 

exchange operations, and ongoing 

network monitoring and maintenance 

that are necessary to provide 10Gb ULL 

connectivity and Limited Service MEI 

Ports. The Exchange believes this 

allocation is reasonable because 10Gb 

ULL connectivity and Limited Service 

MEI Ports are core means of access to 

the Exchange’s network, providing 

several methods for market participants 

to send and receive order and trade 

messages, as well as receive market 

data. A large portion of the Exchange’s 

fiber connectivity expense 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. The 

Exchange also excluded from this 

allocation fiber connectivity usage 

related to other business lines, such as 

transaction services, market data, and 

other forms of connectivity offered by 

the Exchange, 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 and 

does not directly relate to providing and 

maintaining access services and System 

Networks associated with 10Gb ULL 

connectivity and Limited Service MEI 

Ports. The Exchange believes this 

allocation is reasonable because it 

represents the Exchange’s cost to 

providing and maintaining access 

services and System Networks 

associated with 10Gb ULL connectivity 

and Limited Service MEI Ports. 

Connectivity and Content Services 

Provided by SFTI and Other Providers 

The Exchange relies on SFTI and 

various other connectivity and content 

service providers for connectivity and 

data feeds for the entire U.S. options 

industry, as well as content, 

connectivity, and infrastructure services 

for critical components of the network 

that are necessary to provide and 

maintain its System Networks and 

access to its System Networks via 10Gb 

ULL connectivity and Limited Service 

MEI Ports. Specifically, the Exchange 

utilizes SFTI and other content service 

provider to connect to other national 

securities exchanges, the Options Price 

Reporting Authority (‘‘OPRA’’), and to 

receive market data from other 

exchanges and market data providers. 

SFTI is operated by the Intercontinental 

Exchange, the parent company of five 

registered exchanges, and has become 

integral to the U.S. markets. The 

Exchange understands SFTI provides 

services to most, if not all, of the other 

U.S. exchanges and other market 

participants. Connectivity and market 

data provided by SFTI and other service 

is critical to the Exchanges daily 

operations and performance of its 

System Networks to which market 

participants connect to via 10Gb ULL 

connectivity and Limited Service MEI 

Ports. Without services from SFTI and 

various other service providers, the 

Exchange would not be able to connect 

to other national securities exchanges, 

market data providers, or OPRA and, 

therefore, would not be able to operate 

and support its System Networks. The 

Exchange does not employ a separate 

fee to cover its SFTI and content service 

provider expense and recoups that 

expense, in part, by charging for 10Gb 

ULL connectivity and Limited Service 

MEI Ports. 

The Exchange reviewed it costs to 

retain SFTI and other content service 

providers, including network 

monitoring and maintenance, 

remediation of connectivity related 

issues, and ongoing administrative 

activities related to connectivity 

management. Based on this review, the 

Exchange determined that 89% of the 

total applicable SFTI and other service 

provider expense is allocated to 

providing and maintaining access 

services and System Networks 

associated with 10Gb ULL connectivity 

and 2.4% to Limited Service MEI Ports. 

The Exchange reviewed its total SFTI 

and other service provider expense and 

allocated it among transaction services, 

connectivity, ports, other market data 

products, and administrative operations, 

based on usage. The Exchange then 

further divided up its SFTI and other 

service provider costs related to 

connectivity and ports and identified 

the portion that is attributable to 

supporting 10Gb ULL connectivity and 

Limited Service MEI Ports, also based 

on usage. This allocation is, therefore, 

based on the amount of SFTI and other 

service provider resources utilized to 

support exchange operations, and 

ongoing network monitoring and 

maintenance that are necessary to 

provide 10Gb ULL connectivity and 

Limited Service MEI Ports. SFTI and 

other content service providers are key 

vendors and necessary components in 

providing access to the Exchange. The 

primary service SFTI provides for the 

Exchange is connectivity to other 

national securities exchanges and their 

disaster recovery facilities and, 

therefore, a vast portion of this expense 

is allocated to providing access to the 

System Networks via 10Gb ULL 

connectivity and Limited Service MEI 

Ports. Connectivity via SFTI is 

necessary for purposes of order routing 

and accessing disaster recovery facilities 

in the case of a system outage. Engaging 

SFTI and other like vendors provides 

purchasers of 10Gb ULL connectivity to 

other national securities exchanges for 

purposes of order routing and disaster 

recovery. The Exchange did not allocate 

a portion of this expense that relates to 

the receipt of market data from other 

national securities exchanges and 


khammond on DSKJM1Z7X2PROD with NOTICES
29936 Federal Register / Vol. 87, No. 95 / Tuesday, May 17, 2022 / Notices 

49The Exchange notes that IEX used a similar 

methodology to allocate hardware costs to market 

data. See supra note 48, IEX Market Data Fee 

Proposal, at page 21950 (noting that ‘‘IEX only 

included hardware specifically dedicated to the 

market data feeds in calculating the costs of 

providing market data’’). 

50For purposes of this allocation, the Exchange 

did not consider expenses related to office space, 

supplies, or equipment use by employees who 

support 10Gb ULL connectivity and Limited 

Service MEI Ports. 

OPRA. 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 and 

maintaining the System Networks or 

access to its System Networks via 10Gb 

ULL connectivity or Limited Service 

MEI Ports, such as transaction services, 

market data, other forms of connectivity 

offered by the Exchange, or unrelated 

administrative services. The Exchange 

believes this allocation is reasonable 

because it represents the Exchange’s 

cost to provide and maintain its System 

Networks and access to its System 

Networks via 10Gb ULL connectivity 

and Limited Service MEI Ports, and not 

any other service, as supported by its 

cost review. 

Hardware and Software Providers 

The Exchange relies on dozens of 

third party hardware and software 

providers for equipment necessary to 

operate its System Networks. This 

includes either the purchase or 

licensing of physical equipment, such as 

servers, switches, cabling, and devices 

needed by Exchange personnel to 

monitor servers and the health 10Gb 

ULL connectivity and Limited Service 

MEI Ports. This consists of real-time 

monitoring of system performance, 

integrity, and latency of 10Gb ULL 

connectivity and Limited Service MEI 

Ports. It also includes the Exchange 

purchasing or licensing software 

necessary for security monitoring, data 

analysis and Exchange operations. 

Hardware and software providers are 

necessary to maintain its System 

Networks and provide access to its 

System Networks via a 10Gb ULL 

connectivity and Limited Service MEI 

Ports. Hardware and software 

equipment and licenses for that 

equipment are also necessary to operate 

and monitor physical assets necessary to 

offer physical connectivity to the 

Exchange. 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 its System 

Networks and provide access to its 

Members and their customers. The 

Exchange does not employ a separate 

fee to cover its hardware and software 

expense and recoups that expense, in 

part, by charging for 10Gb ULL 

connectivity and Limited Service MEI 

Ports. 

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. The Exchange 

then divided those costs among 

transaction services, ports, connectivity, 

market data, and other Exchange 

operations based on whether all of that 

hardware or software is based on usage. 

