31026 Federal Register / Vol. 87, No. 98 / Friday, May 20, 2022 / Notices 

22 15 U.S.C. 78s(b)(3)(A)(ii). 

23 17 CFR 240.19b–4(f)(2). 

24 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Exchange Rule 1.5(p). 

4The Exchange received one comment letter on 

the Initial Proposal, which asserted that the 

Exchange did not address the Exchange’s 

ownership structure and that revenues from 

connectivity services could have a ‘‘disparate 

impact’’ on certain Members. See Letter from Tyler 

Gellasch, Healthy Markets Association, dated 

January 26, 2022. The Exchange notes that the 

ownership of an exchange by members is not 

unprecedented and that the ownership structure of 

the Exchange and related issues were addressed 

during the process of the Exchange’s registration as 

a national securities exchange. See Securities 

Exchange Act Release No. 88806 (May 4, 2020), 85 

FR 27451 (May 8, 2020) (approval order related to 

the application of MEMX LLC to register as a 

national securities exchange). The Exchange does 

not believe that the Initial Proposal or this proposal 

raises any new issues that have not been previously 

addressed. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act,22 and Rule 

19b–4(f)(2) 23 thereunder. At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

EMERALD–2022–16 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–EMERALD–2022–16. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–EMERALD–2022–16 and 

should be submitted on or before June 

10, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.24

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–10800 Filed 5–19–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94924; File No. SR–MEMX– 

2022–13] 

Self-Regulatory Organizations; MEMX 

LLC; Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Adopt Connectivity Fees 

May 16, 2022. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on May 6, 

2022, MEMX LLC (‘‘MEMX’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing with the 

Commission a proposed rule change to 

amend the Exchange’s fee schedule 

applicable to Members 3 and nonMembers (the ‘‘Fee Schedule’’) pursuant 

to Exchange Rules 15.1(a) and (c). The 

Exchange proposes to implement the 

changes to the Fee Schedule pursuant to 

this proposal immediately. The text of 

the proposed rule change is provided in 

Exhibit 5. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background 

The Exchange is re-filing its proposal 

to amend the Fee Schedule regarding 

fees the Exchange charges to Members 

and non-Members for physical 

connectivity to the Exchange and for 

application sessions (otherwise known 

as ‘‘logical ports’’) that a Member 

utilizes in connection with their 

participation on the Exchange (together 

with physical connectivity, collectively 

referred to in this proposal as 

‘‘connectivity services,’’ as described in 

greater detail below and in Exhibit 5). 

The Exchange is proposing to 

implement the proposed fees 

immediately. 

The Exchange filed its Initial Proposal 

on December 30, 2021,4 and began 

charging fees for connectivity services 

for the first time in January of 2022. On 

February 28, 2022, the Commission 

suspended the Initial Proposal and 

asked for comments on several 


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5See Securities Exchange Act Release No. 94332 

(February 28, 2022) (SR–MEMX–2021–22) 

(Suspension of and Order Instituting Proceedings to 

Determine Whether to Approve or Disapprove 

Proposed Rule Change to Amend the Exchange’s 

Fee Schedule to Adopt Connectivity Fees) (the 

‘‘OIP’’). 6See, e.g., Securities Exchange Act Release No. 

87875 (December 31, 2019), 85 FR 770 (January 7, 

2020) (SR–MIAX–2019–51) (notice of filing and 

immediate effectiveness of changes to the Miami 

International Securities Exchange LLC, or ‘‘MIAX’’, 

fee schedule). The Exchange notes that the MIAX 

filing was the eighth filing by MIAX to adopt the 

fees proposed for certain connectivity services 

following multiple times of withdrawing and refiling the proposal. The Exchange notes that MIAX 

charged the applicable fees throughout this period 

while working to develop a filing that met the new 

standards being applied to fee filings. See also Fee 

Guidance, infra note 14. 

7See supra, note 4. 

8 15 U.S.C. 78s(b)(1). 

9 17 CFR 240.19b–4. 

10 15 U.S.C. 78f(b). 

11 15 U.S.C. 78f(b)(4). 

12 15 U.S.C. 78f(b)(5). 

13 15 U.S.C. 78f(b)(8). 

14 In 2019, Commission staff published guidance 

suggesting the types of information that SROs may 

use to demonstrate that their fee filings comply 

with the standards of the Exchange Act (‘‘Fee 

Guidance’’). While MEMX understands that the Fee 

Guidance does not create new legal obligations on 

SROs, the Fee Guidance is consistent with MEMX’s 

view about the type and level of transparency that 

exchanges should meet to demonstrate compliance 

with their existing obligations when they seek to 

charge new fees. See Staff Guidance on SRO Rule 

Filings Relating to Fees (May 21, 2019) available at 

https://www.sec.gov/tm/staff-guidancesro-rulefilings-fees. 

15Types of market participants that obtain 

connectivity services from the Exchange but are not 

Members include service bureaus and extranets. 

Service bureaus offer technology-based services to 

other companies for a fee, including order entry 

services to Members, and thus, may access 

application sessions on behalf of one or more 

Members. Extranets offer physical connectivity 

services to Members and non-Members. 

questions.5 The Exchange then filed the 

Second Proposal, which has recently 

been withdrawn. The Exchange has 

collected fees for connectivity services 

for four months now and is thus able to 

supplement its filing with additional 

details that were not available at the 

time of filing of the Initial Proposal or 

the Second Proposal and is also able to 

respond to certain questions raised in 

the OIP. As set forth below, the 

Exchange believes that both the Initial 

Proposal and the Second Proposal 

provided a great deal of transparency 

regarding the cost of providing 

connectivity services and anticipated 

revenue and that both the Initial 

Proposal and the Second Proposal were 

consistent with the Act and associated 

guidance. The Exchange is re-filing this 

proposal promptly following the 

withdrawal of the Second Proposal (and 

SR–MEMX–2022–12, which was 

substantively identical to the current 

proposal but was withdrawn due to a 

technical error) with the intention of 

maintaining the existing fees for 

connectivity services while at the same 

time providing additional details not 

contained in prior proposals. The 

Exchange believes that this approach is 

appropriate and fair for competitive 

reasons as several other exchanges 

currently charge for similar services, as 

described below, and because others 

have followed a similar approach when 

adopting fees.6

As set forth in the Initial Proposal, the 

Second Proposal and this filing, the 

Exchange does incur significant costs 

related to the provision of connectivity 

services and believes it should be 

permitted to continue charging for such 

services while also providing additional 

time for public comment on the level of 

detail contained in this proposal and 

other questions posed in the OIP. 

Finally, the Exchange does not believe 

that the ability to charge fees for 

connectivity services or the level of the 

Exchange’s proposed fees are at issue, 

but rather, that the level of detail 

required to be included by the Exchange 

when adopting such fees is at issue. The 

Exchange notes that despite two public 

comment periods related to the 

proposed fees, other than a comment 

that the Exchange does not believe to be 

relevant to the proposal,7 no 

commenters have raised issues about 

the level of fees proposed by the 

Exchange or the level of detail provided 

by the Exchange in justifying the 

proposed fees. For these reasons, the 

Exchange believes it is appropriate to refile this proposal and to continue 

charging for connectivity services. 

In general, the Exchange believes that 

exchanges, in setting fees of all types, 

should meet very high standards of 

transparency to demonstrate why each 

new fee or fee increase meets the 

Exchange Act requirements that fees be 

reasonable, equitably allocated, not 

unfairly discriminatory, and not create 

an undue burden on competition among 

members and markets. In particular, the 

Exchange believes that each exchange 

should take extra care to be able to 

demonstrate that these fees are based on 

its costs and reasonable business needs. 

In proposing to charge fees for 

connectivity services, the Exchange has 

sought to be especially diligent in 

assessing those fees in a transparent way 

against its own aggregate costs of 

providing the related service, and also 

carefully and transparently assessing the 

impact on Members—both generally and 

in relation to other Members, i.e., to 

assure the fee will not create a financial 

burden on any participant and will not 

have an undue impact in particular on 

smaller Members and competition 

among Members in general. The 

Exchange believes that this level of 

diligence and transparency is called for 

by the requirements of Section 19(b)(1) 

under the Act,8 and Rule 19b–4 

thereunder,9 with respect to the types of 

information self-regulatory 

organizations (‘‘SROs’’) should provide 

when filing fee changes, and Section 

6(b) of the Act,10 which requires, among 

other things, that exchange fees be 

reasonable and equitably allocated,11

not designed to permit unfair 

discrimination,12 and that they not 

impose a burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act.13 This rule 

change proposal addresses those 

requirements, and the analysis and data 

in each of the sections that follow are 

designed to clearly and 

comprehensively show how they are 

met.14

Prior to January 3, 2022, MEMX did 

not charge fees for connectivity to the 

Exchange, including fees for physical 

connections or application sessions for 

order entry purposes or receipt of drop 

copies. The objective of this approach 

was to eliminate any fee-based barriers 

to connectivity for Members when 

MEMX launched as a national securities 

exchange in 2020, and it was successful 

in achieving this objective in that a 

significant number of Members are 

directly or indirectly connected to the 

Exchange. 

As detailed below, MEMX recently 

calculated its aggregate monthly costs 

for providing physical connectivity to 

the Exchange at $795,789 and its 

aggregate monthly costs for providing 

application sessions at $347,936. 

Because MEMX offered all connectivity 

free of charge until January of this year, 

MEMX has borne 100% of all 

connectivity costs. In order to cover the 

aggregate costs of providing 

connectivity to its Users (both Members 

and non-Members 15) going forward and 

to make a modest profit, as described 

below, the Exchange is proposing to 

modify its Fee Schedule, pursuant to 

MEMX Rules 15.1(a) and (c), to charge 

a fee of $6,000 per month for each 

physical connection in the data center 

where the Exchange primarily operates 

under normal market conditions 

(‘‘Primary Data Center’’) and a fee of 

$3,000 per month for each physical 

connection in the Exchange’s 

geographically diverse data center, 

which is operated for backup and 

disaster recovery purposes (‘‘Secondary 

Data Center’’), each as further described 

below. The Exchange also proposes to 

modify its Fee Schedule, pursuant to 


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16As proposed, fees for connectivity services 

would be assessed based on each active 

connectivity service product at the close of business 

on the first day of each month. If a product is 

cancelled by a Member’s submission of a written 

request or via the MEMX User Portal prior to such 

fee being assessed then the Member will not be 

obligated to pay the applicable product fee. MEMX 

will not return pro-rated fees even if a product is 

not used for an entire month. 

