Document ID: SEC-2022-0275-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2022-02-25T05:00Z

[Federal Register Volume 87, Number 38 (Friday, February 25, 2022)]
[Notices]
[Pages 10837-10856]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03965]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94287; File No. SR-PEARL-2022-05]

Self-Regulatory Organizations; MIAX PEARL LLC; Notice of Filing 
of a Proposed Rule Change To Amend the MIAX PEARL Options Fee Schedule 
To Remove Certain Credits and Increase Trading Permit Fees; Suspension 
of and Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove the Proposed Rule Change

February 18, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 15, 2022, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons and is, pursuant to Section 19(b)(3)(C) of the Act, hereby: (i) 
Temporarily suspending the rule change; and (ii) instituting 
proceedings to determine whether to approve or disapprove the proposed 
rule change.
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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 Pearl Options 
Fee Schedule (the ``Fee Schedule'') to remove certain credits and amend 
the monthly Trading Permit \3\ fees for Exchange Members.\4\
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    \3\ The term ``Trading Permit'' means a permit issued by the 
Exchange that confers the ability to transact on the Exchange. See 
Exchange Rule 100.
    \4\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See Exchange Rule 100 and the 
Definitions Section of the Fee Schedule.
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
Pearl's principal office, and at the Commission's Public Reference 
Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV [sic] below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule to remove certain 
credits and amend the monthly Trading Permit fees (the ``Proposed 
Access Fees'') for Exchange Members. The Exchange initially filed this 
proposal on July 1, 2021, with the proposed fee changes being 
immediately effective (``First Proposed Rule Change'').\5\ The First 
Proposed Rule Change was published for comment in the Federal Register 
on July 15, 2021.\6\ The Commission received one comment letter on the 
First Proposed Rule Change \7\ and subsequently suspended the Frist 
[sic] Proposed Rule Change on August 27, 2021.\8\ The Exchange withdrew 
First Proposed Rule Change on October 12, 2021 and re-submitted the 
proposal on October 29, 2021, with the proposed fee changes being 
effective beginning November 1, 2021 (``Second Proposed Rule 
Change'').\9\ The Second Proposed Rule Change provided additional 
justification for the proposed fee changes and addressed certain points 
raised in the single comment letter that was submitted on the First 
Proposed Rule Change. The Second Proposed Rule Change was published for 
comment in the Federal Register on November 17, 2021.\10\ The 
Commission received no comment letters on the Second Proposed Rule 
Change. Nonetheless, the Exchange withdrew the Second Proposed Rule 
Change on December 20, 2021 and submitted a revised proposal for 
immediate effectiveness (``Third Proposed Rule Change'').\11\ The Third 
Proposed Rule Change was published for comment in the Federal Register 
on January 10, 2022.\12\ The Third Proposed Rule Change meaningfully 
attempted to provide additional justification and explanation for the 
proposed fee changes, directly respond to the points raised in the 
single comment letter submitted on the First Proposed Rule Change, and 
respond to feedback provided by Commission Staff during a telephone 
conversation on November 18, 2021 relating to the Second Proposed Rule 
Change. Although the Commission again did not receive any comment 
letters on the Third Proposed

[[Page 10838]]

