Document ID: SEC-2021-1759-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX Emerald, LLC
Posted Date: 2021-12-20T05:00Z

[Federal Register Volume 86, Number 241 (Monday, December 20, 2021)]
[Notices]
[Pages 71965-71978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27421]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93772; File No. SR-EMERALD-2021-43]

Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fee Schedule To Adopt a Tiered-Pricing Structure for Additional 
Limited Service MIAX Emerald Express Interface Ports

December 14, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 1, 2021, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the Exchange's Fee 
Schedule (the ``Fee Schedule'') to amend certain port fees.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX's 
principal office, and at the Commission's Public Reference Room.

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

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

[[Page 71966]]

forth in sections A, B, and C below, of the most significant aspects of 
such statements.

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule to adopt a tiered-
pricing structure for additional Limited Service MIAX Emerald Express 
Interface (``MEI'') Ports \3\ available to Market Makers.\4\ The 
Exchange believes a tiered-pricing structure will encourage Market 
Makers to be more efficient and economical when determining how to 
connect to the Exchange. This should also enable the Exchange to better 
monitor and provide access to the Exchange's network to ensure 
sufficient capacity and headroom in the System.\5\
---------------------------------------------------------------------------

    \3\ The MIAX Emerald Express Interface (``MEI'') is a connection 
to the MIAX Emerald System that enables Market Makers to submit 
simple and complex electronic quotes to MIAX Emerald. See the 
Definitions Section of the Fee Schedule.
    \4\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. See the Definitions Section 
of the Fee Schedule and Exchange Rule 100.
    \5\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See the Definitions 
Section of the Fee Schedule and Exchange Rule 100.
---------------------------------------------------------------------------

    The Exchange initially filed the proposed fee changes on August 2, 
2021, with the changes being immediately effective.\6\ The First 
Proposed Rule Change was published for comment in the Federal Register 
on August 19, 2021.\7\ The Commission received one comment letter on 
the First Proposed Rule Change.\8\ The Exchange withdrew the First 
Proposed Rule Change on September 27, 2021 and resubmitted its proposal 
(``Second Proposed Rule Change'').\9\ On September 28, 2021, the 
Exchange withdrew the Second Proposed Rule Change and re-submitted the 
proposal on September 28, 2021, with the proposed fee changes being 
immediately effective (``Third Proposed Rule Change'').\10\ The Third 
Proposed Rule Change was published for comment in the Federal Register 
on October 5, 2021.\11\ The Third Proposed Rule Change provided 
additional justification for the proposed fee changes and addressed 
certain points raised in the single comment letter that was submitted 
on the First Proposed Rule Change. The Commission received four comment 
letters from three separate commenters on the Third Proposed Rule 
Change.\12\ The Commission suspended the Third Proposed Rule Change on 
November 22, 2021.\13\ The Exchange withdrew the Third Proposed Rule 
Change on December 1, 2021 and now submits this proposal for immediate 
effectiveness (``Fourth Proposed Rule Change''). This Fourth Proposed 
Rule Change meaningfully attempts to address issues or questions that 
have been raised by providing additional justification and explanation 
for the proposed fee changes and directly respond to the points raised 
in SIG Letters 1, 2, and 3, as well as the SIFMA Letter submitted on 
the First and Second Proposed Rule Changes,\14\ and feedback provided 
by Commission Staff during a telephone conversation on November 18, 
2021 relating to the Third Proposed Rule Change.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 92662 (August 13, 
2021), 86 FR 46726 (August 19, 2021) (SR-EMERALD-2021-25).
    \7\ Id.
    \8\ See Letter from Richard J. McDonald, Susquehanna 
International Group, LLC (``SIG''), to Vanessa Countryman, 
Secretary, Commission, dated September 7, 2021 (``SIG Letter 1'').
    \9\ See SR-EMERALD-2021-30.
    \10\ See Securities Exchange Act Release No. 93188 (September 
29, 2021), 86 FR 55052 (October 5, 2021) (SR-EMERALD-2021-31).
    \11\ Id.
    \12\ See letters from Richard J. McDonald, SIG, to Vanessa 
Countryman, Secretary, Commission, dated October 1, 2021 (``SIG 
Letter 2'') and October 26, 2021 (``SIG Letter 3''); and Ellen 
Green, Managing Director, Equity and Options Market Structure, 
Securities Industry and Financial Markets Association (``SIFMA''), 
to Vanessa Countryman, Secretary, Commission, dated November 26, 
2021 (``SIFMA Letter''). The Exchange notes that the Healthy Markets 
Association (``HMA'') submitted a comment letter on a related filing 
to amend fees for 10Gb ULL connections, on which SIG Letters 1, 2, 
and 3 as well as the SIFMA Letter also commented. See letter from 
Tyler Gellasch, Executive Director, HMA (``HMA''), to Hon. Gary 
Gensler, Chair, Commission, dated October 29, 2021 (commenting on 
SR-CboeEDGA-2021-017, SR-CboeBYX-2021-020, SR-Cboe-BZX-2021-047, SR-
CboeEDGX-2021-030, SR-MIAX-2021-41, SR-PEARL-2021-45, and SR-
EMERALD-2021-29 and stating that ``MIAX has repeatedly filed to 
change its connectivity fees in a way that will materially lower 
costs for many users, while increasing the costs for some of its 
heaviest of users. These filings have been withdrawn and repeatedly 
refiled. Each time, however, the filings contain significantly 
greater information about who is impacted and how than other filings 
that have been permitted to take effect without suspension'') 
(emphasis added) (``HMA Letter'').
    \13\ See Securities Exchange Act Release No. 93644 (November 22, 
2021), 86 FR 67745 (November 29, 2021).
    \14\ The Exchange notes that while the HMA Letter applauds the 
level of disclosure the Exchange included in the First and Second 
Proposed Rule Changes, the HMA Letter does not raise specific issues 
with the First or Second Proposed Rule Changes. Rather, it 
references the Exchange's proposals by way of comparison to show the 
varying levels of transparency in exchange fees filings and 
recommends changes to the Commission's review process of exchange 
fee filings generally. Therefore, the Exchange does not feel it is 
necessary to address the issues raised in the HMA Letter.
---------------------------------------------------------------------------

Additional Limited Service MEI Port Tiered-Pricing Structure
    The Exchange proposes to amend the fees for additional Limited 
Service MEI Ports. Currently, the Exchange allocates two (2) Full 
Service MEI Ports \15\ and two (2) Limited Service MEI Ports \16\ per 
matching engine \17\ to which each Market Maker connects. Market Makers 
may also request additional Limited Service MEI Ports for each matching 
engine to which they connect. The Full Service MEI Ports, Limited 
Service MEI Ports and the additional Limited Service MEI Ports all 
include access to the Exchange's primary and secondary data centers and 
its disaster recovery center. Market Makers may request additional 
Limited Service MEI Ports for which they are assessed a $100 monthly 
fee for each additional Limited Service MEI Port for each matching 
engine.
---------------------------------------------------------------------------

    \15\ ``Full Service MEI Ports'' means a port which provides 
Market Makers with the ability to send Market Maker simple and 
complex quotes, eQuotes, and quote purge messages to the MIAX 
Emerald System. Full Service MEI Ports are also capable of receiving 
administrative information. Market Makers are limited to two Full 
Service MEI Ports per Matching Engine. See the Definitions Section 
of the Fee Schedule.
    \16\ ``Limited Service MEI Ports'' means a port which provides 
Market Makers with the ability to send simple and complex eQuotes 
and quote purge messages only, but not Market Maker Quotes, to the 
MIAX Emerald System. Limited Service MEI Ports are also capable of 
receiving administrative information. Market Makers initially 
receive two Limited Service MEI Ports per Matching Engine. See the 
Definitions Section of the Fee Schedule.
    \17\ ``Matching Engine'' means a part of the MIAX Emerald 
electronic system that processes options orders and trades on a 
symbol-by-symbol basis. Some Matching Engines will process option 
classes with multiple root symbols, and other Matching Engines may 
be dedicated to one single option root symbol (for example, options 
on SPY may be processed by one single Matching Engine that is 
dedicated only to SPY). A particular root symbol may only be 
assigned to a single designated Matching Engine. A particular root 
symbol may not be assigned to multiple Matching Engines. See the 
Definitions Section of the Fee Schedule.
---------------------------------------------------------------------------

    The Exchange now proposes to move from a flat monthly fee per 
additional Limited Service MEI Port for each matching engine to a 
tiered-pricing structure for additional Limited Service MEI Ports for 
each matching engine under which the monthly fee would vary depending 
on the number of additional Limited Service MEI Ports the Market Maker 
elects to purchase. Specifically, the Exchange will continue to provide 
the first and second additional Limited Service MEI Ports for each 
matching engine free of charge, as described above, per the initial 
allocation of Limited Service MEI Ports that Market Makers receive. The 
Exchange now proposes the following

[[Page 71967]]

tiered-pricing structure: (i) The third and fourth additional Limited 
Service MEI Ports for each matching engine will increase from the 
current flat monthly fee of $100 to $200 per port; (ii) the fifth and 
sixth additional Limited Service MEI Ports for each matching engine 
will increase from the current flat monthly fee of $100 to $300 per 
port; and (iii) the seventh to the twelfth additional Limited Service 
MEI Ports will increase from the current monthly flat fee of $100 to 
$400 per port (collectively, the ``Proposed Access Fees'').
    The Exchange believes the other exchange's port fees are a useful 
example of alternative approaches to providing and charging for port 
access and provides the below table for comparison purposes only to 
show how its proposed fees compare to fees currently charged by other 
options exchanges for similar port access. As shown by the below table, 
the Exchange's proposed highest tier is still less than fees charged 
for similar port access provided by other options exchanges.

