Document ID: SEC-2023-0932-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX Emerald, LLC
Posted Date: 2023-08-25T04:00Z

[Federal Register Volume 88, Number 164 (Friday, August 25, 2023)]
[Notices]
[Pages 58341-58364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-18300]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98176; File No. SR-EMERALD-2023-19]

Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Fee Schedule To Modify Certain Connectivity and Port Fees

August 21, 2023.
    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 August 8, 2023, 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

[[Page 58342]]

comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Emerald Options 
Exchange Fee Schedule (``Fee Schedule'') to amend certain connectivity 
and port fees.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxoptions.com/rule-filings, at MIAX Emerald'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 as follows: (1) 
increase the fees for a 10 gigabit (``Gb'') ultra-low latency (``ULL'') 
fiber connection for Members \3\ and non-Members; and (2) adopt a 
tiered-pricing structure for Limited Service MIAX Emerald Express 
Interface (``MEI'') Ports \4\ available to Market Makers.\5\ The 
Exchange last increased the fees for both 10Gb ULL fiber connections 
and Limited Service MEI Ports beginning with a series of filings on 
October 1, 2020 (with the final filing made on March 24, 2021).\6\ 
Prior to that fee change, the Exchange provided Limited Service MEI 
Ports for $50 per port, after the first two Limited Service MEI Ports 
that are provided free of charge, and the Exchange incurred all the 
costs associated to provide those first two Limited Service MEI Ports 
since it commenced operations in March 2019. The Exchange then 
increased the fee by $50 to a modest $100 fee per Limited Service MEI 
Port and increased the fee for 10Gb ULL fiber connections from $6,000 
to $10,000 per month.
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    \3\ 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.
    \4\ 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.
    \5\ 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. For purposes of Limit 
Service MEI Ports, Market Makers also include firms that engage in 
other types of liquidity activity, such as seeking to remove resting 
liquidity from the Exchange's Book.
    \6\ See Securities Exchange Act Release Nos. 91460 (April 1, 
2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11); 90184 
(October 14, 2020), 85 FR 66636 (October 20, 2020) (SR-EMERALD-2020-
12); 90600 (December 8, 2020), 85 FR 80831 (December 14, 2020) (SR-
EMERALD-2020-17); 91032 (February 1, 2021), 86 FR 8428 (February 5, 
2021) (SR-EMERALD-2021-02); and 91200 (February 24, 2021), 86 FR 
12221 (March 2, 2021) (SR-EMERALD-2021-07).
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    Also, in that fee change, the Exchange adopted fees for providing 
five different types of ports for the first time. These ports were FIX 
Ports, MEI Ports, Clearing Trade Drop Ports, FIX Drop Copy Ports, and 
Purge Ports.\7\ Again, the Exchange absorbed all costs associated with 
providing these ports since its launch in March 2019. As explained in 
that filing, expenditures, as well as research and development 
(``R&D'') in numerous areas resulted in a material increase in expense 
to the Exchange and were the primary drivers for that proposed fee 
change. In that filing, the Exchange allocated a total of $9.3 million 
in expenses to providing 10Gb ULL fiber connectivity, additional 
Limited Service MEI Ports, FIX Ports, MEI Ports, Clearing Trade Drop 
Ports, FIX Drop Copy Ports, and Purge Ports.\8\
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    \7\ See id. for a description of each of these ports.
    \8\ Id.
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    Since the time of the 2021 increase discussed above, the Exchange 
experienced ongoing increases in expenses, particularly internal 
expenses.\9\ As discussed more fully below, the Exchange recently 
calculated increased annual aggregate costs of $11,361,586 for 
providing 10Gb ULL connectivity and $1,779,066 for providing Limited 
Service MEI Ports.
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    \9\ For example, the New York Stock Exchange, Inc.'s (``NYSE'') 
Secure Financial Transaction Infrastructure (``SFTI'') network, 
which contributes to the Exchange's connectivity cost, increased its 
fees by approximately 9% since 2021. Similarly, since 2021, the 
Exchange, and its affiliates, experienced an increase in data center 
costs of approximately 17% and an increase in hardware and software 
costs of approximately 19%. These percentages are based on the 
Exchange's actual 2021 and proposed 2023 budgets.
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    Much of the cost relates to monitoring and analysis of data and 
performance of the network via the subscriber's connection with 
nanosecond granularity, and continuous improvements in network 
performance with the goal of improving the subscriber's experience. The 
costs associated with maintaining and enhancing a state-of-the-art 
network is a significant expense for the Exchange, and thus the 
Exchange believes that it is reasonable and appropriate to help offset 
those increased costs by amending fees for connectivity services. 
Subscribers expect the Exchange to provide this level of support so 
they continue to receive the performance they expect. This 
differentiates the Exchange from its competitors.
    The Exchange now proposes to amend the Fee Schedule to amend the 
fees for 10Gb ULL connectivity and Limited Service MEI Ports in order 
to recoup ongoing costs and increase in expenses set forth below in the 
Exchange's cost analysis. The Exchange initially filed this proposal on 
December 30, 2022 as SR-EMERALD-2022-38. On January 9, 2023, the 
Exchange withdrew SR-EMERALD-2022-38 and resubmitted this proposal as 
SR-EMERALD-2023-01 (the ``Initial Proposal'').\10\ On, February 23, 
2023, the Exchange withdrew the Initial Proposal and replaced it with a 
revised proposal (SR-EMERALD-2023-05) (the ``Second Proposal'').\11\ On 
April 20, 2023, the Exchange withdrew the Second Proposal and replaced 
it with a revised proposal (SR-EMERALD-2023-12) (the ``Third 
Proposal'').\12\ On June 16, 2023, the Exchange withdrew the Third 
Proposal and replaced it with a revised proposal (SR-EMERALD-2023-14) 
(the ``Fourth Proposal'').\13\ On August 8,

[[Page 58343]]

2023, the Exchange withdrew the Fourth Proposal and replaced it with 
this further revised proposal (SR-EMERALD-2023-19).
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    \10\ See Securities Exchange Act Release No. 96628 (January 10, 
2023), 88 FR 2651 (January 17, 2023) (SR-EMERALD-2023-01).
    \11\ See Securities Exchange Act Release No. 97079 (March 8, 
2023), 88 FR 15764 (March 14, 2023) (SR-EMERALD-2023-05).
    \12\ See Securities Exchange Act Release No. 97422 (May 2, 
2023), 88 FR 29750 (May 8, 2023) (SR-EMERALD-2023-12).
    \13\ The Exchange met with Commission Staff to discuss the Third 
Proposal during which the Commission Staff provided feedback and 
requested additional information, including, most recently, 
information about total costs related to certain third party 
vendors. Such vendor cost information is subject to confidentiality 
restrictions. The Exchange provided this information to Commission 
Staff under separate cover with a request for confidentiality. While 
the Exchange will continue to be responsive to Commission Staff's 
information requests, the Exchange believes that the Commission 
should, at this point, issue substantially more detailed guidance 
for exchanges to follow in the process of pursuing a cost-based 
approach to fee filings, and that, for the purposes of fair 
competition, detailed disclosures by exchanges, such as those that 
the Exchange is providing now, should be consistent across all 
exchanges, including for those that have resisted a cost-based 
approach to fee filings, in the interests of fair and even 
disclosure and fair competition. See Securities Exchange Act Release 
No. 97813 (June 27, 2023), 88 FR 42785 (July 3, 2023) (SR-EMERALD-
2023-14).
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    The Exchange previously included a cost analysis in the Initial, 
Second, Third and Fourth Proposals. As described more fully below, the 
Exchange provides an updated cost analysis that includes, among other 
things, additional descriptions of how the Exchange allocated costs 
among it and its affiliated exchanges (MIAX PEARL, LLC (``MIAX Pearl'') 
(separately among MIAX Pearl Options and MIAX Pearl Equities) and MIAX 
\14\ (together with MIAX Pearl Options and MIAX Pearl Equities, the 
``affiliated markets'')) to ensure no cost was allocated more than 
once, as well as additional detail supporting its cost allocation 
processes and explanations as to why a cost allocation in this proposal 
may differ from the same cost allocation in a similar proposal 
submitted by one of its affiliated markets. Although the baseline cost 
analysis used to justify the proposed fees was made in the Initial, 
Second, Third, and Fourth Proposals, the fees themselves have not 
changed since the Initial, Second, Third or Fourth Proposals and the 
Exchange still proposes fees that are intended to cover the Exchange's 
cost of providing 10Gb ULL connectivity and Limited Service MEI Ports 
with a reasonable mark-up over those costs.
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    \14\ The term ``MIAX'' means Miami International Securities 
Exchange, LLC. See Exchange Rule 100.
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* * * * *
    Starting in 2017, following the United States Court of Appeals for 
the District of Columbia's Susquehanna Decision \15\ and various other 
developments, the Commission began to undertake a heightened review of 
exchange filings, including non-transaction fee filings that was 
substantially and materially different from it prior review process 
(hereinafter referred to as the ``Revised Review Process''). In the 
Susquehanna Decision, the D.C. Circuit Court stated that the Commission 
could not maintain a practice of ``unquestioning reliance'' on claims 
made by a self-regulatory organization (``SRO'') in the course of 
filing a rule or fee change with the Commission.\16\ Then, on October 
16, 2018, the Commission issued an opinion in Securities Industry and 
Financial Markets Association finding that exchanges failed both to 
establish that the challenged fees were constrained by significant 
competitive forces and that these fees were consistent with the 
Act.\17\ On that same day, the Commission issued an order remanding to 
various exchanges and national market system (``NMS'') plans challenges 
to over 400 rule changes and plan amendments that were asserted in 57 
applications for review (the ``Remand Order'').\18\ The Remand Order 
directed the exchanges to ``develop a record,'' and to ``explain their 
conclusions, based on that record, in a written decision that is 
sufficient to enable us to perform our review.'' \19\ The Commission 
denied requests by various exchanges and plan participants for 
reconsideration of the Remand Order.\20\ However, the Commission did 
extend the deadlines in the Remand Order ``so that they d[id] not begin 
to run until the resolution of the appeal of the SIFMA Decision in the 
D.C. Circuit and the issuance of the court's mandate.'' \21\ Both the 
Remand Order and the Order Denying Reconsideration were appealed to the 
D.C. Circuit.
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    \15\ See Susquehanna International Group, LLP v. Securities & 
Exchange Commission, 866 F.3d 442 (D.C. Circuit 2017) (the 
``Susquehanna Decision'').
    \16\ Id.
    \17\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 84432, 2018 WL 5023228 (October 16, 2018) (the ``SIFMA 
Decision'').
    \18\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 84433, 2018 WL 5023230 (Oct. 16, 2018). See 15 U.S.C. 
78k-1, 78s; see also Rule 608(d) of Regulation NMS, 17 CFR 
242.608(d) (asserted as an alternative basis of jurisdiction in some 
applications).
    \19\ Id. at page 2.
    \20\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 85802, 2019 WL 2022819 (May 7, 2019) (the ``Order 
Denying Reconsideration'').
    \21\ Order Denying Reconsideration, 2019 WL 2022819, at *13.
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    While the above appeal to the D.C. Circuit was pending, on March 
29, 2019, the Commission issued an order disapproving a proposed fee 
change by BOX Exchange LLC (``BOX'') to establish connectivity fees 
(the ``BOX Order''), which significantly increased the level of 
information needed for the Commission to believe that an exchange's 
filing satisfied its obligations under the Act with respect to changing 
a fee.\22\ Despite approving hundreds of access fee filings in the 
years prior to the BOX Order (described further below) utilizing a 
``market-based'' test, the Commission changed course and disapproved 
BOX's proposal to begin charging connectivity at one-fourth the rate of 
competing exchanges' pricing.
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    \22\ 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). The Commission noted 
in the BOX Order that it ``historically applied a `market-based' 
test in its assessment of market data fees, which [the Commission] 
believe[s] present similar issues as the connectivity fees proposed 
herein.'' Id. at page 16. Despite this admission, the Commission 
disapproved BOX's proposal to begin charging $5,000 per month for 
10Gb connections (while allowing legacy exchanges to charge rates 
equal to 3-4 times that amount utilizing ``market-based'' fee 
filings from years prior).
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    Also while the above appeal was pending, 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.'' \23\ In the Staff 
Guidance, the Commission Staff states that, ``[a]s an initial step in 
assessing the reasonableness of a fee, staff considers whether the fee 
is constrained by significant competitive forces.'' \24\ The Staff 
Guidance also 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.'' \25\
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    \23\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Staff Guidance'').
    \24\ Id.
    \25\ Id.
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    Following the BOX Order and Staff Guidance, on August 6, 2020, the 
D.C. Circuit vacated the Commission's SIFMA Decision in NASDAQ Stock 
Market, LLC v. SEC \26\ and remanded for further proceedings consistent 
with its opinion.\27\ That same day, the D.C. Circuit issued an order 
remanding the Remand Order to the Commission for reconsideration in 
light of NASDAQ. The court noted that the Remand Order required the 
exchanges and NMS plan participants to consider the challenges that the 
Commission had remanded in light of the SIFMA Decision. The D.C. 
Circuit concluded that because the SIFMA Decision ``has now been 
vacated, the basis for the [Remand

[[Page 58344]]

Order] has evaporated.'' \28\ Accordingly, on August 7, 2020, the 
Commission vacated the Remand Order and ordered the parties to file 
briefs addressing whether the holding in NASDAQ v. SEC that Exchange 
Act section 19(d) does not permit challenges to generally applicable 
fee rules requiring dismissal of the challenges the Commission 
previously remanded.\29\ The Commission further invited ``the parties 
to submit briefing stating whether the challenges asserted in the 
applications for review . . . should be dismissed, and specifically 
identifying any challenge that they contend should not be dismissed 
pursuant to the holding of Nasdaq v. SEC.'' \30\ Without resolving the 
above issues, on October 5, 2020, the Commission issued an order 
granting SIFMA and Bloomberg's request to withdraw their applications 
for review and dismissed the proceedings.\31\
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    \26\ NASDAQ Stock Mkt., LLC v. SEC, No 18-1324, --- Fed. App'x -
---, 2020 WL 3406123 (D.C. Cir. June 5, 2020). The court's mandate 
was issued on August 6, 2020.
    \27\ Nasdaq v. SEC, 961 F.3d 421, at 424, 431 (D.C. Cir. 2020). 
The court's mandate issued on August 6, 2020. The D.C. Circuit held 
that Exchange Act ``section 19(d) is not available as a means to 
challenge the reasonableness of generally-applicable fee rules.'' 
Id. The court held that ``for a fee rule to be challengeable under 
section 19(d), it must, at a minimum, be targeted at specific 
individuals or entities.'' Id. Thus, the court held that ``section 
19(d) is not an available means to challenge the fees at issue'' in 
the SIFMA Decision. Id.
    \28\ Id. at *2; see also id. (``[T]he sole purpose of the 
challenged remand has disappeared.'').
    \29\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 89504, 2020 WL 4569089 (August 7, 2020) (the ``Order 
Vacating Prior Order and Requesting Additional Briefs'').
    \30\ Id.
    \31\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 90087 (October 5, 2020).
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    As a result of the Commission's loss of the NASDAQ vs. SEC case 
noted above, the Commission never followed through with its intention 
to subject the over 400 fee filings to ``develop a record,'' and to 
``explain their conclusions, based on that record, in a written 
decision that is sufficient to enable us to perform our review.'' \32\ 
As such, all of those fees remained in place and amounted to a baseline 
set of fees for those exchanges that had the benefit of getting their 
fees in place before the Commission Staff's fee review process 
materially changed. The net result of this history and lack of 
resolution in the D.C. Circuit Court resulted in an uneven competitive 
landscape where the Commission subjects all new non-transaction fee 
filings to the new Revised Review Process, while allowing the 
previously challenged fee filings, mostly submitted by incumbent 
exchanges prior to 2019, to remain in effect and not subject to the 
``record'' or ``review'' earlier intended by the Commission.
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    \32\ See supra note 27, at page 2.
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    While the Exchange appreciates that the Staff Guidance articulates 
an important policy goal of improving disclosures and requiring 
exchanges to justify that their market data and access fee proposals 
are fair and reasonable, the practical effect of the Revised Review 
Process, Staff Guidance, and the Commission's related practice of 
continuous suspension of new fee filings, is anti-competitive, 
discriminatory, and has put in place an un-level playing field, which 
has negatively impacted smaller, nascent, non-legacy exchanges (``non-
legacy exchanges''), while favoring larger, incumbent, entrenched, 
legacy exchanges (``legacy exchanges'').\33\ The legacy exchanges all 
established a significantly higher baseline for access and market data 
fees prior to the Revised Review Process. From 2011 until the issuance 
of the Staff Guidance in 2019, national securities exchanges filed, and 
the Commission Staff did not abrogate or suspend (allowing such fees to 
become effective), at least 92 filings \34\ to amend exchange 
connectivity or port fees (or similar access fees). The support for 
each of those filings was a simple statement by the relevant exchange 
that the fees were constrained by competitive forces.\35\ These fees 
remain in effect today.
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    \33\ Commission Chair Gary Gensler recently reiterated the 
Commission's mandate to ensure competition in the equities markets. 
See ``Statement on Minimum Price Increments, Access Fee Caps, Round 
Lots, and Odd-Lots'', by Chair Gary Gensler, dated December 14, 2022 
(stating ``[i]n 1975, Congress tasked the Securities and Exchange 
Commission with responsibility to facilitate the establishment of 
the national market system and enhance competition in the securities 
markets, including the equity markets'' (emphasis added)). In that 
same statement, Chair Gary Gensler cited the five objectives laid 
out by Congress in 11A of the Exchange Act (15 U.S.C. 78k-1), 
including ensuring ``fair competition among brokers and dealers, 
among exchange markets, and between exchange markets and markets 
other than exchange markets . . .'' (emphasis added). Id. at note 1. 
See also Securities Acts Amendments of 1975, available at https://www.govtrack.us/congress/bills/94/s249.
    \34\ This timeframe also includes challenges to over 400 rule 
filings by SIFMA and Bloomberg discussed above. Sec. Indus. & Fin. 
Mkts. Ass'n, Securities Exchange Act Release No. 84433, 2018 WL 
5023230 (Oct. 16, 2018). Those filings were left to stand, while at 
the same time, blocking newer exchanges from the ability to 
establish competitive access and market data fees. See The Nasdaq 
Stock Market, LLC v. SEC, Case No. 18-1292 (D.C. Cir. June 5, 2020). 
The expectation at the time of the litigation was that the 400 rule 
flings challenged by SIFMA and Bloomberg would need to be justified 
under revised review standards.
    \35\ See, e.g., Securities Exchange Act Release Nos. 74417 
(March 3, 2015), 80 FR 12534 (March 9, 2015) (SR-ISE-2015-06); 83016 
(April 9, 2018), 83 FR 16157 (April 13, 2018) (SR-PHLX-2018-26); 
70285 (August 29, 2013), 78 FR 54697 (September 5, 2013) (SR-
NYSEMKT-2013-71); 76373 (November 5, 2015), 80 FR 70024 (November 
12, 2015) (SR-NYSEMKT-2015-90); 79729 (January 4, 2017), 82 FR 3061 
(January 10, 2017) (SR-NYSEARCA-2016-172).
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    The net result is that the non-legacy exchanges are effectively now 
blocked by the Commission Staff from adopting or increasing fees to 
amounts comparable to the legacy exchanges (which were not subject to 
the Revised Review Process and Staff Guidance), despite providing 
enhanced disclosures and rationale to support their proposed fee 
changes that far exceed any such support provided by legacy exchanges. 
Simply put, legacy exchanges were able to increase their non-
transaction fees during an extended period in which the Commission 
applied a ``market-based'' test that only relied upon the assumed 
presence of significant competitive forces, while exchanges today are 
subject to a cost-based test requiring extensive cost and revenue 
disclosures, a process that is complex, inconsistently applied, and 
rarely results in a successful outcome, i.e., non-suspension. The 
Revised Review Process and Staff Guidance changed decades-long 
Commission Staff standards for review, resulting in unfair 
discrimination and placing an undue burden on inter-market competition 
between legacy exchanges and non-legacy exchanges.
    Commission Staff now require exchange filings, including from non-
legacy exchanges such as the Exchange, to provide detailed cost-based 
analysis in place of competition-based arguments to support such 
changes. However, even with the added detailed cost and expense 
disclosures, the Commission Staff continues to either suspend such 
filings and institute disapproval proceedings, or put the exchanges in 
the unenviable position of having to repeatedly withdraw and re-file 
with additional detail in order to continue to charge those fees.\36\ 
By impeding any path forward for non-legacy exchanges to establish 
commensurate non-transaction fees, or by failing to provide any 
alternative means for smaller markets to establish ``fee parity'' with 
legacy exchanges, the Commission is stifling competition: non-legacy 
exchanges are, in effect, being deprived of the revenue necessary to 
compete on a level playing field with legacy exchanges. This is 
particularly harmful, given that the costs to maintain exchange systems 
and operations continue to increase. The Commission Staff's change in 
position impedes the ability of non-legacy exchanges to raise revenue 
to invest in their systems to compete with the legacy exchanges who 
already enjoy disproportionate non-transaction fee based revenue. For 
example, the Cboe Exchange, Inc. (``Cboe'') reported ``access and 
capacity

