Document ID: SEC-2021-0173-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX Emerald, LLC
Posted Date: 2021-02-05T05:00Z

[Federal Register Volume 86, Number 23 (Friday, February 5, 2021)]
[Notices]
[Pages 8455-8464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02405]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91033; File No. SR-EMERALD-2021-03]

Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fee Schedule To Adopt Monthly Trading Permit Fees

February 1, 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 January 22, 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 MIAX Emerald Fee 
Schedule (the ``Fee Schedule'') to establish monthly Trading Permit \3\ 
fees for Exchange Members.\4\
---------------------------------------------------------------------------

    \3\ The term ``Trading Permit'' means a permit issued by the 
Exchange that confers the ability to transact on the Exchange. See 
Exchange Rule 100.
    \4\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100 and the Definitions Section of the Fee Schedule.
---------------------------------------------------------------------------

    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 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 monthly 
Trading Permit fees (the ``Proposed Access Fees'') depending on the 
Member's status as either an Electronic Exchange Member (``EEM'') \5\ 
or as a Market Maker.\6\ MIAX Emerald commenced

[[Page 8456]]

operations as a national securities exchange registered under Section 6 
of the Act \7\ on March 1, 2019.\8\ The Exchange adopted its 
transaction fees and certain of its non-transaction fees in its filing 
SR-EMERALD-2019-15.\9\ In that filing, the Exchange expressly waived, 
among other fees, the Proposed Access Fees for the Waiver Period,\10\ 
to provide an incentive to prospective EEMs and Market Makers to become 
Members of the Exchange. When the Exchange adopted the framework for 
its fees, it stated that it would provide notice to market participants 
when the Exchange intended to terminate the Waiver Period for the 
Proposed Access Fees. Accordingly, on September 15, 2020, the Exchange 
issued a Regulatory Circular which announced that the Exchange would be 
ending the Waiver Period for the Proposed Access Fees, among other non-
transaction fees, beginning October 1, 2020.\11\
---------------------------------------------------------------------------

    \5\ ``Electronic Exchange Member'' or ``EEM'' means the holder 
of a Trading Permit who is not a Market Maker. Electronic Exchange 
Members are deemed ``members'' under the Exchange Act. See Exchange 
Rule 100 and the Definitions Section of the Fee Schedule.
    \6\ The term ``Market Makers'' refers to ``Lead Market Makers'', 
``Primary Lead Market Makers'' and ``Registered Market Makers'' 
collectively. See Exchange Rule 100 and the Definitions Section of 
the Fee Schedule.
    \7\ 15 U.S.C. 78f.
    \8\ See Securities Exchange Act Release No. 84891 (December 20, 
2018), 83 FR 67421 (December 28, 2018) (File No. 10-233) (order 
approving application of MIAX Emerald, LLC for registration as a 
national securities exchange).
    \9\ See Securities Exchange Act Release No. 85393 (March 21, 
2019), 84 FR 11599 (March 27, 2019) (SR-EMERALD-2019-15) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Establish the MIAX Emerald Fee Schedule).
    \10\ ``Waiver Period'' means, for each applicable fee, the 
period of time from the initial effective date of the MIAX Emerald 
Fee Schedule until such time that the Exchange has an effective fee 
filing establishing the applicable fee. The Exchange will issue a 
Regulatory Circular announcing the establishment of an applicable 
fee that was subject to a Waiver Period at least fifteen (15) days 
prior to the termination of the Waiver Period and effective date of 
any such applicable fee. See the Definitions Section of the Fee 
Schedule.
    \11\ See MIAX Emerald Regulatory Circular 2020-41 available at 
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2020_41.pdf.
---------------------------------------------------------------------------

    The Exchange initially filed its proposal to establish the Proposed 
Access Fees on October 1, 2020.\12\ The First Proposed Rule Change was 
published for comment in the Federal Register on October 21, 2020.\13\ 
On November 25, 2020, the Exchange withdrew the First Proposed Rule 
Change \14\ and refiled its proposal to establish monthly Trading 
Permit fees.\15\ The Second Proposed Rule Change was published for 
comment in the Federal Register on December 14, 2020.\16\ The Exchange 
notes that the Second Proposed Rule Change did not receive any comment 
letters. Nonetheless, on January 22, 2021, the Exchange withdrew the 
Second Proposed Rule Change and resubmitted this proposal.\17\
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release Nos. 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) (the ``First Proposed Rule 
Change''). The Exchange notes that it refiled its proposal to 
establish the one-time membership application fee in a separate 
filing. See SR-EMERALD-2021-01.
    \13\ See id.
    \14\ See Comment Letter from Joseph W. Ferraro III, SVP, Deputy 
General Counsel, the Exchange, dated November 20, 2020, notifying 
the Commission that the Exchange will withdraw the First Proposed 
Rule Change.
    \15\ See Securities Exchange Act Release Nos. 90601 (December 8, 
2020), 85 FR 80864 (December 14, 2020) (SR-EMERALD-2020-18) (the 
``Second Proposed Rule Change'').
    \16\ See id.
    \17\ See Comment Letter from Joseph W. Ferraro III, SVP, Deputy 
General Counsel, the Exchange, dated January 15, 2021, notifying the 
Commission that the Exchange will withdraw the Second Proposed Rule 
Change.
---------------------------------------------------------------------------