------------------------------------------------------------------------
                                                      Monthly fee (per
          Exchange                Type of port              port)
------------------------------------------------------------------------
MIAX Emerald (as proposed)..  Additional Limited    1-2 ports. FREE (not
                               Service MEI Port.     changed in this
                                                     proposal).
                                                    3-4 ports. $200.
                                                    5-6 ports. $300.
                                                    7-12 ports. $400.
NYSE American, LLC            Order/Quote Entry     $450.
 (``Amex'') \18\.              Port.
NYSE Arca, Inc. (``Arca'')    Order/Quote Entry     $450.
 \19\.                         Port.
The NASDAQ Stock Market LLC   SQF Port............  1-5 ports.
 (``NASDAQ'') \20\.                                  $1,500.00.
                                                    6-20 ports.
                                                     $1,000.00.
                                                    21 or more ports.
                                                     $500.
------------------------------------------------------------------------

2. Statutory Basis
---------------------------------------------------------------------------

    \18\ See NYSE American Options Fee Schedule, Section V.A., Port 
Fees.
    \19\ See NYSE Arca Options Fee Schedule, Port Fees.
    \20\ See Nasdaq Stock Market, Nasdaq Options 7 Pricing Schedule, 
Section 3, Nasdaq Options Market--Ports and Other Services.
---------------------------------------------------------------------------

    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \21\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \22\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposal 
furthers the objectives of Section 6(b)(5) of the Act \23\ in that it 
is designed to promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general protect investors and the 
public interest and is not designed to permit unfair discrimination 
between customers, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(4).
    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    On March 29, 2019, the Commission issued an Order disapproving a 
proposed fee change by the BOX Market LLC Options Facility to establish 
connectivity fees for its BOX Network (the ``BOX Order'').\24\ On May 
21, 2019, the Commission Staff issued guidance ``to assist the national 
securities exchanges and FINRA . . . in preparing Fee Filings that meet 
their burden to demonstrate that proposed fees are consistent with the 
requirements of the Securities Exchange Act.'' \25\ Accordingly, the 
Exchange believes that the Proposed Access Fees are consistent with the 
Act because they (i) are reasonable, equitably allocated, not unfairly 
discriminatory, and not an undue burden on competition; (ii) comply 
with the BOX Order and the Guidance; (iii) are supported by evidence 
(including comprehensive revenue and cost data and analysis) that they 
are fair and reasonable because they will not result in excessive 
pricing or supra-competitive profit; and (iv) utilize a cost-based 
justification framework that is substantially similar to a framework 
previously used by the Exchange, and its affiliates Miami International 
Securities Exchange, LLC (``MIAX'') and MIAX PEARL, LLC (``MIAX 
Pearl''), to amend other non-transaction fees.\26\
---------------------------------------------------------------------------

    \24\ See Securities Exchange Act Release No. 85459 (March 29, 
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37, 
and SR-BOX-2019-04) (Order Disapproving Proposed Rule Changes to 
Amend the Fee Schedule on the BOX Market LLC Options Facility to 
Establish BOX Connectivity Fees for Participants and Non-
Participants Who Connect to the BOX Network).
    \25\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
    \26\ See Securities Exchange Act Release Nos. 90981 (January 25, 
2021), 86 FR 7582 (January 29, 2021) (SR-PEARL-2021-01) (proposal to 
increase connectivity fees); 90980 (January 25, 2021), 86 FR 7602 
(January 29, 2021) (SR-MIAX-2021-02) (proposal to increase 
connectivity fees).
---------------------------------------------------------------------------

The Proposed Access Fees Will Not Result in a Supra-Competitive Profit
    The Exchange believes that exchanges, in setting fees of all types, 
should meet very high standards of transparency to demonstrate why each 
new fee or fee increase meets the requirements of the Act that fees be 
reasonable, equitably allocated, not unfairly discriminatory, and not 
create an undue burden on competition among market participants. The 
Exchange believes this high standard is especially important when an 
exchange imposes various access fees for market participants to access 
an exchange's marketplace. The Exchange deems ports to be access fees. 
It records these fees as part of its ``Access Fees'' revenue in its 
financial statements.
    In its Guidance, the Commission Staff stated that, ``[a]s an 
initial step in assessing the reasonableness of a fee, staff considers 
whether the fee is constrained by significant competitive forces.'' 
\27\ The Commission Staff Guidance further states that, ``. . . even 
where an SRO cannot demonstrate, or does not assert, that significant 
competitive forces constrain the fee at issue, a cost-based discussion 
may be an alternative basis upon which to show consistency with the 
Exchange Act.'' \28\ In its Guidance, the Commission staff further 
states that, ``[i]f an SRO seeks to support its claims that a proposed 
fee is fair and reasonable because it will permit recovery of the SRO's 
costs, or will not result in excessive pricing or supracompetitive 
profit, specific

[[Page 71968]]

information, including quantitative information, should be provided to 
support that argument.'' \29\ The Exchange does not assert that the 
Proposed Access Fees are constrained by competitive forces. Rather, the 
Exchange asserts that the Proposed Access Fees are reasonable because 
they will permit recovery of the Exchange's costs in providing access 
services to supply additional Limited Service MEI Ports and will not 
result in the Exchange generating a supra-competitive profit.
---------------------------------------------------------------------------

    \27\ See Guidance, supra note 25.
    \28\ Id.
    \29\ Id.
---------------------------------------------------------------------------

    The Guidance defines ``supra-competitive profit'' as ``profits that 
exceed the profits that can be obtained in a competitive market.'' \30\ 
The Commission Staff further states in the Guidance that ``the SRO 
should provide an analysis of the SRO's baseline revenues, costs, and 
profitability (before the proposed fee change) and the SRO's expected 
revenues, costs, and profitability (following the proposed fee change) 
for the product or service in question.'' \31\ The Exchange provides 
this analysis below.
---------------------------------------------------------------------------

    \30\ Id.
    \31\ Id.
---------------------------------------------------------------------------

    Based on this analysis, the Exchange believes the Proposed Access 
Fees are reasonable and do not result in a ``supra-competitive'' \32\ 
profit. The Exchange believes that it is important to demonstrate that 
the Proposed Access Fees are based on its costs and reasonable business 
needs. The Exchange believes the Proposed Access Fees will allow the 
Exchange to offset expenses the Exchange has and will incur, and that 
the Exchange provides sufficient transparency (described below) into 
the costs and revenue underlying the Proposed Access Fees. Accordingly, 
the Exchange provides an analysis of its revenues, costs, and 
profitability associated with the Proposed Access Fees. This analysis 
includes information regarding its methodology for determining the 
costs and revenues associated with the Proposed Access Fees. As a 
result of this analysis, the Exchange believes the Proposed Access Fees 
are fair and reasonable as a form of cost recovery plus present the 
possibility of a reasonable return for the Exchange's aggregate costs 
of offering additional Limited Service MEI Port access to the Exchange.
---------------------------------------------------------------------------

    \32\ See Guidance, supra note 25.
---------------------------------------------------------------------------

    The Proposed Access Fees are based on a cost-plus model. In 
determining the appropriate fees to charge, the Exchange considered its 
costs to provide port access, using what it believes to be a 
conservative methodology (i.e., that strictly considers only those 
costs that are most clearly directly related to the provision and 
maintenance of additional Limited Service MEI Ports) to estimate such 
costs,\33\ as well as the relative costs of providing and maintaining 
additional Limited Service MEI Ports, and set fees that are designed to 
cover its costs with a limited return in excess of such costs. However, 
as discussed more fully below, such fees may also result in the 
Exchange recouping less than all of its costs of providing and 
maintaining additional Limited Service MEI Ports because of the 
uncertainty of forecasting subscriber decision making with respect to 
firms' additional Limited Service MEI Port needs and the likely 
potential for increased costs to procure the third-party services 
described below.
---------------------------------------------------------------------------

    \33\ For example, the Exchange only included the costs 
associated with providing and supporting additional Limited Service 
MEI Ports and excluded from its cost calculations any cost not 
directly associated with providing and maintaining such ports. Thus, 
the Exchange notes that this methodology underestimates the total 
costs of providing and maintaining additional Limited Service MEI 
Ports.
---------------------------------------------------------------------------

    To determine the Exchange's costs to provide access services 
associated with the Proposed Access Fees, the Exchange conducted an 
extensive cost review in which the Exchange analyzed nearly every 
expense item in the Exchange's general expense ledger to determine 
whether each such expense relates to the Proposed Access Fees, and, if 
such expense did so relate, what portion (or percentage) of such 
expense actually supports access services associated with the Proposed 
Access Fees.
    The Exchange also provides detailed information regarding the 
Exchange's cost allocation methodology--namely, information that 
explains the Exchange's rationale for determining that it was 
reasonable to allocate certain expenses described in this filing 
towards the cost to the Exchange to provide the access services 
associated with the Proposed Access Fees. The Exchange conducted a 
thorough internal analysis to determine the portion (or percentage) of 
each expense to allocate to the support of access services associated 
with the Proposed Access Fees. This analysis \34\ included discussions 
with each Exchange department head to determine the expenses that 
support access services associated with the Proposed Access Fees. Once 
the expenses were identified, the Exchange department heads, with the 
assistance of our internal finance department, reviewed such expenses 
holistically on an Exchange-wide level to determine what portion of 
that expense supports providing access services for the Proposed Access 
Fees. The sum of all such portions of expenses represents the total 
cost to the Exchange to provide access services associated with the 
Proposed Access Fees. For the avoidance of doubt, no expense amount was 
allocated twice.
---------------------------------------------------------------------------