Rule Change, the Exchange withdrew the Third Proposed Rule Change on 
February 15, 2022 and now submits this revised proposal for immediate 
effectiveness (``Fourth Proposed Rule Change''). This Fourth Proposed 
Rule Change provides additional justification and explanation for the 
proposed fee changes.
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    \5\ See Securities Exchange Act Release No. 92366 (July 9, 
2021), 86 FR 37379 (SR-PEARL-2021-32).
    \6\ See id.
    \7\ See Letter from Richard J. McDonald, Susquehanna 
International Group, LLC (``SIG''), to Vanessa Countryman, 
Secretary, Commission, dated September 28, 2021 (``SIG Letter'').
    \8\ See Securities Exchange Act Release No. 92797 (August 27, 
2021), 86 FR 49399 (September 2, 2021).
    \9\ See Securities Exchange Act Release No. 93555 (November 10, 
2021), 86 FR 64254 (November 17, 2021) (SR-PEARL-2021-54).
    \10\ See id.
    \11\ Securities Exchange Act Release No. 93895 (January 4, 
2022), 87 FR 1217 (January 10, 2022) (SR-PEARL-2021-59).
    \12\ Id.
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Removal of the ``Monthly Volume Credit''
    The Exchange proposes to amend the Definitions section of the Fee 
Schedule to delete the definition and remove the credits applicable to 
the Monthly Volume Credit for Members. The Exchange established the 
Monthly Volume Credit in 2018 \13\ to encourage Members to send 
increased Priority Customer \14\ order flow to the Exchange, which the 
Exchange applied to the assessment of certain non-transaction rebates 
and fees for that Member. The Exchange applies a different Monthly 
Volume Credit depending on whether the Member connects to the Exchange 
via the FIX Interface \15\ or MEO Interface.\16\ Currently, the 
Exchange assesses the Monthly Volume Credit to each Member that has 
executed Priority Customer volume along with that of its 
Affiliates,\17\ not including Excluded Contracts,\18\ of at least 0.30% 
of MIAX Pearl-listed Total Consolidated Volume (``TCV''),\19\ as set 
forth in the following table:
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    \13\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
    \14\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities, and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial accounts(s). The 
number of orders shall be counted in accordance with Interpretation 
and Policy .01 of Exchange Rule 100. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100, including Interpretation and 
Policy .01.
    \15\ The term ``FIX Interface'' means the Financial Information 
Exchange interface for certain order types as set forth in Exchange 
Rule 516. See the Definitions Section of the Fee Schedule and 
Exchange Rule 100.
    \16\ The term ``MEO Interface'' or ``MEO'' means a binary order 
interface for certain order types as set forth in Rule 516 into the 
MIAX Pearl System. See the Definitions Section of the Fee Schedule 
and Exchange Rule 100.
    \17\ ``Affiliate'' means (i) an affiliate of a Member of at 
least 75% common ownership between the firms as reflected on each 
firm's Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX Pearl 
Market Maker) that has been appointed by a MIAX Pearl Market Maker, 
pursuant to the following process. A MIAX Pearl Market Maker 
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for 
the purposes of the Fee Schedule, by each completing and sending an 
executed Volume Aggregation Request Form by email to 
[email protected] no later than 2 business days prior to 
the first business day of the month in which the designation is to 
become effective. Transmittal of a validly completed and executed 
form to the Exchange along with the Exchange's acknowledgement of 
the effective designation to each of the Market Maker and EEM will 
be viewed as acceptance of the appointment. The Exchange will only 
recognize one designation per Member. A Member may make a 
designation not more than once every 12 months (from the date of its 
most recent designation), which designation shall remain in effect 
unless or until the Exchange receives written notice submitted 2 
business days prior to the first business day of the month from 
either Member indicating that the appointment has been terminated. 
Designations will become operative on the first business day of the 
effective month and may not be terminated prior to the end of the 
month. Execution data and reports will be provided to both parties. 
See the Definitions Section of the Fee Schedule.
    \18\ ``Excluded Contracts'' means any contracts routed to an 
away market for execution. See the Definitions Section of the Fee 
Schedule.
    \19\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX Pearl for the 
month for which the fees apply, excluding consolidated volume 
executed during the period of time in which the Exchange experiences 
an Exchange System Disruption (solely in the option classes of the 
affected Matching Engine). See the Definitions Section of the Fee 
Schedule.

------------------------------------------------------------------------
                                                                Monthly
                  Type of member connection                      volume
                                                                 credit
------------------------------------------------------------------------
Member that connects via the FIX Interface...................       $250
Member that connects via the MEO Interface...................      1,000
------------------------------------------------------------------------

    If a Member connects via both the MEO Interface and FIX Interface 
and qualifies for the Monthly Volume Credit based upon its Priority 
Customer volume, the greater Monthly Volume Credit shall apply to such 
Member. Prior to the First Proposed Rule Change, the Monthly Volume 
Credit was a single, once-per-month credit towards the aggregate 
monthly total of non-transaction fees assessable to a Member.
    Beginning with the First Proposed Rule Change, the Exchange 
proposes to amend the Definitions section of the Fee Schedule to delete 
the definition and remove the Monthly Volume Credit. The Exchange 
established the Monthly Volume Credit when it first launched operations 
to attract order flow by lowering the initial fixed cost for Members. 
The Monthly Volume Credit has achieved its purpose and the Exchange 
believes it is appropriate to remove this credit. The Exchange believes 
that the Exchange's existing Priority Customer rebates and fees will 
continue to allow the Exchange to remain highly competitive and 
continue to attract order flow and maintain market share.
Removal of the Trading Permit Fee Credit
    The Exchange proposes to amend Section (3)(b) of the Fee Schedule 
to remove the Trading Permit fee credit that is denoted in footnote 
``*'' below the Trading Permit fee table. Prior to the First Proposed 
Rule Change, the Trading Permit fee credit was applicable to Members 
that connect via both the MEO and FIX Interfaces. Members who connect 
via both the MEO and FIX Interfaces are assessed the rates for both 
types of Trading Permits, but these Members received a $100 monthly 
credit towards the Trading Permit fees applicable to the MEO Interface 
prior to the First Proposed Rule Change. The Exchange proposes to 
remove the Trading Permit fee credit and delete footnote ``*'' from 
Section (3)(b) of the Fee Schedule.
    The Exchange established the Trading Permit fee credit when it 
first launched operations to attract order flow and increase membership 
by lowering the costs for Members that connect via both the MEO 
Interface and FIX Interface. The Trading Permit fee credit has achieved 
its purpose and the Exchange now believes that it is appropriate to 
remove this credit in light of the current operating conditions and 
membership population on the Exchange.
Amendment of Trading Permit Fees
    The Exchange proposes to amend Section (3)(b) of the Fee Schedule 
to increase the amount of the monthly Trading Permit fees. The Exchange 
issues Trading Permits to Members who are either Electronic Exchange 
Members \20\ (``EEMs'') or Market Makers.\21\ The Exchange assesses 
Trading Permit fees based upon the monthly total volume executed by the 
Member and its Affiliates on the Exchange across all origin types, not 
including Excluded Contracts, as compared to the total TCV in all MIAX 
Pearl-listed options. The Exchange adopted a tier-based fee structure 
based