MEMX Rules 15.1(a) and (c), to charge 

a fee of $450 per month for each 

application session used for order entry 

(‘‘Order Entry Port’’) and application 

session for receipt of drop copies (‘‘Drop 

Copy Port’’) in the Exchange’s Primary 

Data Center, as further described 

below.16

Cost Analysis 

Background on Cost Analysis 

In October 2021, MEMX completed a 

study of its aggregate costs to produce 

market data and connectivity (the ‘‘Cost 

Analysis’’). The Cost Analysis required 

a detailed analysis of MEMX’s aggregate 

baseline costs, including a 

determination and allocation of costs for 

core services provided by the 

Exchange—transaction execution, 

market data, membership services, 

physical connectivity, and application 

sessions (which provide order entry, 

cancellation and modification 

functionality, risk functionality, ability 

to receive drop copies, and other 

functionality). MEMX separately 

divided its costs between those costs 

necessary to deliver each of these core 

services, including infrastructure, 

software, human resources (i.e., 

personnel), and certain general and 

administrative expenses (‘‘cost 

drivers’’). Next, MEMX adopted an 

allocation methodology with various 

principles to guide how much of a 

particular cost should be allocated to 

each core service. For instance, fixed 

costs that are not driven by client 

activity (e.g., message rates), such as 

data center costs, were allocated more 

heavily to the provision of physical 

connectivity (75%), with smaller 

allocations to logical ports (2.6%), and 

the remainder to the provision of 

transaction execution and market data 

services (22.4%). In contrast, costs that 

are driven largely by client activity (e.g., 

message rates), were not allocated to 

physical connectivity at all but were 

allocated primarily to the provision of 

transaction execution and market data 

services (90%) with a smaller allocation 

to application sessions (10%). The 

allocation methodology was decided 

through conversations with senior 

management familiar with each area of 

the Exchange’s operations. After 

adopting this allocation methodology, 

the Exchange then applied an estimated 

allocation of each cost driver to each 

core service, resulting in the cost 

allocations described below. 

By allocating segmented costs to each 

core service, MEMX was able to 

estimate by core service the potential 

margin it might earn based on different 

fee models. The Exchange notes that as 

a non-listing venue it has four primary 

sources of revenue that it can 

potentially use to fund its operations: 

Transaction fees, fees for connectivity 

services, membership and regulatory 

fees, and market data fees. Accordingly, 

the Exchange must cover its expenses 

from these four primary sources of 

revenue. 

Through the Exchange’s extensive 

Cost Analysis, the Exchange analyzed 

every expense item in the Exchange’s 

general expense ledger to determine 

whether each such expense relates to 

the provision of connectivity services, 

and, if such expense did so relate, what 

portion (or percentage) of such expense 

actually supports the provision of 

connectivity services, and thus bears a 

relationship that is, ‘‘in nature and 

closeness,’’ directly related to network 

connectivity services. In turn, the 

Exchange allocated certain costs more to 

physical connectivity and others to 

applications, while certain costs were 

only allocated to such services at a very 

low percentage or not at all, using 

consistent allocation methodologies as 

described above. Based on this analysis, 

MEMX estimates that the cost drivers to 

provide connectivity services, including 

both physical connections and 

application sessions, result in an 

aggregate monthly cost of $1,143,715, as 

further detailed below. 

Costs Related to Offering Physical 

Connectivity 

The following chart details the 

individual line-item costs considered by 

MEMX to be related to offering physical 

connectivity as well as the percentage of 

the Exchange’s overall costs such costs 

represent for such area (e.g., as set forth 

below, the Exchange allocated 

approximately 13.8% of its overall 

Human Resources cost to offering 

physical connectivity). 

Costs drivers Costs % of all 

Human Resources ................................................................................................................................................... $262,129 13.8 

Connectivity (external fees, cabling, switches, etc.) ............................................................................................... 162,000 75.0 

Data Center ............................................................................................................................................................. 219,000 75.0 

External Market Data ............................................................................................................................................... n/a n/a 

Hardware and Software Licenses ........................................................................................................................... 4,507 1.2 

Monthly Depreciation ............................................................................................................................................... 99,328 18.5 

Allocated Shared Expenses .................................................................................................................................... 48,826 18.9 

Total .................................................................................................................................................................. 795,789 20.1 

Below are additional details regarding 

each of the line-item costs considered 

by MEMX to be related to offering 

physical connectivity. 

Human Resources 

For personnel costs (Human 

Resources), MEMX calculated an 

allocation of employee time for 

employees whose functions include 

providing and maintaining physical 

connectivity and performance thereof 

(primarily the MEMX network 

infrastructure team, which spends most 

of their time performing functions 

necessary to provide physical 

connectivity) and for which the 

Exchange allocated 75% of each 

employee’s time. The Exchange also 

allocated Human Resources costs to 

provide physical connectivity to a 

limited subset of personnel with 

ancillary functions related to 

establishing and maintaining such 

connectivity (such as information 

security and finance personnel), for 

which the Exchange allocated cost on an 

employee-by-employee basis (i.e., only 

including those personnel who do 

support functions related to providing 

physical connectivity) and then applied 

a smaller allocation to such employees 

(less than 20%). The Exchange notes 

that it has fewer than seventy (70) 


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17The Exchange notes that the total monthly cost 

set forth for application sessions ($347,926) is the 

same as that used for the Initial Proposal and the 

Second Proposal, however the Exchange has 

modified the categorization of such fees in the table 

above as such categorization was inconsistent in the 

prior proposals between physical connectivity and 

application sessions. For instance, the Exchange 

included applicable depreciation expenses in the 

Hardware and Software Licenses category with 

respect to application sessions instead of the 

Monthly Depreciation category. As another 

example, the Exchange included applicable Data 

Center costs in the Connectivity category with 

respect to application sessions. The revised chart 

above corrects these inconsistencies. 

employees and each department leader 

has direct knowledge of the time spent 

by those spent by each employee with 

respect to the various tasks necessary to 

operate the Exchange. The estimates of 

Human Resources cost were therefore 

determined by consulting with such 

department leaders, determining which 

employees are involved in tasks related 

to providing physical connectivity, and 

confirming that the proposed allocations 

were reasonable based on an 

understanding of the percentage of their 

time such employees devote to tasks 

related to providing physical 

connectivity. The Exchange notes that 

senior level executives were only 

allocated Human Resources costs to the 

extent the Exchange believed they are 

involved in overseeing tasks related to 

providing physical connectivity. The 

Human Resources cost was calculated 

using a blended rate of compensation 

reflecting salary, equity and bonus 

compensation, benefits, payroll taxes, 

and 401(k) matching contributions. 

Connectivity 

The Connectivity cost includes 

external fees paid to connect to other 

exchanges, cabling and switches 

required to operate the Exchange. The 

Exchange notes that it previously 

labeled this line item as ‘‘Infrastructure 

and Connectivity’’ but has eliminated 

the reference to Infrastructure because 

several other line-item costs could be 

considered infrastructure given the 

generality of that term. The Connectivity 

line-item is more narrowly focused on 

technology used to complete 

connections to the Exchange and to 

connect to external markets. 

Data Center 

Data Center costs includes 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 Exchange does not 

own the Primary Data Center or the 

Secondary Data Center, but instead, 

leases space in data centers operated by 

third parties). 

External Market Data 

External Market Data includes fees 

paid to third parties, including other 

exchanges, to receive and consume 

market data from other markets. The 

Exchange notes that it did not allocate 

any External Market Data fees to the 

provision of physical connectivity as 

market data is not related to such 

services. 

Hardware and Software Licenses 

Hardware and Software Licenses 

includes hardware and software licenses 

used to operate and monitor physical 

assets necessary to offer physical 

connectivity to the Exchange. 

Monthly Depreciation 

All physical assets and software, 

which also includes assets used for 

testing and monitoring of Exchange 

infrastructure, were valued at cost, 

depreciated or leased over periods 

ranging from three to five years. Thus, 

the depreciation cost primarily relates to 

servers necessary to operate the 

Exchange, some of which are owned by 

the Exchange and some of which are 

leased by the Exchange in order to allow 

efficient periodic technology refreshes. 

As noted above, the Exchange allocated 

18.5% of all depreciation costs to 

providing physical connectivity. The 

Exchange notes, however, that it did not 

allocate depreciation costs for any 

depreciated software necessary to 

operate the Exchange to physical 

connectivity, as such software does not 

impact the provision of physical 

connectivity. 

Allocated Shared Expenses 

Finally, a limited portion of general 

shared expenses was allocated to overall 

physical connectivity costs as without 

these general shared costs the Exchange 

would not be able to operate in the 

manner that it does and provide 

physical connectivity. The costs 

included in general shared expenses 

include general expenses of the 

Exchange, including office space and 

office expenses (e.g., occupancy and 

overhead expenses), utilities, recruiting 

and training, marketing and advertising 

costs, professional fees for legal, tax and 

accounting services (including external 

and internal audit expenses), and 

telecommunications costs. The 

Exchange notes that the cost of paying 

directors to serve on its Board of 

Directors is also included in the 

Exchange’s general shared expenses, 

and thus a portion of such overall cost 

amounting to less than 20% of the 

overall cost for directors was allocated 

to providing physical connectivity. The 

total monthly cost of $795,789 was 

divided by the number of physical 

connections the Exchange maintained at 

the time that proposed pricing was 

determined (143), to arrive at a cost of 

approximately $5,565 per month, per 

physical connection. 

Costs Related to Offering Application 

Sessions 

The following chart details the 

individual line-item costs considered by 

MEMX to be related to offering 

application sessions as well as the 

percentage of the Exchange’s overall 

costs such costs represent for such area 

(e.g., as set forth below, the Exchange 

allocated approximately 7.7% of its 

overall Human Resources cost to 

offering application sessions). 