    Trading Permits are issued to Members who are either EEMs or Market 
Makers. Trading Permits grant access to the Exchange, thus providing 
the ability to quote and trade on the Exchange, in the manner defined 
in the relevant Trading Permit. Without a Trading Permit, a Member 
cannot directly trade on the Exchange. Therefore, a Trading Permit is a 
means to directly access the Exchange (which offers meaningful value), 
and the Exchange now proposes to adopt a monthly fee designed to 
recover a portion of the costs associated with directly accessing the 
Exchange. The Exchange proposes to assess the Proposed Access Fees 
depending upon the category of Member that is issued a Trading Permit. 
Members issued Trading Permits during a calendar month will be assessed 
monthly Trading Permit Fees. The Exchange notes that the Exchange's 
affiliate, Miami International Securities Exchange, LLC (``MIAX''), 
charges a similar, fixed trading permit fee to its EEMs, and a similar, 
varying trading permit fee to its Market Makers, based upon the number 
of assignments of option classes or the percentage of volume in option 
classes.\18\
---------------------------------------------------------------------------

    \18\ See the MIAX Fee Schedule, Section 3)b).
---------------------------------------------------------------------------

    The Exchange proposes that monthly Trading Permit fees will be 
assessed, with respect to the calculation of such fee to EEMs (other 
than clearing firms), in any month the EEM is certified in the 
membership system and is credentialed to use one or more Financial 
Information Exchange (``FIX'') \19\ ports in the production 
environment. Further, the Exchange proposes that monthly Trading Permit 
fees will be assessed with respect to EEM clearing firms in any month 
the clearing firm is certified in the membership system to clear 
transactions on the Exchange.
---------------------------------------------------------------------------

    \19\ ``FIX Port'' means an interface with MIAX Emerald systems 
that enables the Port user to submit simple and complex orders 
electronically to MIAX Emerald. See the Definitions Section of the 
Fee Schedule.
---------------------------------------------------------------------------

    The Exchange proposes to assess EEMs a monthly fee of $1,000 for 
each Trading Permit. Below is the proposed table showing the Trading 
Permit fees for EEMs:

 
------------------------------------------------------------------------
                                                               Monthly
                                                                 MIAX
                  Type of trading  permit                      Emerald
                                                               trading
                                                              permit fee
------------------------------------------------------------------------
Electronic Exchange Member.................................    $1,000.00
------------------------------------------------------------------------

    The Exchange proposes to assess monthly Trading Permit fees for 
Market Makers in any month the Market Maker (including a Registered 
Market Maker, Lead Market Maker, and Primary Lead Market Maker) is 
certified in the membership system, is credentialed to use one or more 
MIAX Emerald Express Interface (``MEI'') \20\ ports in the production 
environment and is assigned to quote in one or more classes. 
Specifically, the Exchange proposes to adopt the following Trading 
Permit fees for Market Makers: (i) $7,000 for Market Maker Assignments 
in up to 10 option classes or up to 20% of option classes by national 
average daily volume (``ADV''); (ii) $12,000 for Market Maker 
Assignments in up to 40 option classes or up to 35% of option classes 
by ADV; (iii) $17,000 for Market Maker Assignments in up to 100 option 
classes or up to 50% of option classes by ADV; and (iv) $22,000 for 
Market Maker Assignments in over 100 option classes or over 50% of 
option classes by ADV up to all option classes listed on MIAX Emerald.
---------------------------------------------------------------------------

    \20\ The MEI is a connection to the MIAX Emerald System that 
enables Market Makers to submit simple and complex electronic quotes 
to MIAX Emerald. The Exchange offers Full Service MEI Ports, which 
provide 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. The Exchange also offers 
Limited Service MEI Ports, which provide 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.
---------------------------------------------------------------------------

    The Exchange also proposes to adopt an alternative lower Trading 
Permit fee for Market Makers who fall within the following Trading 
Permit fee levels, which represent the 3rd and 4th levels of the Market 
Maker Trading Permit fee