The Exchange then reviewed the 

amount allocated to connectivity and 

ports generally and what portion of that 

hardware and software equipment or 

license is used to support 10Gb ULL 

connectivity and Limited Service MEI 

Ports specifically. Based on this review, 

the Exchange determined that 51% of 

the total applicable hardware and 

software expense is allocated to 

providing and maintaining access 

services and System Networks 

associated with 10Gb ULL connectivity 

and 1.5% to Limited Service MEI Ports. 

These percentages reflect the amount of 

hardware and software equipment and 

licenses dedicated to support 10Gb ULL 

connectivity and Limited Service MEI 

Ports.49 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 provide 

and maintain access services and 

System Networks associated with 10Gb 

ULL connectivity and Limited Service 

MEI Ports. The Exchange only allocated 

the portion of this expense to the 

hardware and software that is related to 

10Gb ULL connectivity and Limited 

Service MEI Ports, such as operating 

servers and equipment necessary to 

provide and maintain access services 

and System Networks associated with 

10Gb ULL connectivity and Limited 

Service MEI Ports. 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 market data 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 transaction services, market data, and 

other forms of connectivity offered by 

the Exchange, and is not directly relate 

to providing 10Gb ULL connectivity or 

Limited Service MEI Ports. The 

Exchange believes this allocation is 

reasonable because it represents the 

Exchange’s cost to provide and maintain 

access services and System Networks 

associated with 10Gb ULL connectivity 

and Limited Service MEI Ports, and not 

any other service, as supported by its 

cost review. 

Internal Expense Allocations 

For 2022, total internal annual 

expenses relating to the Exchange 

providing and maintaining its System 

Networks and access to its System 

Networks for 10Gb ULL connectivity 

and Limited Service MEI Ports is 

estimated to be $6,717,544. This 

includes costs associated with: (1) 

Employee compensation and benefits 

for full-time employees that support the 

System Networks and access to System 

Networks via 10Gb ULL connectivity 

and Limited Service MEI Ports, 

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 

10Gb ULL connectivity and Limited 

Service MEI Ports, 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 and maintain the 

System Networks and access to System 

Networks via 10Gb ULL connectivity 

and Limited Service MEI Ports. 

Employee Compensation and Benefits 

Human personnel are key to exchange 

operations and supporting the 

Exchange’s ongoing provision of 10Gb 

ULL connectivity and Limited Service 

MEI Ports. The Exchange reviewed its 

employee compensation and benefits 

expense and the portion of that expense 

allocated to providing 10Gb ULL 

connectivity and Limited Service MEI 

Ports. As part of this review, the 

Exchange considered employees whose 

functions include providing and 

maintaining access services and System 

Networks associated with 10Gb ULL 

connectivity and Limited Service MEI 

Ports and used a blended rate of 

compensation reflecting salary, stock 

and bonus compensation, bonuses, 

benefits, payroll taxes, and 401K 

matching contributions.50


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51The Exchange notes that IEX used a similar 

methodology to allocate employee compensation 

related costs to market data. See supra note 48, IEX 

Market Data Fee Proposal, at page 29150 (noting 

that ‘‘[f]or personnel costs, IEX calculated an 

allocation of employee time for employees whose 

functions include providing and maintaining IEX 

Data and/or the proprietary market data feeds used 

to transmit IEX Data, and used a blended rate of 

compensation reflecting salary, stock and bonus 

compensation, benefits, payroll taxes, and 401(k) 

matching contributions’’). 

In its suspension orders, the 

Commission asked the Exchange 

provide more detail about the 

methodology the Exchange used to 

determine how much of an employee’s 

time is devoted to connectivity and port 

related activities. In considering the cost 

of personnel, the Exchange generally 

considered the time spent on various 

access service projects and initiatives 

through project management tracking 

tools and analysis of employee resource 

allocations, among its Technology Team 

in the following areas: Technical 

Operations, Software Engineering, 

Quality Assurance, and Infrastructure. 

The Exchange did not consider nonTechnology Teams such as Market 

Operations, Project Management, 

Regulatory, Legal, and Accounting/ 

Finance.51

Based on this review, the Exchange 

determined to allocate $4,175,554 in 

combined employee compensation and 

benefits expense to provide and 

maintain access services and System 

Networks associated with 10Gb ULL 

connectivity and Limited Service MEI 

Ports. This is only a portion of the 

$9,900,032 total projected expense for 

employee compensation and benefits. 

Of that total, the Exchange allocated 

approximately 33% of the total 

applicable employee compensation and 

benefits expense to providing and 

maintaining access services and System 

Networks associated with 10Gb ULL 

connectivity and 9.3% to Limited 

Service MEI Ports. The Exchange 

determined the cost allocation for 

employees who perform work in 

support of providing and maintaining 

access services and System Networks 

associated with 10Gb ULL connectivity 

and Limited Service MEI Ports to arrive 

at full time equivalents (‘‘FTE’’) of 9.9 

FTEs across all the identified personnel 

related to 10Gb ULL connectivity and 

2.8 FTEs across all the identified 

personnel related to Limited Service 

MEI Ports. The Exchange then 

multiplied the FTE times a blended 

compensation rate for all relevant 

Exchange personnel to determine the 

personnel costs associated with 

providing and maintaining access 

services and System Networks 

associated with 10Gb ULL connectivity 

and Limited Service MEI Ports. Senior 

staff also reviewed these time 

allocations with department heads and 

team leaders to determine whether those 

allocations were appropriate. These 

employees are critical to the Exchange 

to providing and maintaining access 

services and System Networks 

associated with 10Gb ULL connectivity 

and Limited Service MEI Ports. The 

Exchange determined the above 

allocation based on the personnel whose 

work focused on functions necessary to 

providing and maintaining access 

services and System Networks 

associated with 10Gb ULL connectivity 

and Limited Service MEI Ports. The 

Exchange does not charge a separate fee 

regarding employees who support 10Gb 

ULL connectivity and Limited Service 

MEI Ports and the Exchange seeks to 

recoup those expenses, in part, by 

charging for 10Gb ULL connectivity and 

Limited Service MEI Ports. 

The Exchange believes it is 

appropriate to include incentive 

compensation in the blended personnel 

compensation rate on the same basis as 

other personnel costs for in-scope 

employees because incentive 

compensation is a part of the total 

personnel costs associated with the 

Exchange’s provision of 10Gb ULL 

connectivity and Limited Service MEI 

Ports. Moreover, the Exchange notes 

that it has taken a conservative 

approach in determining which 

employees to include in its cost 

analysis, in terms of function and 

percent allocation, so that the included 

personnel costs are directly and closely 

tied to the costs of providing 10Gb ULL 

connectivity and Limited Service MEI 

Ports. The FTE allocation represents just 

42.2% of the Exchange’s overall 

personnel costs. Consistent with the 

Exchange’s conservative methodology to 

limit costs allocated to 10Gb ULL 

connectivity and Limited Service MEI 

Ports, this approach includes only a de 

minimis personnel cost allocation for 

senior level executives and no 

allocation for members of the 

Exchange’s board of directors. 