Costs Drivers 17 Costs % of all 

Human Resources ................................................................................................................................................... $147,029 7.7 

Connectivity (external fees, cabling, switches, etc.) ............................................................................................... 5,520 2.6 

Data Center ............................................................................................................................................................. 7,462 2.6 

External Market Data ............................................................................................................................................... 10,734 7.5 

Hardware and Software Licenses ........................................................................................................................... 37,771 10.1 

Monthly Depreciation ............................................................................................................................................... 44,843 8.3 

Allocated Shared Expenses .................................................................................................................................... 94,567 8.3 

Total .................................................................................................................................................................. 347,926 8.8 

Human Resources 

With respect to application sessions, 

MEMX calculated Human Resources 

cost by taking an allocation of employee 

time for employees whose functions 


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include providing application sessions 

and maintaining performance thereof 

(including a broader range of employees 

such as technical operations personnel, 

market operations personnel, and 

software engineering personnel) as well 

as a limited subset of personnel with 

ancillary functions related to 

maintaining such connectivity (such as 

sales, membership, and finance 

personnel). The estimates of Human 

Resources cost were again determined 

by consulting with department leaders, 

determining which employees are 

involved in tasks related to providing 

application sessions and maintaining 

performance thereof, and confirming 

that the proposed allocations were 

reasonable based on an understanding 

of the percentage of their time such 

employees devote to tasks related to 

providing application sessions and 

maintaining performance thereof. The 

Exchange notes that senior level 

executives were only allocated Human 

Resources costs to the extent the 

Exchange believed they are involved in 

overseeing tasks related to providing 

application sessions and maintaining 

performance thereof. The Human 

Resources cost was again calculated 

using a blended rate of compensation 

reflecting salary, equity and bonus 

compensation, benefits, payroll taxes, 

and 401(k) matching contributions. 

Connectivity 

The Connectivity cost includes 

external fees paid to connect to other 

exchanges, cabling and switches, as 

described above. 

Data Center 

Data Center costs includes 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 Exchange does not 

own the Primary Data Center or the 

Secondary Data Center, but instead, 

leases space in data centers operated by 

third parties). 

External Market Data 

External Market Data includes fees 

paid to third parties, including other 

exchanges, to receive and consume 

market data from other markets. The 

Exchange allocated a small portion of 

External Market Data fees (7.5%) to the 

provision of application sessions as 

such market data is necessary to offer 

certain services related to such sessions, 

such as validating orders on entry 

against the national best bid and 

national best offer and checking for 

other conditions (e.g., whether a symbol 

is halted or subject to a short sale circuit 

breaker). 

Hardware and Software Licenses 

Hardware and Software Licenses 

includes hardware and software licenses 

used to monitor the health of the order 

entry services provided by the 

Exchange. 

Monthly Depreciation 

All physical assets and software, 

which also includes assets used for 

testing and monitoring of order entry 

infrastructure, were valued at cost, 

depreciated or leased over periods 

ranging from three to five years. Thus, 

the depreciation cost primarily relates to 

servers necessary to operate the 

Exchange, some of which is owned by 

the Exchange and some of which is 

leased by the Exchange in order to allow 

efficient periodic technology refreshes. 

The Exchange allocated 8.3% of all 

depreciation costs to providing 

application sessions. In contrast to 

physical connectivity, described above, 

the Exchange did allocate depreciation 

costs for depreciated software necessary 

to operate the Exchange to application 

sessions because such software is 

related to the provision of such 

connectivity. 

Allocated Shared Expenses 

Finally, a limited portion of general 

shared expenses was allocated to overall 

application session costs as without 

these general shared costs the Exchange 

would not be able to operate in the 

manner that it does and provide 

application sessions. The costs included 

in general shared expenses include 

general expenses of the Exchange, 

including office space and office 

expenses (e.g., occupancy and overhead 

expenses), utilities, recruiting and 

training, marketing and advertising 

costs, professional fees for legal, tax and 

accounting services (including external 

and internal audit expenses), and 

telecommunications costs. The 

Exchange again notes that the cost of 

paying directors to serve on its Board of 

Directors is included in the calculation 

of Allocated Shared Expenses, and thus 

a portion of such overall cost amounting 

to less than 10% of the overall cost for 

directors was allocated to providing 

application sessions. The total monthly 

cost of $347,926 was divided by the 

number of application sessions the 

Exchange maintained at the time that 

proposed pricing was determined (835), 

to arrive at a cost of approximately $417 

per month, per application session. 

Cost Analysis—Additional Discussion 

In conducting its Cost Analysis, the 

Exchange did not allocate any of its 

expenses in full to any core services 

(including physical connectivity or 

application sessions) and did not 

double-count any expenses. Instead, as 

described above, the Exchange allocated 

applicable cost drivers across its core 

services and used the same Cost 

Analysis to form the basis of this 

proposal and the filing it recently 

submitted proposing fees for proprietary 

data feeds offered by the Exchange. For 

instance, in calculating the Human 

Resources expenses to be allocated to 

physical connections, the Exchange has 

a team of employees dedicated to 

network infrastructure and with respect 

to such employees the Exchange 

allocated network infrastructure 

personnel with a high percentage of the 

cost of such personnel (75%) given their 

focus on functions necessary to provide 

physical connections. The salaries of 

those same personnel were allocated 

only 2.5% to application sessions and 

the remaining 22.5% was allocated to 

transactions and market data. The 

Exchange did not allocate any other 

Human Resources expense for providing 

physical connections to any other 

employee group outside of a smaller 

allocation (19%) of the cost associated 

with certain specified personnel who 

work closely with and support network 

infrastructure personnel. In contrast, the 

Exchange allocated much smaller 

percentages of costs (11% or less) across 

a wider range of personnel groups in 

order to allocate Human Resources costs 

to providing application sessions. This 

is because a much wider range of 

personnel are involved in functions 

necessary to offer, monitor and maintain 

application sessions but the tasks 

necessary to do so are not a primary or 

full-time function. 

In total, the Exchange allocated 13.8% 

of its personnel costs to providing 

physical connections and 7.7% of its 

personnel costs to providing application 

sessions, for a total allocation of 21.5% 

Human Resources expense to provide 

connectivity services. In turn, the 

Exchange allocated the remaining 

78.5% of its Human Resources expense 

to membership (less than 1%) and 

transactions and market data (77.5%). 

Thus, again, the Exchange’s allocations 

of cost across core services were based 

on real costs of operating the Exchange 

and were not double-counted across the 

core services or their associated revenue 

streams. 

As another example, the Exchange 

allocated depreciation expense to all 

core services, including physical 


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18The Exchange notes that it has charged 

connectivity services for four months and so far the 

average amount expected is very close to the 

estimated revenue provided in the Initial Proposal. 

Specifically, the Exchange has earned an estimated 

$1,246,700 ($12,950 more than projected) for 

connectivity services on an average basis over 

January through April. The Exchange believes this 

difference is immaterial for purposes of this 

proposal and thus, will continue to use the original 

estimated revenue of $1,233,750 for purposes of this 

proposal. 19See supra note 15. 

connections and application sessions, 

but in different amounts. The Exchange 

believes it is reasonable to allocate the 

identified portion of such expense 

because such expense includes the 

actual cost of the computer equipment, 

such as dedicated servers, computers, 

laptops, monitors, information security 

appliances and storage, and network 

switching infrastructure equipment, 

including switches and taps that were 

purchased to operate and support the 

network. Without this equipment, the 

Exchange would not be able to operate 

the network and provide connectivity 

services to its Members and nonMembers and their customers. However, 

the Exchange did not allocate all of the 

depreciation and amortization expense 

toward the cost of providing 

connectivity services, but instead 

allocated approximately 27% of the 

Exchange’s overall depreciation and 

amortization expense to connectivity 

services (18.5% attributed to physical 

connections and 8.3% to application 

sessions). The Exchange allocated the 

remaining depreciation and 

amortization expense (approximately 

73%) toward the cost of providing 

transaction services and market data. 

Looking at the Exchange’s operations 

holistically, the total monthly costs to 

the Exchange for offering core services 

is $3,954,537. Based on the initial four 

months of billing for connectivity 

services, the Exchange expects to collect 

its original estimate of $1,233,750 on a 

monthly basis for such services.18

Incorporating this amount into the 

Exchange’s overall projected revenue, 

including projections related to recently 

adopted market data fees, the Exchange 

anticipates monthly revenue ranging 

from $4,296,950 to $4,546,950 from all 

sources (i.e., connectivity fees and 

membership fees that were introduced 

in January 2022, transaction fees, and 

revenue from market data, both through 

the fees adopted in April 2022 and 

through the revenue received from the 

SIPs). As such, applying the Exchange’s 

holistic Cost Analysis to a holistic view 

of anticipated revenues, the Exchange 

would earn approximately 8.5% to 15% 

margin on its operations as a whole. The 

Exchange believes that this amount is 

reasonable. 

The Exchange notes that its revenue 

estimates are based on projections 

across all potential revenue streams and 

will only be realized to the extent such 

revenue streams actually produce the 

revenue estimated. As a 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 connectivity, the 

Exchange will have to be successful in 

retaining existing clients that wish to 

maintain physical connectivity and/or 

application sessions or in obtaining new 

clients that will purchase such services. 

Similarly, the Exchange will have to be 

successful in retaining a positive net 

capture on transaction fees in order to 

realize the anticipated revenue from 

transaction pricing. 

To the extent the Exchange is 

successful in gaining market share, 

improving its net capture on transaction 

fees, encouraging new clients to connect 

directly to the Exchange, and other 

developments that would help to 

increase Exchange revenues, the 

Exchange does not believe it should be 

penalized for such success. The 

Exchange, like other exchanges, is, after 

all, a for-profit business. Accordingly, 

while the Exchange believes in 

transparency around costs and potential 

margins as well as periodic review of 

costs and applicable costs (as discussed 

below), the Exchange does not believe 

that these estimates should form the 

sole basis of whether or not a proposed 

fee is reasonable or can be adopted. 