[[Page 8457]]

table: (i) Market Maker Assignments in up to 100 option classes or up 
to 50% of option classes by volume; and (ii) Market Maker Assignments 
in over 100 option classes or over 50% of option classes by volume up 
to all option classes listed on MIAX Emerald. Specifically, the 
Exchange proposes to adopt footnote ``[ssquf]'' following the Market 
Maker Trading Permit fee table for these Monthly Trading Permit tier 
levels, if the Market Maker's total monthly executed volume during the 
relevant month is less than 0.025% of the total monthly executed volume 
reported by OCC in the customer account type for MIAX Emerald-listed 
option classes for that month, then the fee will be $15,500 instead of 
the fee otherwise applicable to such level.
    Below is the proposed table showing the Trading Permit fees for 
Market Makers:

 
----------------------------------------------------------------------------------------------------------------
                                                          Market maker assignments (the lesser of the applicable
                                           Monthly MIAX                     measurements below)
         Type of trading permit               Emerald    -------------------------------------------------------
                                          trading permit                                 % of National average
                                                fee                Per class                 daily volume
----------------------------------------------------------------------------------------------------------------
Market Maker (includes RMM, LMM, PLMM)..       $7,000.00  Up to 10 Classes..........  Up to 20% of Classes by
                                                                                       volume.
                                               12,000.00  Up to 40 Classes..........  Up to 35% of Classes by
                                                                                       volume.
                                                 [ssquf]  Up to 100 Classes.........  Up to 50% of Classes by
                                               17,000.00                               volume
                                                 [ssquf]  Over 100 Classes..........  Over 50% of Classes by
                                               22,000.00                               volume up to all Classes
                                                                                       listed on MIAX Emerald.
----------------------------------------------------------------------------------------------------------------
[ssquf] For these Monthly MIAX Emerald Trading Permit tier levels, if the Market Maker's total monthly executed
  volume during the relevant month is less than 0.025% of the total monthly executed volume reported by OCC in
  the customer account type for MIAX Emerald-listed option classes for that month, then the fee will be $15,500
  instead of the fee otherwise applicable to such level.

    For the calculation of the monthly Market Maker Trading Permit 
fees, the number of classes is defined as the greatest number of 
classes the Market Maker was assigned to quote in on any given day 
within the calendar month and the class volume percentage is based on 
the total national ADV in classes listed on MIAX Emerald in the prior 
calendar quarter. Newly listed option classes are excluded from the 
calculation of the monthly Market Maker Trading Permit fee until the 
calendar quarter following their listing, at which time the newly 
listed option classes will be included in both the per class count and 
the percentage of total national average daily volume. The Exchange 
proposes to assess MIAX Emerald Market Makers the monthly Market Maker 
Trading Permit fee based on the greatest number of classes listed on 
MIAX Emerald that the Market Maker was assigned to quote in on any 
given day within a calendar month and the applicable fee rate that is 
the lesser of either the per class basis or percentage of total 
national ADV measurement.
    The purpose of the alternative lower fee designated in proposed 
footnote ``[ssquf]'' is to provide a lower fixed cost to those Market 
Makers who are willing to quote the entire Exchange market (or 
substantial amount of the Exchange market), as objectively measured by 
either number of classes assigned or national ADV, but who do not 
otherwise execute a significant amount of volume on the Exchange. The 
Exchange believes that, by offering lower fixed costs to Market Makers 
that execute less volume, the Exchange will retain and attract smaller-
scale Market Makers, which are an integral component of the option 
marketplace, but have been decreasing in number in recent years, due to 
industry consolidation and lower market maker profitability. Since 
these smaller-scale Market Makers utilize less Exchange capacity due to 
lower overall volume executed, the Exchange believes it is reasonable 
and equitable to offer such Market Makers a lower fixed cost. The 
Exchange notes that the Exchange's affiliate, MIAX, provides a similar 
alternative lower Trading Permit fee for Market Makers who quote the 
entire MIAX market (or substantial amount of the MIAX market), as 
objectively measured by either number of classes assigned or national 
ADV, but who do not otherwise execute a significant amount of volume on 
MIAX.\21\ The Exchange also notes that other options exchanges assess 
certain of their membership fees at different rates, based upon a 
member's participation on that exchange,\22\ and, as such, this concept 
is not new or novel. The proposed changes to the Trading Permit fees 
for Market Makers who fall within the 3rd and 4th levels of the fee 
table are based upon a business determination of current Market Maker 
assignments and trading volume.
---------------------------------------------------------------------------