[[Page 10839]]

upon the volume-based tiers detailed in the definition of ``Non-
Transaction Fees Volume-Based Tiers'' \22\ in the Definitions section 
of the Fee Schedule. The Exchange also assesses Trading Permit fees 
based upon the type of interface used by the Member to connect to the 
Exchange--the FIX Interface and/or the MEO Interface.
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    \20\ The term ``Electronic Exchange Member'' or ``EEM'' means 
the holder of a Trading Permit who is a Member representing as agent 
Public Customer Orders or Non-Customer Orders on the Exchange and 
those non-Market Maker Members conducting proprietary trading. 
Electronic Exchange Members are deemed ``members'' under the 
Exchange Act. See the Definitions Section of the Fee Schedule.
    \21\ The term ``Market Maker'' or ``MM'' means a Member 
registered with the Exchange for the purpose of making markets in 
options contracts traded on the Exchange and that is vested with the 
rights and responsibilities specified in Chapter VI of these Rules. 
See the Definitions Section of the Fee Schedule.
    \22\ See the Definitions Section of the Fee Schedule for the 
monthly volume thresholds associated with each Tier.
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    Current Trading Permit Fees. Prior to the First Proposed Rule 
Change, each Member who connected to the System \23\ via the FIX 
Interface was assessed the following monthly Trading Permit fees:
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    \23\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $250;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $350; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $450.
    Prior to the First Proposed Rule Change, each Member who connected 
to the System via the MEO Interface was assessed the following monthly 
Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $300;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $400; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $500.
    Proposed Trading Permit Fees. Since the First Proposed Rule Change, 
the Exchange proposes to amend its Trading Permit fees as follows. Each 
Member who connects to the System via the FIX Interface is assessed the 
following monthly Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, $1,000; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, $1,500.
    Each Member who connects to the System via the MEO Interface is 
assessed the following monthly Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $2,500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, $4,000; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, $6,000.
    Members who use the MEO Interface may also connect to the System 
through the FIX Interface as well, and vice versa. The Exchange notes 
that the Trading Permit fees for Members who connect through the MEO 
Interface are higher than the Trading Permit fees for Members who 
connect through the FIX Interface, since the FIX Interface utilizes 
less capacity and resources of the Exchange. The MEO Interface offers 
lower latency and higher throughput, which utilizes greater capacity 
and resources of the Exchange. The FIX Interface offers lower bandwidth 
requirements and an industry-wide uniform message format. Both EEMs and 
Market Makers may connect to the Exchange using either interface.
    Trading Permits grant access to the Exchange, thus providing the 
ability to submit orders and trade on the Exchange, in the manner 
defined in the relevant Trading Permit. Without a Trading Permit, a 
Member cannot directly trade on the Exchange. Therefore, a Trading 
Permit is a means to directly access the Exchange (which offers 
meaningful value), and the Exchange proposes to increase its monthly 
fees since it had not done so since the fees were first adopted in 2018 
\24\ and are designed to recover a portion of the costs associated with 
directly accessing the Exchange. The Exchange notes that the its 
affiliates, Miami International Securities Exchange, LLC (``MIAX'') and 
MIAX Emerald, LLC (``MIAX Emerald''), charge a similar, fixed trading 
permit fee to certain users, and a similar, varying trading permit fee 
to other users, based upon the number of assignments of option classes 
or the percentage of volume in option classes.\25\
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    \24\ See supra note 13.
    \25\ See the MIAX Fee Schedule, Section 3)b); MIAX Emerald Fee 
Schedule, Section 3)b).
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    As illustrated by the table below, the Exchange notes that the 
proposed fees for the Exchange's Trading Permits are in line with, or 
cheaper than, the similar trading permits and access fees for similar 
membership fees charged by other options exchanges. The below table 
also illustrates how the Exchange has historically undercharged for 
access via Trading Permits as compared to other options exchanges. The 
Exchange believes other exchanges' access and trading permit fees are 
useful examples of alternative approaches to providing and charging for 
access and provides the below table for comparison purposes only to 
show how the Exchange's proposed fees compare to fees currently charged 
by other options exchanges for similar access.

----------------------------------------------------------------------------------------------------------------
                                     Type of
                                  membership or
           Exchange               trading permit                            Monthly fee
                                       fees
----------------------------------------------------------------------------------------------------------------
MIAX Pearl (as proposed)......  Trading Permit     Tier 1: $500.
                                 access via FIX    Tier 2: $1,000.
                                 Interface.
                                                   Tier 3: $1,500.
                                Trading Permit     Tier 1: $2,500.
                                 access via MEO    Tier 2: $4,000.
                                 Interface.        Tier 3: $6,000.
NYSE Arca, Inc. (``NYSE         Options Trading    $6,000 for up to 175 option issues.
 Arca'') \26\.                   Permits           Additional $5,000 for up to 350 option issues.
                                 (``OTP'').
                                                   Additional $4,000 for up to 1,000 option issues.
                                                   Additional $3,000 for all option issues.
                                                   Additional $1,000 for the 5th OTP and each OTP thereafter.