Instead, the Exchange believes that the 

information should be used solely to 

confirm that an Exchange is not earning 

supra-competitive profits, and the 

Exchange believes its Cost Analysis and 

related projections demonstrate this 

fact. 

The Exchange notes that the Cost 

Analysis was based on the Exchange’s 

first year of operations and projections 

for the next year (which is currently 

underway). As such, the Exchange 

believes that its costs will remain 

relatively similar in future years. It is 

possible however that such costs will 

either decrease or increase. To the 

extent the Exchange sees growth in use 

of connectivity services it will receive 

additional revenue to offset future cost 

increases. However, if use of 

connectivity services is static or 

decreases, the Exchange might not 

realize the revenue that it anticipates or 

needs in order to cover applicable costs. 

Accordingly, the Exchange is 

committing to conduct a one-year 

review after implementation of these 

fees. The Exchange expects that it may 

propose to adjust fees at that time, to 

increase fees in the event that revenues 

fail to cover costs and a reasonable 

mark-up of such costs. Similarly, the 

Exchange would propose to decrease 

fees in the event that revenue materially 

exceeds our current projections. In 

addition, the Exchange will periodically 

conduct a review to inform its decision 

making on whether a fee change is 

appropriate (e.g., to monitor for costs 

increasing/decreasing or subscribers 

increasing/decreasing, etc. in ways that 

suggest the then-current fees are 

becoming dislocated from the prior costbased analysis) and would propose to 

increase fees in the event that revenues 

fail to cover its costs and a reasonable 

mark-up, or decrease fees in the event 

that revenue or the mark-up materially 

exceeds our current projections. In the 

event that the Exchange determines to 

propose a fee change, the results of a 

timely review, including an updated 

cost estimate, will be included in the 

rule filing proposing the fee change. 

More generally, we believe that it is 

appropriate for an exchange to refresh 

and update information about its 

relevant costs and revenues in seeking 

any future changes to fees, and the 

Exchange commits to do so. 

Proposed Fees 

Physical Connectivity Fees 

MEMX offers its Members the ability 

to connect to the Exchange in order to 

transmit orders to and receive 

information from the Exchange. 

Members can also choose to connect to 

MEMX indirectly through physical 

connectivity maintained by a third-party 

extranet. Extranet physical connections 

may provide access to one or multiple 

Members on a single connection. Users 

of MEMX physical connectivity services 

(both Members and non-Members 19) 

seeking to establish one or more 

connections with the Exchange submit a 

request to the Exchange via the MEMX 

User Portal or directly to Exchange 

personnel. Upon receipt of the 

completed instructions, MEMX 

establishes the physical connections 

requested by the User. The number of 

physical connections assigned to each 

User as of April 29, 2022, ranges from 

one to ten, depending on the scope and 

scale of the Member’s trading activity on 

the Exchange as determined by the 

Member, including the Member’s 

determination of the need for redundant 

connectivity. The Exchange notes that 


khammond on DSKJM1Z7X2PROD with NOTICES
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20The Exchange also notes that a second 

designated Member that is required to participate in 

mandatory testing with the Exchange for the first 

time this year has not yet connected to the 

Exchange in the Secondary Data Center and has 

indicated that it is likely to use a third-party 

provider. 

21See, e.g., the BZX equities fee schedule, 

available at: https://markets.cboe.com/us/equities/ 

membership/fee_schedule/bzx/. 22See supra note 15. 

44% of its Members do not maintain a 

physical connection directly with the 

Exchange in the Primary Data Center 

(though many such Members have 

connectivity through a third-party 

provider) and another 44% have either 

one or two physical ports to connect to 

the Exchange in the Primary Data 

Center. Thus, only a limited number of 

Members, 12%, maintain three or more 

physical ports to connect to the 

Exchange in the Primary Data Center. 

As described above, in order to cover 

the aggregate costs of providing physical 

connectivity to Users and make a 

modest profit, as described below, the 

Exchange is proposing to charge a fee of 

$6,000 per month for each physical 

connection in the Primary Data Center 

and a fee of $3,000 per month for each 

physical connection in the Secondary 

Data Center. There is no requirement 

that any Member maintain a specific 

number of physical connections and a 

Member may choose to maintain as 

many or as few of such connections as 

each Member deems appropriate. The 

Exchange notes, however, that pursuant 

to Rule 2.4 (Mandatory Participation in 

Testing of Backup Systems), the 

Exchange does require a small number 

of Members to connect and participate 

in functional and performance testing as 

announced by the Exchange, which 

occurs at least once every 12 months. 

Specifically, Members that have been 

determined by the Exchange to 

contribute a meaningful percentage of 

the Exchange’s overall volume must 

participate in mandatory testing of the 

Exchange’s backup systems (i.e., such 

Members must connect to the Secondary 

Data Center). The Exchange notes that 

Members that have been designated are 

still able to use third-party providers of 

connectivity to access the Exchange at 

its Secondary Data Center, and that one 

such designated Member does use a 

third-party provider instead of 

connecting directly to the Secondary 

Data Center through connectivity 

provided by the Exchange.20

Nonetheless, because some Members are 

required to connect to the Secondary 

Data Center pursuant to Rule 2.4 and to 

encourage Exchange Members to 

connect to the Secondary Data Center 

generally, the Exchange has proposed to 

charge one-half of the fee for a physical 

connection in the Primary Data Center. 

The Exchange notes that its costs related 

to operating the Secondary Data Center 

were not separately calculated for 

purposes of this proposal, but instead, 

all costs related to providing physical 

connections were considered in 

aggregate. The Exchange believes this is 

appropriate because had the Exchange 

calculated such costs separately and 

then determined the fee per physical 

connection that would be necessary for 

the Exchange to cover its costs for 

operating the Secondary Data Center, 

the costs would likely be much higher 

than those proposed for connectivity at 

the Primary Data Center because 

Members maintain significantly fewer 

connections at the Secondary Data 

Center. The Exchange believes that 

charging a higher fee for physical 

connections at the Secondary Data 

Center would be inconsistent with its 

objective of encouraging Members to 

connect at such data center and is 

inconsistent with the fees charged by 

other exchanges, which also provide 

connectivity for disaster recovery 

purposes at a discounted rate.21

The proposed fee will not apply 

differently based upon the size or type 

of the market participant, but rather 

based upon the number of physical 

connections a User requests, based upon 

factors deemed relevant by each User 

(either a Member, service bureau or 

extranet). The Exchange believes these 

factors include the costs to maintain 

connectivity, business model and 

choices Members make in how to 

participate on the Exchange, as further 

described below. 

The proposed fee of $6,000 per month 

for physical connections at the Primary 

Data Center is designed to permit the 

Exchange to cover the costs allocated to 

providing connectivity services with a 

modest markup (approximately 8%), 

which would also help fund future 

expenditures (increased costs, 

improvements, etc.). The Exchange 

believes it is appropriate to charge fees 

that represent a reasonable markup over 

cost given the other factors discussed 

above and the need for the Exchange to 

maintain a highly performant and stable 

platform to allow Members to transact 

with determinism. The Exchange also 

reiterates that the Exchange did not 

charge any fees for connectivity services 

prior to January 2022, and its allocation 

of costs to physical connections was 

part of a holistic allocation that also 

allocated costs to other core services 

without double-counting any expenses. 

As such, the proposal only truly 

constitutes a ‘‘markup’’ to the extent the 

Exchange recovers the initial costs of 

building the network and infrastructure 

necessary to offer physical connectivity 

and operating the Exchange for over a 

year without connectivity fees. 

As noted above, the Exchange 

proposes a discounted rate of $3,000 per 

month for physical connections at its 

Secondary Data Center. The Exchange 

has proposed this discounted rate for 

Secondary Data Center connectivity in 

order to encourage Members to establish 

and maintain such connections. Also, as 

noted above, a small number of 

Members are required pursuant to Rule 

2.4 to connect and participate in testing 

of the Exchange’s backup systems, and 

the Exchange believes it is appropriate 

to provide a discounted rate for physical 

connections at the Secondary Data 

Center given this requirement. The 

Exchange notes that this rate is well 

below the cost of providing such 

services and the Exchange will operate 

its network and systems at the 

Secondary Data Center without 

recouping the full amount of such cost 

through connectivity services. 

The proposed fee for physical 

connections is effective on filing and 

will become operative immediately. 

Application Session Fees 

Similar to other exchanges, MEMX 

offers its Members application sessions, 

also known as logical ports, for order 

entry and receipt of trade execution 

reports and order messages. Members 

can also choose to connect to MEMX 

indirectly through a session maintained 

by a third-party service bureau. Service 

bureau sessions may provide access to 

one or multiple Members on a single 

session. Users of MEMX connectivity 

services (both Members and nonMembers 22) seeking to establish one or 

more application sessions with the 

Exchange submit a request to the 

Exchange via the MEMX User Portal or 

directly to Exchange personnel. Upon 

receipt of the completed instructions, 

MEMX assigns the User the number of 

sessions requested by the User. The 

number of sessions assigned to each 

User as of April 29, 2022, ranges from 

one to more than 100, depending on the 

scope and scale of the Member’s trading 

activity on the Exchange (either through 

a direct connection or through a service 

bureau) as determined by the Member. 

For example, by using multiple 

sessions, Members can segregate order 

flow from different internal desks, 

business lines, or customers. The 

Exchange does not impose any 

minimum or maximum requirements for 

how many application sessions a 

Member or service bureau can maintain, 


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23See, e.g., Cboe US Equities BOE Specification, 

available at: https://cdn.cboe.com/resources/ 

membership/Cboe_US_Equities_BOE_

Specification.pdf (describing a 5,000 message per 

second Port Order Rate Threshold on Cboe BOE 

ports). 

24The Exchange understands that some Members 

(or service bureaus) may also request more Order 

Entry Ports to enable the ability to send a greater 

number of simultaneous order messages to the 

Exchange by spreading orders over more Order 

Entry Ports, thereby increasing throughput (i.e., the 

potential for more orders to be processed in the 

same amount of time). The degree to which this 

usage of Order Entry Ports provides any throughput 

advantage is based on how a particular Member 

sends order messages to MEMX, however the 

Exchange notes that its architecture reduces the 

impact or necessity of such a strategy. All Order 

Entry Ports on MEMX provide the same throughput, 

and as noted above, the throughput is likely 

adequate even for a Member sending a significant 

amount of volume at a fast pace, and is not 

artificially throttled or limited in any way by the 

Exchange. 

and it is not proposing to impose any 

minimum or maximum session 

requirements for its Members or their 

service bureaus. 