    \21\ See supra note 18.
    \22\ See e.g., NYSE Arca Options Fees and Charges, p.1 
(assessing market makers $6,000 for up to 175 option issues, an 
additional $5,000 for up to 350 option issues, an additional $4,000 
for up to 1,000 option issues, an additional $3,000 for all option 
issues on the exchange, and an additional $1,000 for the fifth 
trading permit and for each trading permit thereafter); NYSE 
American Options Fee Schedule, p. 23 (assessing market makers $8,000 
for up to 60 plus the bottom 45% of option issues, an additional 
$6,000 for up to 150 plus the bottom 45% of option issues, an 
additional $5,000 for up to 500 plus the bottom 45% of option 
issues, and additional $4,000 for up to 1,100 plus the bottom 45% of 
option issues, an additional $3,000 for all issues traded on the 
exchange, and an additional $2,000 for 6th to 9th ATPs; plus an 
addition fee for premium products). See also Cboe BZX Options 
Exchange (``BZX Options'') assesses the Participant Fee, which is a 
membership fee, according to a member's ADV. See Cboe BZX Options 
Exchange Fee Schedule under ``Membership Fees''. The Participant Fee 
is $500 if the member ADV is less than 5000 contracts and $1,000 if 
the member ADV is equal to or greater than 5000 contracts. Id.
---------------------------------------------------------------------------

    MIAX Emerald believes that exchanges, in setting fees of all types, 
should meet very high standards of transparency to demonstrate why each 
new fee or fee increase meets the requirements of the Act that fees be 
reasonable, equitably allocated, not unfairly discriminatory, and not 
create an undue burden on competition among members and markets. MIAX 
Emerald believes this high standard is especially important when an 
exchange imposes various access fees for market participants to access 
an exchange's marketplace. MIAX Emerald deems Trading Permit fees to be 
access fees. It records these fees as part of its ``Access Fees'' 
revenue in its financial statements. The Exchange believes that it is 
important to demonstrate that these fees are based on its costs and 
reasonable business needs. The Exchange believes the Proposed Access 
Fees will allow the Exchange to offset expense the Exchange has and 
will incur, and that the Exchange is providing sufficient transparency 
(as described below) into how the Exchange determined to charge such 
fees. Accordingly, the Exchange is providing

[[Page 8458]]

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.
    In order to determine the Exchange's costs to provide the access 
services associated with the Proposed Access Fees, the Exchange 
conducted an extensive cost review in which the Exchange analyzed 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 the access services. The sum of all such 
portions of expenses represents the total cost of the Exchange to 
provide the access services associated with the Proposed Access Fees. 
For the avoidance of doubt, no expense amount was allocated twice. The 
Exchange is also providing 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.
    In order to determine the Exchange's projected revenues associated 
with the Proposed Access Fees, the Exchange analyzed the number of 
Members currently utilizing the Trading Permits, and, utilizing a 
recent monthly billing cycle representative of 2020 monthly revenue, 
extrapolated annualized revenue on a going-forward basis. 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, discounts 
that can be achieved due to lower trading volume and vice versa, market 
participant consolidation, etc. Additionally, the Exchange similarly 
does not factor into its analysis future cost growth or decline. 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 2019. However, since the 
revenue and expense associated with the Proposed Access Fees were not 
in place in 2019 or for the first three quarters of 2020, the Exchange 
believes its 2019 Audited Unconsolidated Financial Statement is not 
useful for analyzing the reasonableness of the total annual 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 2020 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 fair and reasonable because they will not 
result in excessive pricing or supra-competitive profit when comparing 
the Exchange's total annual expense associated with providing the 
services associated with the Proposed Access Fees versus the total 
projected annual revenue the Exchange will collect for providing those 
services.
* * * * *
    On March 29, 2019, the Commission issued its 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 (the ``BOX 
Order'').\23\ On May 21, 2019, the Commission issued the Staff Guidance 
on SRO Rule Filings Relating to Fees.\24\ 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 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 to establish other non-transaction fees. Accordingly, 
the Exchange believes that the Commission should find that the Proposed 
Access Fees are consistent with the Act.
---------------------------------------------------------------------------

    \23\ 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).
    \24\ 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'').
---------------------------------------------------------------------------

    The proposed rule change is immediately effective upon filing with 
the Commission pursuant to Section 19(b)(3)(A) of the Act.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \25\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \26\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees and other charges among its members and issuers and other persons 
using its facilities. The Exchange also believes the proposal furthers 
the objectives of Section 6(b)(5) of the Act in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange launched trading on March 1, 2019. For the month of 
December 2020, the Exchange had only a 3.58% market share of the U.S. 
options industry.\27\ The Exchange is not aware of any evidence that a 
market share of approximately 3.6% provides the Exchange with anti-
competitive pricing power. If the Exchange were to attempt to establish 
unreasonable pricing, then no market participant would join or connect, 
and existing market participants would disconnect.
---------------------------------------------------------------------------