    \34\ A description of the Exchange's methodology for determining 
the portion (or percentage) of each expense to allocate to the 
Proposed Access Fee is being provide in response to comments from 
SIG and SIFMA. See SIG Letter 3 and SIFMA Letter, supra note 12.
---------------------------------------------------------------------------

    To determine the Exchange's projected revenue associated with the 
Proposed Access Fees, the Exchange analyzed the number of Market Makers 
currently utilizing additional Limited Service MEI Ports and used a 
recent monthly billing cycle representative of 2021 monthly revenue. 
The Exchange also provided its baseline by analyzing July 2021, the 
monthly billing cycle prior to the Proposed Access Fees going into 
effect, and compared it to its expenses for that month.\35\ As 
discussed below, the Exchange does not believe it is appropriate to 
factor into its analysis future revenue growth or decline into its 
projections for purposes of these calculations, given the uncertainty 
of such projections due to the continually changing access needs of 
market participants and potential increase in internal and third party 
expenses. The Exchange is presenting its revenue and expense associated 
with the Proposed Access Fees in this filing in a manner that is 
consistent with how the Exchange presents its revenue and expense in 
its Audited Unconsolidated Financial Statements. The Exchange's most 
recent Audited Unconsolidated Financial Statement is for 2020. However, 
since the revenue and expense associated with the Proposed Access Fees 
were not in place in 2020 or for the first seven months of 2021, the 
Exchange believes its 2020 Audited Unconsolidated Financial Statement 
is not representative of its current total annualized revenue and costs 
associated with the Proposed Access Fees. Accordingly, the Exchange 
believes it is more appropriate to analyze the Proposed Access Fees 
utilizing its 2021 revenue and costs, as described herein, which 
utilize the same presentation methodology as set forth in the 
Exchange's previously-issued Audited Unconsolidated Financial 
Statements. Based on this analysis, the Exchange believes that the 
Proposed Access Fees are reasonable because they will allow the 
Exchange to recover its costs

[[Page 71969]]

associated with providing access services related to the Proposed 
Access Fees and not result in excessive pricing or supra-competitive 
profit.
---------------------------------------------------------------------------

    \35\ Id.
---------------------------------------------------------------------------

    As outlined in more detail below, the Exchange projects that its 
annualized expense for 2021 to provide additional Limited Service MEI 
Ports to be approximately $880,000 per annum or an average of 
$73,333.33 per month. The Exchange implemented the Proposed Access Fees 
on August 1, 2021 in the First Proposed Rule Change. For July 2021, 
prior to the Proposed Access Fees, the Exchange Members and non-Members 
purchased a total of 625 additional Limited Service MEI Ports for which 
the Exchange charged approximately $62,500. This resulted in a loss of 
$10,833.33 for that month (a loss margin of approximately 17.3%). For 
the month of November 2021, which includes the tiered rates for 
additional Limited Service MEI Ports for the Proposed Access Fees, 
Exchange Members and non-Members increased the number of additional 
Limited Service MEI Ports they purchased resulting in a total of 860 
additional Limited Service MEI Ports for which the Exchange charged 
approximately $216,600 for that month. This resulted in a profit of 
$143,266.67 for that month (a profit margin of approximately 66%, after 
experiencing monthly losses prior to the Proposed Access Fees. The 
Exchange believes that the Proposed Access Fees are reasonable because 
they are designed to generate a revenue per-month after experiencing 
monthly losses prior to the Proposed Access Fees. The Exchange cautions 
that this profit margin may fluctuate from month to month based on the 
uncertainty of predicting how many ports may be purchased from month to 
month as Members and non-Members are able to add and drop ports at any 
time based on their own business decisions, which they frequently do. 
This profit margin may also decrease due to the significant 
inflationary pressure on capital items that the Exchange needs to 
purchase to maintain the Exchange's technology and systems.\36\ The 
Exchange has been subject to price increases upwards of 30% on network 
equipment due to supply chain shortages. This, in turn, results in 
higher overall costs for ongoing system maintenance, but also to 
purchase the items necessary to ensure ongoing system resiliency, 
performance, and determinism. These costs are expected to continue to 
go up as the U.S. economy continues to struggle with supply chain and 
inflation related issues.
---------------------------------------------------------------------------

    \36\ See ``Supply chain chaos is already hitting global growth. 
And it's about to get worse'', by Holly Ellyatt, CNBC, available at 
https://www.cnbc.com/2021/10/18/supply-chain-chaos-is-hitting-global-growth-and-could-get-worse.html (October 18, 2021); and 
``There will be things that people can't get, at Christmas, White 
House warns'' by Jarrett Renshaw and Trevor Hunnicutt, Reuters, 
available at https://www.reuters.com/world/us/americans-may-not-get-some-christmas-treats-white-house-officials-warn-2021-10-12/ 
(October 12, 2021).
---------------------------------------------------------------------------

    Further, the Exchange chose to provide additional Limited Service 
MEI Ports at a discounted price to attract order flow and encourage 
market participants to experience the determinism and resiliency of the 
Exchange's trading systems. This resulted in the Exchange forgoing 
revenue it could have generated from assessing higher fees. The 
Exchange could have sought to charge higher fees at the outset, but 
that could have served to discourage participation on the Exchange. 
Instead, the Exchange chose to provide a low cost exchange alternative 
to the options industry which resulted in lower initial revenues, or in 
this case, a monthly loss. The Exchange is now trying to amend its fee 
structure to enable it to continue to maintain and improve its overall 
market and systems while also providing a highly reliable and 
deterministic trading system to the marketplace.
    As mentioned above, the Exchange projects that its annualized 
expense for 2021 to provide additional Limited Service MEI Ports to be 
approximately $880,000 per annum or an average of $73,333.33 per month 
and that these costs are expected to increase not only due to 
anticipated significant inflationary pressure, but also periodic fee 
increases by third parties.\37\ The Exchange notes that there are 
material costs associated with providing the infrastructure and 
headcount to fully-support access to the Exchange. The Exchange incurs 
technology expense related to establishing and maintaining Information 
Security services, enhanced network monitoring and customer reporting, 
as well as Regulation SCI mandated processes, associated with its 
network technology. While some of the expense is fixed, much of the 
expense is not fixed, and thus increases the cost to the Exchange to 
provide access services associated with the Proposed Access Fees. For 
example, new Members to the Exchange may require the purchase of 
additional hardware to support those Members as well as enhanced 
monitoring and reporting of customer performance that the Exchange and 
its affiliates provide. Further, as the total number Members increases, 
the Exchange and its affiliates may need to increase their data center 
footprint and consume more power, resulting in increased costs charged 
by their third-party data center provider. Accordingly, the cost to the 
Exchange and its affiliates to provide access to its Members is not 
fixed. The Exchange believes the Proposed Access Fees are a reasonable 
attempt to offset a portion of the costs to the Exchange associated 
with providing access to its network infrastructure.
---------------------------------------------------------------------------

    \37\ For example, on October 20, 2021, ICE Data Services 
announced a 3.5% price increase effective January 1, 2022 for most 
services. The price increase by ICE Data Services includes their 
SFTI network, which is relied on by a majority of market 
participants, including the Exchange. See email from ICE Data 
Services to the Exchange, dated October 20, 2021. The Exchange 
further notes that on October 22, 2019, the Exchange was notified by 
ICE Data Services that it was raising its fees charged to the 
Exchange by approximately 11% for the SFTI network.
---------------------------------------------------------------------------

    The Exchange only has four primary sources of revenue and cost 
recovery mechanisms: Transaction fees, access fees (which includes the 
Proposed Access Fees), regulatory fees, and market data fees. 
Accordingly, the Exchange must cover all of its expenses from these 
four primary sources of revenue and cost recovery mechanisms. Until 
recently, the Exchange has operated at a cumulative net annual loss 
since it launched operations in 2019.\38\ This is a result of providing 
a low cost alternative to attract order flow and encourage market 
participants to experience the high determinism and resiliency of the 
Exchange's trading Systems.\39\ To do so, the Exchange chose to waive 
the fees for some non-transaction related services or provide them at a 
very marginal cost, which was not profitable to the Exchange. This 
resulted in the Exchange forgoing revenue it could have generated from 
assessing higher fees.
---------------------------------------------------------------------------

    \38\ The Exchange has incurred a cumulative loss of $22 million 
since its inception in 2019 to 2020, the last year for which the 
Exchange's Form 1 data is available. See Exchange's Form 1/A, 
Application for Registration or Exemption from Registration as a 
National Securities Exchange, filed July 28, 2021, available at 
https://sec.report/Document/9999999997-21-004557/.
    \39\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
---------------------------------------------------------------------------

    The Exchange believes that the Proposed Access Fees are fair and 
reasonable because they will not result in excessive pricing or supra-
competitive profit, when comparing the total annual expense that the 
Exchange projects to incur in connection with providing these access 
services versus the total annual revenue that the Exchange projects to 
collect in connection with services associated with the Proposed Access 
Fees. As

[[Page 71970]]

mentioned above, for 2021,\40\ the total annual expense for providing 
the access services associated with the Proposed Access Fees is 
projected to be approximately $880,000.00, or approximately $73,333.33 
per month. This projected total annual expense is comprised of the 
following, all of which are directly related to the access services 
associated with the Proposed Access Fees: (1) Third-party expense, 
relating to fees paid by the Exchange to third-parties for certain 
products and services; and (2) internal expense, relating to the 
internal costs of the Exchange to provide the services associated with 
the Proposed Access Fees.\41\ As noted above, the Exchange believes it 
is more appropriate to analyze the Proposed Access Fees utilizing its 
2021 revenue and costs, which utilize the same presentation methodology 
as set forth in the Exchange's previously-issued Audited Unconsolidated 
Financial Statements.\42\ The $880,000 projected total annual expense 
is directly related to the access services associated with the Proposed 
Access Fees, and not any other product or service offered by the 
Exchange. It does not include general costs of operating matching 
engines and other trading technology. No expense amount was allocated 
twice.
---------------------------------------------------------------------------