Accordingly, the Exchange believes that 

the allocated personnel expenses 

included are appropriately attributable 

to 10Gb ULL connectivity and Limited 

Service MEI Ports. 

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 access services and System 

Networks associated with 10Gb ULL 

connectivity and Limited Service MEI 

Ports. 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 10Gb ULL connectivity 

and Limited Service MEI Ports, 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 and 

depreciated or leased over periods 

ranging from three to five years. Based 

on the Exchange’s experience, this 

depreciation period equals the typical 

life expectancy of those assets. In 

determining the amount of depreciation 

and amortization to apply to providing 

and maintaining access services and 

System Networks associated with 10Gb 

ULL connectivity and Limited Service 

MEI Ports, the Exchange considered the 

depreciation of hardware and software 

that are key to the operation of the 

Exchange and its provision of 10Gb ULL 

connectivity and Limited Service MEI 

Ports. 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 provide and 

maintain access services and System 

Networks associated with 10Gb ULL 

connectivity and Limited Service MEI 

Ports. Without them, market 

participants would not be able to access 

the Exchange. The Exchange seeks to 

recoup a portion of its depreciation 

expense by charging for 10Gb ULL 

connectivity and Limited Service MEI 

Ports. 

Based on this review, the Exchange 

determined to allocate $2,246,542 in 

combined depreciation and 

amortization expense to providing and 

maintaining access services and System 

Networks associated with 10Gb ULL 

connectivity and Limited Service MEI 

Ports. This is only a portion of the 

$3,363,841 total projected expense for 

depreciation and amortization. This 

allocation represents approximately 

64.3% of the total applicable 

depreciation expense to providing and 

maintaining access services and System 

Networks associated with 10Gb ULL 

connectivity and 2.4% to Limited 

Service MEI Ports. For purposes of the 

allocation of these costs to 10Gb ULL 

connectivity and Limited Service MEI 

Ports, the Exchange allocates the annual 

depreciation (i.e., one-third or one-fifth 

of the initial asset value based on the 

typical life expectancy of those assets). 

One-third or one-fifth of the cost of each 

asset is included in the annual costs 

allocated to 10Gb ULL connectivity and 

Limited Service MEI Ports. The 


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52The Exchange notes that IEX used a similar 

methodology to allocate hardware costs to market 

data. See supra note 48, IEX Market Data Fee 

Proposal at note 54, at page 21950 (noting that 

‘‘[h]ardware is depreciated on a straight-line threeyear period, which in IEX’s experience, is equal to 

the typical life expectancy of those assets. As noted 

above, one-third of the cost of each hardware asset 

is included in the annual costs allocated to market 

data. IEX only included hardware specifically 

dedicated to the market data feeds in calculating the 

costs of providing market data. This means that 

physical assets used for both order entry and market 

data were excluded from the calculation’’). 

53For the avoidance of doubt, the Exchange did 

not include within this cost any portion of its costs 

related to third party fiber connectivity used by 

Exchange staff in different office locations to 

communicate as part of their role in supporting 

10Gb ULL connectivity and Limited Service MEI 

Ports. 

Exchange only included assets 

specifically dedicated to 10Gb ULL 

connectivity and Limited Service MEI 

Ports in calculating the costs of 

providing 10Gb ULL connectivity and 

Limited Service MEI Ports. This means 

that physical assets used for such as 

transaction services, market data, other 

forms of connectivity offered by the 

Exchange, or other Exchange operations 

were excluded from the calculation.52

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 market data, unrelated 

administrative services, or other 

connectivity or ports offered by the 

Exchange. All of the expenses outlined 

in this proposed fee change refer to the 

operating expenses of the Exchange. In 

the suspension orders, the Commission 

asked for additional detail or 

explanation to ensure that no expense 

amount is allocated twice. The 

Exchange did not included any future 

capital expenditures within these costs 

ensuring that no cost is counted twice. 

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 to System Networks via 

10Gb ULL connectivity and Limited 

Service MEI Ports. 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 access services and System 

Networks associated with 10Gb ULL 

connectivity and Limited Service MEI 

Ports. Similarly, the Exchange also 

considered the actual physical space 

used to house hardware and other 

equipment necessary to provide and 

maintain the 10Gb ULL connectivity 

and Limited Service MEI Ports. The 

Exchange maintains staff that support 

10Gb ULL connectivity and Limited 

Service MEI Ports in various locations 

and needs to provide workplaces for 

that staff as well as space to house 

hardware and equipment necessary for 

those employees to perform those 

functions.53 This equipment includes 

computers, servers, and accessories 

necessary to support the access to the 

System Networks via 10Gb ULL 

connectivity and Limited Service MEI 

Ports. Based on this review, the 

Exchange determined to allocate 

$295,448 of its combined occupancy 

expense to providing and maintaining 

access services and System Networks 

associated with 10Gb ULL connectivity 

and Limited Service MEI Ports. 

According to the Exchange’s 

calculations, it allocated approximately 

53% of the total applicable occupancy 

expense to providing and maintaining 

access services and System Networks 

associated with 10Gb ULL connectivity 

and 1.93% to Limited Service MEI 

Ports. This is only a portion of the 

$538,916 total projected expense for 

occupancy. 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 10Gb ULL connectivity and 

Limited Service MEI Ports. 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 

providing and maintaining access 

services and System Networks 

associated with 10Gb ULL connectivity 

and Limited Service MEI Ports as 

without these general shared costs, the 

Exchange would not be able to operate 

in the manner that it does. 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 combined 

expense allocated to 10Gb ULL 

connectivity and Limited Service MEI 

Ports is estimated to be $1,754,513. This 

represents approximately 61% of the 

$2,872,232 total projected general 

shared combined expense. 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 10Gb 

ULL connectivity and Limited Service 

MEI Ports, the Exchange analyzed the 

number of Members and non-Members 

currently utilizing 10Gb ULL 

connectivity and Limited Service MEI 

Ports 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 fees, 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 external expenses, as well 

as because the Exchange is committing 

to review this cost analysis for these fees 

on an annual basis going forward. 

For March 2022, prior to the proposed 

fees, the Exchange had 102 10Gb ULL 

connections and 877 Limited Service 

MEI Ports purchased, for which the 

Exchange charged a total of $1,045,839 

(including charges for connections that 

were dropped or added mid-month, 

resulting in pro-rated charges). This 

resulted in a profit of $172,227 for that 


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54The Exchange notes that the number of 

subscribers of 10Gb ULL connections and Limited 

Service MEI Ports may change over time. For 

example, from June 2021 to April 2022, the 

Exchange had the following number of subscribers 

of 10Gb ULL connectivity per month: June (97); July 

(98); August (104); September (97); October (100); 

November (102); December (104); January (98); 

February (100); March (102); April (98). From June 

2021 to April 2022, the Exchange had the following 

number of Limited Service MEI Ports utilized per 

month: June (601); July (625); August (825); 

September (828); October (864); November (840); 

December (840); January (864); February (850); 

March (877); April (841). 