As described above, in order to cover 

the aggregate costs of providing 

application sessions to Users and to 

make a modest profit, as described 

below, the Exchange is proposing to 

charge a fee of $450 per month for each 

Order Entry Port and Drop Copy Port in 

the Primary Data Center. The Exchange 

notes that it does not propose to charge 

for: (1) Order Entry Ports or Drop Copy 

Ports in the Secondary Data Center, or 

(2) any Test Facility Ports or MEMOIR 

Gap Fill Ports. The Exchange has 

proposed to provide Order Entry Ports 

and Drop Copy Ports in the Secondary 

Data Center free of charge in order to 

encourage Members to connect to the 

Exchange’s backup trading systems. 

Similarly, because the Exchange wishes 

to encourage Members to conduct 

appropriate testing of their use of the 

Exchange, the Exchange has not 

proposed to charge for Test Facility 

Ports. With respect to MEMOIR Gap Fill 

ports, such ports are exclusively used in 

order to receive information when a 

market data recipient has temporarily 

lost its view of MEMX market data. The 

Exchange has not proposed charging for 

such ports because the costs of 

providing and maintaining such ports is 

more directly related to producing 

market data. 

The proposed fee of $450 per month 

for each Order Entry Port and Drop 

Copy Port in the Primary Data Center is 

designed to permit the Exchange to 

cover the costs allocated to providing 

application sessions with a modest 

markup (approximately 8%), which 

would also help fund future 

expenditures (increased costs, 

improvements, etc.). The Exchange also 

reiterates that the Exchange did not 

charge any fees for connectivity services 

prior to January 2022, and its allocation 

of costs to application sessions was part 

of a holistic allocation that also 

allocated costs to other core services 

without double-counting any expenses. 

As such, the proposal only truly 

constitutes a ‘‘markup’’ to the extent the 

Exchange recovers the initial costs of 

building the network and infrastructure 

necessary to offer application sessions 

and operating the Exchange for over a 

year without connectivity fees. 

The proposed fee is also designed to 

encourage Users to be efficient with 

their application session usage, thereby 

resulting in a corresponding increase in 

the efficiency that the Exchange would 

be able to realize in managing its 

aggregate costs for providing 

connectivity services. There is no 

requirement that any Member maintain 

a specific number of application 

sessions and a Member may choose to 

maintain as many or as few of such 

ports as each Member deems 

appropriate. The Exchange has designed 

its platform such that Order Entry Ports 

can handle a significant amount of 

message traffic (i.e., over 50,000 orders 

per second), and has no application 

flow control or order throttling. In 

contrast, other exchanges maintain 

certain thresholds that limit the amount 

of message traffic that a single logical 

port can handle.23 As such, while 

several Members maintain a relatively 

high number of ports because that is 

consistent with their usage on other 

exchanges and is preferable for their 

own reasons, the Exchange believes that 

it has designed a system capable of 

allowing such Members to significantly 

reduce the number of application 

sessions maintained. 

The proposed fee will not apply 

differently based upon the size or type 

of the market participant, but rather 

based upon the number of application 

sessions a User requests, based upon 

factors deemed relevant by each User 

(either a Member or service bureau on 

behalf of a Member). The Exchange 

believes these factors include the costs 

to maintain connectivity and choices 

Members make in how to segment or 

allocate their order flow.24

The proposed fee for application 

sessions is effective on filing and will 

become operative immediately. 

Proposed Fees—Additional Discussion 

As discussed above, the proposed fees 

for connectivity services do not by 

design apply differently to different 

types or sizes of Members. As discussed 

in more detail in the Statutory Basis 

section, the Exchange believes that the 

likelihood of higher fees for certain 

Members subscribing to connectivity 

services usage than others is not 

unfairly discriminatory because it is 

based on objective differences in usage 

of connectivity services among different 

Members. The Exchange’s incremental 

aggregate costs for all connectivity 

services are disproportionately related 

to Members with higher message traffic 

and/or Members with more complicated 

connections established with the 

Exchange, as such Members: (1) 

Consume the most bandwidth and 

resources of the network; (2) transact the 

vast majority of the volume on the 

Exchange; and (3) require the hightouch network support services 

provided by the Exchange and its staff, 

including network monitoring, reporting 

and support services, resulting in a 

much higher cost to the Exchange to 

provide such connectivity services. For 

these reasons, MEMX believes it is not 

unfairly discriminatory for the Members 

with higher message traffic and/or 

Members with more complicated 

connections to pay a higher share of the 

total connectivity services fees. While 

Members with a business model that 

results in higher relative inbound 

message activity or more complicated 

connections are projected to pay higher 

fees, the level of such fees is based 

solely on the number of physical 

connections and/or application sessions 

deemed necessary by the Member and 

not on the Member’s business model or 

type of Member. The Exchange notes 

that the correlation between message 

traffic and usage of connectivity services 

is not completely aligned because 

Members individually determine how 

many physical connections and 

application sessions to request, and 

Members may make different decisions 

on the appropriate ways based on facts 

unique to their individual businesses. 

Based on the Exchange’s architecture, as 

described above, the Exchange believes 

that a Member even with high message 

traffic would be able to conduct 

business on the Exchange with a 

relatively small connectivity services 

footprint. 


khammond on DSKJM1Z7X2PROD with NOTICES
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25The Exchange notes that despite these 

cancellations, the Exchange has since had existing 

customers and new customers order physical 

connectivity that has resulted in the Exchange 

maintaining nearly the same amount of physical 

connections for customers as it did prior to the 

imposition of fees. 

26The Exchange notes that, as was the case with 

respect to physical connectivity, the Exchange has 

since had existing customers and new customers 

order additional application sessions that has 

resulted in the Exchange maintaining nearly the 

same amount of application sessions for customers 

as it did prior to the imposition of fees. 

27 17 CFR 242.1000–1007. 

28 17 CFR 242.1001(a). 

29While some Members might directly connect to 

the Secondary Data Center and incur the proposed 

$3,000 per month fee, there are other ways to 

connect to the Exchange, such as through a service 

bureau or extranet, and because the Exchange is not 

imposing fees for application sessions in the 

Secondary Data Center, a Member connecting 

through another method would not incur any fees 

charged directly by the Exchange. However, the 

Exchange notes that a third-party service provider 

providing connectivity to the Exchange likely 

would charge a fee for providing such connectivity; 

such fees are not set by or shared in by the 

Exchange. 

30 15 U.S.C. 78f. 

31 15 U.S.C. 78f(b)(4). 

32 15 U.S.C. 78f(b)(5). 

Because the Exchange has already 

adopted fees for connectivity services, 

the Exchange has initial results of the 

impact such fees have had on Member 

and non-Member usage of connectivity 

services. Since the fees went into effect 

as set forth in the Initial Proposal, nine 

(9) customers with physical 

connectivity to the Exchange have 

canceled one or more of their physical 

connections. These cancellations 

resulted in an approximate 6% drop in 

the physical connectivity offered by the 

Exchange prior to the Exchange 

charging for such connectivity.25 In each 

instance, the customer told the 

Exchange that its reason for cancelling 

its connectivity was the imposition of 

fees. Of these customers, two (2) 

customers canceled services entirely, 

three (3) maintained at least one 

physical connection provided directly 

by the Exchange, and the remaining four 

(4) customers migrated to alternative 

sources of connectivity through a thirdparty provider. As such, some market 

participants (one market data provider 

and one extranet) determined that they 

no longer wanted to connect to the 

Exchange directly or through a third 

party as it was not necessary for their 

business and their initial connection 

was only worthwhile so long as services 

were provided free of charge. Other 

market participants (one market data 

provider, one extranet and one Member) 

determined that they still wished to be 

directly connected to the Exchange but 

did not need as many connections. 

Finally, some market participants (one 

market data provider, one service 

bureau and two trading participants) 

determined that there was a more 

affordable alternative through a thirdparty provider of connectivity services. 

As a general matter, the customers that 

discontinued use of physical 

connectivity or transitioned to a thirdparty provider of connectivity services 

were either connected purely to 

consume market data for their own 

purposes or distribution to others, were 

themselves extranets or service bureaus 

providing alternatives to the Exchange’s 

connectivity services, or were smaller 

trading firms that elected not to 

participate on the Exchange directly and 

likely connected initially due to the fact 

that there were no fees to connect. 

Additionally, since the Exchange 

began charging for application sessions, 

five (5) customers have canceled a total 

of thirty (30) application sessions 

(approximately 3.5% of all customer 

application sessions) due to the fees 

adopted by the Exchange.26 As a general 

matter, these customers determined that 

the number of application sessions that 

they maintained was not necessary in 

order to participate on the Exchange. 

Based on its experience since 

adopting the proposed fees in January, 

the Exchange believes that there is 

ample evidence showing that it is 

subject to competitive forces when 

setting fees for physical connectivity 

and application sessions. Indeed, the 

evidence shows that firms can choose 

not to purchase those services, reduce 

consumption, or rely on external thirdparty providers in response to proposed 

fees. These competitive forces ensure 

that the Exchange cannot charge supracompetitive fees for connectivity 

services. In fact, as a new entrant to the 

exchange industry, the Exchange is 

particularly subject to competitive 

forces and has carefully crafted its 

current and proposed fees with the goal 

of growing its business. In this 

environment, the Exchange has no 

ability to set fees at levels that would be 

deemed supra-competitive as doing so 

would limit the Exchange’s ability to 

compete with its larger, established 

competitors. 