[[Page 58345]]

fee'' revenue of $70,893,000 for 2020 \37\ and $80,383,000 for 
2021.\38\ Cboe C2 Exchange, Inc. (``C2'') reported ``access and 
capacity fee'' revenue of $19,016,000 for 2020 \39\ and $22,843,000 for 
2021.\40\ Cboe BZX Exchange, Inc. (``BZX'') reported ``access and 
capacity fee'' revenue of $38,387,000 for 2020 \41\ and $44,800,000 for 
2021.\42\ Cboe EDGX Exchange, Inc. (``EDGX'') reported ``access and 
capacity fee'' revenue of $26,126,000 for 2020 \43\ and $30,687,000 for 
2021.\44\ For 2021, the affiliated Cboe, C2, BZX, and EDGX (the four 
largest exchanges of the Cboe exchange group) reported $178,712,000 in 
``access and capacity fees'' in 2021. NASDAQ Phlx, LLC (``NASDAQ 
Phlx'') reported ``Trade Management Services'' revenue of $20,817,000 
for 2019.\45\ The Exchange notes it is unable to compare ``access fee'' 
revenues with NASDAQ Phlx (or other affiliated NASDAQ exchanges) 
because after 2019, the ``Trade Management Services'' line item was 
bundled into a much larger line item in PHLX's Form 1, simply titled 
``Market services.'' \46\
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    \36\ The Exchange has filed, and subsequently withdrawn, various 
forms of this proposed fee numerous times since August 2021 with 
each proposal containing hundreds of cost and revenue disclosures 
never previously disclosed by legacy exchanges in their access and 
market data fee filings prior to 2019.
    \37\ According to Cboe's 2021 Form 1 Amendment, access and 
capacity fees represent fees assessed for the opportunity to trade, 
including fees for trading-related functionality. See Cboe 2021 Form 
1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \38\ See Cboe 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001155.pdf.
    \39\ See C2 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000469.pdf.
    \40\ See C2 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001156.pdf.
    \41\ See BZX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \42\ See BZX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001152.pdf.
    \43\ See EDGX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000467.pdf.
    \44\ See EDGX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001154.pdf.
    \45\ According to PHLX, ``Trade Management Services'' includes 
``a wide variety of alternatives for connectivity to and accessing 
[the PHLX] markets for a fee. These participants are charged monthly 
fees for connectivity and support in accordance with [PHLX's] 
published fee schedules.'' See PHLX 2020 Form 1 Amendment, available 
at https://www.sec.gov/Archives/edgar/vprr/2001/20012246.pdf.
    \46\ See PHLX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000475.pdf. The Exchange 
notes that this type of Form 1 accounting appears to be designed to 
obfuscate the true financials of such exchanges and has the effect 
of perpetuating fee and revenue advantages of legacy exchanges.
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    The much higher non-transaction fees charged by the legacy 
exchanges provides them with two significant competitive advantages. 
First, legacy exchanges are able to use their additional non-
transaction revenue for investments in infrastructure, vast marketing 
and advertising on major media outlets,\47\ new products and other 
innovations. Second, higher non-transaction fees provide the legacy 
exchanges with greater flexibility to lower their transaction fees (or 
use the revenue from the higher non-transaction fees to subsidize 
transaction fee rates), which are more immediately impactful in 
competition for order flow and market share, given the variable nature 
of this cost on member firms. The prohibition of a reasonable path 
forward denies the Exchange (and other non-legacy exchanges) this 
flexibility, eliminates the ability to remain competitive on 
transaction fees, and hinders the ability to compete for order flow and 
market share with legacy exchanges. While one could debate whether the 
pricing of non-transaction fees are subject to the same market forces 
as transaction fees, there is little doubt that subjecting one exchange 
to a materially different standard than that historically applied to 
legacy exchanges for non-transaction fees leaves that exchange at a 
disadvantage in its ability to compete with its pricing of transaction 
fees.
---------------------------------------------------------------------------

    \47\ See, e.g., CNBC Debuts New Set on NYSE Floor, available at 
https://www.cnbc.com/id/46517876.
---------------------------------------------------------------------------

    While the Commission has clearly noted that the Staff Guidance is 
merely guidance and ``is not a rule, regulation or statement of the . . 
. Commission . . . the Commission has neither approved nor disapproved 
its content . . .'',\48\ this is not the reality experienced by 
exchanges such as MIAX Emerald. As such, non-legacy exchanges are 
forced to rely on an opaque cost-based justification standard. However, 
because the Staff Guidance is devoid of detail on what must be 
contained in cost-based justification, this standard is nearly 
impossible to meet despite repeated good-faith efforts by the Exchange 
to provide substantial amount of cost-related details. For example, the 
Exchange has attempted to increase fees using a cost-based 
justification numerous times, having submitted over six filings.\49\ 
However, despite providing 100+ page filings describing in extensive 
detail its costs associated with providing the services described in 
the filings, Commission Staff continues to suspend such filings, with 
the rationale that the Exchange has not provided sufficient detail of 
its costs and without ever being precise about what additional data 
points are required. The Commission Staff appears to be interpreting 
the reasonableness standard set forth in section 6(b)(4) of the Act 
\50\ in a manner that is not possible to achieve. This essentially 
nullifies the cost-based approach for exchanges as a legitimate 
alternative as laid out in the Staff Guidance. By refusing to accept a 
reasonable cost-based argument to justify non-transaction fees (in 
addition to refusing to accept a competition-based argument as 
described above), or by failing to provide the detail required to 
achieve that standard, the Commission Staff is effectively preventing 
non-legacy exchanges from making any non-transaction fee changes, which 
benefits the legacy exchanges and is anticompetitive to the non-legacy 
exchanges. This does not meet the fairness standard under the Act and 
is discriminatory.
---------------------------------------------------------------------------

    \48\ See supra note 23, at note 1.
    \49\ See Securities Exchange Act Release Nos. 94889 (May 11, 
2022), 87 FR 29928 (May 17, 2022) (SR-EMERALD-2022-19); 94718 (April 
14, 2022), 87 FR 23633 (April 20, 2022) (SR-EMERALD-2022-15); 94717 
(April 14, 2022), 87 FR 23648 (April 20, 2022) (SR-EMERALD-2022-13); 
94260 (February 15, 2022), 87 FR 9695 (February 22, 2022) (SR-
EMERALD-2022-05); 94257 (February 15, 2022), 87 FR 9678 (February 
22, 2022) (SR-EMERALD-2022-04); 93772 (December 14, 2021), 86 FR 
71965 (December 20, 2021) (SR-EMERALD-2021-43); 93776 (December 14, 
2021), 86 FR 71983 (December 20, 2021) (SR-EMERALD-2021-42); 93188 
(September 29, 2021), 86 FR 55052 (October 5, 2021) (SR-EMERALD-
2021-31); (SR-EMERALD-2021-30) (withdrawn without being noticed by 
the Commission); 93166 (September 28, 2021), 86 FR 54760 (October 4, 
2021) (SR-EMERALD-2021-29); 92662 (August 13, 2021), 86 FR 46726 
(August 19, 2021) (SR-EMERALD-2021-25); 92645 (August 11, 2021), 86 
FR 46048 (August 17, 2021) (SR-EMERALD-2021-23).
    \50\ 15 U.S.C. 78f(b)(4).
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    Because of the un-level playing field created by the Revised Review 
Process and Staff Guidance, the Exchange believes that the Commission 
Staff, at this point, should either (a) provide sufficient clarity on 
how its cost-based standard can be met, including a clear and 
exhaustive articulation of required data and its views on acceptable 
margins,\51\ to the extent that this is pertinent; (b) establish a 
framework to provide for commensurate non-transaction based fees among 
competing exchanges to ensure fee parity; \52\ or (c)

[[Page 58346]]

accept that certain competition-based arguments are applicable given 
the linkage between non-transaction fees and transaction fees, 
especially where non-transaction fees among exchanges are based upon 
disparate standards of review, lack parity, and impede fair 
competition. Considering the absence of any such framework or clarity, 
the Exchange believes that the Commission does not have a reasonable 
basis to deny the Exchange this change in fees, where the proposed 
change would result in fees meaningfully lower than comparable fees at 
competing exchanges and where the associated non-transaction revenue is 
meaningfully lower than competing exchanges.
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    \51\ To the extent that the cost-based standard includes 
Commission Staff making determinations as to the appropriateness of 
certain profit margins, the Exchange believes that Staff should be 
clear as to what they determine is an appropriate profit margin.
    \52\ In light of the arguments above regarding disparate 
standards of review for historical legacy non-transaction fees and 
current non-transaction fees for non-legacy exchanges, a fee parity 
alternative would be one possible way to avoid the current unfair 
and discriminatory effect of the Staff Guidance and Revised Review 
Process. See, e.g., CSA Staff Consultation Paper 21-401, Real-Time 
Market Data Fees, available at https://www.bcsc.bc.ca/-/media/PWS/Resources/Securities_Law/Policies/Policy2/21401_Market_Data_Fee_CSA_Staff_Consulation_Paper.pdf.
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    In light of the above, disapproval of this would not meet the 
fairness standard under the Act, would be discriminatory and places a 
substantial burden on competition. The Exchange would be uniquely 
disadvantaged by not being able to increase its access fees to 
comparable levels (or lower levels than current market rates) to those 
of other options exchanges for connectivity. If the Commission Staff 
were to disapprove this proposal, that action, and not market forces, 
would substantially affect whether the Exchange can be successful in 
its competition with other options exchanges. Disapproval of this 
filing could also be viewed as an arbitrary and capricious decision 
should the Commission Staff continue to ignore its past treatment of 
non-transaction fee filings before implementation of the Revised Review 
Process and Staff Guidance and refuse to allow such filings to be 
approved despite significantly enhanced arguments and cost 
disclosures.\53\
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    \53\ The Exchange's costs have clearly increased and continue to 
increase, particularly regarding capital expenditures, as well as 
employee benefits provided by third parties (e.g., healthcare and 
insurance). Yet, practically no fee change proposed by the Exchange 
to cover its ever-increasing costs has been acceptable to the 
Commission Staff since 2021. The only other fair and reasonable 
alternative would be to require the numerous fee filings 
unquestioningly approved before the Staff Guidance and Revised 
Review Process to ``develop a record,'' and to ``explain their 
conclusions, based on that record, in a written decision that is 
sufficient to enable us to perform our review,'' and to ensure a 
comparable review process with the Exchange's filing.
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* * * * *
10Gb ULL Connectivity Fee Change
    The Exchange proposes to amend the Fee Schedule to increase the 
fees for Members and non-Members to access the Exchange's system 
networks \54\ via a 10Gb ULL fiber connection. Specifically, the 
Exchange proposes to amend Sections 5)a)-b) of the Fee Schedule to 
increase the 10Gb ULL connectivity fee for Members and non-Members from 
$10,000 per month to $13,500 per month (``10Gb ULL Fee'').\55\
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    \54\ The Exchange's system networks consist of the Exchange's 
extranet, internal network, and external network.
    \55\ Market participants that purchase additional 10Gb ULL 
connections as a result of this change will not be subject to the 
Exchange's Member Network Connectivity Testing and Certification Fee 
under Section 4)c) of the Exchange's Fee Schedule. See Section 4)c) 
of the Exchange's fee schedule available at https://www.miaxglobal.com/markets/us-options/miax-options/fees (providing 
that ``Network Connectivity Testing and Certification Fees will not 
be assessed in situations where the Exchange initiates a mandatory 
change to the Exchange's system that requires testing and 
certification. Member Network Connectivity Testing and Certification 
Fees will not be assessed for testing and certification of 
connectivity to the Exchange's Disaster Recovery Facility.'').
---------------------------------------------------------------------------

    The Exchange will continue to assess monthly Member and non-Member 
network connectivity fees for connectivity to the primary and secondary 
facilities in any month the Member or non-Member is credentialed to use 
any of the Exchange APIs or market data feeds in the production 
environment. The Exchange will continue to pro-rate the fees when a 
Member or non-Member makes a change to the connectivity (by adding or 
deleting connections) with such pro-rated fees based on the number of 
trading days that the Member or non-Member has been credentialed to 
utilize any of the Exchange APIs or market data feeds in the production 
environment through such connection, divided by the total number of 
trading days in such month multiplied by the applicable monthly rate.
Limited Service MEI Ports
Background
    The Exchange also proposes to amend Section 5)d) of the Fee 
Schedule to adopt a tiered-pricing structure for Limited Service MEI 
Ports available to Market Makers. The Exchange allocates two (2) Full 
Service MEI Ports \56\ and two (2) Limited Service MEI Ports \57\ per 
matching engine \58\ to which each Market Maker connects. Market Makers 
may also request additional Limited Service MEI Ports for each matching 
engine to which they connect. The Full Service MEI Ports and Limited 
Service MEI Ports all include access to the Exchange's primary and 
secondary data centers and its disaster recovery center. Market Makers 
may request additional Limited Service MEI Ports. Currently, Market 
Makers are assessed a $100 monthly fee for each Limited Service MEI 
Port for each matching engine above the first two Limited Service MEI 
Ports that are included for free.
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    \56\ The term ``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.
    \57\ The term ``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.
    \58\ The term ``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.
---------------------------------------------------------------------------

Limited Service MEI Port Fee Changes
    The Exchange now proposes to move from a flat monthly fee per 
Limited Service MEI Port for each matching engine to a tiered-pricing 
structure for Limited Service MEI Ports for each matching engine under 
which the monthly fee would vary depending on the number of Limited 
Service MEI Ports each Market Maker elects to purchase. Specifically, 
the Exchange will continue to provide the first and second Limited 
Service MEI Ports for each matching engine free of charge. For Limited 
Service MEI Ports, the Exchange proposes to adopt the following tiered-
pricing structure: (i) the third and fourth Limited Service MEI Ports 
for each matching engine will increase from the current flat monthly 
fee of $100 to $200 per port; (ii) the fifth and sixth Limited Service 
MEI Ports for each matching engine will increase from the current flat 
monthly fee of $100 to $300 per port; and (iii) the seventh or more 
Limited Service MEI Ports will increase from the current monthly flat 
fee of $100 to $400 per port.\59\ The