55See supra note 33. 

56The 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/. 

month (a profit margin of 16%). For 

April 2022, the Exchange anticipates 

that 98 10Gb ULL connections and 841 

Limited Service MEI Ports will be 

charged for (as of the date of this 

filing).54 Assuming the Exchange 

charges its proposed monthly rate of 

$12,000 per 10Gb ULL fiber connection 

and the proposed tiered-pricing rates for 

Limited Service MEI Ports, the 

Exchange would generate revenue of 

$1,374,100 for April 2022 (not including 

potential pro-rated connection charges 

for mid-month connections) for 10Gb 

ULL connectivity and Limited Service 

MEI Port fees combined. This would 

result in a profit of $500,488 ($1,374,100 

minus $873,612) for April (a 36.4% 

profit margin). As discussed above, the 

Exchange believes it is reasonable to 

consider the expense and revenue for 

10Gb ULL connectivity and Limited 

Service MEI Ports together because ports 

and connectivity are inextricably linked 

components of the network 

infrastructure, and that both are 

necessary for a market participant to 

access the Exchange. 

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 

profit margin may also fluctuate from 

month to month based on the 

uncertainty of predicting how many 

connections and ports may be 

purchased from month to month as 

Members and non-Members are free to 

add and drop connections and ports at 

any time based on their own business 

decisions. 

The Exchange believes the proposed 

profit margin is reasonable and will not 

result in a ‘‘supra-competitive’’ profit. 

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

exceed the profits that can be obtained 

in a competitive market.’’ 55 Until 

recently, the Exchange has operated at 

a cumulative net annual loss since it 

launched operations in 2019.56 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 connectivity, 

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 should 

not now be penalized for seeking to 

raise it fees to near market rates after 

offering such products as discounted 

prices. Therefore, the Exchange believes 

the proposed fees are reasonable 

because they are based on both relative 

costs to the Exchange to provide 10Gb 

ULL connectivity and Limited Service 

MEI Ports, the extent to which the 

product drives the Exchange’s overall 

costs and the relative value of the 

product, as well as the Exchange’s 

objective to make access to its Systems 

broadly available to market participants. 

The Exchange also believes the 

proposed fees are reasonable because 

they are designed to generate annual 

revenue to recoup the Exchange’s costs 

of providing 10Gb ULL connectivity and 

Limited Service MEI Ports. 

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 10Gb ULL 

connectivity and Limited Service MEI 

Ports, the Exchange will have to be 

successful in retaining existing clients 

that wish to utilize 10Gb ULL 

connectivity and Limited Service MEI 

Ports or obtaining new clients that will 

purchase such access. To the extent the 

Exchange is successful in encouraging 

new clients to utilize 10Gb ULL 

connectivity and Limited Service MEI 

Ports, 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 this proposal 

demonstrates this fact. 

Further, the proposed profit margin 

reflects the Exchange’s efforts to control 

its costs. A profit margin should not be 

judged alone based on its size, but 

whether the ultimate fee reflects the 

value of the services provided and is in 

line with other exchanges. A profit 

margin on one exchange should not be 

deemed excessive where that exchange 

has been successful in controlling costs, 

but not excessive where an exchange is 

charging the same fee but has a lower 

profit margin due to higher costs. 

The expected profit margin is 

reasonable because the Exchange offers 

a premium System Network, System 

Networks connectivity, and a highly 

deterministic trading environment. The 

Exchange is recognized as a leader in 

network monitoring, determinism, risk 

protections, and network stability. For 

example, the Exchange experiences 

approximately a 95% determinism rate, 

system throughput of approximately 18 

million quotes and average round trip 

latency rate of approximately 18 

microseconds for a single quote. The 

Exchange provides extreme performance 

and radical scalability designed to 

match the unique needs of trading 

differing asset class/market model 

combinations. The Exchange’s systems 

offer two customer interfaces, FIX 

gateway for orders, and ultra-low 

latency MEI interface and data feeds 

with best-in-class wire order 

determinism. The Exchange also offers 

automated continuous testing to ensure 

high reliability, advanced monitoring 

and systems security, and employs a 

software architecture that results in 

minimizing the demands on power, 

space, and cooling while allowing for 

rapid scalability, resiliency and fault 

isolation. The Exchange also provides 

latency equalized cross-connects in the 

primary data center ensures fair and 

cost efficient access to the Exchange’s 

Systems. The Exchange, therefore, 

believes the anticipated profit margin is 

reasonable because it reflects the 

Exchange’s cost controls and the quality 

of the Exchange’s systems. 

Finally, the Exchange believes that 

the proposed fees are reasonable 

because they will not impose onerous 

audit requirements on subscribers, 


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57See supra note 17. 

58See supra note 18. 

59See supra note 17. 

60See supra note 20. 

61See supra note 17. 

62See supra note 22. 

63See supra note 17. 

64See supra note 24. 

65See supra note 17. 

66See Specialized Quote Interface Specification, 

Nasdaq PHLX, Nasdaq Options Market, Nasdaq BX 

Options, Version 6.5a, Section 2, Architecture 

(revised August 16, 2019), available at http://

www.nasdaqtrader.com/content/technicalsupport/ 

specifications/TradingProducts/SQF6.5a-2019- 

Aug.pdf. The Exchange notes that it is unclear 

whether the NASDAQ exchanges include 

connectivity to each matching engine for the single 

fee or charge per connection, per matching engine. 

See also NYSE Technology FAQ and Best Practices: 

Options, Section 5.1 (How many matching engines 

are used by each exchange?) (September 2020). The 

Exchange notes that NYSE provides a link to an 

Excel file detailing the number of matching engines 

per options exchange, with Arca and Amex having 

19 and 17 matching engines, respectively. 

because there will be no need to 

substantiate the number of users of 

10Gb ULL connectivity and Limited 

Service MEI Ports or the manner in 

which it is being used. 

Annual Review of Fees 

In its suspension orders, the 

Commission asks whether exchanges 

should periodically reevaluate fees on 

an ongoing and periodic basis in order 

to assure that actual revenue aligns with 

a reasonable cost-plus model. As 

described above and as part of this 

proposed rule change, the Exchange is 

committing to conduct a one year 

review of the fees that are cost justified 

as part of this proposed rule change 

after the date of this proposal, and 

annually thereafter. The Exchange 

expects that it may propose to adjust 

fees at that time, either to increase fees 

in the event that revenues fail to 

reasonably cover costs at the estimated 

margin set forth below [sic], or to 

decrease fees in the event that revenue 

materially exceeds the Exchange’s 

current projections. In the event that the 

Exchange determines to propose a fee 

change, updated cost estimates will be 

included in a rule filing proposing the 

fee change. The Exchange believes this 

approach will further increase 

transparency around market data costs 

and help to ensure that Exchange fees 

continue to be reasonably related to 

costs. 