    \27\ See The Options Clearing Corporation (``OCC'') publishes 
options and futures volume in a variety of formats, including daily 
and monthly volume by exchange, available here: https://www.theocc.com/market-data/volume/default.jsp.
---------------------------------------------------------------------------

    Separately, the Exchange is not aware of any reason why market 
participants could not simply drop their access to an exchange (or not 
initially access an exchange) if an exchange were to establish prices 
for its non-transaction fees that, in the determination of such market 
participant, did not make business or economic sense for such market 
participant to access such exchange. No options market participant is 
required by rule, regulation, or competitive forces to be a Member of 
the Exchange. As evidence of the fact that market participants can and 
do drop their access to exchanges based on non-transaction fee pricing, 
R2G Services LLC (``R2G'') filed a comment letter after BOX's proposed 
rule changes to increase its connectivity fees (SR-BOX-2018-24, SR-BOX-
2018-37, and SR-BOX-2019-04). The R2G Letter stated, ``[w]hen BOX 
instituted a $10,000/month price increase for connectivity;

[[Page 8459]]

we had no choice but to terminate connectivity into them as well as 
terminate our market data relationship. The cost benefit analysis just 
didn't make any sense for us at those new levels.'' Since the Exchange 
issued its notice instituting the Proposed Access Fees, one Member 
dropped its access to the Exchange as a result of the Proposed Access 
Fees. Accordingly, these examples show that if an exchange sets too 
high of a fee for connectivity and/or other non-transaction fees for 
its relevant marketplace, market participants can choose to drop their 
access to such exchange.
    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act because the Proposed Access Fees will not result in 
excessive or supra-competitive profit. The costs associated with 
providing access to Exchange Members and non-Members, as well as the 
general expansion of a state-of-the-art infrastructure, are extensive, 
have increased year-over-year, and are projected to increase year-over-
year in the future. In particular, the Exchange has experienced a 
material increase in its costs in 2020, in connection with a project to 
make its network environment more transparent and deterministic, based 
on customer demand. This project will allow the Exchange to enhance its 
network architecture with the intent of ensuring a best-in-class, 
transparent and deterministic trading system while maintaining its 
industry leading latency and throughput capabilities. In order to 
provide this greater amount of transparency and higher determinism, 
MIAX Emerald has made significant capital expenditures (``CapEx''), 
incurred increased ongoing operational expenditures (``OpEx''), and 
undertaken additional engineering research and development (``R&D'') in 
the following areas: (i) Implementing an improved network design to 
ensure the minimum latency between multicast market data signals 
disseminated by the Exchange across the extranet switches, improving 
the unicast jitter profile to reduce the occurrence of message sequence 
inversions from Members to the Exchange quoting gateway processors, and 
introducing a new optical fiber network infrastructure that ensures the 
optical fiber path for participants within extremely tight tolerances; 
(ii) introducing a re-architected and engineered participant quoting 
gateway that ensures the delivery of messages to the match engine with 
absolute determinism, eliminating the message processing inversions 
that can occur with messages received nanoseconds apart; and (iii) 
designing an improved monitoring platform to better measure the 
performance of the network and systems at extremely tight tolerances 
and to provide Members with reporting on the performance of their 
systems. The CapEx associated with only phase 1 of this project in 2020 
was approximately $1.85 million. This expense does not include the 
significant increase in employee time and other resources necessary to 
maintain and service this network, which expense is captured in the 
operating expense discussed below. This project, which results in a 
material increase in expense of the Exchange, is, among other things, 
intended to enhance the overall trading experience at the Exchange, 
making it a venue that market participants want to access.
    The Exchange believes the proposed Trading Permit fees are 
equitably allocated between EEMs and Market Makers, when these fees are 
viewed in the context of the overall trading volume on the Exchange, as 
Market Makers: (1) Consume the most bandwidth and resources of the 
network; (2) transact the vast majority of the volume on the Exchange; 
and (3) require the high touch network support services provided by the 
Exchange and its staff, including more costly network monitoring, 
reporting and support services, resulting in a much higher cost to the 
Exchange. Further, the Exchange believes the Proposed Access Fees are 
equitably allocated because of customer demand for an even more 
transparent and deterministic network, as described above, which has 
resulted in higher CapEx, increasingly higher OpEx, and increased costs 
to engineering R&D. The Proposed Access Fees are equitably allocated in 
this regard because the majority of customer demand is coming from 
Market Makers, who transact the vast majority of volume on the 
Exchange. Accordingly, the Exchange believes it is reasonable, 
equitably allocated and not unfairly discriminatory to recoup the 
majority of its costs associated with providing Trading Permits from 
Market Makers quoting the most classes on the Exchange.
    The Exchange believes that the proposed Trading Permit fees are 
equitably allocated between EEMs and Market Makers, as Market Makers 
consume the most bandwidth and resources of the network. Specifically, 
the Exchange notes that these users account for approximately greater 
than 99% of message traffic over the network, while EEMs account for 
approximately less than 1% of message traffic over the network. In the 
Exchange's experience, most EEMs do not have a business need for the 
high performance network solutions required by Market Makers. The 
Exchange's high performance network solutions and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput and the capacity to handle approximately 18 million 
quote messages per second. On an average day, the Exchange handles over 
approximately 3 billion total messages. Of those, Market Makers 
generate approximately 3 billion messages, and EEMs generate 500,000 
messages. However, in order to achieve a consistent, premium network 
performance, the Exchange must build out and maintain a network that 
has the capacity to handle the message rate requirements of its most 
heavy network consumers. These billions of messages per day consume the 
Exchange's resources and significantly contribute to the overall 
expense for storage and network transport capabilities. Given this 
difference in network utilization rate, the Exchange believes that it 
is reasonable, equitable, and not unfairly discriminatory that Market 
Makers pay for the vast majority of the access costs designed to be 
recovered via Trading Permit fees.
    In order to provide more detail and to quantify the Exchange's 
costs associated with providing access to the Exchange in general, 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 as the services associated with the Proposed Access Fees 
increase. For example, new Market Makers 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 MIAX 
Emerald and its affiliates provide. Further, as the total number Market 
Makers increase, MIAX Emerald 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 MIAX Emerald and its affiliates to provide 
access to its Members is not fixed. The Exchange believes the Proposed 
Access