[[Page 58347]]

Exchange believes a tiered-pricing structure will encourage Market 
Makers to be more efficient when determining how to connect to the 
Exchange. This should also enable the Exchange to better monitor and 
provide access to the Exchange's network to ensure sufficient capacity 
and headroom in the System \60\ in accordance with its fair access 
requirements under section 6(b)(5) of the Act.\61\
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    \59\ As noted in the Fee Schedule, Market Makers will continue 
to be limited to fourteen Limited Service MEI Ports per Matching 
Engine. The Exchange also proposes to make a ministerial clarifying 
change to remove the defined term ``Additional Limited Service MEI 
Ports'' as a result of moving to a tiered pricing structure where 
the first two Limited Service MEI Ports continue to be provided free 
of charge. The Exchange proposes to make a related change to add the 
term ``Limited Service MEI Ports'' after the word ``fourteen'' in 
the Fee Schedule.
    \60\ 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.
    \61\ See 15 U.S.C. 78f(b). The Exchange may offer access on 
terms that are not unfairly discriminatory among its Members, and 
ensure sufficient capacity and headroom in the System. The Exchange 
monitors the System's performance and makes adjustments to its 
System based on market conditions and Member demand.
---------------------------------------------------------------------------

    The Exchange offers various types of ports with differing prices 
because each port accomplishes different tasks, are suited to different 
types of Members, and consume varying capacity amounts of the network. 
For instance, Market Makers who take the maximum amount of Limited 
Service MEI Ports account for approximately greater than 99% of message 
traffic over the network, while Market Makers with fewer Limited 
Service MEI Ports account for approximately less than 1% of message 
traffic over the network. In the Exchange's experience, Market Makers 
who only utilize the two free Limited Service MEI Ports do not have a 
business need for the high performance network solutions required by 
Market Makers who take the maximum amount of Limited Service MEI Ports. 
The Exchange's high performance network solutions and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput and the capacity to handle approximately 18 million 
quote messages per second. Based on May 2023 trading results, the 
Exchange handles over approximately 8.6 billion quotes on an average 
day, and more than 189 billion quotes over the entire month. Of that 
total, Market Makers with the maximum amount of Limited Service MEI 
Ports generated more than 111 billion quotes (and more than 5 billion 
quotes on an average day), and Market Makers who utilized only the two 
free Limited Service MEI Ports generated approximately 40 billion 
quotes (and approximately 1.8 billion quotes on an average day). Also 
for May 2023, Market Makers who utilized 7 to 9 Limited Service MEI 
ports submitted an average of 936 million quotes per day; Market Makers 
who utilized 5-6 Limited Service MEI Ports submitted an average of 578 
million quotes on an average day; and Market Makers who utilized 3-4 
Limited Service MEI Ports submitted an average of 176 million quotes on 
an average day.
    To achieve a consistent, premium network performance, the Exchange 
must build out and maintain a network that has the capacity to handle 
the message rate requirements of its most heavy network consumers. 
These billions of messages per day consume the Exchange's resources and 
significantly contribute to the overall network connectivity expense 
for storage and network transport capabilities. The Exchange must also 
purchase additional storage capacity on an ongoing basis to ensure it 
has sufficient capacity to store these messages as part of it 
surveillance program and to satisfy its record keeping requirements 
under the Exchange Act.\62\ Thus, as the number of connections a Market 
Maker has increases, certain other costs incurred by the Exchange that 
are correlated to, though not directly affected by, connection costs 
(e.g., storage costs, surveillance costs, service expenses) also 
increase. The Exchange sought to design the proposed tiered-pricing 
structure to set the amount of the fees to relate to the number of 
connections a firm purchases. The more connections purchased by a 
Market Maker likely results in greater expenditure of Exchange 
resources and increased cost to the Exchange. With this in mind, the 
Exchange proposes no fee or lower fees for those Market Makers who 
receive fewer Limited Service MEI Ports since those Market Makers 
generally tend to send the least amount of orders and messages over 
those connections. Given this difference in network utilization rate, 
the Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory that Market Makers who take the most Limited 
Service MEI Ports pay for the vast majority of the shared network 
resources from which all Member and non-Member users benefit, but is 
designed and maintained from a capacity standpoint to specifically 
handle the message rate and performance requirements of those Market 
Makers. The Exchange proposes to increase its monthly Limited Service 
MEI Port fees to recover a portion of the costs associated with 
directly accessing the Exchange.
---------------------------------------------------------------------------

    \62\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

Implementation
    The proposed fee changes are immediately effective.
2. Statutory Basis
    The Exchange believes that the proposed fees are consistent with 
section 6(b) of the Act \63\ in general, and furthers the objectives of 
section 6(b)(4) of the Act \64\ in particular, in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among Members and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposed 
fees further the objectives of section 6(b)(5) of the Act \65\ in that 
they are designed to promote just and equitable principles of trade, 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general protect investors 
and the public interest and are not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78f(b).
    \64\ 15 U.S.C. 78f(b)(4).
    \65\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the information provided to justify the 
proposed fees meets or exceeds the amount of detail required in respect 
of proposed fee changes under the Revised Review Process and as set 
forth in recent Staff Guidance. Based on both the BOX Order \66\ and 
the Staff Guidance,\67\ the Exchange believes that the proposed fees 
are consistent with the Act because they are: (i) reasonable, equitably 
allocated, not unfairly discriminatory, and not an undue burden on 
competition; (ii) comply with the BOX Order and the Staff Guidance; and 
(iii) supported by evidence (including comprehensive revenue and cost 
data and analysis) that they are fair and reasonable and will not 
result in excessive pricing or supra-competitive profit.
---------------------------------------------------------------------------

    \66\ See supra note 22.
    \67\ See supra note 23.
---------------------------------------------------------------------------

    The Exchange believes that exchanges, in setting fees of all types, 
should meet high standards of transparency to demonstrate why each new 
fee or fee amendment meets the requirements of the Act that fees be 
reasonable, equitably allocated, not unfairly discriminatory, and not 
create an undue burden on competition among market participants. The 
Exchange believes this high standard is especially important when an 
exchange imposes various fees for market participants to access an 
exchange's marketplace.

[[Page 58348]]

    In the Staff Guidance, the Commission Staff states that, ``[a]s an 
initial step in assessing the reasonableness of a fee, staff considers 
whether the fee is constrained by significant competitive forces.'' 
\68\ The 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.'' \69\ In the Staff 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, 
. . . , specific information, including quantitative information, 
should be provided to support that argument.'' \70\
---------------------------------------------------------------------------

    \68\ Id.
    \69\ Id.
    \70\ Id.
---------------------------------------------------------------------------

    The proposed fees are reasonable because they promote parity among 
exchange pricing for access, which promotes competition, including in 
the Exchanges' ability to competitively price transaction fees, invest 
in infrastructure, new products and other innovations, all while 
allowing the Exchange to recover its costs to provide dedicated access 
via 10Gb ULL connectivity and Limited Service MEI Ports. As discussed 
above, the Revised Review Process and Staff Guidance have created an 
uneven playing field between legacy and non-legacy exchanges by 
severely restricting non-legacy exchanges from being able to increase 
non-transaction related fees to provide them with additional necessary 
revenue to better compete with legacy exchanges, which largely set fees 
prior to the Revised Review Process. The much higher non-transaction 
fees charged by the legacy exchanges provides them with two significant 
competitive advantages: (i) additional non-transaction revenue that may 
be used to fund areas other than the non-transaction service related to 
the fee, such as investments in infrastructure, advertising, new 
products and other innovations; and (ii) greater flexibility to lower 
their transaction fees by using the revenue from the higher non-
transaction fees to subsidize transaction fee rates. The latter is more 
immediately impactful in competition for order flow and market share, 
given the variable nature of this cost on Member firms. The absence of 
a reasonable path forward to increase non-transaction fees to 
comparable (or lower rates) limits the Exchange's flexibility to, among 
other things, make additional investments in infrastructure and 
advertising, diminishes the ability to remain competitive on 
transaction fees, and hinders the ability to compete for order flow and 
market share. Again, while one could debate whether the pricing of non-
transaction fees are subject to the same market forces as transaction 
fees, there is little doubt that subjecting one exchange to a 
materially different standard than that applied to other exchanges for 
non-transaction fees leaves that exchange at a disadvantage in its 
ability to compete with its pricing of transaction fees.
The Proposed Fees Ensure Parity Among Exchange Access Fees, Which 
Promotes Competition
    The Exchange initially adopted a fee of $50 per port, after the 
first two Limited Service MEI Ports that are provided free of charge, 
and the Exchange incurred all the costs associated to provide those 
first two Limited Service MEI Ports since it commenced operations in 
March 2019. At that same time, the Exchange only charged $6,000 per 
month for each 10Gb ULL connection. As a new exchange entrant, the 
Exchange chose to offer connectivity and ports at very low fees to 
encourage market participants to trade on the Exchange and experience, 
among things, the quality of the Exchange's technology and trading 
functionality. This practice is not uncommon. New exchanges often do 
not charge fees or charge lower fees for certain services such as 
memberships/trading permits to attract order flow to an exchange, and 
later amend their fees to reflect the true value of those services, 
absorbing all costs to provide those services in the meantime. Allowing 
new exchange entrants time to build and sustain market share through 
various pricing incentives before increasing non-transaction fees 
encourages market entry and fee parity, which promotes competition 
among exchanges. It also enables new exchanges to mature their markets 
and allow market participants to trade on the new exchanges without 
fees serving as a potential barrier to attracting memberships and order 
flow.\71\ Later in 2020, as the Exchange's market share increased,\72\ 
the Exchange then increased the fee by $50 to a modest $100 fee per 
Limited Service MEI Port and increased the fee for 10Gb ULL fiber 
connections from $6,000 to $10,000 per month.\73\ The Exchange balanced 
business and competitive concerns with the need to financially compete 
with the larger incumbent exchanges that charge higher fees for similar 
connectivity and use that revenue to invest in their technology and 
other service offerings.
---------------------------------------------------------------------------

    \71\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating, ``[t]he 
Exchange established this lower (when compared to other options 
exchanges in the industry) Participant Fee in order to encourage 
market participants to become Participants of BOX . . .''). See also 
Securities Exchange Act Release No. 90076 (October 2, 2020), 85 FR 
63620 (October 8, 2020) (SR-MEMX-2020-10) (proposing to adopt the 
initial fee schedule and stating that ``[u]nder the initial proposed 
Fee Schedule, the Exchange proposes to make clear that it does not 
charge any fees for membership, market data products, physical 
connectivity or application sessions.''). MEMX's market share has 
increased and recently proposed to adopt numerous non-transaction 
fees, including fees for membership, market data, and connectivity. 
See Securities Exchange Act Release Nos. 93927 (January 7, 2022), 87 
FR 2191 (January 13, 2022) (SR-MEMX-2021-19) (proposing to adopt 
membership fees); 96430 (December 1, 2022), 87 FR 75083 (December 7, 
2022) (SR-MEMX-2022-32) and 95936 (September 27, 2022), 87 FR 59845 
(October 3, 2022) (SR-MEMX-2022-26) (proposing to adopt fees for 
connectivity). See also, e.g., Securities Exchange Act Release No. 
88211 (February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-
NYSENAT-2020-05), available at https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf (initiating market data fees for the NYSE National exchange 
after initially setting such fees at zero).
    \72\ The Exchange experienced a monthly average trading volume 
of 3.43% for the month of October 2020. See the ``Market Share'' 
section of the Exchange's website, available at https://www.miaxglobal.com/.
    \73\ See Securities Exchange Act Release Nos. 91460 (April 1, 
2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11); 90184 
(October 14, 2020), 85 FR 66636 (October 20, 2020) (SR-EMERALD-2020-
12); 90600 (December 8, 2020), 85 FR 80831 (December 14, 2020) (SR-
EMERALD-2020-17); 91032 (February 1, 2021), 86 FR 8428 (February 5, 
2021) (SR-EMERALD-2021-02); and 91200 (February 24, 2021), 86 FR 
12221 (March 2, 2021) (SR-EMERALD-2021-07).
---------------------------------------------------------------------------

    The proposed changes to the Fee Schedule are reasonable in several 
respects. As a threshold matter, the Exchange is subject to significant 
competitive forces, which constrains its pricing determinations for 
transaction fees as well as non-transaction fees. The fact that the 
market for order flow is competitive has long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission, the D.C. 
Circuit stated, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in

[[Page 58349]]

the execution of order flow from broker dealers'. . . .'' \74\
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    \74\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting 
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention to determine 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues, and also recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \75\
---------------------------------------------------------------------------

    \75\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Congress directed the Commission to ``rely on `competition, 
whenever possible, in meeting its regulatory responsibilities for 
overseeing the SROs and the national market system.' '' \76\ As a 
result, and as evidenced above, the Commission has historically relied 
on competitive forces to determine whether a fee proposal is equitable, 
fair, reasonable, and not unreasonably or unfairly discriminatory. ``If 
competitive forces are operative, the self-interest of the exchanges 
themselves will work powerfully to constrain unreasonable or unfair 
behavior.'' \77\ Accordingly, ``the existence of significant 
competition provides a substantial basis for finding that the terms of 
an exchange's fee proposal are equitable, fair, reasonable, and not 
unreasonably or unfairly discriminatory.'' \78\ In the Revised Review 
Process and Staff Guidance, Commission Staff indicated that they would 
look at factors beyond the competitive environment, such as cost, only 
if a ``proposal lacks persuasive evidence that the proposed fee is 
constrained by significant competitive forces.'' \79\
---------------------------------------------------------------------------

    \76\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep. 
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that 
the national market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed.'').
    \77\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \78\ Id.
    \79\ See Staff Guidance, supra note 23.
---------------------------------------------------------------------------

    The Exchange believes the competing exchanges' 10Gb connectivity 
and port fees are useful examples of alternative approaches to 
providing and charging for access and demonstrating how such fees are 
competitively set and constrained. To that end, the Exchange believes 
the proposed fees are competitive and reasonable because the proposed 
fees are similar to or less than fees charged for similar connectivity 
and port access provided by other options exchanges with comparable 
market shares. As such, the Exchange believes that denying its ability 
to institute fees that allow the Exchange to recoup its costs with a 
reasonable margin in a manner that is closer to parity with legacy 
exchanges, in effect, impedes its ability to compete, including in its 
pricing of transaction fees and ability to invest in competitive 
infrastructure and other offerings. The following table shows how the 
Exchange's proposed fees remain similar to or less than fees charged 
for similar connectivity and port access provided by other options 
exchanges with similar market share. Each of the connectivity or port 
rates in place at competing options exchanges were filed with the 
Commission for immediate effectiveness and remain in place today.

------------------------------------------------------------------------
                                                       Monthly fee (per
            Exchange              Type of connection   connection or per
                                        or port              port)
------------------------------------------------------------------------
MIAX Emerald (as proposed)        10Gb ULL            $13,500.
 (equity options market share of   connection.        1-2 ports: FREE
 3.04% for the month of May       Limited Service      (not changed in
 2023) \a\.                        MEI Ports.          this proposal).
                                                      3-4 ports: $200
                                                       each.
                                                      5-6 ports: $300
                                                       each.
                                                      7 or more ports:
                                                       $400 each.
NASDAQ \b\ (equity options        10Gb Ultra fiber    $15,000 per
 market share of 6.59% for the     connection.         connection.
 month of May 2023) \c\.          SQF Port..........  1-5 ports: $1,500
                                                       per port.
                                                      6-20 ports: $1,000
                                                       per port.
                                                      21 or more ports:
                                                       $500 per port.
NASDAQ ISE LLC (``ISE'') \d\      10Gb Ultra fiber    $15,000 per
 (equity options market share of   connection.         connection.
 6.18% for the month of May       SQF Port \f\......  $1,100 per port.
 2023) \e\.
NYSE American LLC (``NYSE         10Gb LX LCN         $22,000 per
 American'') \g\ (equity options   connection.         connection.
 market share of 7.34% for the    Order/Quote Entry   1-40 Ports: $450
 month of May 2023) \h\.           Port.               per port.
                                                      41 or more Ports:
                                                       $150 per port.
NASDAQ GEMX, LLC (``GEMX'') \i\   10Gb Ultra          $15,000 per
 (equity options market share of   connection.         connection.
 2.00% for the month of May       SQF Port..........  $1,250 per port.
 2023) \j\.
------------------------------------------------------------------------
\a\ See the ``Market Share'' section of the Exchange's website,
  available at https://www.miaxglobal.com/.
\b\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports and Other
  Services and NASDAQ Rules, General 8: Connectivity, Section 1. Co-
  Location Services.
\c\ See supra note a.
\d\ See ISE Pricing Schedule, Options 7, Section 7, Connectivity Fees
  and ISE Rules, General 8: Connectivity.
\e\ See supra note a.
\f\ Similar to the Exchange's MEI Ports, SQF ports are primarily
  utilized by Market Makers.
\g\ See NYSE American Options Fee Schedule, Section V.A. Port Fees and
  Section V.B. Co-Location Fees.
\h\ See supra note a.
\i\ See GEMX Pricing Schedule, Options 7, Section 6, Connectivity Fees
  and GEMX Rules, General 8: Connectivity.
\j\ See supra note a.