Finally, the fees for connectivity 

services will help to encourage 

connectivity services usage in a way 

that aligns with the Exchange’s 

regulatory obligations. As a national 

securities exchange, the Exchange is 

subject to Regulation Systems 

Compliance and Integrity (‘‘Reg SCI’’).27

Reg SCI Rule 1001(a) requires that the 

Exchange establish, maintain, and 

enforce written policies and procedures 

reasonably designed to ensure (among 

other things) that its Reg SCI systems 

have levels of capacity adequate to 

maintain the Exchange’s operational 

capability and promote the maintenance 

of fair and orderly markets.28 By 

encouraging Users to be efficient with 

their usage of connectivity services, the 

proposed fee will support the 

Exchange’s Reg SCI obligations in this 

regard by ensuring that unused 

application sessions are available to be 

allocated based on individual User 

needs and as the Exchange’s overall 

order and trade volumes increase. As 

noted above, based on early results, the 

adoption of fees has led to certain firms 

reducing the number of application 

sessions maintained now that such 

sessions are no longer provided free of 

charge. Additionally, because the 

Exchange will charge a lower rate for a 

physical connection to the Secondary 

Data Center and will not charge any fees 

for application sessions at the 

Secondary Data Center or its Test 

Facility, the proposed fee structure will 

further support the Exchange’s Reg SCI 

compliance by reducing the potential 

impact of a disruption should the 

Exchange be required to switch to its 

Disaster Recovery Facility and 

encouraging Members to engage in any 

necessary system testing with low or no 

cost imposed by the Exchange.29

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6(b) 30 of the 

Act in general, and furthers the 

objectives of Section 6(b)(4) 31 of the 

Act, in particular, in that it is designed 

to provide for the equitable allocation of 

reasonable dues, fees and other charges 

among its Members and other persons 

using its facilities. Additionally, the 

Exchange believes that the proposed 

fees are consistent with the objectives of 

Section 6(b)(5) 32 of the Act in that they 

are designed to promote just and 

equitable principles of trade, to foster 

cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, processing information with 

respect to, and facilitating transactions 

in securities, to remove impediments to 

a free and open market and national 

market system, and, in general, to 

protect investors and the public interest, 

and, particularly, are not designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

The Commission has repeatedly 

expressed its preference for competition 

over regulatory intervention in 

determining prices, products, and 

services in the securities markets. In 

Regulation NMS, the Commission 


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Federal Register / Vol. 87, No. 98 / Friday, May 20, 2022 / Notices 31035 

33See Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496 (June 29, 2005). 

34See infra notes 40–45 and accompanying text. 

highlighted the importance of market 

forces in determining prices and SRO 

revenues and also recognized that 

current regulation of the market system 

‘‘has been remarkably successful in 

promoting market competition in its 

broader forms that are most important to 

investors and listed companies.’’ 33 One 

of the primary objectives of MEMX is to 

provide competition and to reduce fixed 

costs imposed upon the industry. 

Consistent with this objective, the 

Exchange believes that this proposal 

reflects a simple, competitive, 

reasonable, and equitable pricing 

structure designed to permit the 

Exchange to cover certain fixed costs 

that it incurs for providing connectivity 

services, which are discounted when 

compared to products and services 

offered by competitors.34

Commission staff noted in its Fee 

Guidance that, as an initial step in 

assessing the reasonableness of a fee, 

staff considers whether the fee is 

constrained by significant competitive 

forces. To determine whether a 

proposed fee is constrained by 

significant competitive forces, staff has 

said that it considers whether the 

evidence demonstrates that there are 

reasonable substitutes for the product or 

service that is the subject of a proposed 

fee. There is no regulatory requirement 

that any market participant connect to 

the Exchange, that any participant 

connect in a particular manner, or that 

any participant maintain a certain 

number of connections to the Exchange. 

The Exchange reiterates that a small 

number of Members are required to 

connect to the Exchange for 

participation in mandatory testing of 

backup systems but such connectivity 

does not have to be obtained directly 

from the Exchange but instead can be 

through a third-party provider that 

provides connectivity to the Exchange. 

The Exchange again notes that at least 

one designated Member does, in fact, 

connect to the Exchange at the 

Secondary Data Center through a thirdparty provider. 

The Exchange also acknowledges that 

certain market participants operate 

businesses that do, in fact, require them 

to be connected to all U.S. equity 

exchanges. For instance, certain 

Members operate as routing brokers for 

other market participants. As an equities 

exchange with approximately 4% 

volume, these routing brokers likely 

need to maintain a connection to the 

Exchange on behalf of their clients. 

However, it is connectivity services 

provided by the Exchange that allow 

such participants to offer their clients a 

service for which they can be 

compensated (and allowing their clients 

not to directly connect but still to access 

the Exchange), and, as such, the 

Exchange believes it is reasonable, 

equitably allocated and not unfairly 

discriminatory to charge such Members 

for connectivity services. 

As a new entrant to the equities 

market, the Exchange does not have as 

Members many market participants that 

actively trade equities on other 

exchanges nor are such market 

participants directly connected to the 

Exchange. There are also a number of 

the Exchange’s Members that do not 

connect directly to MEMX. For instance, 

of the number of Members that maintain 

application sessions to participate 

directly on the Exchange, many such 

Members do not maintain physical 

connectivity but instead access the 

Exchange through a service bureau or 

extranet. In addition, of the Members 

that are directly connected to MEMX, it 

is generally the individual needs of the 

Member that dictate whether they need 

one or multiple physical connections to 

the Exchange as well as the number of 

application sessions that they will 

maintain. It is all driven by the business 

needs of the Member, and as described 

above, the Exchange believes it offers 

technology that will enable Members to 

maintain a smaller connectivity services 

footprint than they do on other markets. 

The Exchange’s experience as a new 

entrant to the market over the past year 

shows that all broker-dealers are not 

required to connect to all exchanges, 

including the Exchange. Instead, many 

market participants awaited the 

Exchange growing to a certain 

percentage of market share before they 

would join as a Member or connect to 

the Exchange. In addition, many market 

participants still have not connected 

despite the Exchange’s growth in one 

year to more than 4% of the overall 

equities market share. Thus, the 

Exchange recognizes that the decision of 

whether to connect to the Exchange is 

separate and distinct from the decision 

of whether and how to trade on the 

Exchange. This is because there are 

multiple alternatives to directly 

participating on the Exchange (such as 

use of a third-party routing broker to 

access the Exchange) or directly 

connecting to the Exchange (such as use 

of an extranet or service bureau). The 

Exchange acknowledges that many firms 

may choose to connect to the Exchange, 

but ultimately not trade on it, based on 

their particular business needs. The 

decision of which type of connectivity 

to purchase, or whether to purchase 

connectivity at all, is based on the 

business needs of each individual firm. 

There is also competition for 

connectivity to the Exchange. For 

instance, the Exchange competes with 

certain non-Members who provide 

connectivity and access to the 

Exchange, namely extranets and service 

bureaus. These are resellers of MEMX 

connectivity—they are not arrangements 

between broker-dealers to share 

connectivity costs. Those non-Members 

resell that connectivity to multiple 

market participants over the same 

connection. When physical connectivity 

is re-sold by a third-party, the Exchange 

will not receive any connectivity 

revenue from that sale, and without 

connectivity fees for the past year, such 

third parties have been able to re-sell 

something they receive for free. Such 

arrangements are entirely between the 

third-party and the purchaser, thus 

constraining the ability of MEMX to set 

its connectivity pricing as indirect 

connectivity is a substitute for direct 

connectivity. 

Indirect connectivity is a viable 

alternative that is already being used by 

Members and non-Members of MEMX, 

constraining the price that the Exchange 

is able to charge for connectivity to its 

Exchange. As set forth above, nearly half 

of the Exchange’s Members do not have 

a physical connection provided by the 

Exchange and instead must use a thirdparty provider. Members who have not 

established any connectivity to the 

Exchange are still able to trade on the 

Exchange indirectly through other 

Members or non-Member extranets or 

service bureaus that are connected. 

These Members will not be forced or 

compelled to purchase physical 

connectivity services, and they retain all 

of the other benefits of membership 

with the Exchange. Accordingly, 

Members have the choice to purchase 

physical connectivity and are not 

compelled to do so. The Exchange notes 

that without an application session, 

specifically an Order Entry Port, a 

Member could not submit orders to the 

Exchange. As such, while application 

sessions too can be obtained from a 

third-party reseller (i.e., a service 

bureau) the Exchange will receive 

revenue either from the Member or the 

third-party service bureau for each 

application session. However, as noted 

elsewhere, the Exchange has designed 

its platform such that Order Entry Ports 

can handle a significant amount of 

message traffic (i.e., over 50,000 orders 

per second), and has no application 

flow control or order throttling. As such, 

the Exchange believes that it has 

designed a system capable of allowing 

such Members to significantly reduce 


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35Market share percentage calculated as of 

February 28, 2022. The Exchange receives and 

processes data made available through consolidated 

data feeds (i.e., CTS and UTDF). 

36See NYSE Membership Directory, available at: 

https://www.nyse.com/markets/nyse/membership; 

BZX Form 1 filed November 19, 2021, available at: 

https://www.sec.gov/Archives/edgar/vprr/2100/ 

21009368.pdf; IEX Current Members list, available 

at: https://exchange.iex.io/resources/trading/ 

current-membership/. 

the number of application sessions 

maintained. 

As described above, the Exchange has 

seen certain Members and non-Members 

discontinue or change their usage of 

connectivity services provided by the 

Exchange in response to the fees 

adopted by the Exchange. Specifically, 

nine (9) participants reduced or 

discontinued use of connectivity 

services provided directly by the 

Exchange and five (5) participants 

reduced the number of application 

sessions used to participate on the 

Exchange. The Exchange believes that 

this demonstrates that not all market 

participants are required to use 

connectivity services provided by the 

Exchange but can instead choose to 

participate on the Exchange through a 

third-party provider of connectivity 

services, indirectly through another 

Member of the Exchange, or not at all. 

The Exchange also notes that of the 

participants that reduced or 

discontinued their use of connectivity 

services, several were in fact third-party 

providers of connectivity services, 

which demonstrates that such providers 

will connect to the Exchange to the 

extent they have sufficient clients to 

whom they can provide connectivity 

services and make a profit but they will 

not connect if this is not the case. 

The Exchange believes that the 

proposed fees for connectivity services 

are reasonable, equitable and not 

unfairly discriminatory because, as 

described above, the proposed pricing 

for connectivity services is directly 

related to the relative costs to the 

Exchange to provide those respective 

services and does not impose a barrier 

to entry to smaller participants. 