    \40\ The Exchange has not yet finalized its 2021 year end 
results.
    \41\ The percentage allocations used in this proposed rule 
change may differ from past filings from the Exchange or its 
affiliates due to, among other things, changes in expenses charged 
by third-parties, adjustments to internal resource allocations, and 
different system architecture of the Exchange as compared to its 
affiliates.
    \42\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the 
information technology and communication costs line item under the 
section titled ``Operating Expenses Incurred Directly or Allocated 
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing 
its financial statements for 2018. See Securities Exchange Act 
Release No. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020) 
(SR-EMERALD-2019-39). Accordingly, the third-party expense described 
in this filing is attributed to the same line item for the 
Exchange's 2021 Form 1 Amendment, which will be filed in 2022.
---------------------------------------------------------------------------

    As discussed above, the Exchange conducted an extensive cost review 
in which the Exchange analyzed nearly every expense item in the 
Exchange's general expense ledger (this includes over 150 separate and 
distinct expense items) to determine whether each such expense relates 
to the access services associated with the Proposed Access Fees, and, 
if such expense did so relate, what portion (or percentage) of such 
expense actually supports those services, and thus bears a relationship 
that is, ``in nature and closeness,'' directly related to those 
services. The sum of all such portions of expenses represents the total 
cost of the Exchange to provide access services associated with the 
Proposed Access Fees.
External Expense Allocations
    For 2021, total third-party expense, relating to fees paid by the 
Exchange to third-parties for certain products and services for the 
Exchange to be able to provide the access services associated with the 
Proposed Access Fees, is projected to be $0.05 million. This includes, 
but is not limited to, a portion of the fees paid to: (1) Equinix, for 
data center services, for the primary, secondary, and disaster recovery 
locations of the Exchange's trading system infrastructure; (2) Zayo 
Group Holdings, Inc. (``Zayo'') for network services (fiber and 
bandwidth products and services) linking the Exchange's office 
locations in Princeton, New Jersey and Miami, Florida, to all data 
center locations; (3) Secure Financial Transaction Infrastructure 
(``SFTI''),\43\ which supports connectivity and feeds for the entire 
U.S. options industry; (4) various other services providers (including 
Thompson Reuters, NYSE, Nasdaq, and Internap), which provide content, 
connectivity services, and infrastructure services for critical 
components of options connectivity and network services; and (5) 
various other hardware and software providers (including Dell and 
Cisco, which support the production environment in which Members 
connect to the network to trade, receive market data, etc.). For 
clarity, only a portion of all fees paid to such third-parties is 
included in the third-party expense herein, and no expense amount is 
allocated twice. Accordingly, the Exchange does not allocate its entire 
information technology and communication costs to the access services 
associated with the Proposed Access Fees.
---------------------------------------------------------------------------

    \43\ In fact, on October 22, 2019, the Exchange was notified by 
SFTI that it is again raising its fees charged to the Exchange by 
approximately 11%, without having to show that such fee change 
complies with the Act by being reasonable, equitably allocated, and 
not unfairly discriminatory. It is unfathomable to the Exchange 
that, given the critical nature of the infrastructure services 
provided by SFTI, that its fees are not required to be rule-filed 
with the Commission pursuant to Section 19(b)(1) of the Act and Rule 
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, 
respectively.
---------------------------------------------------------------------------

    For clarity, only a portion of all fees paid to such third-parties 
is included in the third-party expense herein, and no expense amount is 
allocated twice. Accordingly, the Exchange does not allocate its entire 
information technology and communication costs to the access services 
associated with the Proposed Access Fees. Further, the Exchange notes 
that, with respect to the expenses included herein, those expenses only 
cover the MIAX Emerald market; expenses associated with MIAX Pearl for 
its options and equities markets and MIAX, are accounted for separately 
and are not included within the scope of this filing. As noted above, 
the percentage allocations used in this proposed rule change may differ 
from past filings from the Exchange or its affiliates due to, among 
other things, changes in expenses charged by third-parties, adjustments 
to internal resource allocations, and different system architecture of 
the Exchange as compared to its affiliates. Further, as part its 
ongoing assessment of costs and expenses, the Exchange recently 
conducted a periodic thorough review of its expenses and resource 
allocations which, in turn, resulted in a revised percentage 
allocations in this filing.
    The Exchange believes it is reasonable to allocate such third-party 
expense described above towards the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
In particular, the Exchange believes it is reasonable to allocate the 
identified portion of the Equinix expense because Equinix operates the 
data centers (primary, secondary, and disaster recovery) that host the 
Exchange's network infrastructure. This includes, among other things, 
the necessary storage space, which continues to expand and increase in 
cost, power to operate the network infrastructure, and cooling 
apparatuses to ensure the Exchange's network infrastructure maintains 
stability. Without these services from Equinix, the Exchange would not 
be able to operate and support the network and provide the access 
services associated with the Proposed Access Fees to its Members and 
their customers. The Exchange did not allocate all of the Equinix 
expense toward the cost of providing the access services associated 
with the Proposed Access Fees, only that portion which the Exchange 
identified as being specifically mapped to providing the access 
services associated with the Proposed Access Fees, approximately 2.05% 
of the total applicable Equinix expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees, and not any other service, as supported by its cost review.\44\
---------------------------------------------------------------------------

    \44\ As noted above, the percentage allocations used in this 
proposed rule change may differ from past filings from the Exchange 
or its affiliates due to, among other things, changes in expenses 
charged by third-parties, adjustments to internal resource 
allocations, and different system architecture of the Exchange as 
compared to its affiliates. Again, as part of its ongoing assessment 
of costs and expenses, the Exchange recently conducted a periodic 
thorough review of its expenses and resource allocations which, in 
turn, resulted in a revised percentage allocations in this filing.

---------------------------------------------------------------------------

[[Page 71971]]

    The Exchange believes it is reasonable to allocate the identified 
portion of the Zayo expense because Zayo provides the internet, fiber 
and bandwidth connections with respect to the network, linking the 
Exchange with its affiliates, MIAX Pearl and MIAX, as well as the data 
center and disaster recovery locations. As such, all of the trade data, 
including the billions of messages each day per exchange, flow through 
Zayo's infrastructure over the Exchange's network. Without these 
services from Zayo, the Exchange would not be able to operate and 
support the network and provide the access services associated with the 
Proposed Access Fees. The Exchange did not allocate all of the Zayo 
expense toward the cost of providing the access services associated 
with the Proposed Access Fees, only the portion which the Exchange 
identified as being specifically mapped to providing the Proposed 
Access Fees, approximately 1.64% of the total applicable Zayo expense. 
The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the access services 
associated with the Proposed Access Fees, and not any other service, as 
supported by its cost review.\45\
---------------------------------------------------------------------------

    \45\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified 
portions of the SFTI expense and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense 
because those entities provide connectivity and feeds for the entire 
U.S. options industry, as well as the content, connectivity services, 
and infrastructure services for critical components of the network. 
Without these services from SFTI and various other service providers, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and their customers. The Exchange did not 
allocate all of the SFTI and other service providers' expense toward 
the cost of providing the access services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the access services associated with 
the Proposed Access Fees, approximately 2.05% of the total applicable 
SFTI and other service providers' expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees.\46\
---------------------------------------------------------------------------

    \46\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified 
portion of the other hardware and software provider expense because 
this includes costs for dedicated hardware licenses for switches and 
servers, as well as dedicated software licenses for security monitoring 
and reporting across the network. Without this hardware and software, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and their customers. The Exchange did not 
allocate all of the hardware and software provider expense toward the 
cost of providing the access services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the access services associated with 
the Proposed Access Fees, approximately 1.23% of the total applicable 
hardware and software provider expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees.\47\
---------------------------------------------------------------------------

    \47\ Id.
---------------------------------------------------------------------------

Internal Expense Allocations
    For 2021, total projected internal expense, relating to the 
internal costs of the Exchange to provide the access services 
associated with the Proposed Access Fees, is projected to be $0.83 
million. This includes, but is not limited to, costs associated with: 
(1) Employee compensation and benefits for full-time employees that 
support the access services associated with the Proposed Access Fees, 
including staff in network operations, trading operations, development, 
system operations, and business that support those employees and 
functions (including an increase as a result of the higher determinism 
project); (2) depreciation and amortization of hardware and software 
used to provide the access services associated with the Proposed Access 
Fees, including equipment, servers, cabling, purchased software and 
internally developed software used in the production environment to 
support the network for trading; and (3) occupancy costs for leased 
office space for staff that provide the access services associated with 
the Proposed Access Fees. The breakdown of these costs is more fully-
described below. For clarity, only a portion of all such internal 
expenses are included in the internal expense herein, and no expense 
amount is allocated twice. Accordingly, the Exchange does not allocate 
its entire costs contained in those items to the access services 
associated with the Proposed Access Fees.
    The Exchange believes it is reasonable to allocate such internal 
expense described above towards the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
In particular, the Exchange's employee compensation and benefits 
expense relating to providing the access services associated with the 
Proposed Access Fees is projected to be approximately $0.76 million, 
which is only a portion of the $9.74 million total projected expense 
for employee compensation and benefits. The Exchange believes it is 
reasonable to allocate the identified portion of such expense because 
this includes the time spent by employees of several departments, 
including Technology, Back Office, Systems Operations, Networking, 
Business Strategy Development (who create the business requirement 
documents that the Technology staff use to develop network features and 
enhancements), and Trade Operations. As part of the extensive cost 
review conducted by the Exchange, the Exchange reviewed the amount of 
time spent by each employee on matters relating to the provision of 
access services associated with the Proposed Access Fees. Without these 
employees, the Exchange would not be able to provide the access 
services associated with the Proposed Access Fees to its Members and 
their customers. The Exchange did not allocate all of the employee 
compensation and benefits expense toward the cost of the access 
services associated with the Proposed Access Fees, only the portion 
which the Exchange identified as being specifically mapped to providing 
the access services associated with the Proposed Access Fees, 
approximately 7.81% of the total applicable employee compensation and 
benefits expense. The Exchange believes this allocation is reasonable 
because it represents the Exchange's actual cost to provide the access 
services associated with the Proposed Access Fees, and not any other 
service, as supported by its cost review.\48\
---------------------------------------------------------------------------