    There is no requirement, regulatory or otherwise, that any broker-
dealer connect to and access any (or all of) the available options 
exchanges. Market participants may choose to become a member of one or 
more options exchanges based on the market participant's assessment of 
the business opportunity relative to the costs of the Exchange. With 
this, there is elasticity of demand for exchange membership. As an 
example, the Exchange's affiliate,

[[Page 58350]]

MIAX Pearl Options, experienced a decrease in membership as the result 
of similar fees proposed herein. One MIAX Pearl Options Market Maker 
terminated their MIAX Pearl Options membership effective January 1, 
2023, as a direct result of the proposed connectivity and port fee 
changes proposed by MIAX Pearl Options.
    It is not a requirement for market participants to become members 
of all options exchanges; in fact, certain market participants conduct 
an options business as a member of only one options market.\80\ A very 
small number of market participants choose to become a member of all 
sixteen options exchanges. Most firms that actively trade on options 
markets are not currently Members of the Exchange and do not purchase 
connectivity or port services at the Exchange. Connectivity and ports 
are only available to Members or service bureaus, and only a Member may 
utilize a port.\81\
---------------------------------------------------------------------------

    \80\ BOX recently adopted an electronic market maker trading 
permit fee. See Securities Exchange Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17). In that 
proposal, BOX stated that, ``. . . it is not aware of any reason why 
Market Makers 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 Maker, did not make business or economic sense for such 
Market Maker to access such exchange. [BOX] again notes that no 
market makers are required by rule, regulation, or competitive 
forces to be a Market Maker on [BOX].'' Also in 2022, MEMX 
established a monthly membership fee. See Securities Exchange Act 
Release No. 93927 (January 7, 2022), 87 FR 2191 (January 13, 2022) 
(SR-MEMX-2021-19). In that proposal, MEMX reasoned that that there 
is value in becoming a member of the exchange and stated that it 
believed that the proposed membership fee ``is not unfairly 
discriminatory because no broker-dealer is required to become a 
member of the Exchange'' and that ``neither the trade-through 
requirements under Regulation NMS nor broker-dealers' best execution 
obligations require a broker-dealer to become a member of every 
exchange.''
    \81\ Service Bureaus may obtain ports on behalf of Members.
---------------------------------------------------------------------------

    One other exchange recently noted in a proposal to amend their own 
trading permit fees that of the 62 market making firms that are 
registered as Market Makers across Cboe, MIAX, and BOX, 42 firms access 
only one of the three exchanges.\82\ The Exchange and its affiliated 
options markets, MIAX Pearl Options and MIAX, have a total of 46 
members. Of those 46 total members, 37 are members of all three 
affiliated options markets, two are members of only two affiliated 
options markets, and seven are members of only one affiliated options 
market. The Exchange also notes that no firm is a Member of the 
Exchange only. The above data evidences that a broker-dealer need not 
have direct connectivity to all options exchanges, let alone the 
Exchange and its two affiliates, and broker-dealers may elect to do so 
based on their own business decisions and need to directly access each 
exchange's liquidity pool.
---------------------------------------------------------------------------

    \82\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change to Amend the 
Fee Schedule on the BOX Options Market LLC Facility To Adopt 
Electronic Market Maker Trading Permit Fees). The Exchange believes 
that BOX's observation demonstrates that market making firms can, 
and do, select which exchanges they wish to access, and, 
accordingly, options exchanges must take competitive considerations 
into account when setting fees for such access.
---------------------------------------------------------------------------

    Not only is there not an actual regulatory requirement to connect 
to every options exchange, the Exchange believes there is also no ``de 
facto'' or practical requirement as well, as further evidenced by the 
broker-dealer membership analysis of the options exchanges discussed 
above. As noted above, this is evidenced by the fact that one MIAX 
Pearl Options Market Maker terminated their MIAX Pearl Options 
membership effective January 1, 2023 as a direct result of the proposed 
connectivity and port fee changes on MIAX Pearl Options (which are 
similar to the changes proposed herein). Indeed, broker-dealers choose 
if and how to access a particular exchange and because it is a choice, 
the Exchange must set reasonable pricing, otherwise prospective members 
would not connect and existing members would disconnect from the 
Exchange. The decision to become a member of an exchange, particularly 
for registered market makers, is complex, and not solely based on the 
non-transactional costs assessed by an exchange. As noted herein, 
specific factors include, but are not limited to: (i) an exchange's 
available liquidity in options series; (ii) trading functionality 
offered on a particular market; (iii) product offerings; (iv) customer 
service on an exchange; and (v) transactional pricing. Becoming a 
member of the exchange does not ``lock'' a potential member into a 
market or diminish the overall competition for exchange services.
    In lieu of becoming a member at each options exchange, a market 
participant may join one exchange and elect to have their orders routed 
in the event that a better price is available on an away market. 
Nothing in the Order Protection Rule requires a firm to become a Member 
at--or establish connectivity to--the Exchange.\83\ If the Exchange is 
not at the national best bid or offer (``NBBO''),\84\ the Exchange will 
route an order to any away market that is at the NBBO to ensure that 
the order was executed at a superior price and prevent a trade-
through.\85\
---------------------------------------------------------------------------

    \83\ See Options Order Protection and Locked/Crossed Market Plan 
(August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
    \84\ See Exchange Rule 100.
    \85\ Members may elect to not route their orders by utilizing 
the Do Not Route order type. See Exchange Rule 516(g).
---------------------------------------------------------------------------

    With respect to the submission of orders, Members may also choose 
not to purchase any connection from the Exchange, and instead rely on 
the port of a third party to submit an order. For example, a third-
party broker-dealer Member of the Exchange may be utilized by a retail 
investor to submit orders into an exchange. An institutional investor 
may utilize a broker-dealer, a service bureau,\86\ or request sponsored 
access \87\ through a member of an exchange in order to submit a trade 
directly to an options exchange.\88\ A market participant may either 
pay the costs associated with becoming a member of an exchange or, in 
the alternative, a market participant may elect to pay commissions to a 
broker-dealer, pay fees to a service bureau to submit trades, or pay a 
member to sponsor the market participant in order to submit trades 
directly to an exchange.
---------------------------------------------------------------------------

    \86\ Service Bureaus provide access to market participants to 
submit and execute orders on an exchange. On the Exchange, a Service 
Bureau may be a Member. Some Members utilize a Service Bureau for 
connectivity and that Service Bureau may not be a Member. Some 
market participants utilize a Service Bureau who is a Member to 
submit orders.
    \87\ Sponsored Access is an arrangement whereby a Member permits 
its customers to enter orders into an exchange's system that bypass 
the Member's trading system and are routed directly to the Exchange, 
including routing through a service bureau or other third-party 
technology provider.
    \88\ This may include utilizing a floor broker and submitting 
the trade to one of the five options trading floors.
---------------------------------------------------------------------------

    Non-Member third-parties, such as service bureaus and extranets, 
resell the Exchange's connectivity. This indirect connectivity is 
another viable alternative for market participants to trade on the 
Exchange without connecting directly to the Exchange (and thus not pay 
the Exchange's connectivity fees), which alternative is already being 
used by non-Members and further constrains the price that the Exchange 
is able to charge for connectivity and other access fees to its market. 
The Exchange notes that it could, but chooses not to, preclude market 
participants from reselling its connectivity. Unlike other exchanges, 
the Exchange also does not currently assess fees on third-party 
resellers on a per customer basis (i.e., fees based on the number of 
firms that connect to the

[[Page 58351]]

Exchange indirectly via the third-party).\89\ Indeed, the Exchange does 
not receive any connectivity revenue when connectivity is resold by a 
third-party, which often is resold to multiple customers, some of whom 
are agency broker-dealers that have numerous customers of their 
own.\90\ Particularly, in the event that a market participant views the 
Exchange's direct connectivity and access fees as more or less 
attractive than competing markets, that market participant can choose 
to connect to the Exchange indirectly or may choose not to connect to 
the Exchange and connect instead to one or more of the other 15 options 
markets. Accordingly, the Exchange believes that the proposed fees are 
fair and reasonable and constrained by competitive forces.
---------------------------------------------------------------------------

    \89\ See, e.g., Nasdaq Price List--U.S. Direct Connection and 
Extranet Fees, available at, US Direct-Extranet Connection 
(nasdaqtrader.com); and Securities Exchange Act Release Nos. 74077 
(January 16, 2022), 80 FR 3683 (January 23, 2022) (SR-NASDAQ-2015-
002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022) 
(SR-NASDAQ-2017-114).
    \90\ The Exchange notes that resellers, such as SFTI, are not 
required to publicize, let alone justify or file with the Commission 
their fees, and as such could charge the market participant any fees 
it deems appropriate (including connectivity fees higher than the 
Exchange's connectivity fees), even if such fees would otherwise be 
considered potentially unreasonable or uncompetitive fees.
---------------------------------------------------------------------------

    The Exchange is obligated to regulate its Members and secure access 
to its environment. In order to properly regulate its Members and 
secure the trading environment, the Exchange takes measures to ensure 
access is monitored and maintained with various controls. Connectivity 
and ports are methods utilized by the Exchange to grant Members secure 
access to communicate with the Exchange and exercise trading rights. 
When a market participant elects to be a Member, and is approved for 
membership by the Exchange, the Member is granted trading rights to 
enter orders and/or quotes into Exchange through secure connections.
    Again, there is no legal or regulatory requirement that a market 
participant become a Member of the Exchange. This is again evidenced by 
the fact that one MIAX Pearl Options Market Maker terminated their MIAX 
Pearl Options membership effective January 1, 2023 as a direct result 
of the proposed connectivity and port fee changes on MIAX Pearl 
Options. If a market participant chooses to become a Member, they may 
then choose to purchase connectivity beyond the one connection that is 
necessary to quote or submit orders on the Exchange. Members may freely 
choose to rely on one or many connections, depending on their business 
model.
Cost Analysis
    In general, the Exchange believes that exchanges, in setting fees 
of all types, should meet very high standards of transparency to 
demonstrate why each new fee or fee increase meets the Exchange Act 
requirements that fees be reasonable, equitably allocated, not unfairly 
discriminatory, and not create an undue burden on competition among 
members and markets. In particular, the Exchange believes that each 
exchange should take extra care to be able to demonstrate that these 
fees are based on its costs and reasonable business needs.
    In proposing to charge fees for connectivity and port services, the 
Exchange is especially diligent in assessing those fees in a 
transparent way against its own aggregate costs of providing the 
related service, and in carefully and transparently assessing the 
impact on Members--both generally and in relation to other Members, 
i.e., to assure the fee will not create a financial burden on any 
participant and will not have an undue impact in particular on smaller 
Members and competition among Members in general. The Exchange believes 
that this level of diligence and transparency is called for by the 
requirements of section 19(b)(1) under the Act,\91\ and Rule 19b-4 
thereunder,\92\ with respect to the types of information exchanges 
should provide when filing fee changes, and section 6(b) of the 
Act,\93\ which requires, among other things, that exchange fees be 
reasonable and equitably allocated,\94\ not designed to permit unfair 
discrimination,\95\ and that they not impose a burden on competition 
not necessary or appropriate in furtherance of the purposes of the 
Act.\96\ This rule change proposal addresses those requirements, and 
the analysis and data in each of the sections that follow are designed 
to clearly and comprehensively show how they are met.\97\ The Exchange 
reiterates that the legacy exchanges with whom the Exchange vigorously 
competes for order flow and market share, were not subject to any such 
diligence or transparency in setting their baseline non-transaction 
fees, most of which were put in place before the Revised Review Process 
and Staff Guidance.
---------------------------------------------------------------------------

    \91\ 15 U.S.C. 78s(b)(1).
    \92\ 17 CFR 240.19b-4.
    \93\ 15 U.S.C. 78f(b).
    \94\ 15 U.S.C. 78f(b)(4).
    \95\ 15 U.S.C. 78f(b)(5).
    \96\ 15 U.S.C. 78f(b)(8).
    \97\ See Staff Guidance, supra note 23.
---------------------------------------------------------------------------

    As detailed below, the Exchange recently calculated its aggregate 
annual costs for providing physical 10Gb ULL connectivity to the 
Exchange at $11,361,586 (or approximately $946,799 per month, rounded 
to the nearest dollar when dividing the annual cost by 12 months) and 
its aggregate annual costs for providing Limited Service MEI Ports at 
$1,799,066 (or approximately $148,255 per month, rounded to the nearest 
dollar when dividing the annual cost by 12 months). In order to cover 
the aggregate costs of providing connectivity to its users (both 
Members and non-Members) \98\ going forward and to make a modest 
profit, as described below, the Exchange proposes to modify its Fee 
Schedule to charge a fee of $13,500 per month for each physical 10Gb 
ULL connection. The Exchange also proposes to modify its Fee Schedule 
to charge tiered rates for additional Limited Service MEI Ports.
---------------------------------------------------------------------------

    \98\ Types of market participants that obtain connectivity 
services from the Exchange but are not Members include service 
bureaus and extranets. Service bureaus offer technology-based 
services to other companies for a fee, including order entry 
services, and thus, may access Limited Service MEI Ports on behalf 
of one or more Members. Extranets offer physical connectivity 
services to Members and non-Members.
---------------------------------------------------------------------------

    In 2020, the Exchange completed a study of its aggregate costs to 
produce market data and connectivity (the ``Cost Analysis'').\99\ The 
Cost Analysis required a detailed analysis of the Exchange's aggregate 
baseline costs, including a determination and allocation of costs for 
core services provided by the Exchange--transaction execution, market 
data, membership services, physical connectivity, and port access 
(which provide order entry, cancellation and modification 
functionality, risk functionality, the ability to receive drop copies, 
and other functionality). The Exchange separately divided its costs 
between those costs necessary to deliver each of these core services, 
including infrastructure, software, human resources (i.e., personnel), 
and certain general and administrative expenses (``cost drivers'').
---------------------------------------------------------------------------

    \99\ The Exchange frequently updates it Cost Analysis as 
strategic initiatives change, costs increase or decrease, and market 
participant needs and trading activity changes. The Exchange's most 
recent Cost Analysis was conducted ahead of this filing.
---------------------------------------------------------------------------

    As an initial step, the Exchange determined the total cost for the 
Exchange and the affiliated markets for each cost driver as part of its 
2023 budget review process. The 2023 budget review is a company-wide 
process that occurs over the course of many months, includes meetings 
among senior

[[Page 58352]]

management, department heads, and the Finance Team. Each department 
head is required to send a ``bottom up'' budget to the Finance Team 
allocating costs at the profit and loss account and vendor levels for 
the Exchange and its affiliated markets based on a number of factors, 
including server counts, additional hardware and software utilization, 
current or anticipated functional or non-functional development 
projects, capacity needs, end-of-life or end-of-service intervals, 
number of members, market model (e.g., price time or pro-rata, simple 
only or simple and complex markets, auction functionality, etc.), which 
may impact message traffic, individual system architectures that impact 
platform size,\100\ storage needs, dedicated infrastructure versus 
shared infrastructure allocated per platform based on the resources 
required to support each platform, number of available connections, and 
employees allocated time.
---------------------------------------------------------------------------

    \100\ For example, the Exchange maintains 12 matching engines, 
MIAX Pearl Options maintains 12 matching engines, MIAX Pearl 
Equities maintains 24 matching engines, and MIAX maintains 24 
matching engines.
---------------------------------------------------------------------------