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 options exchanges’ costs to 

provide connectivity and port access or 

their fee markup over those costs, and 

therefore cannot use other exchange’s 

connectivity and port fees as 

benchmarks to determine a reasonable 

markup over the costs of providing such 

access. Nevertheless, the Exchange 

believes the other exchanges’ 10Gb 

connectivity and port fees are useful 

examples of alternative approaches to 

providing and charging for access 

notwithstanding that the competing 

exchanges may have different system 

architectures that may result in different 

cost structures for the provision of 

connectivity and ports. To that end, the 

Exchange believes the proposed fees are 

reasonable because the proposed fees 

are similar to or less than fees charged 

for similar connectivity and port access 

provided by other options exchanges 

with comparable market shares. 

As described in the table below, the 

Exchange’s proposed fees remain 

similar to or less than fees charged for 

similar connectivity and port access 

provided by other options exchanges 

with similar market share. In the each 

of the below 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. 

Exchange Type of connection or port Monthly fee 

(per connection or per port) 

MIAX Emerald (as proposed) (equity options market share of 

4.49% as of April 12, 2022 for the month of April) 57.

10Gb ULL connection ...............

Limited Service MEI Port ..........

$12,000. 

1–2 ports. FREE (not changed in this proposal). 

3–4 ports. $200. 

5–6 ports. $300. 

7 or more ports. $400. 

NASDAQ 58 (equity options market share of 8.31% as of April 12, 

2022 for the month of April) 59.

10Gb Ultra fiber connection ......

SQF Port ...................................

$15,000. 

1–5 ports. $1,500. 

6–20 ports. $1,000. 

21 or more ports. $500. 

ISE60 (equity options market share of 5.28% as of April 12, 2022 

for the month of April) 61.

10Gb Ultra fiber connection ......

SQF Port ...................................

$15,000. 

$1,100. 

NYSE American 62 (equity options market share of 7.86% as of 

April 12, 2022 for the month of April) 63.

10Gb LX LCN connection .........

Order/Quote Entry Port .............

$22,000. 

Ports 1–40. $450. 

Ports 41 and greater. $150. 

GEMX64 (equity options market share of 2.31% as of April 12, 

2022 for the month of April) 65.

10Gb Ultra connection ..............

SQF Port ...................................

$15,000. 

$1,250. 

The Proposed Pricing Is Not Unfairly 

Discriminatory and Provides for the 

Equitable Allocation of Fees, Dues, and 

Other Charges 

The Exchange believes that the 

proposed fees are reasonable, fair, 

equitable, and not unfairly 

discriminatory because they are 

designed to align fees with services 

provided and will apply equally to all 

subscribers. 

10Gb ULL Connectivity 

The Exchange believes that the 

proposed fees are reasonable, equitably 

allocated and not unfairly 

discriminatory because, for one 10Gb 

ULL connection, the Exchange provides 

each Member or non-Member access to 

all twelve (12) matching engines on 

MIAX Emerald and a vast majority 

choose to connect to all twelve (12) 

matching engines. The Exchange 

believes that other exchanges require 

firms to connect to multiple matching 

engines.66 For the foregoing reasons, the 

Exchange believes that the proposed 

fees are reasonable, equitably allocated, 

and not unfairly discriminatory. 

The Exchange believes that the 

proposed fees are equitably allocated 

among users of the network connectivity 

and port alternatives, as the users of 

10Gb ULL connections consume the 

more bandwidth and network resources 

than users of 1Gb ULL connection. 


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67 17 CFR 240.17a–1 (recordkeeping rule for 

national securities exchanges, national securities 

associations, registered clearing agencies and the 

Municipal Securities Rulemaking Board). 

68The Exchange notes that no firm utilized five 

to six Limited Service Ports in April 2022. 

69 17 CFR 240.17a–1 (recordkeeping rule for 

national securities exchanges, national securities 

associations, registered clearing agencies and the 

Municipal Securities Rulemaking Board). 

Specifically, the Exchange notes that 

10Gb ULL connection users account for 

approximately more than 99% of 

message traffic over the network, while 

the users of the 1Gb ULL connections 

account for approximately less than 1% 

of message traffic over the network. In 

the Exchange’s experience, users of the 

1Gb connections do not have a business 

need for the high performance network 

solutions required by 10Gb ULL users. 

The Exchange’s high performance 

network solutions and supporting 

infrastructure (including employee 

support), provides unparalleled system 

throughput and the capacity to handle 

approximately 18 million quote 

messages per second. On an average 

day, the Exchange handles over 

approximately 3 billion total messages. 

Of those, users of the 10Gb ULL 

connections generate approximately 3 

billion messages, and users of the 1Gb 

connections generate 500,000 messages. 

To achieve a consistent, premium 

network performance, the Exchange 

must build out and maintain a network 

that has the capacity to handle the 

message rate requirements of its most 

heavy network consumers. These 

billions of messages per day consume 

the Exchange’s resources and 

significantly contribute to the overall 

network connectivity expense for 

storage and network transport 

capabilities. The Exchange must also 

purchase additional storage capacity on 

an ongoing basis to ensure it has 

sufficient capacity to store these 

messages as part of it surveillance 

program and to satisfy its record 

keeping requirements under the 

Exchange Act.67 Thus, as the number of 

messages an entity increases, certain 

other costs incurred by the Exchange 

that are correlated to, though not 

directly affected by, connection costs 

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

service expenses) also increase. Given 

this difference in network utilization 

rate, the Exchange believes that it is 

reasonable, equitable, and not unfairly 

discriminatory that the 10Gb ULL users 

pay for the vast majority of the shared 

network resources from which all 

market participants’ benefit. 

The Exchange also believes that the 

connectivity fees are equitably allocated 

amongst users of the network 

connectivity alternatives, when these 

fees are viewed in the context of the 

overall trading volume on the Exchange. 

To illustrate, the purchasers of the 10Gb 

ULL connectivity account for 

approximately 95.8% of the volume on 

the Exchange. This overall volume 

percentage (95.8% of total Exchange 

volume) is in line with the amount of 

network connectivity revenue collected 

from 10Gb ULL purchasers (99.8% of 

total Exchange connectivity revenue). 

For example, utilizing a recent billing 

cycle, Exchange Members and nonMembers that purchased 10Gb ULL 

connections accounted for 

approximately 99.8% of the total 

network connectivity revenue collected 

by the Exchange from all connectivity 

alternatives; and Members and nonMembers that purchased 1Gb 

connections accounted for 

approximately 0.2% of the revenue 

collected by the Exchange from all 

connectivity alternatives. 