    \48\ Id.
---------------------------------------------------------------------------

    The Exchange's depreciation and amortization expense relating to 
providing the services associated with the Proposed Access Fees is 
projected to be $0.06 million, which is only a

[[Page 71972]]

portion of the $3.13 million total projected expense for depreciation 
and amortization. The Exchange believes it is reasonable to allocate 
the identified portion of such expense because such expense includes 
the actual cost of the computer equipment, such as dedicated servers, 
computers, laptops, monitors, information security appliances and 
storage, and network switching infrastructure equipment, including 
switches and taps that were purchased to operate and support the 
network and provide the access services associated with the Proposed 
Access Fees. Without this equipment, the Exchange would not be able to 
operate the network and provide the access services associated with the 
Proposed Access Fees to its Members and their customers. The Exchange 
did not allocate all of the depreciation and amortization expense 
toward the cost of providing the access services associated with the 
Proposed Access Fees, only the portion which the Exchange identified as 
being specifically mapped to providing the access services associated 
with the Proposed Access Fees, approximately 1.92% of the total 
applicable depreciation and amortization expense, as these access 
services would not be possible without relying on such. The Exchange 
believes this allocation is reasonable because it represents the 
Exchange's actual cost to provide the access services associated with 
the Proposed Access Fees, and not any other service, as supported by 
its cost review.\49\
---------------------------------------------------------------------------

    \49\ Id.
---------------------------------------------------------------------------

    The Exchange's occupancy expense relating to providing the services 
associated with the Proposed Access Fees is projected to be $0.01 
million, which is only a portion of the $0.52 million total projected 
expense for occupancy. The Exchange believes it is reasonable to 
allocate the identified portion of such expense because such expense 
represents the portion of the Exchange's cost to rent and maintain a 
physical location for the Exchange's staff who operate and support the 
network, including providing the access services associated with the 
Proposed Access Fees. This amount consists primarily of rent for the 
Exchange's Princeton, NJ office, as well as various related costs, such 
as physical security, property management fees, property taxes, and 
utilities. The Exchange operates its Network Operations Center 
(``NOC'') and Security Operations Center (``SOC'') from its Princeton, 
New Jersey office location. A centralized office space is required to 
house the staff that operates and supports the network. The Exchange 
currently has approximately 200 employees. Approximately two-thirds of 
the Exchange's staff are in the Technology department, and the majority 
of those staff have some role in the operation and performance of the 
access services associated with the Proposed Access Fees. Accordingly, 
the Exchange believes it is reasonable to allocate the identified 
portion of its occupancy expense because such amount represents the 
Exchange's actual cost to house the equipment and personnel who operate 
and support the Exchange's network infrastructure and the access 
services associated with the Proposed Access Fees. The Exchange did not 
allocate all of the occupancy expense toward the cost of providing the 
access services associated with the Proposed Access Fees, only the 
portion which the Exchange identified as being specifically mapped to 
operating and supporting the network, approximately 1.93% of the total 
applicable occupancy expense. The Exchange believes this allocation is 
reasonable because it represents the Exchange's cost to provide the 
access services associated with the Proposed Access Fees, and not any 
other service, as supported by its cost review.\50\
---------------------------------------------------------------------------

    \50\ Id.
---------------------------------------------------------------------------

    The Exchange notes that a material portion of its total overall 
expense is allocated to the provision of access services (including 
connectivity, ports, and trading permits). The Exchange believes this 
is reasonable and in line, as the Exchange operates a technology-based 
business that differentiates itself from its competitors based on its 
more deterministic and resilient trading systems that rely on access to 
a high performance network, resulting in significant technology 
expense. Over two-thirds of Exchange staff are technology-related 
employees. The majority of the Exchange's expense is technology-based. 
As described above, the Exchange has only four primary sources of fees 
to recover their costs; thus, the Exchange believes it is reasonable to 
allocate a material portion of its total overall expense towards access 
fees.
    Based on the above, the Exchange believes that its provision of 
access services associated with the Proposed Access Fees will not 
result in excessive pricing or supra-competitive profit. As discussed 
above, the Exchange projects that its annualized expense for 2021 to 
provide the access services associated with the Proposed Access Fees to 
be approximately $880,000 per annum or an average of $73,333.33 per 
month. The Exchange implemented the Proposed Access Fees on August 1, 
2021 in the First Proposed Rule Change. For July 2021, prior to the 
Proposed Access Fees, the Exchange Members and non-Members purchased a 
total of 625 additional Limited Service MEI Ports for which the 
Exchange charged approximately $62,500. This resulted in a loss of 
$10,833.33 for that month (a loss margin of approximately 17.3%). For 
the month of November 2021, which includes the tiered rates for 
additional Limited Service MEI Ports for the Proposed Access Fees, 
Exchange Members and non-Members increased the number of additional 
Limited Service MEI Ports they purchased resulting in a total of 860 
additional Limited Service MEI Ports for which the Exchange charged 
approximately $216,600 for that month. This resulted in a profit of 
$143,266.67 for that month (a profit margin of approximately 66%), 
after experiencing monthly losses prior to the Proposed Access Fees. 
The Exchange believes that the Proposed Access Fees are reasonable 
because they are designed to generate a revenue per-month after 
experiencing monthly losses prior to the Proposed Access Fees. The 
Exchange believes this profit margin will allow it to begin to recoup 
its expenses and continue to invest in its technology infrastructure. 
Therefore, the Exchange also believes that this proposed profit margin 
increase is reasonable because it represents a reasonable rate of 
return.
    Again, the Exchange cautions that this profit margin may fluctuate 
from month to month based in the uncertainty of predicting how many 
ports may be purchased from month to month as Members and non-Members 
are free to add and drop ports at any time based on their own business 
decisions. This profit margin may also decrease due to the significant 
inflationary pressure on capital items that it needs to purchase to 
maintain the Exchange's technology and systems.\51\ Accordingly, the 
Exchange believes its total projected revenue for the providing the 
access services associated with the Proposed Access Fees will not 
result in excessive pricing or supra-competitive profit.
---------------------------------------------------------------------------

    \51\ See supra note 36.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to allocate the respective percentages of each expense 
category described above towards the total cost to the Exchange of 
operating and supporting the network, including providing the access 
services associated with the Proposed Access Fees because the Exchange 
performed a line-by-line

[[Page 71973]]

item analysis of nearly every expense of the Exchange, and has 
determined the expenses that directly relate to providing access to the 
Exchange. Further, the Exchange notes that, without the specific third-
party and internal expense items listed above, the Exchange would not 
be able to provide the access services associated with the Proposed 
Access Fees to its Members and their customers. Each of these expense 
items, including physical hardware, software, employee compensation and 
benefits, occupancy costs, and the depreciation and amortization of 
equipment, have been identified through a line-by-line item analysis to 
be integral to providing access services. The Proposed Access Fees are 
intended to recover the costs of providing access to the Exchange's 
System. Accordingly, the Exchange believes that the Proposed Access 
Fees are fair and reasonable because they do not result in excessive 
pricing or supra-competitive profit, when comparing the actual costs to 
the Exchange versus the projected annual revenue from the Proposed 
Access Fees.
The Proposed Tiered-Pricing Structure Is Not Unfairly Discriminatory 
and Provides for the Equitable Allocation of Fees, Dues, and Other 
Charges
    The Exchange believes the proposed tiered-pricing structure is 
reasonable, fair, equitable, and not unfairly discriminatory because it 
will apply to all Members and non-Members in the same manner based on 
the amount of Limited Service MEI Ports they require based on their own 
business decisions and its usage of Exchange resources. All similarly 
situated Members and non-Members would be subject to the same fees. The 
fees do not depend on any distinction between Members and non-Members 
because they are solely determined by the individual Members' or non-
Members' business needs and its impact on Exchange resources.
    The proposed tiered-pricing structure is not unfairly 
discriminatory and provides for the equitable allocation of fees, dues, 
and other charges because it is designed to encourage Members and non-
Members to be more efficient and economical when determining how to 
connect to the Exchange and the amount of the fees are based on the 
number of ports a Market Maker utilizes. Charging a higher fee to a 
Market Maker that utilizes numerous ports is directly related to the 
increased costs the Exchange incurs in providing and maintaining those 
additional ports. The proposed tiered pricing structure should also 
enable the Exchange to better monitor and provide access to the 
Exchange's network to ensure sufficient capacity and headroom in the 
System while still providing the first and second additional Limited 
Service MEI Ports for each matching engine free of charge.
    To achieve a consistent, premium network performance, the Exchange 
must build out and continue to maintain a network that has the capacity 
to handle the message rate requirements of not only firms that consume 
minimal Exchange access resources, but also those firms that most 
heavily consume Exchange access resources, network consumers, and 
purchasers of Limited Service MEI Ports. Limited Service MEI Ports is 
not an unlimited resource as the Exchange needs to purchase additional 
equipment to satisfy requests for additional ports. The Exchange also 
needs to provide personnel to set up new ports, service requests 
related to adding new and/or deleting existing ports, respond to 
performance queries, and to maintain those ports on behalf of Members 
and non-Members. Also, those firms that utilize additional Limited 
Service MEI Ports typically generate a disproportionate amount of 
messages and order traffic, usually billions per day across the 
Exchange. These billions of messages per day consume the Exchange's 
resources and significantly contribute to the overall network access 
expense for storage and network transport capabilities. The Exchange 
also has to purchase additional storage capacity on an ongoing basis to 
ensure it has sufficient capacity to store these messages as part of it 
surveillance program and to satisfy its record keeping requirements 
under the Exchange Act.\52\
---------------------------------------------------------------------------