[[Page 8460]]

Fees are reasonable in order to offset a portion of the costs to the 
Exchange associated with providing access to its network 
infrastructure.
    Market Makers account for the vast majority of network capacity 
utilization and volume executed on the Exchange, as discussed 
throughout. Accordingly, the Exchange believes that it is reasonable 
and appropriate to charge Market Makers more than EEMs for Trading 
Permits to access the Exchange.
    The Exchange only has four primary sources of revenue: 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.
    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 the associated Trading Permit fees. For 
2020,\28\ the total annual expense for providing the access services 
associated with the Proposed Access Fees for MIAX Emerald is projected 
to be approximately $2.5 million. The $2.5 million in 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 MIAX Emerald to 
third-parties for certain products and services; and (2) internal 
expense, relating to the internal costs of MIAX Emerald to provide the 
services associated with the Proposed Access Fees. As noted above, the 
Exchange believes it is more appropriate to analyze the Proposed Access 
Fees utilizing its 2020 revenue and costs, which utilize the same 
presentation methodology as set forth in the Exchange's previously-
issued Audited Unconsolidated Financial Statements.\29\ The $2.5 
million in 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 systems and other trading 
technology, and no expense amount was allocated twice.
---------------------------------------------------------------------------

    \28\ The Exchange has not yet finalized its 2020 year end 
results.
    \29\ 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-part expense described 
in this filing is attributed to the same line item for the 
Exchange's 2020 Form 1 Amendment, which will be filed in 2021.
---------------------------------------------------------------------------

    As discussed, the Exchange conducted an extensive cost review in 
which the Exchange analyzed 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.
    For 2020, total third-party expense, relating to fees paid by MIAX 
Emerald 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 $190,621. 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 MIAX Emerald trading system infrastructure; (2) Zayo 
Group Holdings, Inc. (``Zayo'') for network services (fiber and 
bandwidth products and services) linking MIAX Emerald's office 
locations in Princeton, NJ and Miami, FL to all data center locations; 
(3) Secure Financial Transaction Infrastructure (``SFTI''),\30\, 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.).
---------------------------------------------------------------------------

    \30\ 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, MIAX Emerald does not allocate its entire 
information technology and communication costs to the access services 
associated with the Proposed Access Fees.
    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 10% of 
the total 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.
    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 MIAX 
Emerald with its affiliates, MIAX and MIAX PEARL, LLC (``MIAX PEARL''), 
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

[[Page 8461]]