Limited Service MEI Ports 

The Exchange believes that the 

proposed fees are equitably allocated 

among users of the network connectivity 

alternatives, as the users of the Limited 

Service MEI Ports consume the most 

bandwidth and resources of the 

network. Specifically, like above for the 

10Gb ULL connectivity, the Exchange 

notes that the Market Makers who take 

the maximum amount of Limited 

Service MEI Ports account for 

approximately greater than 99% of 

message traffic over the network, while 

Market Makers with fewer Limited 

Service MEI Ports account for 

approximately less than 1% of message 

traffic over the network. In the 

Exchange’s experience, Market Makers 

who only utilize the two free Limited 

Service MEI Ports do not have a 

business need for the high performance 

network solutions required by Market 

Makers who take the maximum amount 

of Limited Service MEI Ports. The 

Exchange’s high performance network 

solutions and supporting infrastructure 

(including employee support), provides 

unparalleled system throughput and the 

capacity to handle approximately 18 

million quote messages per second. On 

an average day, the Exchange handles 

over approximately 7.5 billion total 

quotes. Of that total, Market Makers 

with the maximum amount of Limited 

Service MEI Ports generate 

approximately 5 billion messages, and 

Market Makers who utilize the two free 

Limited Service MEI Ports generate 

approximately 1.8 billion messages. 

Specifically, Market Makers who utilize 

only one to two Limited Service MEI 

ports for free submitted an average of 

375,821,358 quotes per day for the 

month of April 2022. Also for April 

2022, Market Makers who utilized three 

to four Limited Service MEI ports 

submitted an average of 533,527,402 

quotes per day and Market Makers who 

utilized seven or more Limited Service 

MEI ports submitted an average of 

1,056,292,513 quotes per day.68

To achieve a consistent, premium 

network performance, the Exchange 

must build out and maintain a network 

that has the capacity to handle the 

message rate requirements of its most 

heavy network consumers. These 

billions of messages per day consume 

the Exchange’s resources and 

significantly contribute to the overall 

network connectivity expense for 

storage and network transport 

capabilities. The Exchange must also 

purchase additional storage capacity on 

an ongoing basis to ensure it has 

sufficient capacity to store these 

messages as part of it surveillance 

program and to satisfy its record 

keeping requirements under the 

Exchange Act.69 Thus, as the number of 

connections a Market Maker has 

increases, certain other costs incurred 

by the Exchange that are correlated to, 

though not directly affected by, 

connection costs (e.g., storage costs, 

surveillance costs, service expenses) 

also increase. The Exchange sought to 

design the proposed tiered-pricing 

structure to set the amount of the fees 

to relate to the number of connections 

a firm purchases. The more connections 

purchased by a Market Maker likely 

results in greater expenditure of 

Exchange resources and increased cost 

to the Exchange. With this in mind, the 

Exchange proposes no fee or lower fees 

for those Market Makers who receive 

fewer Limited Service MEI Ports since 

those Market Makers generally tend to 

send the least amount of orders and 

messages over those connections. Given 

this difference in network utilization 

rate, the Exchange believes that it is 

reasonable, equitable, and not unfairly 

discriminatory that Market Makers who 

take the most Limited Service MEI Ports 

pay for the vast majority of the shared 

network resources from which all 

Member and non-Member users benefit, 

but is designed and maintained from a 

capacity standpoint to specifically 

handle the message rate and 

performance requirements of those 

Market Makers. 

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 


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70See supra note 56. 

71 15 U.S.C. 78s(b)(3)(C). 

72 15 U.S.C. 78s(b)(1). 

73See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose 

of, and Statutory Basis for, the Proposed Rule 

Change’’). 

74See id. 

75 15 U.S.C. 78f(b)(4). 

76 15 U.S.C. 78f(b)(5). 

77 15 U.S.C. 78f(b)(8). 

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

respectively. 

79For 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). 

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 

10Gb ULL connectivity and Limited 

Service MEI Ports at below market rates 

to market participants since the 

Exchange launched operations. As 

described above, the Exchange has 

operated at a cumulative net annual loss 

since it launched operations in 2019 70

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. Examples of this are 10Gb 

ULL connectivity and Limited Service 

MEI Ports, for which the Exchange only 

now seeks to adopt fees at a level 

similar to or lower than those of other 

options exchanges. 

Further, the Exchange does not 

believe that the proposed fee increase 

for the 10Gb ULL connection change 

would place certain market participants 

at the Exchange at a relative 

disadvantage compared to other market 

participants or affect the ability of such 

market participants to compete. As is 

the case with the current proposed flat 

fee, the proposed fee would apply 

uniformly to all market participants 

regardless of the number of connections 

they choose to purchase. The proposed 

fee does not favor certain categories of 

market participants in a manner that 

would impose an undue burden on 

competition. 

Inter-Market Competition 

The Exchange also does not believe 

that the proposed rule change will result 

in any burden on inter-market 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. As discussed 

above, options market participants are 

not forced to connect to all options 

exchanges. There is no reason to believe 

that our proposed price increase will 

harm another exchange’s ability to 

compete. There are other options 

markets of which market participants 

may connect to trade options. There is 

also a possible range of alternative 

strategies, including routing to the 

exchange through another participant or 

market center or accessing the Exchange 

indirectly. Market participants are free 

to choose which exchange or reseller to 

use to satisfy their business needs. 

Accordingly, the Exchange does not 

believe its proposed fee changes impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

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,71 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,72 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. 

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.73 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.’’ 74

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; 75 (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; 76 and (3) not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.77

In temporarily suspending the 

Exchange’s fee change, the Commission 

intends to further consider whether the 

proposed fees are consistent with the 

statutory requirements applicable to a 

national securities exchange under the 

Act. In particular, the Commission will 

consider whether the proposed rule 

change satisfies the standards under the 

Act and the rules thereunder requiring, 

among other things, that an exchange’s 

rules provide for the equitable 

allocation of reasonable fees among 

members, issuers, and other persons 

using its facilities; not be designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers; 

and do not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.78

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.79

IV. Proceedings To Determine Whether 

To Approve or Disapprove the 

Proposed Rule Change 

The Commission is instituting 

proceedings pursuant to Sections 


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80 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. 

81 15 U.S.C. 78s(b)(2)(B). 

82 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the 

Act also provides that proceedings to determine 

whether to disapprove a proposed rule change must 

be concluded within 180 days of the date of 

publication of notice of the filing of the proposed 

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

proceedings may be extended for up to 60 days if 

the Commission finds good cause for such 

extension and publishes its reasons for so finding, 

or if the exchange consents to the longer period. See 

id. 

83 15 U.S.C. 78f(b)(4). 

84 15 U.S.C. 78f(b)(5). 

85 15 U.S.C. 78f(b)(8). 

86See supra Section II.A.2. 

87See id. 

88See id. 

89See id. 

90See id. 

91See id. 

92See id. 

93See id. 

94See id. 

95See id. 

19(b)(3)(C) 80 and 19(b)(2)(B) 81 of the 

Act to determine whether the 

Exchange’s proposed rule change 

should be approved or disapproved. 