    \52\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    The Exchange sought to design the proposed tiered-pricing structure 
to set the amount of the fee to relate to the number of ports a firm 
purchases. The Exchange notes that Limited Service MEI Ports are 
primarily utilized by firms that engage in advanced trading strategies 
and typically request multiple Limited Service MEI Ports, beyond the 
two per matching engine that are currently provided free of charge. 
Accordingly, the firms engaged in advanced trading strategies generate 
higher costs by utilizing more of the Exchange's resources. Those firms 
purchase higher amounts of Limited Service MEI Ports tend to have 
specific business oriented market making and trading strategies, as 
opposed to firms engaging solely in order routing as part of their 
best-execution obligations.
    The use of such additional Limited Service MEI Ports is a voluntary 
business decision of each Market Maker. Additional Limited Service MEI 
Ports are primarily used by Market Makers seeking to remove liquidity 
and, for competitive reasons, a Market Maker may choose to utilize 
numerous ports in an attempt to access the market quicker by using one 
port that may have less latency. The more ports purchased by a Market 
Maker likely results in greater expenditure of Exchange resources and 
increased cost to the Exchange. With this in mind, the Exchange will 
continue to provide the first and second additional Limited Service MEI 
Ports free of charge. The Exchange notes that firms that primarily 
route orders seeking best-execution generally do not utilize additional 
Limited Service MEI Ports. Those firms also generally send less orders 
and messages over those connections, resulting in less strain on 
Exchange resources.
    On a similar note, the Exchange proposes to increase the fee for 
those firms that purchase more ports resulting in greater expenditure 
of Exchange resources and increased cost to the Exchange. The Exchange 
notes that these firms that purchase numerous additional Limited 
Service MEI Ports essentially do so for competitive reasons amongst 
themselves and choose to utilize numerous ports based on their business 
needs and desire to attempt to access the market quicker by using the 
connection with the least amount of latency. These firms are generally 
engaged in sending liquidity removing orders to the Exchange and seek 
to add more ports so they can access resting liquidity ahead of their 
competitors. For instance, a Member may have just sent numerous 
messages and/or orders over one or more of their additional Limited 
Service MEI Ports that are in queue to be processed. That same Member 
then seeks to enter an order to remove liquidity from the Exchange's 
Book. That Member may choose to send that order over one or more of 
their other additional Limited Service MEI Ports with less message and/
or order traffic to ensure that their liquidity taking order accesses 
the Exchange quicker because that connection's queue is shorter. These 
firms also tend to frequently add and drop ports mid-month to determine 
which ports have the least latency, which results in increased costs to 
the Exchange to constantly make changes in the data center.
    The firms that engage in the above-described liquidity removing and 
advanced trading strategies typically

[[Page 71974]]

require multiple ports and, therefore, generate higher costs by 
utilizing more of the Exchange's resources. Those firms may also 
conduct other latency measurements over their ports and drop and 
simultaneously add ports mid-month based on their own assessment of 
their performance. This results in Exchange staff processing such 
requests, potentially purchasing additional equipment, and performing 
the necessary network engineering to replace those ports in the data 
center. Therefore, the Exchange believes it is equitable for these 
firms to experience increased port costs based on their 
disproportionate pull on Exchange resources to provide the additional 
port access.
    In addition, the proposed tiered-pricing structure is equitable 
because it is designed to encourage Members and non-Members to be more 
efficient and economical when determining how to connect to the 
Exchange. Section 6(b)(5) of the Exchange Act requires the Exchange to 
provide access on terms that are not unfairly discriminatory.\53\ As 
stated above, Additional Limited Service MEI Ports are not an unlimited 
resource and the Exchange's network is limited in the amount of ports 
it can provide. However, the Exchange must accommodate requests for 
additional Limited Service MEI Ports and access to the Exchange's 
System to ensure that the Exchange is able to provide access on non-
discriminatory terms and ensure sufficient capacity and headroom in the 
System. To accommodate requests for additional Limited Service MEI 
Ports on top of current network capacity constraints, requires that the 
Exchange to purchase additional equipment to satisfy these requests. 
The Exchange also needs to provide personnel to set up new ports and to 
maintain those ports on behalf of Members and non-Members. The proposed 
tiered-pricing structure is equitable because it is designed to 
encourage Market Makers to be more efficient and economical in 
selecting the amount of additional Limited Service MEI Ports they 
request while balancing that against the Exchange's increased expenses 
when expanding its network to accommodate additional Limited Service 
MEI Ports.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Proposed Fees Are Reasonable When Compared to the Fees of Other 
Options Exchanges With Similar Market Share
    For example, Amex (equity options market share of 5.05% as of 
November 26, 2021 for the month of November) \54\ and Arca (equity 
options market share of 14.88% as of November 26, 2021 for the month of 
November) \55\ both charge $450 per port for order/quote entry ports 1-
40 and $150 per port for ports 41 and greater,\56\ all on a per 
matching engine basis, with Amex and Arca having 17 match engines and 
19 match engines, respectively.\57\ Similarly, NASDAQ (equity options 
market share of 8.88% as of November 23, 2021 for the month of 
November) \58\ charges $1,500 per port for SQF ports 1-5, $1,000 per 
SQF port for ports 6-20, and $500 per SQF port for ports 21 and 
greater,\59\ all on a per matching engine basis, with NASDAQ having 
multiple matching engines.\60\ The NASDAQ SQF Interface Specification 
provides that PHLX/NOM/BX Options trading infrastructures may consist 
of multiple matching engines with each matching engine trading only a 
range of option underlyings. Further, the SQF infrastructure is such 
that the firms connect to one or more servers residing directly on the 
matching engine infrastructure. Since there may be multiple matching 
engines, firms will need to connect to each engine's infrastructure in 
order to establish the ability to quote the symbols handled by that 
engine.\61\
---------------------------------------------------------------------------

    \54\ See ``The market at a glance,'' available at https://www.miaxoptions.com/ (last visited November 26, 2021).
    \55\ See id.
    \56\ See NYSE American Options Fee Schedule, Section V.A., Port 
Fees; NYSE Arca Options Fee Schedule, Port Fees.
    \57\ See NYSE Technology FAQ and Best Practices: Options, 
Section 5.1 (How many matching engines are used by each exchange?) 
(September 2020) (providing a link to an Excel file detailing the 
number of matching engines per options exchange).
    \58\ See supra note 54.
    \59\ See NASDAQ Stock Market, NASDAQ Options 7 Pricing Schedule, 
Section 3, NASDAQ Options Market--Ports and Other Services.
    \60\ See NASDAQ Specialized Quote Interface (SQF) Specification, 
Version 6.4 (October 2017), Section 2, Architecture (the ``NASDAQ 
SQF Interface Specification'').
    \61\ See id.
---------------------------------------------------------------------------

    In the each of the above cases, the Exchange's highest tier in the 
proposed tiered-pricing structure is similar to or significantly lower 
than that of competing options exchanges with similar market share. 
Despite proposing lower or similar fees to that of competing options 
exchanges with similar market share, the Exchange believes that it 
provides a premium network experience to its Members and non-Members 
via a highly deterministic System, enhanced network monitoring and 
customer reporting, and a superior network infrastructure than markets 
with higher market shares and more expensive port alternatives. Each of 
the port rates in place at competing options exchanges were filed with 
the Commission for immediate effectiveness and remain in place today.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    With respect to intra-market competition, the Exchange does not 
believe that the proposed rule change would place certain market 
participants at the Exchange at a relative disadvantage compared to 
other market participants or affect the ability of such market 
participants to compete. As stated above, the Exchange does not believe 
its proposed pricing will impose a barrier to entry to smaller 
participants and notes that the proposed pricing structure is 
associated with relative usage of the various market participants. 
Firms that are primarily order routers seeking best-execution do not 
utilize Limited Service MEI Ports on MIAX Emerald and therefore will 
not pay the fees associated with the tiered-pricing structure. Rather, 
the fees described in the proposed tiered-pricing structure will only 
be allocated to Market Making firms that engage in advanced trading 
strategies and typically request multiple Limited Service MEI Ports, 
beyond the two that are free. Accordingly, the firms engaged in a 
Market Making business generate higher costs by utilizing more of the 
Exchange's resources. Those Market Making firms that purchase higher 
amounts of additional Limited Service MEI Ports tend to have specific 
business oriented market making and trading strategies, as opposed to 
firms engaging solely in best-execution order routing business. 
Additionally, the use of such additional Limited Service MEI Ports is 
entirely voluntary.
    The Exchange also does not believe that the proposed rule change 
will result in any burden on inter-market competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. As 
discussed above, options market participants are not forced to access 
all options exchanges. The Exchange operates in a highly competitive 
environment, and as discussed above, its ability to price access and 
ports is constrained by competition among exchanges and third parties. 
There are other options markets of which market participants may access 
in order to trade options. There is also a possible range of 
alternative strategies, including routing to the exchange through 
another participant or market