[[Page 10840]]

 
NYSE American, LLC (``NYSE      ATP Trading        $8,000 for up to 60 plus the bottom 45% of option issues.
 American'') \27\.               Permits.          Additional $6,000 for up to 150 plus the bottom 45% of option
                                                    issues.
                                                   Additional $5,000 for up to 500 plus the bottom 45% of option
                                                    issues.
                                                   Additional $4,000 for up to 1,100 plus the bottom 45% of
                                                    option issues.
                                                   Additional $3,000 for all option issues.
                                                   Additional $2,000 for 6th to 9th ATPs (plus additional fee
                                                    for premium products).
Nasdaq PHLX LLC (``Nasdaq       Streaming Quote    Tier 1 (up to 200 option classes): $0.00.
 PHLX'') \28\.                   Trader permit     Tier 2 (up to 400 option classes): $2,200.
                                 fees.
                                                   Tier 3 (up to 600 option classes): $3,200.
                                                   Tier 4 (up to 800 option classes): $4,200.
                                                   Tier 5 (up to 1,000 option classes): $5,200.
                                                   Tier 6 (up to 1,200 option classes): $6,200.
                                                   Tier 7 (all option classes): $7,200.
                                Remote Market      Tier 1 (less than 100 option classes): $5,500.
                                 Maker             Tier 2 (more than 100 and less than 999 option classes):
                                 Organization       $8,000.
                                 permit fees.
                                                   Tier 3 (1,000 or more option classes): $11,000.
Nasdaq ISE LLC (``Nasdaq        Access Fees......  Primary Market Maker: $5,000 per membership.
 ISE'') \29\.                                      Competitive Market Maker: $2,500 per membership.
Cboe C2 Exchange, Inc. (``Cboe  Access Permit      Market Makers: $5,000.
 C2'') \30\.                     Fees.             Electronic Access Permits: $1,000.
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Implementation
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    \26\ NYSE Arca Options Fees and Charges, OTP Trading Participant 
Rights, p.1.
    \27\ NYSE American Options Fee Schedule, Section III, Monthly 
Trading Permit, Rights, Floor Access and Premium Product Fees, p. 
23-24.
    \28\ Nasdaq PHLX Options 7 Pricing Schedule, Section 8. 
Membership Fees.
    \29\ Nasdaq ISE Options 7 Pricing Schedule, Section 8.A. Access 
Services.
    \30\ Cboe C2 Fee Schedule, Access Fees.
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    The proposed fees are immediately effective.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \31\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \32\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees and other charges among its members and issuers and other persons 
using its facilities. The Exchange also believes the proposal furthers 
the objectives of Section 6(b)(5) of the Act in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
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    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(4) and (5).
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Removal of Monthly Volume Credit and Trading Permit Fee Credit
    The Exchange believes its proposal to remove the Monthly Volume 
Credit is reasonable, equitable and not unfairly discriminatory because 
all market participants will no longer be offered the ability to 
achieve the extra credits associated with the Monthly Volume Credit for 
submitting Priority Customer volume to the Exchange and access to the 
Exchange is offered on terms that are not unfairly discriminatory. The 
Exchange believes it is equitable and not unfairly discriminatory to 
remove the Monthly Volume Credit from the Fee Schedule for business and 
competitive reasons because, in order to attract order flow when the 
Exchange first launched operations, the Exchange established the 
Monthly Volume Credit to lower the initial fixed cost for Members. The 
Exchange now believes that it is appropriate to remove this credit in 
light of the current operating conditions and the current type and 
amount of Priority Customer volume executed on the Exchange. The 
Exchange believes that the Exchange's Priority Customer rebates and 
fees will still allow the Exchange to remain highly competitive such 
that the Exchange should continue to attract order flow and maintain 
market share.
    The Exchange believes its proposal to remove the Trading Permit fee 
credit for Members that connect via both the MEO Interface and FIX 
Interface is reasonable, equitable and not unfairly discriminatory 
because all market participants will no longer be offered the ability 
to receive the credit and access to the Exchange is offered on terms 
that are not unfairly discriminatory. The Exchange believes it is 
equitable and not unfairly discriminatory to remove the Trading Permit 
fee credit for business and competitive reasons because, in order to 
attract order flow and membership after the Exchange first launched 
operations, the Exchange established the Trading Permit fee credit to 
lower the costs for Members that connect via both the MEO Interface and 
FIX Interface. The Exchange now believes that it is appropriate to 
remove this credit in light of the current operating conditions and 
membership on the Exchange.
Trading Permit Fee Increase
    On March 29, 2019, the Commission issued an Order disapproving a 
proposed fee change by the BOX Market LLC Options Facility to establish 
connectivity fees for its BOX Network (the ``BOX Order'').\33\ On May 
21, 2019, the Commission Staff issued guidance ``to assist the national 
securities

[[Page 10841]]