    All of these factors result in different allocation percentages 
among the Exchange and its affiliated markets, i.e., the different 
percentages of the overall cost driver allocated to the Exchange and 
its affiliated markets will cause the dollar amount of the overall cost 
allocated among the Exchange and its affiliated markets to also differ. 
Because the Exchange's parent company currently owns and operates four 
separate and distinct marketplaces, the Exchange must determine the 
costs associated with each actual market--as opposed to the Exchange's 
parent company simply concluding that all costs drivers are the same at 
each individual marketplace and dividing total cost by four (4) (evenly 
for each marketplace). Rather, the Exchange's parent company determines 
an accurate cost for each marketplace, which results in different 
allocations and amounts across exchanges for the same cost drivers, due 
to the unique factors of each marketplace as described above. This 
allocation methodology also ensures that no cost would be allocated 
twice or double-counted between the Exchange and its affiliated 
markets. The Finance Team then consolidates the budget and sends it to 
senior management, including the Chief Financial Officer and Chief 
Executive Officer, for review and approval. Next, the budget is 
presented to the Board of Directors and the Finance and Audit 
Committees for each exchange for their approval. The above steps 
encompass the first step of the cost allocation process.
    The next step involves determining what portion of the cost 
allocated to the Exchange pursuant to the above methodology is to be 
allocated to each core service, e.g., connectivity and ports, market 
data, and transaction services. The Exchange and its affiliated markets 
adopted an allocation methodology with thoughtful and consistently 
applied principles to guide how much of a particular cost amount 
allocated to the Exchange should be allocated within the Exchange to 
each core service. This is the final step in the cost allocation 
process and is applied to each of the cost drivers set forth below. For 
instance, fixed costs that are not driven by client activity (e.g., 
message rates), such as data center costs, were allocated more heavily 
to the provision of physical connectivity (61.9% of total expense 
amount allocated to 10Gb ULL connectivity), with smaller allocations to 
additional Limited Service MEI Ports (4.6%), and the remainder to the 
provision of other connectivity, other ports, transaction execution, 
membership services and market data services (33.5%). This next level 
of the allocation methodology at the individual exchange level also 
took into account factors similar to those set forth under the first 
step of the allocation methodology process described above, to 
determine the appropriate allocation to connectivity or market data 
versus allocations for other services. This allocation methodology was 
developed through an assessment of costs with senior management 
intimately familiar with each area of the Exchange's operations. After 
adopting this allocation methodology, the Exchange then applied an 
allocation of each cost driver to each core service, resulting in the 
cost allocations described below. Each of the below cost allocations is 
unique to the Exchange and represents a percentage of overall cost that 
was allocated to the Exchange pursuant to the initial allocation 
described above.
    By allocating segmented costs to each core service, the Exchange 
was able to estimate by core service the potential margin it might earn 
based on different fee models. The Exchange notes that as a non-listing 
venue it has five primary sources of revenue that it can potentially 
use to fund its operations: transaction fees, fees for connectivity and 
port services, membership fees, regulatory fees, and market data fees. 
Accordingly, the Exchange must cover its expenses from these five 
primary sources of revenue. The Exchange also notes that as a general 
matter each of these sources of revenue is based on services that are 
interdependent. For instance, the Exchange's system for executing 
transactions is dependent on physical hardware and connectivity; only 
Members and parties that they sponsor to participate directly on the 
Exchange may submit orders to the Exchange; many Members (but not all) 
consume market data from the Exchange in order to trade on the 
Exchange; and the Exchange consumes market data from external sources 
in order to comply with regulatory obligations. Accordingly, given this 
interdependence, the allocation of costs to each service or revenue 
source required judgment of the Exchange and was weighted based on 
estimates of the Exchange that the Exchange believes are reasonable, as 
set forth below. While there is no standardized and generally accepted 
methodology for the allocation of an exchange's costs, the Exchange's 
methodology is the result of an extensive review and analysis and will 
be consistently applied going forward for any other potential fee 
proposals. In the absence of the Commission attempting to specify a 
methodology for the allocation of exchanges' interdependent costs, the 
Exchange will continue to be left with its best efforts to attempt to 
conduct such an allocation in a thoughtful and reasonable manner.
    Through the Exchange's extensive updated Cost Analysis, which was 
again recently further refined, the Exchange analyzed every expense 
item in the Exchange's general expense ledger to determine whether each 
such expense relates to the provision of connectivity and port 
services, and, if such expense did so relate, what portion (or 
percentage) of such expense actually supports the provision of 
connectivity and port services, and thus bears a relationship that is, 
``in nature and closeness,'' directly related to network connectivity 
and port services. In turn, the Exchange allocated certain costs more 
to physical connectivity and others to ports, while certain costs were 
only allocated to such services at a very low percentage or not at all, 
using consistent allocation methodologies as described above. Based on 
this analysis, the Exchange estimates that the aggregate monthly cost 
to provide 10Gb ULL connectivity and Limited Service MEI Port services, 
including both physical 10Gb connections and Limited Service MEI Ports, 
is $1,095,054 (utilizing the rounded numbers when dividing the annual 
cost for 10Gb ULL connectivity and annual cost for Limited Service MEI 
Ports by 12

[[Page 58353]]

months, then adding both numbers together), as further detailed below.
Costs Related to Offering Physical 10Gb ULL Connectivity
    The following chart details the individual line-item costs 
considered by the Exchange to be related to offering physical dedicated 
10Gb ULL connectivity via an unshared network as well as the percentage 
of the Exchange's overall costs that such costs represent for each cost 
driver (e.g., as set forth below, the Exchange allocated approximately 
28.1% of its overall Human Resources cost to offering physical 
connectivity).

----------------------------------------------------------------------------------------------------------------
                                                                     Allocated       Allocated
                          Cost drivers                              annual cost    monthly cost      % of all
                                                                        \k\             \l\
----------------------------------------------------------------------------------------------------------------
Human Resources.................................................      $3,520,856        $293,405              28
Connectivity (external fees, cabling, switches, etc.)...........          71,675           5,973            61.9
Internet Services and External Market Data......................         373,249          31,104            84.8
Data Center.....................................................         752,545          62,712            61.9
Hardware and Software Maintenance and Licenses..................         666,208          55,517            50.9
Depreciation....................................................       1,929,118         160,760            63.8
Allocated Shared Expenses.......................................       4,047,935         337,328            51.3
                                                                 -----------------------------------------------
    Total.......................................................      11,361,586         946,799            42.8
----------------------------------------------------------------------------------------------------------------
k. The Annual Cost includes figures rounded to the nearest dollar.
l. The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.

    Below are additional details regarding each of the line-item costs 
considered by the Exchange to be related to offering physical 10Gb ULL 
connectivity. While some costs were attempted to be allocated as 
equally as possible among the Exchange and its affiliated markets, the 
Exchange notes that some of its cost allocation percentages for certain 
cost drivers differ when compared to the same cost drivers for the 
Exchange's affiliated markets in their similar proposed fee changes for 
connectivity and ports. This is because the Exchange's cost allocation 
methodology utilizes the actual projected costs of the Exchange (which 
are specific to the Exchange, and are independent of the costs 
projected and utilized by the Exchange's affiliated markets) to 
determine its actual costs, which may vary across the Exchange and its 
affiliated markets based on factors that are unique to each 
marketplace. The Exchange provides additional explanation below 
(including the reason for the deviation) for the significant 
differences.
Human Resources
    The Exchange notes that it and its affiliated markets have 184 
employees (excluding employees at non-options/equities exchange 
subsidiaries of Miami International Holdings, Inc. (``MIH''), the 
holding company of the Exchange and its affiliated markets), and each 
department leader has direct knowledge of the time spent by each 
employee with respect to the various tasks necessary to operate the 
Exchange. Specifically, twice a year, and as needed with additional new 
hires and new project initiatives, in consultation with employees as 
needed, managers and department heads assign a percentage of time to 
every employee and then allocate that time amongst the Exchange and its 
affiliated markets to determine each market's individual Human 
Resources expense. Then, managers and department heads assign a 
percentage of each employee's time allocated to the Exchange into 
buckets including network connectivity, ports, market data, and other 
exchange services. This process ensures that every employee is 100% 
allocated, ensuring there is no double counting between the Exchange 
and its affiliated markets.
    For personnel costs (Human Resources), the Exchange calculated an 
allocation of employee time for employees whose functions include 
providing and maintaining physical connectivity and performance thereof 
(primarily the Exchange's network infrastructure team, which spends 
most of their time performing functions necessary to provide physical 
connectivity). As described more fully above, the Exchange's parent 
company allocates costs to the Exchange and its affiliated markets and 
then a portion of the Human Resources costs allocated to the Exchange 
is then allocated to connectivity. From that portion allocated to the 
Exchange that applied to connectivity, the Exchange then allocated a 
weighted average of 42.4% of each employee's time from the above group. 
The Exchange also allocated Human Resources costs to provide physical 
connectivity to a limited subset of personnel with ancillary functions 
related to establishing and maintaining such connectivity (such as 
information security, sales, membership, and finance personnel). The 
Exchange allocated cost on an employee-by-employee basis (i.e., only 
including those personnel who support functions related to providing 
physical connectivity) and then applied a smaller allocation to such 
employees (less than 20%).
    The estimates of Human Resources cost were therefore determined by 
consulting with such department leaders, determining which employees 
are involved in tasks related to providing physical connectivity, and 
confirming that the proposed allocations were reasonable based on an 
understanding of the percentage of time such employees devote to those 
tasks. This includes personnel from the Exchange departments that are 
predominately involved in providing 1Gb and 10Gb ULL connectivity: 
Business Systems Development, Trading Systems Development, Systems 
Operations and Network Monitoring, Network and Data Center Operations, 
Listings, Trading Operations, and Project Management. Again, the 
Exchange allocated 42.4% of each of their employee's time assigned to 
the Exchange for 10Gb ULL connectivity, as stated above. Employees from 
these departments perform numerous functions to support 10Gb ULL 
connectivity, such as the installation, re-location, configuration, and 
maintenance of 10Gb ULL connections and the hardware they access. This 
hardware includes servers, routers, switches, firewalls, and monitoring 
devices. These employees also perform software upgrades, vulnerability 
assessments, remediation and patch installs, equipment configuration 
and hardening, as well as performance and capacity management. These 
employees also engage in research and development analysis for 
equipment

[[Page 58354]]

and software supporting 10Gb ULL connectivity and design, and support 
the development and on-going maintenance of internally-developed 
applications as well as data capture and analysis, and Member and 
internal Exchange reports related to network and system performance. 
The above list of employee functions is not exhaustive of all the 
functions performed by Exchange employees to support 10Gb ULL 
connectivity, but illustrates the breath of functions those employees 
perform in support of the above cost and time allocations.
    Lastly, the Exchange notes that senior level executives' time was 
only allocated to the 10Gb ULL connectivity related Human Resources 
costs to the extent that they are involved in overseeing tasks related 
to providing physical connectivity. The Human Resources cost was 
calculated using a blended rate of compensation reflecting salary, 
equity and bonus compensation, benefits, payroll taxes, and 401(k) 
matching contributions.
Connectivity (External Fees, Cabling, Switches, etc.)
    The Connectivity cost driver includes external fees paid to connect 
to other exchanges and third parties, cabling and switches required to 
operate the Exchange. The Connectivity cost driver is more narrowly 
focused on technology used to complete connections to the Exchange and 
to connect to external markets. The Exchange notes that its 
connectivity to external markets is required in order to receive market 
data to run the Exchange's matching engine and basic operations 
compliant with existing regulations, primarily Regulation NMS.
    The Exchange relies on various connectivity providers for 
connectivity to the entire U.S. options industry, and infrastructure 
services for critical components of the network that are necessary to 
provide and maintain its System Networks and access to its System 
Networks via 10Gb ULL connectivity. Specifically, the Exchange utilizes 
connectivity providers to connect to other national securities 
exchanges and the Options Price Reporting Authority (``OPRA''). The 
Exchange understands that these service providers provide services to 
most, if not all, of the other U.S. exchanges and other market 
participants. Connectivity provided by these service providers is 
critical to the Exchanges daily operations and performance of its 
System Networks to which market participants connect to via 10Gb ULL 
connectivity. Without these services providers, the Exchange would not 
be able to connect to other national securities exchanges, market data 
providers or OPRA and, therefore, would not be able to operate and 
support its System Networks. The Exchange does not employ a separate 
fee to cover its connectivity provider expense and recoups that 
expense, in part, by charging for 10Gb ULL connectivity.
Internet Services and External Market Data
    The next cost driver consists of internet Services and external 
market data. The internet services cost driver includes third-party 
service providers that provide the internet, fiber and bandwidth 
connections between the Exchange's networks, primary and secondary data 
centers, and office locations in Princeton and Miami.
    External market data includes fees paid to third parties, including 
other exchanges, to receive market data. The Exchange includes external 
market data fee costs towards the provision of 10Gb ULL connectivity 
because such market data is necessary for certain services related to 
connectivity, including pre-trade risk checks and checks for other 
conditions (e.g., re-pricing of orders to avoid locked or crossed 
markets and trading collars). Since external market data from other 
exchanges is consumed at the Exchange's matching engine level, (to 
which 10Gb ULL connectivity provides access) in order to validate 
orders before additional orders enter the matching engine or are 
executed, the Exchange believes it is reasonable to allocate an amount 
of such costs to 10Gb ULL connectivity.
    The Exchange relies on various content service providers for data 
feeds for the entire U.S. options industry, as well as content for 
critical components of the network that are necessary to provide and 
maintain its System Networks and access to its System Networks via 10Gb 
ULL connectivity. Specifically, the Exchange utilizes content service 
providers to receive market data from OPRA, other exchanges and market 
data providers. The Exchange understands that these service providers 
provide services to most, if not all, of the other U.S. exchanges and 
other market participants. Market data provided these service providers 
is critical to the Exchanges daily operations and performance of its 
System Networks to which market participants connect to via 10Gb ULL 
connectivity. Without these services providers, the Exchange would not 
be able to receive market data and, therefore, would not be able to 
operate and support its System Networks. The Exchange does not employ a 
separate fee to cover its content service provider expense and recoups 
that expense, in part, by charging for 10Gb ULL connectivity.
    Lastly, the Exchange notes that the actual dollar amounts allocated 
as part of the second step of the 2023 budget process differ among the 
Exchange and its affiliated markets for the internet Services and 
External Market Data cost driver, even though, but for the Exchange, 
the allocation percentages are generally consistent across markets 
(e.g., MIAX Emerald, MIAX, MIAX Pearl Options and MIAX Pearl Equities 
allocated 84.8%, 73.3%, 73.3% and 72.5%, respectively, to the same cost 
driver). This is because: (i) a different percentage of the overall 
internet Services and External Market Data cost driver was allocated to 
the Exchange and its affiliated markets due to the factors set forth 
under the first step of the 2023 budget review process described above 
(unique technical architecture, market structure, and business 
requirements of each marketplace); and (ii) the Exchange itself 
allocated a larger portion of this cost driver to 10Gb ULL connectivity 
because of recent initiatives to improve the latency and determinism of 
its systems. The Exchange notes while the percentage it allocated to 
the internet Services and External Market Data cost driver is greater 
than its affiliated markets, the overall dollar amount allocated to the 
Exchange under the initial step of the 2023 budget process is lower 
than its affiliated markets. However, the Exchange believes that this 
is not, in dollar amounts, a significant difference. This is because 
the total dollar amount of expense covered by this cost driver is 
relatively small compared to other cost drivers and is due to nuances 
in exchange architecture that require different initial allocation 
amount under the first step of the 2023 budget process described above. 
Thus, non-significant differences in percentage allocation amounts in a 
smaller cost driver create the appearance of a significant difference, 
even though the actual difference in dollar amounts is small. For 
instance, despite the difference in cost allocation percentages for the 
internet Services and External Market Data cost driver across the 
Exchange and MIAX, the actual dollar amount difference is approximately 
only $4,000 per month, a non-significant amount.
Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide physical connectivity

[[Page 58355]]

in the third-party data centers where it maintains its equipment (such 
as dedicated space, security services, cooling and power). The Exchange 
notes that it does not own the Primary Data Center or the Secondary 
Data Center, but instead, leases space in data centers operated by 
third parties. The Exchange has allocated a high percentage of the Data 
Center cost (61.9%) to physical 10Gb ULL connectivity because the 
third-party data centers and the Exchange's physical equipment 
contained therein is the most direct cost in providing physical access 
to the Exchange. In other words, for the Exchange to operate in a 
dedicated space with connectivity by market participants to a physical 
trading platform, the data centers are a very tangible cost, and in 
turn, if the Exchange did not maintain such a presence then physical 
connectivity would be of no value to market participants.
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software 
licenses used to operate and monitor physical assets necessary to offer 
physical connectivity to the Exchange.\101\ The Exchange notes that 
this allocation is less than MIAX Pearl Options by a significant 
amount, but slightly more than MIAX, as MIAX Pearl Options allocated 
58.6% of its Hardware and Software Maintenance and License expense 
towards 10Gb ULL connectivity, while MIAX and MIAX Emerald allocated 
49.8% and 50.9%, respectively, to the same category of expense. This is 
because MIAX Pearl Options is in the process of replacing and upgrading 
various hardware and software used to operate its options trading 
platform in order to maintain premium network performance. At the time 
of this filing, MIAX Pearl Options is undergoing a major hardware 
refresh, replacing older hardware with new hardware. This hardware 
includes servers, network switches, cables, optics, protocol data 
units, and cabinets, to maintain a state-of-the-art technology 
platform. Because of the timing of the hardware refresh with the timing 
of this filing, the Exchange has materially higher expense than its 
affiliates. Also, MIAX Pearl Equities allocated a higher percentage of 
the same category of expense (58%) towards its Hardware and Software 
Maintenance and License expense for 10Gb ULL connectivity, which MIAX 
Pearl Equities explains in its own proposal to amend its 10Gb ULL 
connectivity fees.
---------------------------------------------------------------------------

    \101\ This expense may be less than the Exchange's affiliated 
markets, specifically MIAX Pearl (the options and equities markets), 
because, unlike the Exchange, MIAX Pearl (the options and equities 
markets) maintains an additional gateway to accommodate its member's 
access and connectivity needs. This added gateway contributes to the 
difference in allocations between the Exchange and MIAX Pearl. This 
expense also differs in dollar amount among the Exchange, MIAX Pearl 
(options and equities), and MIAX because each market may maintain 
and utilize a different amount of hardware and software based on its 
market model and infrastructure needs. The Exchange allocated a 
percentage of the overall cost based on actual amounts of hardware 
and software utilized by that market, which resulted in different 
cost allocations and dollar amounts.
---------------------------------------------------------------------------