[[Page 71975]]

center or accessing the Exchange indirectly. For example, there are 15 
other U.S. options exchanges, which the Exchange must consider in its 
pricing discipline in order to compete for market participants. In this 
competitive environment, market participants are free to choose which 
competing exchange to use to satisfy their business needs. As a result, 
the Exchange believes this proposed rule change permits fair 
competition among national securities exchanges. Accordingly, the 
Exchange does not believe its proposed fee changes impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    As described above, the Exchange received one comment letter on the 
First Proposed Rule Change \62\ and three comment letters on the Second 
Proposed Rule Change.\63\ The Exchange now responds to the comment 
letters in this filing.
---------------------------------------------------------------------------

    \62\ See supra note 8.
    \63\ See supra note 12.
---------------------------------------------------------------------------

SIG Letter 2
    SIG Letter 2 argues that the Exchange, in withdrawing the First 
Proposed Rule Change and refiling the Second Proposed Rule Change, 
``improperly circumvent[ed] the procedural protections embedded in 
Exchange Act Section 19(b)(3)(C), and subvert[ed] the balance of 
interests upheld therein.'' \64\ SIG's assertion that the Exchange's 
entire reason for withdrawing and refiling was to subvert the 
protections of the Exchange Act are entirely without merit. The 
Exchange withdrew the First Proposed Rule Change and replaced it with 
the Second Proposed Rule Change in good faith to provide additional 
justification and explanation for the proposed fee changes and did so 
in compliance with the Exchange Act. The same is true in this filing, 
where the Exchange withdrew the Second Proposed Rule Change and 
submitted this filing to provide additional justification and 
explanation for the proposed fee changes and directly responds to 
certain points raised in SIG Letters 1, 2, and 3, as well as the SIFMA 
Letter submitted on the First and Second Proposed Rule Changes.
---------------------------------------------------------------------------

    \64\ See SIG Letter 2, supra note 12, at page 1.
---------------------------------------------------------------------------

    As SIG well knows, exchanges are able withdraw and refile various 
proposals (including fee changes and other rule changes) with the 
Commission for a multitude of reasons, not the least of which is to 
address feedback and comments from market participants and Commission 
Staff. The Exchange is well within the bounds of the Act and the rules 
and regulations thereunder to withdraw a proposed rule change and 
replace it with a new proposed rule change in good faith and to enhance 
the filing to ensure it complies with the requirements of the Act.
SIG Letters 1 and 3
    As an initial matter, SIG Letter 1 cites Rule 700(b)(3) of the 
Commission's Rules of Fair Practice which places ``the burden to 
demonstrate that a proposed rule change is consistent with the Act on 
the self-regulatory organization that proposed the rule change'' and 
states that a ``mere assertion that the proposed rule change is 
consistent with those requirements . . . is not sufficient.'' \65\ SIG 
Letter 1's assertion that the Exchange has not met this burden is 
without merit, especially considering the overwhelming amounts of 
revenue and cost information the Exchange included in the First and 
Second Proposed Rule Changes and this filing.
---------------------------------------------------------------------------

    \65\ 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

    Until recently, the Exchange operated at a net annual loss since it 
launched operations in 2019.\66\ As stated above, the Exchange believes 
that exchanges in setting fees of all types should meet very high 
standards of transparency to demonstrate why each new fee or fee 
increase meets the requirements of the Act that fees be reasonable, 
equitably allocated, not unfairly discriminatory, and not create an 
undue burden on competition among market participants. The Exchange 
believes this high standard is especially important when an exchange 
imposes various access fees for market participants to access an 
exchange's marketplace. The Exchange believes it has achieved this 
standard in this filing and in the First and Second Proposed Rule 
Changes. Similar justifications for the proposed fee change included in 
the First and Second Proposed Rule Changes, but also in this filing, 
were previously included in similar fee changes filed by the Exchange 
and its affiliates, MIAX and MIAX Pearl, and SIG did not submit a 
comment letter on those filings.\67\ Those filings were not suspended 
by the Commission and continue to remain in effect. The justification 
included in each of the prior filings was the result of numerous 
withdrawals and re-filings of the proposals to address comments 
received from Commission Staff over many months. The Exchange and its 
affiliates have worked diligently with Commission Staff on ensuring the 
justification included in past fee filings fully support an assertion 
that those fee changes are consistent with the Act.\68\ The Exchange 
leveraged its past work with Commission Staff to ensure the 
justification provided herein and in the First and Second Proposed Rule 
Changes include the same level of detail (or more) as the prior fee 
changes that survived Commission scrutiny. The Exchange's detailed 
disclosures in fee filings have also been applauded by one industry 
group which noted, ``[the Exchange's] filings contain significantly 
greater information about who is impacted and how than other filings 
that have been permitted to take effect

[[Page 71976]]

without suspension.'' \69\ That same commenter also noted their ``worry 
that the Commission's process for reviewing and evaluating exchange 
filings may be inconsistently applied.'' \70\
---------------------------------------------------------------------------

    \66\ See supra note 38.
    \67\ See Securities Exchange Act Release Nos. 91858 (May 12, 
2021), 86 FR 26967 (May 18, 2021) (SR-PEARL-2021-23) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Amend the MIAX Pearl Fee Schedule to Remove the Cap on the Number of 
Additional Limited Service Ports Available to Market Makers); 91460 
(April 2, 2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11) 
(Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend Its Fee Schedule To Adopt Port Fees, Increase 
Certain Network Connectivity Fees, and Increase the Number of 
Additional Limited Service MIAX Emerald Express Interface Ports 
Available to Market Makers); and 91857 (May 12, 2021), 86 FR 26973 
(May 18, 2021) (SR-MIAX-2021-19) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To 
Remove the Cap on the Number of Additional Limited Service Ports 
Available to Market Makers).
    \68\ See, e.g., Securities Exchange Act Release No. 90196 
(October 15, 2020), 85 FR 67064 (October 21, 2020) (SR-EMERALD-2020-
11) (Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend Its Fee Schedule To Adopt One-Time Membership 
Application Fees and Monthly Trading Permit Fees). See Securities 
Exchange Act Release Nos. 90601 (December 8, 2020), 85 FR 80864 
(December 14, 2020) (SR-EMERALD-2020-18) (re-filing with more detail 
added in response to Commission Staff's feedback and after 
withdrawing SR-EMERALD-2020-11); and 91033 (February 1, 2021), 86 FR 
8455 (February 5, 2021) (SR-EMERALD-2021-03) (re-filing with more 
detail added in response to Commission Staff's feedback and after 
withdrawing SR-EMERALD-2020-18). The Exchange initially filed a 
proposal to remove the cap on the number of additional Limited 
Service MEO Ports available to Members on April 9, 2021. See SR-
PEARL-2021-17. On April 22, 2021, the Exchange withdrew SR-PEARL-
2021-17 and refiled that proposal (without increasing the actual fee 
amounts) to provide further clarification regarding the Exchange's 
revenues, costs, and profitability any time more Limited Service MEO 
Ports become available, in general, (including information regarding 
the Exchange's methodology for determining the costs and revenues 
for additional Limited Service MEO Ports). See SR-PEARL-2021-20. On 
May 3, 2021, the Exchange withdrew SR-PEARL-2021-20 and refiled that 
proposal to further clarify its cost methodology. See SR-PEARL-2021-
22. On May 10, 2021, the Exchange withdrew SR-PEARL-2021-22 and 
refiled SR-PEARL-2021-23. See Securities Exchange Act Release No. 
91858 (May 12, 2021), 86 FR 26967 (May 18, 2021) (SR-PEARL-2021-23).
    \69\ See HMA Letter, supra note 12.
    \70\ Id. (providing examples where non-transaction fee filings 
by other exchanges have been permitted to remain effective and not 
suspended by the Commission despite less disclosure and 
justification).
---------------------------------------------------------------------------

    Therefore, a finding by the Commission that the Exchange has not 
met its burden to show that the proposed fee change is consistent with 
the Act would be different than the Commission's treatment of similar 
past filings, would create further ambiguity regarding the standards 
exchange fee filings should satisfy, and is not warranted here.
    In addition, the arguments in SIG Letter 1 do not support their 
claim that the Exchange has not met its burden to show the proposed 
rule change is consistent with the Act. Prior to, and after submitting 
the First Proposed Rule Change, the Exchange solicited feedback from 
its Members, including SIG. SIG relayed their concerns regarding the 
proposed change. The Exchange then sought to work with SIG to address 
their concerns and gain a better understanding of the access/
connectivity/quoting infrastructure of other exchanges. In response, 
SIG provided no substantive suggestions on how to amend the First 
Proposed Rule Change to address their concerns and instead chose to 
submit three comment letters. One could argue that SIG is using the 
comment letter process not to raise legitimate regulatory concerns 
regarding the proposal, but to inhibit or delay proposed fee changes by 
the Exchange. With regards to the First and Second Proposed Rule 
Changes, the SIG Letter does not directly address the proposed fees or 
lay out specific arguments as to why the proposal is not consistent 
with Section 6(b)(4) of the Act. Rather, it simply describes the 
proposed fee change and flippantly states that its claims concerning 
the 10Gb ULL fee change proposals by the Exchange, and its affiliates, 
apply to these changes. Nonetheless, the Exchange submits the below 
response to the SIG Letter concerning the First Proposed Rule Change.
    Furthermore, the Exchange has enhanced its cost and revenue 
analysis and data in this Fourth Proposed Rule Change to further 
justify that the Proposed Access Fees are reasonable in accordance with 
the Commission Staff's Guidance. Among other things, these enhancements 
include providing baseline information in the form of data from the 
month before the Proposed Access Fees became effective.
    The Exchange now responds to SIG's remaining claims below. SIG 
Letter 3 first summarizes its arguments made in SIG Letters 1 and 2 and 
incorporates those arguments by reference. The Exchange responded to 
the arguments in SIG Letter 2 above. SIG Letter 3 incorporates the 
following arguments regarding additional Limited Service MEI Port fees 
from SIG Letter 1 (while excluding arguments that pertain solely to 
connectivity), which the Exchange will first respond to in turn, below:

    ``(1) The prospect that a member may withdraw from the Exchanges 
if a fee is too costly is not a basis for asserting that the fee is 
reasonable; (2) profit margin comparisons do not support the 
Exchanges' claims that they will not realize a supracompetitive 
profit . . . and comparisons to competing exchanges' overall 
operating profit margins are an inapt ``apples-to-oranges'' 
comparison . . . (7) the recoupment of investment for exchange 
infrastructure has no supporting nexus with the claim that the 
proposed fees are reasonable, equitably allocated, and not unfairly 
discriminatory . . . .'' \71\
---------------------------------------------------------------------------

    \71\ See SIG Letter 3, supra note 10.