Accordingly, the Exchange offers direct 

connectivity alternatives and various 

indirect connectivity (via third-party) 

alternatives, as described above. 

The Exchange recognizes that there 

are various business models and varying 

sizes of market participants conducting 

business on the Exchange. The 

Exchange’s incremental aggregate costs 

for all connectivity services are 

disproportionately related to Members 

with higher message traffic and/or 

Members with more complicated 

connections established with the 

Exchange, as such Members: (1) 

Consume the most bandwidth and 

resources of the network; (2) transact the 

vast majority of the volume on the 

Exchange; and (3) require the hightouch network support services 

provided by the Exchange and its staff, 

including network monitoring, reporting 

and support services, resulting in a 

much higher cost to the Exchange to 

provide such connectivity services. 

Accordingly, the Exchange believes the 

allocation of the proposed fees that 

increase based on the number of 

physical connections or application 

sessions is reasonable based on the 

resources consumed by the respective 

type of market participant (i.e., lowest 

resource consuming Members will pay 

the least, and highest resource 

consuming Members will pay the most), 

particularly since higher resource 

consumption translates directly to 

higher costs to the Exchange. 

With respect to equities trading, the 

Exchange had approximately 4.3% 

market share of the U.S. equities 

industry in February 2022.35 The 

Exchange is not aware of any evidence 

that a market share of approximately 4% 

provides the Exchange with supracompetitive pricing power because, as 

shown above, market participants that 

choose to connect to the Exchange have 

various choices in determining how to 

do so, including third party alternatives. 

This, in addition to the fact that not all 

broker-dealers are required to connect to 

the Exchange, supports the Exchange’s 

conclusion that its pricing is 

constrained by competition. 

Several market participants choose 

not to be Members of the Exchange and 

choose not to access the Exchange, and 

several market participants also access 

the Exchange indirectly through another 

market participant. To illustrate, the 

Exchange currently has 65 Members. 

However, based on publicly available 

information regarding a sample of the 

Exchange’s competitors, the New York 

Stock Exchange LLC (‘‘NYSE’’) has 142 

members, Cboe BZX Exchange, Inc. 

(‘‘BZX’’) has 140 members, and 

Investors Exchange LLC (‘‘IEX’’) has 133 

members.36 If all market participants 

were required to be Members of the 

Exchange and connect directly to the 

Exchange, the Exchange would have 

over 130 Members, in line with these 

other exchanges. But it does not. The 

Exchange currently has approximately 

half of the number of members as 

compared to these other exchanges. 

Separately, the Exchange is not aware 

of any reason why market participants 

could not simply drop their connections 

and cease being Members of the 

Exchange if the Exchange were to 

establish unreasonable and 

uncompetitive prices for its connectivity 

services. Market participants choose to 

connect to a particular exchange and 

because it is a choice, MEMX must set 

reasonable pricing for connectivity 

services, otherwise prospective 

Members would not connect and 

existing Members would disconnect, 

connect through a third-party reseller of 

connectivity, or otherwise access the 

Exchange indirectly. The Exchange 

reiterates that several Members and nonMembers did in fact reduce or 

discontinue use of connectivity services 

provided directly by the Exchange in 

response to the fees adopted by the 

Exchange. No market participant is 

required by rule or regulation to be a 

Member of or connect directly to the 

Exchange, though again, the Exchange 

acknowledges that certain types of 

broker-dealers might be compelled by 

their business model to connect and 

also notes that pursuant to Rule 2.4, 

certain Members with significant 

volume on the Exchange are required to 

connect to the Exchange’s backup 

systems for testing on at least an annual 

basis. 

With regard to reasonableness, the 

Exchange understands that the 

Commission has traditionally taken a 

market-based approach to examine 

whether the SRO making the proposal 

was subject to significant competitive 

forces in setting the terms of the 

proposal. In looking at this question, the 

Commission considers whether the SRO 

has demonstrated in its filing that: (i) 

There are reasonable substitutes for the 

product or service; (ii) ‘‘platform’’ 

competition constrains the ability to set 

the fee; and/or (iii) revenue and cost 

analysis shows the fee would not result 

in the SRO taking supra-competitive 

profits. If the SRO demonstrates that the 

fee is subject to significant competitive 

forces, the Commission will next 

consider whether there is any 

substantial countervailing basis to 

suggest the fee’s terms fail to meet one 

or more standards under the Exchange 

Act. If the filing fails to demonstrate that 

the fee is constrained by competitive 

forces, the SRO must provide a 

substantial basis, other than 

competition, to show that it is 

consistent with the Exchange Act, 

which may include production of 

relevant revenue and cost data 

pertaining to the product or service. 

As described above, the Exchange 

believes that competitive forces are in 

effect and that if the proposed fees for 

connectivity services were unreasonable 

that the Exchange would lose current or 

prospective Members and market share. 

The Exchange reiterates that several 

market participants have in fact 


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37See Fee Guidance, supra note 14. 

38 15 U.S.C. 78f(b)(4). 39See supra note 18. 

modified the way that they connect to 

the Exchange in response to the 

Exchange’s pricing proposal. Further, 

the Exchange has conducted a 

comprehensive Cost Analysis in order to 

determine the reasonability of its 

proposed fees, including that the 

Exchange will not take supracompetitive profits. 

MEMX believes the proposed fees for 

connectivity services are fair and 

reasonable as a form of cost recovery for 

the Exchange’s aggregate costs of 

offering connectivity services to 

Members and non-Members. The 

proposed fees are expected to generate 

monthly revenue of $1,233,750 

providing cost recovery to the Exchange 

for the aggregate costs of offering 

connectivity services, based on a 

methodology that narrowly limits the 

cost drivers that are allocated cost to 

those closely and directly related to the 

particular service. In addition, this 

revenue will allow the Exchange to 

continue to offer, to enhance, and to 

continually refresh its infrastructure as 

necessary to offer a state-of-the-art 

trading platform. The Exchange believes 

that, consistent with the Act, it is 

appropriate to charge fees that represent 

a reasonable markup over cost given the 

other factors discussed above. The 

Exchange also believes the proposed fee 

is a reasonable means of encouraging 

Users to be efficient in the connectivity 

services they reserve for use, with the 

benefits to overall system efficiency to 

the extent Members and non-Members 

consolidate their usage of connectivity 

services or discontinue subscriptions to 

unused physical connectivity. 

The Exchange further believes that the 

proposed fees, as they pertain to 

purchasers of each type of connectivity 

alternative, constitute an equitable 

allocation of reasonable fees charged to 

the Exchange’s Members and nonMembers and are allocated fairly 

amongst the types of market participants 

using the facilities of the Exchange. 

As described above, the Exchange 

believes the proposed fees are equitably 

allocated because the Exchange’s 

incremental aggregate costs for all 

connectivity services are 

disproportionately related to Members 

with higher message traffic and/or 

Members with more complicated 

connections established with the 

Exchange, as such Members: (1) 

Consume the most bandwidth and 

resources of the network; (2) transact the 

vast majority of the volume on the 

Exchange; and (3) require the hightouch network support services 

provided by the Exchange and its staff, 

including network monitoring, reporting 

and support services, resulting in a 

much higher cost to the Exchange to 

provide such connectivity services. 

Commission staff previously noted 

that the generation of supra-competitive 

profits is one of several potential factors 

in considering whether an exchange’s 

proposed fees are consistent with the 

Act.37 As described in the Fee 

Guidance, the term ‘‘supra-competitive 

profits’’ refers to profits that exceed the 

profits that can be obtained in a 

competitive market. The proposed fee 

structure would not result in excessive 

pricing or supra-competitive profits for 

the Exchange. The proposed fee 

structure is merely designed to permit 

the Exchange to cover the costs 

allocated to providing connectivity 

services with a modest markup 

(approximately 8%), which would also 

help fund future expenditures 

(increased costs, improvements, etc.). 

The Exchange believes that this is fair, 

reasonable, and equitable. Accordingly, 

the Exchange believes that its proposal 

is consistent with Section 6(b)(4) 38 of 

the Act because the proposed fees will 

permit recovery of the Exchange’s costs 

and will not result in excessive pricing 

or supra-competitive profit. 

The proposed fees for connectivity 

services will allow the Exchange to 

cover certain costs incurred by the 

Exchange associated with providing and 

maintaining necessary hardware and 

other network infrastructure as well as 

network monitoring and support 

services; without such hardware, 

infrastructure, monitoring and support 

the Exchange would be unable to 

provide the connectivity services. The 

Exchange routinely works to improve 

the performance of the network’s 

hardware and software. The costs 

associated with maintaining and 

enhancing a state-of-the-art exchange 

network is a significant expense for the 

Exchange, and thus the Exchange 

believes that it is reasonable and 

appropriate to help offset those costs by 

adopting fees for connectivity services. 

As detailed above, the Exchange has 

four primary sources of revenue that it 

can potentially use to fund its 

operations: transaction fees, fees for 

connectivity services, membership and 

regulatory fees, and market data fees. 

Accordingly, the Exchange must cover 

its expenses from these four primary 

sources of revenue. The Exchange’s Cost 

Analysis estimates the costs to provide 

connectivity services at $1,143,715. 

Based on current connectivity services 

usage, the Exchange would generate 

monthly revenues of approximately 

$1,233,750.39 This represents a modest 

profit when compared to the cost of 

providing connectivity services. Even if 

the Exchange earns that amount or 

incrementally more, the Exchange 

believes the proposed fees for 

connectivity services are fair and 

reasonable because they will not result 

in excessive pricing or supracompetitive profit, when comparing the 

total expense of MEMX associated with 

providing connectivity services versus 

the total projected revenue of the 

Exchange associated with network 

connectivity services. As noted above, 

when incorporating the projected 

revenue from connectivity services into 

the Exchange’s overall projected 

revenue, including projections related to 

recently adopted market data fees, the 

Exchange anticipates monthly revenue 

ranging from $4,296,950 to $4,546,950 

from all sources. As such, applying the 

Exchange’s holistic Cost Analysis to a 

holistic view of anticipated revenues, 

the Exchange would earn approximately 

8.5% to 15% margin on its operations 

as a whole. The Exchange believes that 

this amount is reasonable and is again 

evidence that the Exchange will not 

earn a supra-competitive profit. 