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.'' \34\ Based on both the 
BOX Order and the Guidance, the Exchange believes that it has clearly 
met its burden to demonstrate that the proposed fees are consistent 
with the Act because they (i) are reasonable, equitably allocated, not 
unfairly discriminatory, and not an undue burden on competition; (ii) 
comply with the BOX Order and the Guidance; (iii) are supported by 
evidence (including comprehensive revenue and cost data and analysis) 
that they are fair and reasonable because they will not result in 
excessive pricing or supra-competitive profit; and (iv) utilize a cost-
based justification framework that is substantially similar to a 
framework previously used by the Exchange, and its affiliates MIAX and 
MIAX Emerald, to adopt or amend non-transaction fees (including port 
and connectivity fees) and market data fees.\35\
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    \33\ 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).
    \34\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
    \35\ See Securities Exchange Act Release Nos. 91145 (February 
17, 2021), 86 FR 11033 (February 23, 2021) (SR-EMERALD-2021-05) 
(proposal to establish market data fees for MIAX Emerald ToM, 
Administrative Information Subscriber feed, and MIAX Emerald Order 
Feed); 90981 (January 25, 2021), 86 FR 7582 (January 29, 2021) (SR-
PEARL-2021-01) (proposal to increase connectivity fees); 91460 
(April 2, 2021), 86 FR 18349 (SR-EMERALD-2021-11) (proposal to adopt 
port fees, increase connectivity fees, and increase additional 
limited service ports); 91033 (February 1, 2021), 86 FR 8455 
(February 5, 2021) (SR-EMERALD-2021-03) (proposal to adopt trading 
permit fees).
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The Proposed Access Fees Will Not Result in a Supra-Competitive Profit
    The Exchange believes that exchanges, in setting fees of all types, 
should meet very high standards of transparency to demonstrate why each 
new fee or fee amendment meets the requirements of the Act that fees 
are reasonable, equitably allocated, not unfairly discriminatory, and 
not create an undue burden on competition among market participants. 
The Exchange believes this high standard is especially important when 
an exchange imposes various access fees for market participants to 
access an exchange's marketplace. The Exchange deems the Trading Permit 
fees to be access fees. It records these fees as part of its ``Access 
Fees'' revenue in its financial statements.
    In the Guidance, the Commission Staff stated that, ``[a]s an 
initial step in assessing the reasonableness of a fee, staff considers 
whether the fee is constrained by significant competitive forces.'' 
\36\ The Guidance further states that, `` . . . even where an SRO 
cannot demonstrate, or does not assert, that significant competitive 
forces constrain the fee at issue, a cost-based discussion may be an 
alternative basis upon which to show consistency with the Exchange 
Act.'' \37\ In the Guidance, the Commission Staff further states that, 
``[i]f an SRO seeks to support its claims that a proposed fee is fair 
and reasonable because it will permit recovery of the SRO's costs, or 
will not result in excessive pricing or supracompetitive profit, 
specific information, including quantitative information, should be 
provided to support that argument.'' \38\ The Exchange does not assert 
that the Proposed Access Fees are constrained by competitive forces. 
Rather, the Exchange asserts that the Proposed Access Fees are 
reasonable because they will permit recovery of the Exchange's costs in 
providing access via Trading Permits and will not result in the 
Exchange generating a supra-competitive profit.
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    \36\ See Guidance, supra note 34.
    \37\ Id.
    \38\ Id.
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    The Guidance defines ``supra-competitive profit'' as ``profits that 
exceed the profits that can be obtained in a competitive market.'' \39\ 
The Commission Staff further states in the Guidance that ``the SRO 
should provide an analysis of the SRO's baseline revenues, costs, and 
profitability (before the proposed fee change) and the SRO's expected 
revenues, costs, and profitability (following the proposed fee change) 
for the product or service in question.'' \40\ The Exchange provides 
this analysis below.
---------------------------------------------------------------------------

    \39\ Id.
    \40\ Id.
---------------------------------------------------------------------------

    Based on this analysis, the Exchange believes the Proposed Access 
Fees are reasonable and do not result in a ``supra-competitive'' \41\ 
profit. The Exchange believes that it is important to demonstrate that 
these fees are based on its costs and reasonable business needs. The 
Exchange believes the Proposed Access Fees will allow the Exchange to 
offset expense the Exchange has and will incur, and that the Exchange 
is providing sufficient transparency (as described below) into how the 
Exchange determined to charge such fees. Accordingly, the Exchange is 
providing an analysis of its revenues, costs, and profitability 
associated with the Proposed Access Fees. This analysis includes 
information regarding its methodology for determining the costs and 
revenues associated with the Proposed Access Fees. As a result of this 
analysis, the Exchange believes the Proposed Access Fees are fair and 
reasonable as a form of cost recovery plus present the possibility of a 
reasonable return for the Exchange's aggregate costs of offering 
Trading Permit access to the Exchange.
---------------------------------------------------------------------------

    \41\ Id.
---------------------------------------------------------------------------