General
    First, the SIG Letter 1 states that additional Limited Service MEI 
Ports ``are critical to Exchange members to be competitive and to 
provide essential protection from adverse market events'' (emphasis 
added).\72\ The Exchange notes that this statement is generally not 
true for additional Limited Service MEI Ports as those ports are 
completely voluntary and used primarily for entering liquidity removing 
orders and not risk protection activities like purging quotes resting 
on the MIAX Emerald Book. Additional Limited Service MEI Ports are 
essentially used for competitive reasons and Market Makers may choose 
to utilize one or two Limited Service MEI Ports that are provided for 
free, or purchase additional Limited Service MEI Ports based on their 
business needs and desire to attempt to access the market quicker by 
using one port that may have less latency. For instance, a Market Maker 
may have just sent numerous messages and/or orders over one of their 
additional Limited Service MEI Ports that are in queue to be processed. 
That same Market Maker then seeks to enter an order to remove liquidity 
from the Exchange's Book. That Market Maker may choose to send that 
order simultaneously over all of their Limited Service MEI Ports that 
they elected to purchase to ensure that their liquidity taking order 
accesses the Exchange as quickly as possible.
---------------------------------------------------------------------------

    \72\ See SIG Letter 1 at page 2, supra note 12.
---------------------------------------------------------------------------

If the Exchanges Were To Attempt To Establish Unreasonable Pricing, 
Then No Market Participant Would Join or Connect to the Exchange, and 
Existing Market Participants Would Disconnect
    SIG asserts that ``the prospect that a member may withdraw from the 
Exchanges if a fee is too costly is not a basis for asserting that the 
fee is reasonable.'' \73\ SIG misinterprets the Exchange's argument 
here. The Exchange provided the examples of firms terminating access to 
certain markets due to fees to support its assertion that firms, 
including market makers, are not required to connect to all markets and 
may drop access if fees become too costly for their business models and 
alternative or substitute forms of access are available to those firms 
who choose to terminate access. The Commission Staff Guidance also 
provides that ``[a] statement that substitute products or services are 
available to market participants in the relevant market (e.g., equities 
or options) can demonstrate competitive forces if supported by evidence 
that substitute products or services exist.'' \74\ Nonetheless, the 
Fourth Proposed Rule Change no longer makes this assertion as a basis 
for the proposed fee change and, therefore, the Exchange believes it is 
not necessary to respond to this portion of SIG Letters 1 and 3.
---------------------------------------------------------------------------

    \73\ Id.
    \74\ See Guidance, supra note 27.
---------------------------------------------------------------------------

The Proposed Access Fees Will Not Result in Excessive Pricing or Supra-
Competitive Profit
    Next, SIG asserts that the Exchange's ``profit margin comparisons 
do not support the Exchanges' claims that they will not realize a 
supracompetitive profit,'' and ``comparisons to competing exchanges' 
overall operating profit margins are an inapt `apples-to-oranges' 
comparison.'' \75\
---------------------------------------------------------------------------

    \75\ See supra note 12. The Exchange does not have visibility 
into other equities exchanges' costs to provide port access or their 
fee markup over those costs, and therefore cannot use other 
exchange's port fees as a benchmark to determine a reasonable markup 
over the costs of providing port access. Nevertheless, the Exchange 
believes the other exchange's port fees are a useful example of 
alternative approaches to providing and charging for port access. To 
that end, the Exchange believes the proposed tiered-pricing 
structure for Limited Service MEI Ports is reasonable because the 
proposed highest tier is still less than fees charged for similar 
port access provided by other options exchanges with comparable 
market shares.
---------------------------------------------------------------------------

    The Exchange has provided ample data that the Proposed Access Fees 
would not result in excessive pricing or a supra-competitive profit. In 
this

[[Page 71977]]

Fourth Proposed Rule Change, the Exchange no longer utilizes a 
comparison of its profit margin to that of other options exchanges as a 
basis that the Proposed Access Fees are reasonable. Rather, the 
Exchange has enhanced its cost and revenue analysis and data in this 
Fourth Proposed Rule Change to further justify that the Proposed Access 
Fees are reasonable in accordance with the Commission Staff's Guidance. 
Therefore, the Exchange believes it is no longer necessary to respond 
to this portion of SIG Letters 1 and 3.
Recoupment of Exchange Infrastructure Costs
    Nowhere in this proposal or in the First, Second, or Third Proposed 
Rule Changes did the Exchange assert that it benefits competition to 
allow a new exchange entrant to recoup their infrastructure costs. 
Rather, the Exchange asserts above that its ``proposed fees are 
reasonable, equitably allocated and not unfairly discriminatory because 
the Exchange, and its affiliates, are still recouping the initial 
expenditures from building out their systems while the legacy exchanges 
have already paid for and built their systems.'' The Exchange no longer 
makes this assertion in this filing and, therefore, does not believe is 
it necessary to respond to SIG's assertion here.
The Proposed Tiered Pricing Structure is Not Unfairly Discriminatory
    SIG challenges the proposed fees by arguing that ``the Exchange[ ] 
provide[s] no support for [its] claim that [the] proposed tiered 
pricing structure is needed to encourage efficiency in connectivity 
usage and the Exchange[ ] provided no support for [the] claim that the 
tiered pricing structure allows them to better monitor connectivity 
usage, nor that this is an appropriate basis for the pricing structure 
in any event.'' The Exchange provided additional justification to 
support that the Proposed Access Fees are equitable and not unfairly 
discriminatory above in response to SIG's assertions.
SIFMA Letter
    In sum, the SIFMA Letter asserts that the Exchange has failed to 
demonstrate that the Proposed Access Fees are reasonable for three 
reasons:

    (i) ``The Exchanges' ``platform competition'' argument that 
competition for order flow constrains pricing for market data or 
other products and services exclusively offered by an exchange does 
not demonstrate that the fees are reasonable.''
    (ii) ``. . . order flow competition alone between exchanges does 
not demonstrate that the fees for the products and services subject 
to the Proposal are reasonable.''
    (iii) ``the Exchanges' argument that the products and services 
subject to the Proposals are optional does not reflect marketplace 
reality, nor does it demonstrate that the proposed fees are 
reasonable.''

    The Exchange responds to each of SIFMA's challenges in turn below.
The Exchange Never Set Forth a ``Platform Competition'' Argument
    The SIFMA Letter asserts that the Exchange's ``platform 
competition'' argument that competition for order flow constrains 
pricing for market data or other products and services exclusively 
offered by an exchange does not demonstrate that the fees are 
reasonable.'' The Exchange does not believe it is necessary to respond 
to this assertion because it has never set forth a ``platform 
competition'' \76\ argument to justify the Proposed Access Fees in the 
First or Second Proposed Rule Change nor does it do so in this filing.
---------------------------------------------------------------------------

    \76\ Pursuant to the Guidance, ``platform theory generally 
asserts that when a business offers facilities that bring together 
two or more distinct types of customers, it is the overall return of 
the platform, rather than the return of any particular fees charged 
to a type of customer, that should be used to assess the 
competitiveness of the platform's market.'' See Guidance, supra note 
25.
---------------------------------------------------------------------------

The Exchange Is Not Arguing That Order Flow Competition Alone 
Demonstrates That the Proposed Fees Are Reasonable
    The SIFMA Letter asserts that ``order flow competition alone 
between exchanges does not demonstrate that the fees for the products 
and services subject to the Proposal are reasonable.'' \77\ The 
Exchange never directly asserted in the First or Second Proposed Rule 
Changes, nor does it do so in this filing, that order flow competition, 
alone, demonstrated that the Proposed Access Fees are reasonable and 
has removed any language that could imply this argument from this 
filing.
---------------------------------------------------------------------------

    \77\ See SIFMA Letter, supra note 12.
---------------------------------------------------------------------------

Other SIFMA Assertions
    SIFMA's also challenges or asserts: (i) Whether the Exchange has 
shown that the fees are equitable and non-discriminatory; (ii) that a 
tiered pricing structure will encourage market participants to be more 
economical with the usage; (iii) greater number of ports use greater 
Exchange resources; and (iv) that the Exchange has not provided 
extensive information regarding its cost data and how it determined it 
cost analysis. The Exchange believes that these assertions by SIFMA 
basically echo assertions made in SIG Letters 1 and 3 and that it 
provided a response to these assertions under its response to SIG above 
or in provided enhanced transparency and justification in this filing.

III. 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,\78\ and Rule 19b-4(f)(2) \79\ 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.
---------------------------------------------------------------------------

    \78\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \79\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 [email protected]. Please include 
File Number SR-EMERALD-2021-43 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-2021-43. 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

[[Page 71978]]

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-2021-43 and should be submitted on or before January 10, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\80\
---------------------------------------------------------------------------

    \80\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27421 Filed 12-17-21; 8:45 am]
BILLING CODE 8011-01-P