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40One significant differentiation between the 

Exchanges is that while it offers different types of 

physical connections, including 10Gb, 25Gb, 40Gb, 

and 100Gb connections, the Exchange does not 

propose to charge different prices for such 

connections. In contrast, most of the Exchange’s 

competitors provide scaled pricing that increases 

depending on the size of the physical connection. 

The Exchange does not believe that its costs 

increase incrementally based on the size of a 

physical connection but instead, that individual 

connections and the number of such separate and 

disparate connections are the primary drivers of 

cost for the Exchange. 

41See the Nasdaq equities fee schedule, available 

at: http://www.nasdaqtrader.com/trader.aspx?id=

pricelisttrading2; the NYSE fee schedule, available 

at: https://www.nyse.com/publicdocs/nyse/markets/ 

nyse/NYSE_Price_List.pdf; the NYSE Arca equities 

fee schedule, available at: https://www.nyse.com/ 

publicdocs/nyse/markets/nyse-arca/NYSE_Arca_

Marketplace_Fees.pdf; the BZX equities fee 

schedule, available at: https://markets.cboe.com/us/ 

equities/membership/fee_schedule/bzx/; the EDGX 

equities fee schedule, available at: https://

markets.cboe.com/us/equities/membership/fee_

schedule/edgx/. This range is based on a review of 

the fees charged for 10–40Gb connections at each 

of these exchanges and relates solely to the physical 

port fee or connection charge, excluding co-location 

fees and other fees assessed by these exchanges. 

The Exchange notes that it does not offer physical 

connections with lower bandwidth than 10Gb and 

that Members and non-Members with lower 

bandwidth requirements typically access the 

Exchange through third-party extranets or service 

bureaus. 

42See id. 

43See id. 

44As noted above, all physical connections 

offered by MEMX are at least 10Gb capable and 

physical connections provided with larger 

bandwidth capabilities will be provided at the same 

rate as such connections. In contrast to other 

exchanges, MEMX has not proposed different types 

of physical connections with higher pricing for 

those with greater capacity. See supra note 40. The 

Exchange also reiterates that MEMX application 

sessions are capable of handling significant amount 

of message traffic (i.e., over 50,000 orders per 

second), and have no application flow control or 

order throttling, in contrast to competitors that have 

imposed message rate thresholds. See supra note 23 

and accompanying text. 

45See supra note 41. 

46 15 U.S.C. 78f(b)(4) and (5). 

47 15 U.S.C. 78f(b)(8). 

The Exchange notes that other 

exchanges offer similar connectivity 

options to market participants and that 

the Exchange’s fees are a discount as 

compared to the majority of such fees.40

With respect to physical connections, 

each of the Nasdaq Stock Market LLC 

(‘‘Nasdaq’’), NYSE, NYSE Arca, Inc. 

(‘‘Arca’’), BZX and Cboe EDGX 

Exchange, Inc. (‘‘EDGX’’) charges 

between $7,500–$22,000 per month for 

physical connectivity at their primary 

data centers that is comparable to that 

offered by the Exchange.41 Nasdaq, 

NYSE and Arca also charge installation 

fees, which are not proposed to be 

charged by the Exchange. With respect 

to application sessions, each of Nasdaq, 

NYSE, Arca, BZX and EDGX charges 

between $500–$575 per month for order 

entry and drop ports.42 The Exchange 

further notes that several of these 

exchanges each charge for other logical 

ports that the Exchange will continue to 

provide for free, such as application 

sessions for testing and disaster 

recovery purposes.43 While the 

Exchange’s proposed connectivity fees 

are lower than the fees charged by 

Nasdaq, NYSE, Arca, BZX and EDGX, 

MEMX believes that it offers significant 

value to Members over these other 

exchanges in terms of bandwidth 

available over such connectivity 

services, which the Exchanges believes 

is a competitive advantage, and 

differentiates its connectivity versus 

connectivity to other exchanges.44

Additionally, the Exchange’s proposed 

connectivity fees to its disaster recovery 

facility are within the range of the fees 

charged by other exchanges for similar 

connectivity alternatives.45 The 

Exchange believes that its proposal to 

offer certain application sessions free of 

charge is reasonable, equitably allocated 

and not unfairly discriminatory because 

such proposal is intended to encourage 

Member connections and use of backup 

and testing facilities of the Exchange, 

and, with respect to MEMOIR Gap Fill 

ports, such ports are used exclusively in 

connection with the receipt and 

processing of market data from the 

Exchange. 

In conclusion, the Exchange submits 

that its proposed fee structure satisfies 

the requirements of Sections 6(b)(4) and 

6(b)(5) of the Act 46 for the reasons 

discussed above in that it provides for 

the equitable allocation of reasonable 

dues, fees and other charges among its 

Members and other persons using its 

facilities, does not permit unfair 

discrimination between customers, 

issuers, brokers, or dealers, and is 

designed 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, particularly as the 

proposal neither targets nor will it have 

a disparate impact on any particular 

category of market participant. As 

described more fully below in the 

Exchange’s statement regarding the 

burden on competition, the Exchange 

believes that it is subject to significant 

competitive forces, and that the 

proposed fee structure is an appropriate 

effort to address such forces. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

In accordance with Section 6(b)(8) of 

the Act,47 the Exchange does not believe 

that the proposed rule change would 

impose any burden on competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

Intra-Market Competition 

The Exchange does not believe that 

the proposed rule change would place 

certain market participants at the 

Exchange at a relative disadvantage 

compared to other market participants 

or affect the ability of such market 

participants to compete. In particular, 

while the Exchange did not officially 

proposed fees until late December of 

2021 when it filed the Initial Proposal, 

Exchange personnel had been 

informally discussing potential fees for 

connectivity services with a diverse 

group of market participants that are 

connected to the Exchange (including 

large and small firms, firms with large 

connectivity service footprints and 

small connectivity service footprints, as 

well as extranets and service bureaus) 

for several months leading up to that 

time. The Exchange received no official 

complaints from Members, nonMembers (extranets or service bureaus), 

third-parties that purchase the 

Exchange’s connectivity and resell it, 

and customers of those resellers, that 

the Exchange’s fees or the proposed fees 

for connectivity services would 

negatively impact their abilities to 

compete with other market participants 

or that they are placed at a 

disadvantage. 

As expected, the Exchange did, 

however, have several market 

participants reduce or discontinue use 

of connectivity services provided 

directly by the Exchange in response to 

the fees adopted by the Exchange. The 

Exchange does not believe that the 

proposed fees for connectivity services 

place certain market participants at a 

relative disadvantage to other market 

participants because the proposed 

connectivity pricing is associated with 

relative usage of the Exchange by each 

market participant and does not impose 

a barrier to entry to smaller participants. 

The Exchange notes that two smaller 

trading firms cancelled connectivity 

services and elected not to participate 

on the Exchange directly due to the 

imposition of fees but these participants 

were not actively participating on the 

Exchange prior to disconnecting and 

likely connected initially due to the fact 

that there were no fees to connect. The 

Exchange believes its proposed pricing 

is reasonable and, when coupled with 

the availability of third-party providers 

that also offer connectivity solutions, 

that participation on the Exchange is 

affordable for all market participants, 

including smaller trading firms. As 

described above, the connectivity 


khammond on DSKJM1Z7X2PROD with NOTICES
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48See supra notes 40–45 and accompanying text. 

49 15 U.S.C. 78s(b)(3)(A)(ii). 

50 17 CFR 240.19b–4(f)(2). 

51 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

services purchased by market 

participants typically increase based on 

their additional message traffic and/or 

the complexity of their operations. The 

market participants that utilize more 

connectivity services typically utilize 

the most bandwidth, and those are the 

participants that consume the most 

resources from the network. 

Accordingly, the proposed fees for 

connectivity services do not favor 

certain categories of market participants 

in a manner that would impose a 

burden on competition; rather, the 

allocation of the proposed connectivity 

fees reflects the network resources 

consumed by the various size of market 

participants and the costs to the 

Exchange of providing such 

connectivity services. 

Inter-Market Competition 

The Exchange does not believes the 

proposed fees place an undue burden on 

competition on other SROs that is not 

necessary or appropriate. In particular, 

market participants are not forced to 

connect to all exchanges, as shown by 

the number of Members of the Exchange 

as compared to the much greater 

number of members at other exchanges, 

as described above. Not only does 

MEMX have less than half the number 

of members as certain other exchanges, 

but there are also a number of the 

Exchange’s Members that do not 

connect directly to the Exchange. 

Additionally, other exchanges have 

similar connectivity alternatives for 

their participants, but with higher rates 

to connect.48 The Exchange is also 

unaware of any assertion that the 

proposed fees for connectivity services 

would somehow unduly impair its 

competition with other exchanges. To 

the contrary, if the fees charged are 

deemed too high by market participants, 

they can simply disconnect. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act 49 and Rule 

19b–4(f)(2) 50 thereunder. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

MEMX–2022–13 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–MEMX–2022–13. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–MEMX–2022–13 and 

should be submitted on or before June 

10, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.51

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–10807 Filed 5–19–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94918; File No. SR– 

NASDAQ–2022–034] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Amend the 

Nasdaq Amended and Restated 

Certificate of Incorporation 

May 16, 2022. 

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

Securities Exchange Act of 1934 (‘‘Act’’ 

or ‘‘Exchange Act’’),1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on May 6, 2022, The Nasdaq Stock 

Market LLC (‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend the 

Amended and Restated Certificate of 

Incorporation (‘‘Certificate’’) of its 

parent corporation, Nasdaq, Inc. 

(‘‘Nasdaq’’ or the ‘‘Company’’), to 

increase Nasdaq’s authorized share 

capital. The text of the proposed rule 

change is available on the Exchange’s 

website at https://listingcenter.

nasdaq.com/rulebook/nasdaq/rules, at 

the principal office of the Exchange, and 

at the Commission’s Public Reference 

Room. 


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