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% of the total 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.
    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 1% of the total 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.
    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 10% of the total 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.
    For 2020, total projected internal expense, relating to the 
internal costs of MIAX Emerald to provide the access services 
associated with the Proposed Access Fees, is projected to be 
$2,046,137. 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, business, as well as staff in general 
corporate departments (such as legal, regulatory, and finance) 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, MIAX Emerald 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, MIAX Emerald's employee compensation and benefits 
expense relating to providing the access services associated with the 
Proposed Access Fees is projected to be $1,403,101, which is only a 
portion of the $9,354,009 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), Trade Operations, Finance (who provide billing and 
accounting services relating to the network), and Legal (who provide 
legal services relating to the network, such as rule filings and 
various license agreements and other contracts). 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 portions 
which the Exchange identified as being specifically mapped to providing 
the access services associated with the Proposed Access Fees, 
approximately 15% of the total 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.
    MIAX Emerald's depreciation and amortization expense relating to 
providing the access services associated with the Proposed Access Fees 
is projected to be $571,888, which is only a portion of the $3,812,590 
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

[[Page 8462]]

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 15% of 
the total 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.
    MIAX Emerald's occupancy expense relating to providing the access 
services associated with the Proposed Access Fees is projected to be 
$71,148, which is only a portion of the $474,323 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 150 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 Trading Permit fees. 
Without this office space, 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. 
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 15% of the total 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.
    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 
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 in to recover its costs, 
thus the Exchange believes it is reasonable to allocate a material 
portion of its total overall expense towards access fees.
    Accordingly, based on the facts and circumstances presented, the 
Exchange believes that its provision of the access services associated 
with the Proposed Access Fees will not result in excessive pricing or 
supra-competitive profit. To illustrate, on a going-forward, fully-
annualized basis, the Exchange projects that its annualized revenue for 
providing the access services associated with the Proposed Access Fees 
would be approximately $2.5 million per annum, based on a recent 
billing cycle. The Exchange projects that its annualized expense for 
providing the access services associated with the Proposed Access Fees 
would be approximately $2,236,758 per annum. Accordingly, on a fully-
annualized basis, 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, 
as the Exchange will make only a 10% profit margin on the Proposed 
Access Fees ($2.5 million-$2,236,758 = $263,242 per annum). The 
Exchange notes that the fee charged to each Market Maker for Trading 
Permits can vary from month to month depending on the number of classes 
in which the Market Maker was assigned to quote on any given day within 
the calendar month, and upon certain class volume percentages. The 
Exchange also provides a further discount for a Market Maker's Trading 
Permit fees if the Market Maker's total monthly executed volume during 
the relevant month is less than 0.025% of the total monthly executed 
volume reported by OCC in the customer account type for MIAX Emerald-
listed option classes for that month. As such, the revenue projection 
is not a static number, with monthly Trading Permit fees likely to 
fluctuate month to month.
    For the avoidance of doubt, none of the expenses included herein 
relating to the access services associated with the Proposed Access 
Fees relate to the provision of any other services offered by MIAX 
Emerald. Stated differently, no expense amount of the Exchange is 
allocated twice. The Exchange notes that, with respect to the MIAX 
Emerald expenses included herein, those expenses only cover the MIAX 
Emerald market; expenses associated with the Exchange's affiliate 
exchanges, MIAX and MIAX PEARL, are accounted for separately and are 
not included within the scope of this filing. Stated differently, no 
expense amount of the Exchange is also allocated to MIAX or MIAX PEARL.
    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 item analysis of all the expenses 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 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 Exchange's costs of providing 
access to Exchange Systems. Accordingly, the Exchange believes that the 
Proposed Access Fees are fair and reasonable

[[Page 8463]]

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.
    Further, the Exchange no longer believes it is necessary to waive 
these fees to attract market participants to MIAX Emerald since this 
market is now established and MIAX Emerald no longer needs to rely on 
such waivers to attract market participants. The Exchange believes that 
the proposal is equitable and not unfairly discriminatory because the 
elimination of the fee waiver for the Proposed Access Fees will 
uniformly apply to all EEMs and Market Makers of the Exchange. The 
Exchange also notes that the Exchange's affiliate, MIAX, charges a 
similar, fixed trading permit fee to its EEMs, and a similar, varying 
trading permit fee to its Market Makers, based upon the number of 
assignments of option classes or the percentage of volume in option 
classes.\31\
---------------------------------------------------------------------------

    \31\ See supra note 18.
---------------------------------------------------------------------------