Depreciation
    All physical assets, software, and hardware used to provide 10Gb 
ULL connectivity, which also includes assets used for testing and 
monitoring of Exchange infrastructure, were valued at cost, and 
depreciated or leased over periods ranging from three to five years. 
Thus, the depreciation cost primarily relates to servers necessary to 
operate the Exchange, some of which are owned by the Exchange and some 
of which are leased by the Exchange in order to allow efficient 
periodic technology refreshes. The Exchange also included in the 
Depreciation cost driver certain budgeted improvements that the 
Exchange intends to capitalize and depreciate with respect to 10Gb ULL 
connectivity in the near-term. As with the other allocated costs in the 
Exchange's updated Cost Analysis, the Depreciation cost was therefore 
narrowly tailored to depreciation related to 10Gb ULL connectivity. As 
noted above, the Exchange allocated 63.8% of its allocated depreciation 
costs to providing physical 10Gb ULL connectivity.
    The Exchange also notes that this allocation differs from its 
affiliated markets due to a number of factors, such as the age of 
physical assets and software (e.g., older physical assets and software 
were previously depreciated and removed from the allocation), or 
certain system enhancements that required new physical assets and 
software, thus providing a higher contribution to the depreciated cost. 
For example, the percentages the Exchange and its affiliate, MIAX, 
allocated to the depreciation of hardware and software used to provide 
10Gb ULL connectivity are nearly identical. However, the Exchange's 
dollar amount is lower than that of MIAX by approximately $32,000 per 
month due to two factors: first, MIAX has undergone a technology 
refresh since the time MIAX Emerald launched in February 2019, leading 
MIAX to have more hardware that software that is subject to 
depreciation. Second, MIAX maintains 24 matching engines while MIAX 
Emerald maintains only 12 matching engines. This also results in more 
of MIAX's hardware and software being subject to depreciation than MIAX 
Emerald's hardware and software due to the greater amount of equipment 
and software necessary to support the greater number of matching 
engines on MIAX.
Allocated Shared Expenses
    Finally, as with other exchange products and services, a portion of 
general shared expenses was allocated to overall physical connectivity 
costs. These general shared costs are integral to exchange operations, 
including its ability to provide physical connectivity. Costs included 
in general shared expenses include office space and office expenses 
(e.g., occupancy and overhead expenses), utilities, recruiting and 
training, marketing and advertising costs, professional fees for legal, 
tax and accounting services (including external and internal audit 
expenses), and telecommunications. Similarly, the cost of paying 
directors to serve on the Exchange's Board of Directors is also 
included in the Exchange's general shared expense cost driver.\102\ 
These general shared expenses are incurred by the Exchange's parent 
company, MIH, as a direct result of operating the Exchange and its 
affiliated markets.
---------------------------------------------------------------------------

    \102\ The Exchange notes that MEMX allocated a precise amount of 
10% of the overall cost for directors to providing physical 
connectivity. The Exchange does not calculate is expenses at that 
granular a level. Instead, director costs are included as part of 
the overall general allocation.
---------------------------------------------------------------------------

    The Exchange employed a process to determine a reasonable 
percentage to allocate general shared expenses to 10Gb ULL connectivity 
pursuant to its multi-layered allocation process. First, general 
expenses were allocated among the Exchange and affiliated markets as 
described above. Then, the general shared expense assigned to the 
Exchange was allocated across core services of the Exchange, including 
connectivity. Then, these costs were further allocated to sub-
categories within the final categories, i.e., 10Gb ULL connectivity as 
a sub-category of connectivity. In determining the percentage of 
general shared expenses allocated to connectivity that ultimately apply 
to 10Gb ULL connectivity, the Exchange looked at the percentage 
allocations of each of the cost drivers and determined a reasonable 
allocation percentage. The Exchange also held meetings with senior 
management, department heads, and the Finance Team to determine the 
proper amount of the shared general expense to allocate to

[[Page 58356]]

10GBb ULL connectivity. The Exchange, therefore, believes it is 
reasonable to assign an allocation, in the range of allocations for 
other cost drivers, while continuing to ensure that this expense is 
only allocated once. Again, the general shared expenses are incurred by 
the Exchange's parent company as a result of operating the Exchange and 
its affiliated markets and it is therefore reasonable to allocate a 
percentage of those expenses to the Exchange and ultimately to specific 
product offerings such as 10Gb ULL connectivity.
    The Exchange notes that the 51.3% allocation of general shared 
expenses for physical 10Gb ULL connectivity is higher than that 
allocated to general shared expenses for Limited Service MEI Ports. 
This is based on its allocation methodology that weighted costs 
attributable to each core service. While physical connectivity has 
several areas where certain tangible costs are heavily weighted towards 
providing such service (e.g., Data Center, as described above), Limited 
Service MEI Ports do not require as many broad or indirect resources as 
other core services.
* * * * *
Approximate Cost per 10Gb ULL Connection per Month
    After determining the approximate allocated monthly cost related to 
10Gb connectivity, the total monthly cost for 10Gb ULL connectivity of 
$946,799 was divided by the number of physical 10Gb ULL connections the 
Exchange maintained at the time that proposed pricing was determined 
(102), to arrive at a cost of approximately $9,282 per month, per 
physical 10Gb ULL connection. Due to the nature of this particular 
cost, this allocation methodology results in an allocation among the 
Exchange and its affiliated markets based on set quantifiable criteria, 
i.e., actual number of 10Gb ULL connections.
* * * * *
Costs Related to Offering Limited Service MEI Ports
    The following chart details the individual line-item costs 
considered by the Exchange to be related to offering Limited Service 
MEI Ports as well as the percentage of the Exchange's overall costs 
such costs represent for such area (e.g., as set forth below, the 
Exchange allocated approximately 5.9% of its overall Human Resources 
cost to offering Limited Service MEI Ports).

----------------------------------------------------------------------------------------------------------------
                                                                     Allocated       Allocated
                          Cost drivers                              annual cost    monthly cost      % of all
                                                                        \m\             \n\
----------------------------------------------------------------------------------------------------------------
Human Resources.................................................        $737,784         $61,482             5.9
Connectivity (external fees, cabling, switches, etc.)...........           3,713             309             3.2
Internet Services and External Market Data......................          14,102           1,175             3.2
Data Center.....................................................          55,686           4,641             4.6
Hardware and Software Maintenance and Licenses..................          41,951           3,496             3.2
Depreciation....................................................         112,694           9,391             3.7
Allocated Shared Expenses.......................................         813,136          67,761            10.3
                                                                 -----------------------------------------------
    Total.......................................................       1,779,066         148,255             6.7
----------------------------------------------------------------------------------------------------------------
\m\ See supra note k (describing rounding of Annual Costs).
\n\ See supra note l (describing rounding of Monthly Costs based on Annual Costs).

    Below are additional details regarding each of the line-item costs 
considered by the Exchange to be related to offering Limited Service 
MEI Ports. While some costs were attempted to be allocated as equally 
as possible among the Exchange and its affiliated markets, the Exchange 
notes that some of its cost allocation percentages for certain cost 
drivers differ when compared to the same cost drivers described by the 
Exchange's affiliated markets in their similar proposed fee changes for 
connectivity and ports. This is because the Exchange's cost allocation 
methodology utilizes the actual projected costs of the Exchange (which 
are specific to the Exchange, and are independent of the costs 
projected and utilized by the Exchange's affiliated markets) to 
determine its actual costs, which may vary across the Exchange and its 
affiliated markets based on factors that are unique to each 
marketplace. The Exchange provides additional explanation below 
(including the reason for the deviation) for the significant 
differences.
Human Resources
    With respect to Limited Service MEI Ports, the Exchange calculated 
Human Resources cost by taking an allocation of employee time for 
employees whose functions include providing Limited Service MEI Ports 
and maintaining performance thereof (including a broader range of 
employees such as technical operations personnel, market operations 
personnel, and software engineering personnel) as well as a limited 
subset of personnel with ancillary functions related to maintaining 
such connectivity (such as sales, membership, and finance personnel). 
Just as described above for 10Gb ULL connectivity, the estimates of 
Human Resources cost were again determined by consulting with 
department leaders, determining which employees are involved in tasks 
related to providing Limited Service MEI Ports and maintaining 
performance thereof, and confirming that the proposed allocations were 
reasonable based on an understanding of the percentage of their time 
such employees devote to tasks related to providing Limited Service MEI 
Ports and maintaining performance thereof. This includes personnel from 
the following Exchange departments that are predominately involved in 
providing Limited Service MEI Ports: Business Systems Development, 
Trading Systems Development, Systems Operations and Network Monitoring, 
Network and Data Center Operations, Listings, Trading Operations, and 
Project Management. The Exchange notes that senior level executives 
were allocated Human Resources costs to the extent they are involved in 
overseeing tasks specifically related to providing Limited Service MEI 
Ports. Senior level executives were only allocated Human Resources 
costs to the extent that they are involved in managing personnel 
responsible for tasks integral to providing and maintaining Limited 
Service MEI Ports. The Human Resources cost was again calculated using 
a blended rate of compensation reflecting salary, equity and bonus 
compensation, benefits, payroll taxes, and 401(k) matching 
contributions.

[[Page 58357]]

Connectivity (External Fees, Cabling, Switches, etc.)
    The Connectivity cost includes external fees paid to connect to 
other exchanges and cabling and switches, as described above.
Internet Services and External Market Data
    The next cost driver consists of internet services and external 
market data. Internet services includes third-party service providers 
that provide the internet, fiber and bandwidth connections between the 
Exchange's networks, primary and secondary data centers, and office 
locations in Princeton and Miami. For purposes of Limited Service MEI 
Ports, the Exchange also includes a portion of its costs related to 
external market data. External market data includes fees paid to third 
parties, including other exchanges, to receive and consume market data 
from other markets. The Exchange includes external market data costs 
towards the provision of Limited Service MEI Ports because such market 
data is necessary (in addition to physical connectivity) to offer 
certain services related to such ports, such as validating orders on 
entry against the NBBO and checking for other conditions (e.g., halted 
securities).\103\ Thus, since market data from other exchanges is 
consumed at the Exchange's Limited Service MEI Port level in order to 
validate orders, before additional processing occurs with respect to 
such orders, the Exchange believes it is reasonable to allocate a small 
amount of such costs to Limited Service MEI Ports.
---------------------------------------------------------------------------

    \103\ The Exchange notes that MEMX separately allocated 7.5% of 
its external market data costs to providing physical connectivity.
---------------------------------------------------------------------------

    The Exchange notes that the allocation for the internet Services 
and External Market Data cost driver is greater than that of its 
affiliate, MIAX Pearl Options, as MIAX Emerald allocated 3.2% of its 
internet Services and External Market Data expense towards Limited 
Service MEI Ports, while MIAX Pearl Options allocated 1.4% to its Full 
Service MEO Ports for the same cost driver. The allocation percentages 
set forth above differ because they directly correspond with the number 
of applicable ports utilized on each exchange. For May 2023, MIAX 
Emerald Market Makers utilized 1,017 Limited Service MEI ports and MIAX 
Market Makers utilized 1,770 Limited Service MEI ports. When compared 
to Full Service Port (Bulk and Single) usage, for May 2023, MIAX Pearl 
Options Members utilized only 384 Full Service MEO Ports (Bulk and 
Single), far fewer than number of Limited Service MEI Ports utilized by 
Market Makers on MIAX and MIAX Emerald, thus resulting in a smaller 
cost allocation. There is increased cost associated with supporting a 
higher number of ports (requiring more hardware and other technical 
infrastructure and internet Service), thus the Exchange allocates a 
higher percentage of expense than MIAX Pearl Options, which has a lower 
port count.
Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide Limited Service MEI Ports in the third-party data 
centers where it maintains its equipment as well as related costs for 
market data to then enter the Exchange's system via Limited Service MEI 
Ports (the Exchange does not own the Primary Data Center or the 
Secondary Data Center, but instead, leases space in data centers 
operated by third parties).
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software 
licenses used to monitor the health of the order entry services 
provided by the Exchange, as described above.
    The Exchange notes that this allocation is greater than its 
affiliate, MIAX Pearl Options, as MIAX Emerald allocated 3.2% of its 
Hardware and Software Maintenance and License expense towards Limited 
Service MEI Ports, while MIAX Pearl Options allocated 1.4% to its Full 
Service MEO Ports (Bulk and Single) for the same category of expense. 
The allocation percentages set forth above differ because they 
correspond with the number of applicable ports utilized on each 
exchange. For May 2023, MIAX Market Makers utilized 1,770 Limited 
Service MEI ports and MIAX Emerald Market Makers utilized 1,017 Limited 
Service MEI Ports. When compared to Full Service Port (Bulk and Single) 
usage, for May 2023, MIAX Pearl Options Members utilized only 384 Full 
Service MEO Ports (Bulk and Single), far fewer than number of Limited 
Service MEI Ports utilized by Market Makers on MIAX and MIAX Emerald, 
thus resulting in a smaller cost allocation. There is increased cost 
associated with supporting a higher number of ports (requiring more 
hardware and other technical infrastructure), thus the Exchange 
allocates a higher percentage of expense than MIAX Pearl Options, which 
has a lower port count.
Depreciation
    The vast majority of the software the Exchange uses to provide 
Limited Service MEI Ports has been developed in-house and the cost of 
such development, which takes place over an extended period of time and 
includes not just development work, but also quality assurance and 
testing to ensure the software works as intended, is depreciated over 
time once the software is activated in the production environment. 
Hardware used to provide Limited Service MEI Ports includes equipment 
used for testing and monitoring of order entry infrastructure and other 
physical equipment the Exchange purchased and is also depreciated over 
time.
    All hardware and software, which also includes assets used for 
testing and monitoring of order entry infrastructure, were valued at 
cost, depreciated or leased over periods ranging from three to five 
years. Thus, the depreciation cost primarily relates to servers 
necessary to operate the Exchange, some of which is owned by the 
Exchange and some of which is leased by the Exchange in order to allow 
efficient periodic technology refreshes. The Exchange allocated 3.7% of 
all depreciation costs to providing Limited Service MEI Ports. The 
Exchange allocated depreciation costs for depreciated software 
necessary to operate the Exchange because such software is related to 
the provision of Limited Service MEI Ports. As with the other allocated 
costs in the Exchange's updated Cost Analysis, the Depreciation cost 
driver was therefore narrowly tailored to depreciation related to 
Limited Service MEI Ports.
    The Exchange notes that this allocation differs from its affiliated 
markets due to a number of factors, such as the age of physical assets 
and software (e.g., older physical assets and software were previously 
depreciated and removed from the allocation), or certain system 
enhancements that required new physical assets and software, thus 
providing a higher contribution to the depreciated cost. For example, 
the Exchange notes that the percentages it and its affiliate, MIAX, 
allocated to the depreciation cost driver for Limited Service MEI Ports 
differ by only 2.6%. However, MIAX's approximate dollar amount is 
greater than that of MIAX Emerald by approximately $10,000 per month. 
This is due to two primary factors. First, MIAX has under gone a 
technology refresh since the time MIAX Emerald launched in February 
2019, leading to it having more hardware that software that is subject 
to depreciation. Second,

[[Page 58358]]

MIAX maintains 24 matching engines while MIAX Emerald maintains only 12 
matching engines. This also results in more of MIAX's hardware and 
software being subject to depreciation than MIAX Emerald's hardware and 
software due to the greater amount of equipment and software necessary 
to support the greater number of matching engines on the Exchange.
Allocated Shared Expenses
    Finally, a portion of general shared expenses was allocated to 
overall Limited Service MEI Ports costs as without these general shared 
costs the Exchange would not be able to operate in the manner that it 
does and provide Limited Service MEI Ports. The costs included in 
general shared expenses include general expenses of the Exchange, 
including office space and office expenses (e.g., occupancy and 
overhead expenses), utilities, recruiting and training, marketing and 
advertising costs, professional fees for legal, tax and accounting 
services (including external and internal audit expenses), and 
telecommunications costs. The Exchange again notes that the cost of 
paying directors to serve on its Board of Directors is included in the 
calculation of Allocated Shared Expenses, and thus a portion of such 
overall cost amounting to less than 11% of the overall cost for 
directors was allocated to providing Limited Service MEI Ports. The 
Exchange notes that the 10.3% allocation of general shared expenses for 
Limited Service MEI Ports is lower than that allocated to general 
shared expenses for physical connectivity based on its allocation 
methodology that weighted costs attributable to each Core Service based 
on an understanding of each area. While Limited Service MEI Ports have 
several areas where certain tangible costs are heavily weighted towards 
providing such service (e.g., Data Center, as described above), 10Gb 
ULL connectivity requires a broader level of support from Exchange 
personnel in different areas, which in turn leads to a broader general 
level of cost to the Exchange.
    Lastly, the Exchange notes that this allocation is greater than its 
affiliate, MIAX Pearl Options, as MIAX Emerald allocated 10.3% of its 
Allocated Shared Expense towards Limited Service MEI Ports, while MIAX 
Pearl Options allocated 3.6% to its Full Service MEO Ports (Bulk and 
Single) for the same category of expense. The allocation percentages 
set forth above differ because they correspond with the number of 
applicable ports utilized on each exchange. For May 2023, MIAX Market 
Makers utilized 1,770 Limited Service MEI ports and MIAX Emerald Market 
Makers utilized 1,017 Limited Service MEI Ports. When compared to Full 
Service Port (Bulk and Single) usage, for May 2023, MIAX Pearl Options 
Members utilized only 384 Full Service MEO Ports (Bulk and Single), far 
fewer than number of Limited Service MEI Ports utilized by Market 
Makers on MIAX Emerald, thus resulting in a smaller cost allocation. 
There is increased cost associated with supporting a higher number of 
ports (requiring more hardware and other technical infrastructure), 
thus the Exchange allocates a higher percentage of expense than MIAX 
Pearl Options which has a lower port count.\104\
---------------------------------------------------------------------------

    \104\ MIAX allocated a slightly lower amount (9.8%) of this cost 
as compared to MIAX Emerald (10.3%). This is not a significant 
difference. However, both allocations resulted in an identical cost 
amount of $0.8 million, despite MIAX having a higher number of 
Limited Service MEI Ports. MIAX Emerald was allocated a higher cost 
per Limited Service MEI Port due to the additional resources and 
expenditures associated with maintaining its recently enhanced low 
latency network.
---------------------------------------------------------------------------