    The Proposed Access Fees are based on a cost-plus model. In 
determining the appropriate fees to charge, the Exchange considered its 
costs to provide the services associated with Trading Permits, using 
what it believes to be a conservative methodology (i.e., that strictly 
considers only those costs that are most clearly directly related to 
the provision and maintenance of Trading Permits) to estimate such 
costs,\42\ as well as the relative costs of providing and maintaining 
Trading Permits, and set fees that are designed to cover its costs with 
a limited return in excess of such costs. However, as discussed more 
fully below, such fees may also result in the Exchange recouping less 
than all of its costs of providing and maintaining the services 
associated with Trading Permits because of the uncertainty of 
forecasting subscriber decision making with respect to firms' needs and 
the likely potential for increased costs to procure the third-party 
services described below.
---------------------------------------------------------------------------

    \42\ For example, the Exchange only included the costs 
associated with providing and supporting the access services 
associated with the Proposed Access Fees and excluded from its cost 
calculations any cost not directly associated with providing and 
maintaining such services. Thus, the Exchange notes that this 
methodology underestimates the total costs of providing and 
maintaining the access services associated with the Proposed Access 
Fees.
---------------------------------------------------------------------------

    To determine the Exchange's costs to provide the access services 
associated with the Proposed Access Fees, the Exchange conducted an 
extensive cost review in which the Exchange analyzed nearly every 
expense item in the Exchange's general expense ledger to determine 
whether each such expense relates to the Proposed Access Fees, and, if 
such expense did so relate, what portion (or percentage) of such 
expense actually supports the access services. The sum of all such 
portions of expenses represents the total cost of the Exchange to 
provide the access services associated with the Proposed Access Fees.
    The Exchange also provides detailed information regarding the 
Exchange's cost allocation methodology--namely, information that 
explains the Exchange's rationale for determining that it was 
reasonable to allocate certain expenses described in this filing

[[Page 10842]]

towards the cost to the Exchange to provide the access services 
associated with the Proposed Access Fees. The Exchange conducted a 
thorough internal analysis to determine the portion (or percentage) of 
each expense to allocate to the support of access services associated 
with the Proposed Access Fees. This analysis included discussions with 
each Exchange department head to determine the expenses that support 
access services associated with the Proposed Access Fees. This included 
numerous meetings between the Exchange's Chief Information Officer, 
Chief Financial Officer, Head of Strategic Planning and Operations, 
Chief Technology Officer, various members of the Legal Department, and 
other group leaders. The Exchange reviewed each individual expense to 
determine if such expense was related to the proposed fees. Once the 
expenses were identified, the Exchange department heads, with the 
assistance of the Exchange's internal finance department, reviewed such 
expenses holistically on an Exchange-wide level to determine what 
portion of that expense supports providing access services for the 
Proposed Access Fees. The sum of all such portions of expenses 
represents the total cost to the Exchange to provide access services 
associated with the Proposed Access Fees. For the avoidance of doubt, 
no expense amount was allocated twice.
    The internal cost analysis conducted by the Exchange is a 
proprietary process that is designed to make a fair and reasonable 
assessment of costs and resources allocated to support the provision of 
services associated with the proposed fees. The Exchange acknowledges 
that this assessment can only capture a moment in time and that costs 
and resource allocations may change. That is why the Exchange has 
historically, and on an ongoing basis, periodically revisits its costs 
and resource allocations to ensure it is appropriately allocating 
resources to properly provide services to the Exchange's constituents. 
Any requirement that an exchange should conduct a periodic re-
evaluation on a set timeline of its cost justification and amend its 
fees accordingly should be established by the Commission holistically, 
applied to all exchanges and not just pending fee proposals such as 
this filing. In order to be fairly applied, such a mandate should be 
applied to existing market data fees as well.
    In accordance with the Guidance, the Exchange has provided 
sufficient detail to support a finding that the proposed fees are 
consistent with the Exchange Act. The proposal includes a detailed 
description of the Exchange's costs and how the Exchange determined to 
allocate those costs related to the proposed fees. In fact, the detail 
and analysis provided in this proposed rule change far exceed the level 
of disclosure provided in other exchange fee filings that have not been 
suspended by the Commission during its 60-day suspension period. A 
Commission determination that it is unable to make a finding that this 
proposed rule change is consistent with the Exchange Act would run 
contrary to the Commission Staff's treatment of other recent exchange 
fee proposals that have not been suspended and remain in effect 
today.\43\ For example, a proposed fee filing that closely resembles 
the Exchange's current filing was submitted in 2020 by the Cboe 
Exchange, Inc. (``Cboe'') and increased fees for Cboe's 10Gb 
connections, an access fee.\44\ This filing was submitted on September 
2, 2020, nearly 15 months after the Staff's Guidance was issued. In 
that filing, the Cboe stated that the ``proposed changes were not 
designed with the objective to generate an overall increase in access 
fee revenue.'' \45\ This filing provided no cost based data to support 
its assertion that the proposal was intended to be revenue neutral. 
Among other things, Cboe did not provide a description of the costs 
underlying its provision of 10Gb connections to show that this 
particular fee did not generate a supra-competitive profit or describe 
how any potential profit may be offset by increased costs associated 
with another fee included in its proposal. This filing, nonetheless, 
was not suspended by the Commission and remains in effect today.
---------------------------------------------------------------------------