    The Exchange believes that the Proposed Access Fees are reasonable, 
equitable and not unfairly discriminatory because they are within the 
range of comparable fees at other competing options exchanges.\32\ The 
Proposed Access Fees are fair and equitable and not unreasonably 
discriminatory because they apply equally to all Market Makers 
regardless of type and access to the Exchange is offered on terms that 
are not unfairly discriminatory. The Exchange designed the fee rates in 
order to provide objective criteria for Market Makers of different 
sizes and business models that best matches their quoting activity on 
the Exchange. The Exchange notes that trading volume and quoting 
activity in the options market tends to be concentrated in the top 
ranked options classes; with the vast majority of options classes being 
thinly quoted and traded. The Exchange believes that the proposed fee 
rates and criteria provide an objective and flexible framework that 
will encourage Market Makers to be assigned and quote in option classes 
with lower total national average daily volume while also equitably 
allocating the fees in a reasonable manner amongst Market Maker 
assignments to account for quoting and trading activity.
---------------------------------------------------------------------------

    \32\ See supra note 22.
---------------------------------------------------------------------------

    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. In such an environment, the Exchange must continually adjust 
its fees for services and products, in addition to order flow, to 
remain competitive with other exchanges. The Exchange believes that the 
proposed changes reflect this competitive environment.
    The Exchange also points out that it is not seeking to recoup any 
of its past costs associated with the provision of any Trading Permits 
during the Waiver Period. The Exchange currently has 35 Members,\33\ 
all of whom did not pay Trading Permit fees during the Waiver Period 
from the time these firms all became Members of the Exchange. Further, 
the majority of firms that are Members of the Exchange's affiliate 
options exchanges, MIAX and MIAX PEARL, also became Members of those 
exchanges during similar Waiver Periods for the MIAX and MIAX PEARL 
Trading Permit fees. Accordingly, the Exchange (and MIAX and MIAX 
PEARL) have assumed approximately 100% of the costs associated with 
providing Trading Permits for the majority of Member firms of the 
Exchange, MIAX, and MIAX PEARL during their respective Waiver Periods. 
Accordingly, the Exchange believes that it is reasonable, equitable, 
and not unfairly discriminatory to now adopt Trading Permit fees that 
are reasonably related to (and designed to recover) the Exchange's cost 
associated with the provision of such Trading Permits.
---------------------------------------------------------------------------

    \33\ See https://www.miaxoptions.com/exchange-members/emerald.
---------------------------------------------------------------------------

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 not necessary or appropriate in 
furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes that the Proposed Access Fees do not place 
certain market participants at a relative disadvantage to other market 
participants because the Proposed Access Fees do not favor certain 
categories of market participants in a manner that would impose a 
burden on competition; rather, the fee rates are designed in order to 
provide objective criteria for Market Makers of different sizes and 
business models that best matches their quoting activity on the 
Exchange. The Exchange notes that trading volume and quoting activity 
in the options market tends to be concentrated in the top ranked 
options classes; with the vast majority of options classes being thinly 
quoted and traded. The Exchange believes that the proposed fee rates 
and criteria provide an objective and flexible framework that will 
encourage Market Makers to be assigned and quote in option classes with 
lower total national average daily volume while also equitably 
allocating the fees in a reasonable manner amongst Market Maker 
assignments to account for quoting and trading activity.
Inter-Market Competition
    The Exchange believes the Proposed Access Fees do not place an 
undue burden on competition on other SROs that is not necessary or 
appropriate. In particular, options market participants are not forced 
to become members of all options exchanges. The Exchange notes that it 
has far less Members as compared to the much greater number of members 
at other options exchanges. There are a number of large market makers 
and broker-dealers that are members of other options exchange but not 
Members of MIAX Emerald. The Exchange is also unaware of any assertion 
that its existing fee levels or the Proposed Access Fees would somehow 
unduly impair its competition with other options exchanges. To the 
contrary, if the fees charged are deemed too high by market 
participants, they can simply discontinue their membership with the 
Exchange.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 15 competing options 
venues if they deem fee levels at a particular venue to be excessive. 
Based on publicly-available information, and excluding index-based 
options, no single exchange has more than 16% market share. Therefore, 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. For the month of 
December 2020, the Exchange had a market share of approximately 3.6% of 
executed multiply-listed equity options \34\ and the Exchange believes 
that the ever-shifting market share among exchanges from month to month 
demonstrates that market participants can discontinue or reduce use of 
certain categories of products, or shift order flow, in response to fee 
changes. In such an environment, the Exchange must continually adjust 
its fees and fee waivers to remain competitive with other exchanges and 
to attract order flow to the Exchange.
---------------------------------------------------------------------------

    \34\ See supra note 27.

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

[[Page 8464]]

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\35\ and Rule 19b-4(f)(2) \36\ 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.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \36\ 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 rule-comments@sec.gov. Please include 
File Number SR-EMERALD-2021-03 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-2021-03. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-EMERALD-2021-03 and should be submitted 
on or before February 26, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02405 Filed 2-4-21; 8:45 am]
BILLING CODE 8011-01-P