* * * * *
Approximate Cost per Limited Service MEI Port per Month
    Based on May 2023 data, the total monthly cost allocated to Limited 
Service MEI Ports of $148,255 was divided by the total number of 
Limited Service MEI Ports (including the two free Limited Service MEI 
Ports per matching engine that each Member receives) the Exchange 
maintained at the time that proposed pricing was determined (1,017), to 
arrive at a cost of approximately $145 per month, per charged Limited 
Service MEI Port. In the prior filings, the Exchange did not include 
the expense of maintaining the two free Limited Service MEI Ports per 
matching engine that each Member receives in this paragraph but did 
include them in the total expense amounts. The total number of Limited 
Service MEI Ports that the Exchange does not charge for is 741 and 
amounts to a total expense of $107,445 per month to the Exchange.
* * * * *
Cost Analysis--Additional Discussion
    In conducting its Cost Analysis, the Exchange did not allocate any 
of its expenses in full to any core services (including physical 
connectivity or Limited Service MEI Ports) and did not double-count any 
expenses. Instead, as described above, the Exchange allocated 
applicable cost drivers across its core services and used the same Cost 
Analysis to form the basis of this proposal and the filings the 
Exchange submitted proposing fees for proprietary data feeds offered by 
the Exchange. For instance, in calculating the Human Resources expenses 
to be allocated to physical connections based upon the above described 
methodology, the Exchange has a team of employees dedicated to network 
infrastructure and with respect to such employees the Exchange 
allocated network infrastructure personnel with a high percentage of 
the cost of such personnel (42.4%) given their focus on functions 
necessary to provide physical connections. The salaries of those same 
personnel were allocated only 8.0% to Limited Service MEI Ports and the 
remaining 49.6% was allocated to 1Gb connectivity, other port services, 
transaction services, membership services and market data. The Exchange 
did not allocate any other Human Resources expense for providing 
physical connections to any other employee group, outside of a smaller 
allocation of 19.8% for 10Gb ULL connectivity or 19.9% for the entire 
network, of the cost associated with certain specified personnel who 
work closely with and support network infrastructure personnel. In 
contrast, the Exchange allocated much smaller percentages of costs (5% 
or less) across a wider range of personnel groups in order to allocate 
Human Resources costs to providing Limited Service MEI Ports. This is 
because a much wider range of personnel are involved in functions 
necessary to offer, monitor and maintain Limited Service MEI Ports but 
the tasks necessary to do so are not a primary or full-time function.
    In total, the Exchange allocated 28.1% of its personnel costs to 
providing 10Gb ULL and 1Gb connectivity and 5.9% of its personnel costs 
to providing Limited Service MEI Ports, for a total allocation of 34% 
Human Resources expense to provide these specific connectivity and port 
services. In turn, the Exchange allocated the remaining 66% of its 
Human Resources expense to membership services, transaction services, 
other port services and market data. Thus, again, the Exchange's 
allocations of cost across core services were based on real costs of 
operating the Exchange and were not double-counted across the core 
services or their associated revenue streams.
    As another example, the Exchange allocated depreciation expense to 
all core services, including physical connections and Limited Service 
MEI Ports, but in different amounts. The Exchange believes it is 
reasonable to allocate the identified portion of such expense because 
such expense includes the actual cost of the computer

[[Page 58359]]

equipment, such as dedicated servers, computers, laptops, monitors, 
information security appliances and storage, and network switching 
infrastructure equipment, including switches and taps that were 
purchased to operate and support the network. Without this equipment, 
the Exchange would not be able to operate the network and provide 
connectivity services to its Members and non-Members and their 
customers. However, the Exchange did not allocate all of the 
depreciation and amortization expense toward the cost of providing 
connectivity services, but instead allocated approximately 67.5% of the 
Exchange's overall depreciation and amortization expense to 
connectivity services (63.8% attributed to 10Gb ULL physical 
connections and 3.7% to Limited Service MEI Ports). The Exchange 
allocated the remaining depreciation and amortization expense 
(approximately 32.5%) toward the cost of providing transaction 
services, membership services, other port services and market data.
    The Exchange notes that its revenue estimates are based on 
projections across all potential revenue streams and will only be 
realized to the extent such revenue streams actually produce the 
revenue estimated. The Exchange does not yet know whether such 
expectations will be realized. For instance, in order to generate the 
revenue expected from connectivity, the Exchange will have to be 
successful in retaining existing clients that wish to maintain physical 
connectivity and/or Limited Service MEI Ports or in obtaining new 
clients that will purchase such services. Similarly, the Exchange will 
have to be successful in retaining a positive net capture on 
transaction fees in order to realize the anticipated revenue from 
transaction pricing. The Exchange notes that the Cost Analysis is based 
on the Exchange's 2023 fiscal year of operations and projections. It is 
possible, however, that actual costs may be higher or lower. To the 
extent the Exchange sees growth in use of connectivity services it will 
receive additional revenue to offset future cost increases.
    However, if use of connectivity services is static or decreases, 
the Exchange might not realize the revenue that it anticipates or needs 
in order to cover applicable costs. Accordingly, the Exchange is 
committing to conduct a one-year review after implementation of these 
fees. The Exchange expects that it may propose to adjust fees at that 
time, to increase fees in the event that revenues fail to cover costs 
and a reasonable mark-up of such costs. Similarly, the Exchange may 
propose to decrease fees in the event that revenue materially exceeds 
our current projections. In addition, the Exchange will periodically 
conduct a review to inform its decision making on whether a fee change 
is appropriate (e.g., to monitor for costs increasing/decreasing or 
subscribers increasing/decreasing, etc. in ways that suggest the then-
current fees are becoming dislocated from the prior cost-based 
analysis) and would propose to increase fees in the event that revenues 
fail to cover its costs and a reasonable mark-up, or decrease fees in 
the event that revenue or the mark-up materially exceeds our current 
projections. In the event that the Exchange determines to propose a fee 
change, the results of a timely review, including an updated cost 
estimate, will be included in the rule filing proposing the fee change. 
More generally, the Exchange believes that it is appropriate for an 
exchange to refresh and update information about its relevant costs and 
revenues in seeking any future changes to fees, and the Exchange 
commits to do so.
Projected Revenue
    The proposed fees will allow the Exchange to cover certain costs 
incurred by the Exchange associated with providing and maintaining 
necessary hardware and other network infrastructure as well as network 
monitoring and support services; without such hardware, infrastructure, 
monitoring and support the Exchange would be unable to provide the 
connectivity and port services. Much of the cost relates to monitoring 
and analysis of data and performance of the network via the 
subscriber's connection(s). The above cost, namely those associated 
with hardware, software, and human capital, enable the Exchange to 
measure network performance with nanosecond granularity. These same 
costs are also associated with time and money spent seeking to 
continuously improve the network performance, improving the 
subscriber's experience, based on monitoring and analysis activity. The 
Exchange routinely works to improve the performance of the network's 
hardware and software. The costs associated with maintaining and 
enhancing a state-of-the-art exchange network is a significant expense 
for the Exchange, and thus the Exchange believes that it is reasonable 
and appropriate to help offset those costs by amending fees for 
connectivity services. Subscribers, particularly those of 10Gb ULL 
connectivity, expect the Exchange to provide this level of support to 
connectivity so they continue to receive the performance they expect. 
This differentiates the Exchange from its competitors. As detailed 
above, the Exchange has five primary sources of revenue that it can 
potentially use to fund its operations: transaction fees, fees for 
connectivity services, membership and regulatory fees, and market data 
fees. Accordingly, the Exchange must cover its expenses from these five 
primary sources of revenue.
    The Exchange's Cost Analysis estimates the annual cost to provide 
10Gb ULL connectivity services will equal $11,361,586. Based on current 
10Gb ULL connectivity services usage, the Exchange would generate 
annual revenue of approximately $16,524,000. The Exchange believes this 
represents a modest profit of 31% when compared to the cost of 
providing 10Gb ULL connectivity services which could decrease over 
time.\105\
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    \105\ Assuming the U.S. inflation rate continues at its current 
rate, the Exchange believes that the projected profit margins in 
this proposal will decrease; however, the Exchange cannot predict 
with any certainty whether the U.S. inflation rate will continue at 
its current rate or its impact on the Exchange's future profits or 
losses. See, e.g., https://www.usinflationcalculator.com/inflation/current-inflation-rates/ (last visited August 4, 2023).
---------------------------------------------------------------------------

    The Exchange's Cost Analysis estimates the annual cost to provide 
Limited Service MEI Port services will equal $1,779,066. Based on 
current Limited Service MEI Port services usage, the Exchange would 
generate annual revenue of approximately $2,809,200. The Exchange 
believes this would result in an estimated profit margin of 37% after 
calculating the cost of providing Limited Service MEI Port services, 
which profit margin could decrease over time.\106\ The Exchange notes 
that the cost to provide Limited Service MEI Ports is higher than the 
cost for the Exchange's affiliate, MIAX Pearl Options, to provide Full 
Service MEO Ports due to the substantially higher number of Limited 
Service MEI Ports used by Exchange Members. For example, the Exchange's 
Members are currently allocated 1,017 Limited Service MEI Ports 
compared to only 384 Full Service MEO Ports (Bulk and Single combined) 
allocated to MIAX Pearl Options members.
---------------------------------------------------------------------------

    \106\ Id.
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    Based on the above discussion, the Exchange believes that even if 
the Exchange earns the above revenue or incrementally more or less, the 
proposed fees are fair and reasonable because they will not result in 
pricing that deviates from that of other exchanges or a supra-
competitive profit, when comparing the total expense of the

[[Page 58360]]

Exchange associated with providing 10Gb ULL connectivity and Limited 
Service MEI Port services versus the total projected revenue of the 
Exchange associated with network 10Gb ULL connectivity and Limited 
Service MEI Port services.
    The Exchange also notes that this the resultant profit margin 
differs slightly from the profit margins set forth in similar fee 
filings by its affiliated markets. This is not atypical among exchanges 
and is due to a number of factors that differ between these four 
markets, including: different market models, market structures, and 
product offerings (equities, options, price-time, pro-rata, simple, and 
complex); different pricing models; different number of market 
participants and connectivity subscribers; different maintenance and 
operations costs, as described in the cost allocation methodology 
above; different technical architecture (e.g., the number of matching 
engines per exchange, i.e., the Exchange maintains only 12 matching 
engines while MIAX maintains 24 matching engines); and different 
maturity phase of the Exchange and its affiliated markets (i.e., start-
up versus growth versus more mature). All of these factors contribute 
to a unique and differing level of profit margin per exchange.
    Further, the Exchange proposes to charge rates that are comparable 
to, or lower than, similar fees for similar products charged by 
competing exchanges. For example, for 10Gb ULL connectivity, the 
Exchange proposes a lower fee than the fee charged by Nasdaq for its 
comparable 10Gb Ultra fiber connection ($13,500 per month for the 
Exchange vs. $15,000 per month for Nasdaq).\107\ NYSE American charges 
even higher fees for its comparable 10GB LX LCN connection than the 
Exchange's proposed fees ($13,500 per month for the Exchange vs. 
$22,000 per month for NYSE American).\108\ Accordingly, the Exchange 
believes that comparable and competitive pricing are key factors in 
determining whether a proposed fee meets the requirements of the Act, 
regardless of whether that same fee across the Exchange's affiliated 
markets leads to slightly different profit margins due to factors 
outside of the Exchange's control (i.e., more subscribers to 10Gb ULL 
connectivity on the Exchange than its affiliated markets or vice 
versa).
---------------------------------------------------------------------------

    \107\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports 
and Other Services and NASDAQ Rules, General 8: Connectivity, 
Section 1. Co-Location Services.
    \108\ See NYSE American Options Fee Schedule, Section V.A. Port 
Fees and Section V.B. Co-Location Fees.
---------------------------------------------------------------------------

* * * * *
    The Exchange operated at a cumulative net annual loss from the time 
it launched operations in 2019 through fiscal year 2021.\109\ This was 
due to a number of factors, one of which was choosing to forgo revenue 
by offering certain products, such as low latency connectivity, at 
lower rates than other options exchanges to attract order flow and 
encourage market participants to experience the high determinism, low 
latency, and resiliency of the Exchange's trading systems. The Exchange 
does not believe that it should now be penalized for seeking to raise 
its fees as it now needs to upgrade its technology and absorb increased 
costs. Therefore, the Exchange believes the proposed fees are 
reasonable because they are based on both relative costs to the 
Exchange to provide dedicated 10Gb ULL connectivity and Limited Service 
MEI Ports, the extent to which the product drives the Exchange's 
overall costs and the relative value of the product, as well as the 
Exchange's objective to make access to its Systems broadly available to 
market participants. The Exchange also believes the proposed fees are 
reasonable because they are designed to generate annual revenue to 
recoup the Exchange's costs of providing dedicated 10Gb ULL 
connectivity and Limited Service MEI Ports.
---------------------------------------------------------------------------

    \109\ Beginning with fiscal year 2022, the Exchange incurred a 
net gain of approximately $14 million. See Exchange's Form 1/A, 
Application for Registration or Exemption from Registration as a 
National Securities Exchange, filed June 26, 2023, available at 
https://www.sec.gov/Archives/edgar/vprr/2300/23007742.pdf.
---------------------------------------------------------------------------

    The Exchange notes that its revenue estimate is based on 
projections and will only be realized to the extent customer activity 
produces the revenue estimated. As a competitor in the hyper-
competitive exchange environment, and an exchange focused on driving 
competition, the Exchange does not yet know whether such projections 
will be realized. For instance, in order to generate the revenue 
expected from 10Gb ULL connectivity and Limited Service MEI Ports, the 
Exchange will have to be successful in retaining existing clients that 
wish to utilize 10Gb ULL connectivity and Limited Service MEI Ports 
and/or obtaining new clients that will purchase such access. To the 
extent the Exchange is successful in encouraging new clients to utilize 
10Gb ULL connectivity and Limited Service MEI Ports, the Exchange does 
not believe it should be penalized for such success. To the extent the 
Exchange has mispriced and experiences a net loss in connectivity 
clients or in transaction activity, the Exchange could experience a net 
reduction in revenue. While the Exchange is supportive of transparency 
around costs and potential margins (applied across all exchanges), as 
well as periodic review of revenues and applicable costs (as discussed 
below), the Exchange does not believe that these estimates should form 
the sole basis of whether or not a proposed fee is reasonable or can be 
adopted. Instead, the Exchange believes that the information should be 
used solely to confirm that an Exchange is not earning--or seeking to 
earn--supra-competitive profits. The Exchange believes the Cost 
Analysis and related projections in this filing demonstrate this fact.
    The Exchange is owned by a holding company that is the parent 
company of four exchange markets and, therefore, the Exchange and its 
affiliated markets must allocate shared costs across all of those 
markets accordingly, pursuant to the above-described allocation 
methodology. In contrast, the Investors Exchange LLC (``IEX'') and 
MEMX, which are currently each operating only one exchange, in their 
recent non-transaction fee filings allocate the entire amount of that 
same cost to a single exchange. This can result in lower profit margins 
for the non-transaction fees proposed by IEX and MEMX because the 
single allocated cost does not experience the efficiencies and 
synergies that result from sharing costs across multiple platforms. The 
Exchange and its affiliated markets often share a single cost, which 
results in cost efficiencies that can cause a broader gap between the 
allocated cost amount and projected revenue, even though the fee levels 
being proposed are lower or competitive with competing markets (as 
described above). To the extent that the application of a cost-based 
standard results in Commission Staff making determinations as to the 
appropriateness of certain profit margins, the Exchange believes that 
Commission Staff should also consider whether the proposed fee level is 
comparable to, or competitive with, the same fee charged by competing 
exchanges and how different cost allocation methodologies (such as 
across multiple markets) may result in different profit margins for 
comparable fee levels. Further, if Commission Staff is making 
determinations as to appropriate profit margins in their approval of 
exchange fees, the Exchange believes that the Commission should be 
clear to all market participants as to what they have determined is an 
appropriate profit margin and should

[[Page 58361]]

apply such determinations consistently and, in the case of certain 
legacy exchanges, retroactively, if such standards are to avoid having 
a discriminatory effect.
    Further, as is reflected in the proposal, the Exchange continuously 
and aggressively works to control its costs as a matter of good 
business practice. A potential profit margin should not be evaluated 
solely on its size; that assessment should also consider cost 
management and whether the ultimate fee reflects the value of the 
services provided. For example, a profit margin on one exchange should 
not be deemed excessive where that exchange has been successful in 
controlling its costs, but not excessive on another exchange where that 
exchange is charging comparable fees but has a lower profit margin due 
to higher costs. Doing so could have the perverse effect of not 
incentivizing cost control where higher costs alone could be used to 
justify fees increases.
The Proposed Pricing Is Not Unfairly Discriminatory and Provides for 
the Equitable Allocation of Fees, Dues, and Other Charges
    The Exchange believes that the proposed fees are reasonable, fair, 
equitable, and not unfairly discriminatory because they are designed to 
align fees with services provided and will apply equally to all 
subscribers.
10Gb ULL Connectivity
    The Exchange believes that the proposed fees are equitably 
allocated among users of the network connectivity and port 
alternatives, as the users of 10Gb ULL connections consume 
substantially more bandwidth and network resources than users of 1Gb 
ULL connection. Specifically, the Exchange notes that 10Gb ULL 
connection users account for more than 99% of message traffic over the 
network, driving other costs that are linked to capacity utilization, 
as described above, while the users of the 1Gb ULL connections account 
for less than 1% of message traffic over the network. In the Exchange's 
experience, users of the 1Gb connections do not have the same business 
needs for the high-performance network as 10Gb ULL users.
    The Exchange's high-performance network and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput with the network ability to support access to several 
distinct options markets. To achieve a consistent, premium network 
performance, the Exchange must build out and maintain a network that 
has the capacity to handle the message rate requirements of its most 
heavy network consumers. These billions of messages per day consume the 
Exchange's resources and significantly contribute to the overall 
network connectivity expense for storage and network transport 
capabilities. The Exchange must also purchase additional storage 
capacity on an ongoing basis to ensure it has sufficient capacity to 
store these messages to satisfy its record keeping requirements under 
the Exchange Act.\110\ Thus, as the number of messages an entity 
increases, certain other costs incurred by the Exchange that are 
correlated to, though not directly affected by, connection costs (e.g., 
storage costs, surveillance costs, service expenses) also increase. 
Given this difference in network utilization rate, the Exchange 
believes that it is reasonable, equitable, and not unfairly 
discriminatory that the 10Gb ULL users pay for the vast majority of the 
shared network resources from which all market participants' benefit.
---------------------------------------------------------------------------