    \43\ See, e.g., Securities Exchange Act Release Nos. 93293 
(October 12, 2021), 86 FR 57716 (October 18, 2021) (SR-PHLX-2021-58) 
(increasing several market data fees and adopting new market data 
fee without providing a cost based justification); 91339 (March 17, 
2021), 86 FR 15524 (March 23, 2021) (SR-CboeBZX-2021-020) 
(increasing fees for a market data product while not providing a 
cost based justification for the increase); 93293 (October 21, 
2021), 86 FR 57716 (October 18, 2021) (SR-PHLX-2021-058) (increasing 
fees for historical market data while not providing a cost based 
justification for the increase); 92970 (September 14, 2021), 86 FR 
52261 (September 20, 2021) (SR-CboeBZX-2021-047) (adopting fees for 
a market data related product while not providing a cost based 
justification for the fees); and 89826 (September 10, 2021), 85 FR 
57900 (September 16, 2021) (SR-CBOE-2020-086) (increasing 
connectivity fees without including a cost based justification).
    \44\ See Securities Exchange Act Release No. 89826 (September 
10, 2020), 85 FR 57900 (September 16, 2020) (SR-CBOE-2020-086) 
(increasing connectivity fees without including a cost based 
justification).
    \45\ See id. at 57909.
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    The Exchange notes that the Investors Exchange, Inc. (``IEX'') 
recently submitted a proposed rule change to adopt fees for two real-
time proprietary market data feeds, TOPS and DEEP (``IEX Fee 
Proposal''). IEX previously provided its TOP and DEEP market data feeds 
for free and proposed to adopt modest, below market fees. The IEX Fee 
Proposal included a detailed subscriber data and cost-based analysis in 
compliance with the Guidance. Nonetheless, on December 30, 2021, the 
Commission suspended the IEX Fee Proposal and instituted proceedings to 
determine whether to approve or disapprove the IEX Fee Proposal.\46\
---------------------------------------------------------------------------

    \46\ See Securities Exchange Act Release No. 93883 (December 30, 
2021), 87 FR 523 (January 5, 2021) (SR-IEX-2021-14) (the ``IEX 
Order'').
---------------------------------------------------------------------------

    The Commission received three comment letters on the IEX Order.\47\ 
The Virtu Letter and HMA Letter 2 specifically applaud the amount of 
detail included in the IEX Fee Proposal. Specifically, the Virtu Letter 
states that ``[i]n significant detail, IEX provides data about three 
cost components: `(1) direct costs, such as servers, infrastructure, 
and monitoring; (2) enhancement initiative costs (e.g., new 
functionality for IEX Data and increased capacity for the proprietary 
market data feeds . . . ); and (3) personnel costs.' '' \48\ HMA Letter 
2 similarly commends the level of detail included in the IEX Fee 
Proposal and also highlights the disparate treatment by Commission 
Staff of exchange fee filings.\49\ HMA Letter 2 provides three examples 
to support this assertion.\50\ The Nasdaq Letter urges the

[[Page 10843]]

Commission to approve the IEX Fee Proposal promptly and raises concern 
the questions asked by the Commission in the IEX Order imply that they 
are exercising rate making authority that they clearly do not possess. 
The Nasdaq Letter states that ``[i]f the Commission believes it has 
authority to conduct cost-plus ratemaking, the Administrative Procedure 
Act dictates that it must propose a rule for notice and comment and 
that its final rule must be prepared to withstand judicial scrutiny.'' 
\51\ The Exchange agrees.
---------------------------------------------------------------------------

    \47\ See letters to Ms. Venessa A. Countryman, Secretary, 
Commission, from Douglas A. Cifu, Chief Executive Officer, Virtu 
Financial, Inc., dated January 26, 2022 (the ``Virtu Letter''), 
Tyler Gellasch, Executive Director, Healthy Markets Association 
(``HMA''), dated January 26, 2022 (the ``HMA Letter 2''), and Erika 
Moore, Vice President and Corporate Secretary, The Nasdaq Stock 
Market LLC, dated January 27, 2022 (the ``Nasdaq Letter'').
    \48\ See Virtu Letter at page 3, id.
    \49\ HMA previously expressed their ``worry that the 
Commission's process for reviewing and evaluating exchange filings 
may be inconsistently applied.'' See letter from Tyler Gellasch, 
Executive Director, HMA, to Hon. Gary Gensler, Chair, Commission, 
dated October 29, 2021 (commenting on SR-CboeEDGA-2021-017, SR-
CboeBYX-2021-020, SR-Cboe-BZX-2021-047, SR-CboeEDGX-2021-030, SR-
MIAX-2021-41, SR-PEARL-2021-45, and SR-EMERALD-2021-29 and stating 
that ``MIAX has repeatedly filed to change its connectivity fees in 
a way that will materially lower costs for many users, while 
increasing the costs for some of its heaviest of users. These 
filings have been withdrawn and repeatedly refiled. Each time, 
however, the filings contain significantly greater information about 
who is impacted and how than other filings that have been permitted 
to take effect without suspension'') (emphasis added) (``HMA Letter 
1'').
    \50\ See HMA Letter 2 at 2-3. The Exchange has provided further 
examples to support HMA's assertion above. See supra note 39 and 
accompanying text.
    \51\ See Nasdaq Letter at page 13, id.
---------------------------------------------------------------------------