Institution of such proceedings is 

appropriate at this time in view of the 

legal and policy issues raised by the 

proposed rule change. Institution of 

proceedings does not indicate that the 

Commission has reached any 

conclusions with respect to any of the 

issues involved. Rather, as described 

below, the Commission seeks and 

encourages interested persons to 

provide comments on the proposed rule 

change to inform the Commission’s 

analysis of whether to approve or 

disapprove the proposed rule change. 

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

Act,82 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),83 6(b)(5),84 and 6(b)(8) 85 of the 

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

that the rules of a national securities 

exchange provide for the equitable 

allocation of reasonable dues, fees, and 

other charges among its members and 

issuers and other persons using its 

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

requires that the rules of a national 

securities exchange be designed, among 

other things, to promote just and 

equitable principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest, and not be designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

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

the rules of a national securities 

exchange not impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

The Commission asks that 

commenters address the sufficiency of 

the Exchange’s statements in support of 

the proposal, in addition to any other 

comments they may wish to submit 

about the proposed rule change. In 

particular, the Commission seeks 

comment on the following aspects of the 

proposal and asks commenters to 

submit data where appropriate to 

support their views: 

1. Cost Estimates and Allocation. The 

Exchange states that it is not asserting 

that the proposed fees are constrained 

by competitive forces.86 Rather, the 

Exchange states that its proposed fees 

are based on a ‘‘cost-plus model,’’ 

employing a ‘‘conservative approach,’’ 

and that the expenses are ‘‘directly 

related’’ to 10Gb ULL connectivity and 

Limited Service MEI Ports, and not any 

other product or service offered by the 

Exchange.87 In explaining its costs, 

should the Exchange identify more 

specifically which, if any, of its costs are 

incurred solely to provide 10Gb ULL 

connectivity and solely to provide 

Limited Service MEI Ports? Regarding 

the allocations provided by the 

Exchange as described in greater detail 

above, do commenters believe that the 

Exchange provided sufficient detail 

about how it determined these 

allocations and why they are 

reasonable? 88 Why or why not? Do 

commenters believe that the Exchange 

provided sufficient context to permit an 

independent review and assessment of 

the reasonableness of the allocations? 

Do commenters believe that the 

Exchange provided sufficient detail or 

explanation to support its claim that 

‘‘no expense amount is allocated 

twice,’’ 89 whether among the subcategories of expenses in this filing, 

across the Exchange’s fee filings for 

other products or services, or over time? 

2. Revenue Estimates and Profit 

Margin Range. The Exchange uses a 

single monthly revenue figure (April 

2022) as the basis for calculating its 

projected combined profit margin of 

36.4%.90 The Exchange argues that 

projecting revenues on a per month 

basis is reasonable ‘‘as the revenue 

generated from access services subject to 

the proposed fee generally remains 

static from month to month.’’ 91 Yet the 

Exchange also acknowledges that ‘‘profit 

margin may also fluctuate from month 

to month based on the uncertainty of 

predicting how many connections and 

ports may be purchased from month to 

month as Members and non-Members 

are free to add and drop connections 

and ports at any time based on their 

own business decisions.’’ 92 Do 

commenters believe a single month 

provides a reasonable basis for a 

revenue projection? If not, why not? 

Should the Exchange provide a range of 

profit margins that it believes are 

reasonably possible, and the reasons 

therefor? The Exchange also provided 

its baseline by analyzing March 2022.93

Do commenters believe that March 2022 

is an appropriate month for a baseline? 

What are commenters’ views on the 

Exchange providing a combined profit 

margin for both 10Gb ULL connectivity 

and Limited Service MEI Ports, rather 

than separate margins for each? 

3. Reasonableness. The Exchange 

states that its proposed fees are 

‘‘reasonable because they will permit 

recovery of the Exchange’s costs in 

providing access services to supply 

10Gb ULL connectivity and Limited 

Service MEI Ports and will not result in 

the Exchange generating a supracompetitive profit.’’ 94 The Exchange 

offers several justifications for why its 

estimated profit margin (which is 

blended and not discussed separately 

for each service) is not a supracompetitive profit, including: (a) When 

it launched operations in 2019, it chose 

to forgo revenue by offering certain 

products at lower rates than other 

options exchanges to attract order flow; 

(b) the Exchange has been successful in 

controlling its costs; (c) a profit margin 

should not be judged alone based on its 

size, but on whether the ultimate fee 

reflects the value of the services 

provided, and (d) the Exchange’s 

proposed fees remain similar to or less 

than fees charged for access provided by 

other options exchanges with similar 

market share. Do commenters agree that 

these factors are relevant to assessment 

of whether the fees are reasonable for 

each service? Should such an 

assessment include consideration of any 

factors other than costs; and if so, what 

factors should be considered, and why? 

4. Periodic Reevaluation. The 

Exchange has stated that it will conduct 

a review of the cost-based fees subject 

to this proposal one year after the date 

of the proposal, and annually 

thereafter.95 In light of the impact that 

the number of connections and ports 

purchased has on profit margins, and 


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96See id. 

97See id. 

98See id. 

99See id. 

100See id. 

101 17 CFR 201.700(b)(3). 

102See id. 

103See id. 

104See 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). 

105 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). 

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 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 amounts 

purchased? 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 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? 

5. Tiered Structure for Additional 

Limited Service MEI Ports. The 

Exchange states that the proposed tiered 

fee structure is equitably allocated 

among users of the network connectivity 

alternatives, because users of Limited 

Service MEI Ports ‘‘consume the most 

bandwidth and resources of the 

network.’’ 96 The Exchange states that 

users of the ‘‘maximum amount of 

Limited Service MEI Ports’’ account for 

approximately greater than 99% of 

message traffic over the network, while 

users of ‘‘fewer Limited Service MEI 

Ports’’ account for approximately less 

than 1% of message traffic over the 

network.97 Specifically, the Exchange 

states that Market Makers who utilize 1– 

2, 3–4, or 7 or more Limited Service MEI 

ports submit an average of 375,821,358 

quotes per day, 533,527,402 quotes per 

day, and 1,056,292,513 quotes per day, 

respectively, for the month of April 

2022.98 According to the Exchange, 

these billions of messages per day 

consume the Exchange’s resources and 

significantly contribute to the overall 

network connectivity expense for 

storage and network transport 

capabilities.99 Given this difference in 

network utilization rate, the Exchange 

believes that its tiered structure is 

reasonable, equitable, and not unfairly 

discriminatory.100 Do commenters 

believe that the fees for each tier 

(including the intermediary tiers), as 

well as the fee differences between the 

tiers, are supported by the Exchange’s 

assertions? If not, is there an alternative 

basis on which increased demand by a 

market-making firm on the Exchange’s 

resources would justify a tiered fee 

structure for additional Limited Service 

MEI Ports? 

Under the Commission’s Rules of 

Practice, the ‘‘burden to demonstrate 

that a proposed rule change is 

consistent with the Exchange Act and 

the rules and regulations issued 

thereunder . . . is on the [SRO] that 

proposed the rule change.’’ 101 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,102 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.103 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.104

The Commission believes it is 

appropriate to institute proceedings to 

allow for additional consideration and 

comment on the issues raised herein, 

including as to whether the proposal is 

consistent with the Act, any potential 

comments or supplemental information 

provided by the Exchange, and any 

additional independent analysis by the 

Commission. 