    \110\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

Limited Service MEI Ports
    The Exchange designed the proposed tiered-pricing structure to link 
fees to the number of connections a firm purchases due to the strong 
correlation between number of connections and related cost burdens 
imposed upon the Exchange from the largest connection (Limited MEI 
Ports) users. This is explicitly designed to link fees to related costs 
imposed on the exchange. Market Makers that purchase more connections 
cause significantly greater costs and expenses to the Exchange, whereas 
the opposite is also true. With this in mind, the Exchange proposes (a) 
no fee or lower fees for Market Makers who utilize fewer Limited 
Service MEI Ports since those Market Makers generally tend to send the 
fewest number of orders and messages over those connections, imposing 
substantially lower costs; \111\ and (b) incrementally higher fees for 
those that purchase additional Limited Service MEI Ports, because those 
with the greatest number of Limited Service MEI Ports generate a 
disproportionate amount of messages and order traffic, usually billions 
per day across the Exchange.\112\
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    \111\ The Exchange notes that those Members who purchase three 
or more Limited Service MEI Ports receive their first two Limited 
Service Ports for free.
    \112\ Note that the firms that purchase numerous Limited Service 
MEI Ports do so for competitive reasons and based on their business 
needs, which include a desire to access the market more quickly 
using the lowest latency connections. These firms are generally 
engaged in sending liquidity removing orders to the Exchange and may 
require more connections as they compete to access resting 
liquidity.
---------------------------------------------------------------------------

    The Exchange believes that the proposed fees are equitably 
allocated among users of the network connectivity alternatives because 
it is specifically designed to ensure that those users that create the 
highest costs burden on the Exchange pay the highest fees. As is 
discussed below, the cost burden associated with Market Makers that use 
the maximum number of Limited Service MEI ports is significantly higher 
than costs associated with Market Makers that use fewer of these ports.
    As noted above, users with the greatest number of Limited Service 
MEI Ports consume a disproportionate amount of bandwidth and network 
resources. Specifically, for 10Gb ULL connectivity, Market Makers who 
take the maximum number of Limited Service MEI Ports account for 
greater than 99% of message traffic over the network, while Market 
Makers with fewer Limited Service MEI Ports account for less than 1% of 
message traffic over the network. In the Exchange's experience, Market 
Makers who only utilize the two free Limited Service MEI Ports do so 
primarily because of the trade-through requirements under Regulation 
NMS or best execution obligations and do not have the same business 
need for the high performance network solutions required by Market 
Makers who take the maximum amount of Limited Service MEI Ports.
    The Exchange's high performance network solutions and supporting 
infrastructure (including employee support) provide increased system 
throughput and the capacity to handle approximately 18 million quote 
messages per second. This is important for the efficient operation of 
the Exchange and to ensure system resiliency in times of stress 
(abnormally high capacity demand). For example, based on May 2023 
trading results, the Exchange handled more than 8.6 billion quotes on 
an average day, and more than 189 billion quotes in an average month. 
Of that total, Market Makers with the maximum amount of Limited Service 
MEI Ports generated more than 111 billion quotes (and more than 5 
billion quotes on an average day), and Market Makers who utilized only 
the two free Limited Service MEI Ports per matching engine generated 
approximately 40 billion quotes (and approximately 1.8 billion quotes 
on an average day). Also for May 2023, Market

[[Page 58362]]

Makers who utilized 7 to 9 Limited Service MEI ports submitted an 
average of 936 million quotes per day; Market Makers who utilized 5-6 
Limited Service MEI Ports submitted an average of 578 million quotes on 
an average day; and Market Makers who utilized 3-4 Limited Service MEI 
Ports submitted an average of 176 million quotes on an average day.
    To achieve consistent, premium network performance, the Exchange 
must build and maintain a network that has the capacity to handle the 
message rate requirements of its heaviest network consumers during 
anticipated peak market conditions. The resultant need to support 
billions of messages per day consume the Exchange's resources and 
significantly contribute to the overall network connectivity expense 
for storage and network transport capabilities. This need also requires 
the Exchange 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.\113\ Thus, as the number of 
connections per Market Maker increases, other costs incurred by the 
Exchange also increase, e.g., storage costs, surveillance costs, 
service expenses.
---------------------------------------------------------------------------

    \113\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    According to the statistics provided above for May 2023, Market 
Makers with the maximum amount of Limited Service MEI Ports sent almost 
twice as many orders as those that utilize the minimal amount of 
Limited Service MEI Ports. Due to latency consideration, those Market 
Makers typically send the same order over multiple Limited Service MEI 
Ports to attempt to execute against the same contra-side order resting 
on the Book. This results in a disproportionate number of messages 
being returned to the Market Maker notifying them which order did or 
did not result in an execution. This results in an increased amount of 
message traffic generated by Market Makers who utilize the maximum 
amount of Limited Service MEI Ports. These Market Makers use a 
disproportionate amount of System capacity and, therefore, put greater 
strain on the Exchange's network and other resources discussed below. 
This is due to higher order to trade ratios that results in increased 
message traffic that is not recouped via a separate Exchange fee based 
on each message sent by a Market Maker or other similar fee. The 
Exchange must purchase and maintain 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.\114\
---------------------------------------------------------------------------

    \114\ See id.
---------------------------------------------------------------------------

    The following presents another example of how the cost burden 
associated with Members that use the maximum number of Limited Service 
MEI ports is significantly higher than costs associated with Members 
that use fewer of these ports. Members with the maximum amount of 
Limited Service MEI Ports frequently add, drop, or rebalance 
connections mid-month to determine which connections have the least 
latency (and engage in the same practice with Limited Service MEI 
Ports). This requires constant System expansion to meet Market Maker 
demand for additional Limited Service MEI Ports and results in limited 
available System headroom, e.g., additional hardware to accommodate 
demand for additional Limited Service MEI Ports. This also results in 
increased costs and customer service resources for the Exchange to 
frequently make changes in the data center (or its network) and provide 
the additional technical and personnel support necessary to satisfy 
these requests. The Exchange does not charge a separate fee for these 
services for Limited Service MEI Ports.\115\ Given the difference in 
network utilization and technical support provided, the Exchange 
believes that it is reasonable, equitable, and not unfairly 
discriminatory that Market Makers who utilize the most Limited Service 
MEI Ports pay for the vast majority of the shared network resources 
from which all Member and non-Member users benefit, because the network 
is largely designed and maintained to specifically handle the message 
rate, capacity and performance requirements of those Market Makers.
---------------------------------------------------------------------------

    \115\ The Member and non-Member network connectivity testing and 
certification fee is unrelated to this practice. That fee is for the 
first time firms are credentialed to begin live-trading on the 
Exchange or when the firm makes an internal system change requiring 
it to re-test its system with the Exchange's system. See Fee 
Schedule, Sections 4)c)-d).
---------------------------------------------------------------------------

    Finally, charging an incrementally higher fee (above the first two 
that are provided free of charge) to firms that choose to purchase more 
Limited Service MEI Ports does not provide those firms with any 
competitive advantage or incentivize firms to purchase additional 
Limited Service MEI Ports. Certain firms choose to purchase additional 
Limited Service MEI Ports based on their own particular trading/quoting 
strategies and, if anything, higher fees act as a disincentive for 
inefficient and excessive use of Exchange bandwidth and capacity. The 
Exchange notes that firms may continue to choose to only utilize the 
two free Limited Service MEI Ports to accommodate their own trading/
quoting strategies, business models, and for Market Makers, to meet 
their quoting obligations. The proposed pricing structure is designed 
to address the above described increased pull on Exchange resources by 
firms that choose to purchase the maximum number of Limited Service MEI 
Ports and to incentivize efficient port usage.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes the proposed fees will not result in any 
burden on intra-market competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because the proposed fees 
will allow the Exchange to recoup some of its costs in providing 10Gb 
ULL connectivity and Limited Service MEI Ports at below market rates to 
market participants since the Exchange launched operations. As 
described above, the Exchange operated at a cumulative net annual loss 
since its launch in 2019 through 2021 \116\ due to providing a low-cost 
alternative to attract order flow and encourage market participants to 
experience the high determinism and resiliency of the Exchange's 
trading Systems. To do so, the Exchange chose to waive the fees for 
some non-transaction related services and Exchange products or provide 
them at a very lower fee, which was not profitable to the Exchange. 
This resulted in the Exchange forgoing revenue it could have generated 
from assessing any fees or higher fees. The Exchange could have sought 
to charge higher fees at the outset, but that could have served to 
discourage participation on the Exchange. Instead, the Exchange chose 
to provide a low-cost exchange alternative to the options industry,

[[Page 58363]]

which resulted in lower initial revenues. Examples of this are 10Gb ULL 
connectivity and Limited Service MEI Ports, for which the Exchange only 
now seeks to adopt fees at a level similar to or lower than those of 
other options exchanges.
---------------------------------------------------------------------------

    \116\ The Exchange has incurred a cumulative loss of $9 million 
since its inception in 2019 through 2021. See Exchange's Form 1/A, 
Application for Registration or Exemption from Registration as a 
National Securities Exchange, filed June 29, 2022, available at 
https://www.sec.gov/Archives/edgar/vprr/2200/22001164.pdf.
---------------------------------------------------------------------------

    Further, the Exchange does not believe that the proposed fee 
increase for the 10Gb ULL connection change would place certain market 
participants at the Exchange at a relative disadvantage compared to 
other market participants or affect the ability of such market 
participants to compete. As is the case with the current proposed flat 
fee, the proposed fee would apply uniformly to all market participants 
regardless of the number of connections they choose to purchase. The 
proposed fee does not favor certain categories of market participants 
in a manner that would impose an undue burden on competition.
    The Exchange does not believe that the proposed rule change would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete. In particular, Exchange 
personnel has been informally discussing potential fees for 
connectivity services with a diverse group of market participants that 
are connected to the Exchange (including large and small firms, firms 
with large connectivity service footprints and small connectivity 
service footprints, as well as extranets and service bureaus) for 
several months leading up to that time. The Exchange does not believe 
the proposed fees for connectivity services would negatively impact the 
ability of Members, non-Members (extranets or service bureaus), third-
parties that purchase the Exchange's connectivity and resell it, and 
customers of those resellers to compete with other market participants 
or that they are placed at a disadvantage.
    The Exchange does anticipate, however, that some market 
participants may reduce or discontinue use of connectivity services 
provided directly by the Exchange in response to the proposed fees. In 
fact, as mentioned above, one MIAX Pearl Options Market Maker 
terminated their MIAX Pearl Options membership on January 1, 2023 as a 
direct result of the similar proposed fee changes by MIAX Pearl 
Options.\117\ The Exchange does not believe that the proposed fees for 
connectivity services place certain market participants at a relative 
disadvantage to other market participants because the proposed 
connectivity pricing is associated with relative usage of the Exchange 
by each market participant and does not impose a barrier to entry to 
smaller participants. The Exchange believes its proposed pricing is 
reasonable and, when coupled with the availability of third-party 
providers that also offer connectivity solutions, that participation on 
the Exchange is affordable for all market participants, including 
smaller trading firms. As described above, the connectivity services 
purchased by market participants typically increase based on their 
additional message traffic and/or the complexity of their operations. 
The market participants that utilize more connectivity services 
typically utilize the most bandwidth, and those are the participants 
that consume the most resources from the network. Accordingly, the 
proposed fees for connectivity services do not favor certain categories 
of market participants in a manner that would impose a burden on 
competition; rather, the allocation of the proposed connectivity fees 
reflects the network resources consumed by the various size of market 
participants and the costs to the Exchange of providing such 
connectivity services.
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    \117\ The Exchange acknowledges that IEX included in its 
proposal to adopt market data fees after offering market data for 
free an analysis of what its projected revenue would be if all of 
its existing customers continued to subscribe versus what its 
projected revenue would be if a limited number of customers 
subscribed due to the new fees. See Securities Exchange Act Release 
No. 94630 (April 7, 2022), 87 FR 21945 (April 13, 2022) (SR-IEX-
2022-02). MEMX did not include a similar analysis in either of its 
recent non-transaction fee proposals. See, e.g., supra note 71. The 
Exchange does not believe a similar analysis would be useful here 
because it is amending existing fees, not proposing to charge a new 
fee where existing subscribers may terminate connections because 
they are no longer enjoying the service at no cost.
---------------------------------------------------------------------------

    Lastly, the Exchange does not believe its proposal to implement 
incrementally higher fees for those that purchase more Limited Service 
MEI Ports will place certain market participants at a relative 
disadvantage to other market participants because those with the 
greatest number of Limited Service MEI Ports tend generate a 
disproportionate amount of messages and order traffic, usually billions 
per day across the Exchange, resulting in greater demands and 
additional burdens on Exchange resources (as described above). The 
firms that purchase numerous Limited Service MEI Ports do so for 
competitive reasons and choose to utilize numerous connections based on 
their business needs, which include a desire to attempt to access the 
market quicker using the lowest latency connections. These firms are 
generally engaged in sending liquidity removing orders to the Exchange 
and seek to add more connections to competitively access resting 
liquidity. All firms purchase the amount of Limited Service MEI Ports 
they require based on their own business decisions and similarly 
situated firms are subject to the same fees.
Inter-Market Competition
    The Exchange also does not believe that the proposed rule change 
and price increase will result in any burden on inter-market 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. As this is a fee increase, arguably if set too 
high, this fee would make it easier for other exchanges to compete with 
the Exchange. Only if this were a substantial fee decrease could this 
be considered a form of predatory pricing. In contrast, the Exchange 
believes that, without this fee increase, we are potentially at a 
competitive disadvantage to certain other exchanges that have in place 
higher fees for similar services. As we have noted, the Exchange 
believes that connectivity fees can be used to foster more competitive 
transaction pricing and additional infrastructure investment and there 
are other options markets of which market participants may connect to 
trade options at higher rates than the Exchange's. 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.
* * * * *
    In conclusion, as discussed thoroughly above, the Exchange 
regrettably believes that the application of the Revised Review Process 
and Staff Guidance has adversely affected inter-market competition 
among legacy and non-legacy exchanges by impeding the ability of non-
legacy exchanges to adopt or increase fees for their market data and 
access services (including connectivity and port products and services) 
that are on parity or commensurate with fee levels previously 
established by legacy exchanges. Since the adoption of the Revised 
Review Process and Staff Guidance, and even more so recently, it has 
become extraordinarily difficult to adopt or increase fees to generate 
revenue necessary to invest in systems, provide innovative trading 
products and solutions, and improve competitive standing to the benefit 
of non-legacy exchanges' market participants. Although the Staff 
Guidance served an

[[Page 58364]]

important policy goal of improving disclosures and requiring exchanges 
to justify that their market data and access fee proposals are fair and 
reasonable, it has also negatively impacted non-legacy exchanges in 
particular in their efforts to adopt or increase fees that would enable 
them to more fairly compete with legacy exchanges, despite providing 
enhanced disclosures and rationale under both competitive and cost 
basis approaches provided for by the Revised Review Process and Staff 
Guidance to support their proposed fee changes.

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

    The Exchange received one comment letter on the Initial Proposal, 
one comment letter on the Second Proposal, one comment letter on the 
Third Proposal, and one comment letter on the Fourth Proposal, all from 
the same commenter.\118\ In their letters, the sole commenter seeks to 
incorporate comments submitted on previous Exchange proposals to which 
the Exchange has previously responded. To the extent the sole commenter 
has attempted to raise new issues in its letters, the Exchange believes 
those issues are not germane to this proposal in particular, but rather 
raise larger issues with the current environment surrounding exchange 
non-transaction fee proposals that should be addressed by the 
Commission through rule making, or Congress, more holistically and not 
through an individual exchange fee filings. Among other things, the 
commenter is requesting additional data and information that is both 
opaque and a moving target and would constitute a level of disclosure 
materially over and above that provided by any competitor exchanges.
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    \118\ See letter from Brian Sopinsky, General Counsel, 
Susquehanna International Group, LLP (``SIG''), to Vanessa 
Countryman, Secretary, Commission, dated February 7, 2023, and 
letters from Gerald D. O'Connell, SIG, to Vanessa Countryman, 
Secretary, Commission, dated March 21, 2023, May 24, 2023 and July 
24, 2023.
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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,\119\ and Rule 19b-4(f)(2) \120\ 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.
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    \119\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \120\ 17 CFR 240.19b-4(f)(2).
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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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-EMERALD-2023-19 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-EMERALD-2023-19. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-EMERALD-2023-19 and should 
be submitted on or before September 15, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\121\
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    \121\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-18300 Filed 8-24-23; 8:45 am]
BILLING CODE 8011-01-P