V. Commission’s Solicitation of 

Comments 

The Commission requests written 

views, data, and arguments with respect 

to the concerns identified above as well 

as any other relevant concerns. In 

particular, the Commission invites the 

written views of interested persons 

concerning whether the proposal is 

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

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

Act, or the rules and regulations 

thereunder. The Commission asks that 

commenters address the sufficiency and 

merit of the Exchange’s statements in 

support of the proposal, in addition to 

any other comments they may wish to 

submit about the proposed rule change. 

Although there do not appear to be any 

issues relevant to approval or 

disapproval that would be facilitated by 

an oral presentation of views, data, and 

arguments, the Commission will 

consider, pursuant to Rule 19b–4, any 

request for an opportunity to make an 

oral presentation.105

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposal should be approved or 

disapproved by June 7, 2022. Any 

person who wishes to file a rebuttal to 

any other person’s submission must file 

that rebuttal by June 21, 2022. 

Comments may be submitted by any 

of the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File No. SR– 

EMERALD–2022–19 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

No. SR–EMERALD–2022–19. 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. 


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Federal Register / Vol. 87, No. 95 / Tuesday, May 17, 2022 / Notices 29945 

106 15 U.S.C. 78s(b)(3)(C). 

107 17 CFR 200.30–3(a)(12), (57) and (58). 

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

2 17 CFR 240.19b–4. 

3MIAX Express Interface is a connection to MIAX 

systems that enables Market Makers to submit 

simple and complex electronic quotes to MIAX. See 

Fee Schedule, note 26. 4The term ‘‘Market Makers’’ refers to Lead Market 

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

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

(‘‘RMMs’’) collectively. See Exchange Rule 100. 5See Securities Exchange Act Release No. 90980 

(January 25, 2021), 86 FR 7602 (January 29, 2021) 

(SR–MIAX–2021–02). 

6See Securities Exchange Act Release No. 90981 

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

(SR–PEARL–2021–01). 

7The Exchange notes that MIAX Pearl Options 

will make a similar filing to increase its 10Gb ULL 

connectivity fees. 

8See Securities Exchange Act Release No. 91857 

(May 12, 2021), 86 FR 26973 (May 18, 2021) (SR– 

MIAX–2021–19). 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File No. 

SR–EMERALD–2022–19 and should be 

submitted on or before June 7, 2022. 

Rebuttal comments should be submitted 

by June 21, 2022. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(3)(C) of the Act,106 that 

File No. SR–EMERALD–2022–19 be, 

and hereby is, temporarily suspended. 

In addition, the Commission is 

instituting proceedings to determine 

whether the proposed rule change 

should be approved or disapproved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.107

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–10519 Filed 5–16–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94890; File No. SR–MIAX– 

2022–20] 

Self-Regulatory Organizations; Miami 

International Securities Exchange, 

LLC; Notice of Filing of a Proposed 

Rule Change To Amend Its Fee 

Schedule To Increase Certain 

Connectivity Fees and Adopt a TieredPricing Structure for Additional 

Limited Service MIAX Express 

Interface Ports; Suspension of and 

Order Instituting Proceedings To 

Determine Whether To Approve or 

Disapprove the Proposed Rule Change 

May 11, 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 May 2, 

2022, Miami International Securities 

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

filed with the Securities and Exchange 

Commission (‘‘Commission’’) a 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons and is, 

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

Act, hereby: (i) Temporarily suspending 

the proposed rule change; and (ii) 

instituting proceedings to determine 

whether to approve or disapprove the 

proposed rule change. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing a proposal to 

amend the MIAX Options Fee Schedule 

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

connectivity and port fees. 

The text of the proposed rule change 

is available on the Exchange’s website at 

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

at the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV [sic] below. 

The Exchange has prepared summaries, 

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

of the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend its 

Fee Schedule to increase the fees for a 

10 gigabit (‘‘Gb’’) ultra-low latency 

(‘‘ULL’’) fiber connection and adopt a 

tiered-pricing structure for Limited 

Service MIAX Express Interface (‘‘MEI’’) 

Ports 3 available to Market Makers.4 The 

Exchange last increased the fees for its 

10Gb ULL fiber connections in a filing 

that became effective beginning January 

1, 2021 (subsequently withdrawn and 

refiled one time).5 In that fee change, the 

Exchange increased the fee for 10Gb 

ULL fiber connections from $9,300 to 

$10,000 per month. 

Also, in connection with that fee 

change, the Exchange’s affiliate, MIAX 

PEARL, LLC (‘‘MIAX Pearl Options’’), 

increased its 10Gb ULL connectivity fee 

to $10,000 per month.6 The Exchange 

and MIAX Pearl Options shared a 

combined cost analysis in those filings. 

In those filings, the Exchange and MIAX 

Pearl Options allocated a combined total 

of $17.9 million in expenses to 

providing 10Gb ULL fiber connectivity. 

Since the time of that filing, the 

Exchange and MIAX Pearl Options have 

experienced an increase in expenses, 

particularly regarding internal expenses. 

For example, from January 2021 to 

March 2022 expenses related to 

employee compensation for 10Gb ULL 

connectivity increased from a combined 

$6,892,689 to $7,063,801 and occupancy 

increased from $560,408 to $701,437. In 

addition, from January 2021 to March 

2022, the Exchange’s third party related 

expense increased as well. In January 

2021, the Exchange and MIAX Pearl 

Options allocated a combined 

$4,079,910 of their shared third party 

expenses to providing the 10Gb ULL 

fiber connectivity. As described more 

fully below, the Exchange and MIAX 

Pearl Options are now allocating 

$4,382,307 of their shared third party 

expense to 10Gb ULL fiber connectivity, 

which represents only a portion of the 

total combined third party expense of 

$7,575,888. As discussed more fully 

below, the Exchange and MIAX Pearl 

Options recently calculated the 

combined annual aggregate costs for 

providing 10Gb ULL connectivity, plus 

the cost of providing Limited Service 

MEI Ports (on MIAX only) to be 

$21,407,728, or $1,783,977 per month. 

The Exchange now proposes to amend 

the Fee Schedule to amend the fees for 

10Gb ULL connectivity to recoup these 

ongoing costs and as a result of the 

increase in expenses described above.7

The same is true for its proposal to 

amend its fees for Limited Service MEI 

Ports. Beginning with a series of filings 

first filed on April 9, 2021 (with the 

final filing made May 10, 2021), the 

Exchange removed the cap on the 

number of additional Limited Service 

MEI Ports available to Market Makers 

from the Fee Schedule.8 In that filing, 

the Exchange sought only to remove the 

cap on the number of Limited Service 

MEI Ports a Market Maker may purchase 

from its Fee Schedule. Although the 

Exchange did not modify the fees for 


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