    The Exchange believes exchanges, like all businesses, should be 
provided flexibility when allocating costs and resources they deem 
necessary to operate their business, including providing market data 
and access services. The Exchange notes that costs and resource 
allocations may vary from business to business and, likewise, costs and 
resource allocations may differ from exchange to exchange when it comes 
to providing market data and access services. It is a business decision 
that must be evaluated by each exchange as to how to allocate internal 
resources and what costs to incur internally or via third parties that 
it may deem necessary to support its business and its provision of 
market data and access services to market participants. An exchange's 
costs may also vary based on fees charged by third parties and periodic 
increases to those fees that may be outside of the control of an 
exchange.
    To determine the Exchange's projected revenues associated with the 
Proposed Access Fees in the instant filing, the Exchange analyzed the 
number of Members currently utilizing Trading Permits, and, utilizing a 
recent monthly billing cycle representative of 2021 monthly revenue, 
extrapolated annualized revenue on a going-forward basis. The Exchange 
does not believe it is appropriate to factor into its analysis 
projected or estimated future revenue growth or decline for purposes of 
these calculations, given the uncertainty of such projections due to 
the continually changing access needs of market participants and 
potential increase in internal and third party expenses. The Exchange 
is presenting its revenue and expense associated with the Proposed 
Access Fees in this filing in a manner that is consistent with how the 
Exchange presents its revenue and expense in its Audited Unconsolidated 
Financial Statements. The Exchange's most recent Audited Unconsolidated 
Financial Statement is for 2020. However, since the revenue and expense 
associated with the Proposed Access Fees were not in place in 2020 or 
for the majority of 2021, the Exchange believes its 2020 Audited 
Unconsolidated Financial Statement is not representative of its current 
total annualized revenue and costs associated with the Proposed Access 
Fees. Accordingly, the Exchange believes it is more appropriate to 
analyze the Proposed Access Fees utilizing its 2021 revenue and costs, 
as described herein, which utilize the same presentation methodology as 
set forth in the Exchange's previously-issued Audited Unconsolidated 
Financial Statements. Based on this analysis, the Exchange believes 
that the Proposed Access Fees are fair and reasonable because they will 
not result in excessive pricing or supra-competitive profit when 
comparing the Exchange's total annual expense associated with providing 
the services associated with the Proposed Access Fees versus the total 
projected annual revenue the Exchange will collect for providing those 
services. The Exchange notes that this is the same justification 
process utilized by the Exchange's affiliate, MIAX Emerald, in a filing 
recently noticed and not suspended by the Commission when MIAX Emerald 
adopted trading permit fees.\52\
---------------------------------------------------------------------------

    \52\ See Securities Exchange Act Release No. 91033 (February 1, 
2021), 86 FR 8455 (February 5, 2021) (SR-EMERALD-2021-03) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fee Schedule To Adopt Monthly Trading Permit Fees) 
(adopting tiered trading permit fee structure for Market Makers 
ranging from $7,000 to $22,000 per month and flat fee of $1,500 per 
month for EEMs).
---------------------------------------------------------------------------

    As outlined in more detail below, the Exchange projects that the 
final annualized expense for 2021 to provide the services associated 
with Trading Permits to be approximately $844,741 per annum or an 
average of $70,395 per month. The Exchange implemented the Proposed 
Access Fees on July 1, 2021 in the First Proposed Rule Change. For June 
2021, prior to the Proposed Access Fees, Members and non-Members 
purchased a total of 48 Trading Permits, for which the Exchange charged 
a total of $15,500. This resulted in a loss of $54,895 for that month 
(a margin of -354%). For the month of November 2021, which includes the 
Proposed Access Fees, Members and non-Members purchased a total of 47 
Trading Permits,\53\ for which the Exchange charged a total of 
approximately $93,500 for that month. This resulted in a profit of 
$23,105 for that month, representing a profit margin of approximately 
24%. The Exchange believes that the Proposed Access Fees are reasonable 
because they are designed to approximately generate a modest profit 
margin of 24% per-month.\54\ The Exchange cautions that this profit 
margin is likely to fluctuate from month to month based on the 
uncertainty of predicting how many Trading Permits may be purchased 
from month to month as Members and non-Members are able to add and drop 
permits at any time based on their own business decisions, which they 
frequently do. This profit margin may also decrease due to the 
significant inflationary pressure on capital items that the Exchange 
needs to purchase to maintain the Exchange's technology and 
systems.\55\ The Exchange has been subject to price increases upwards 
of 30% during the past year on network equipment due to supply chain 
shortages. This, in turn, results in higher overall costs for ongoing 
system maintenance, but also to purchase the items necessary to ensure 
ongoing system resiliency, performance, and determinism. These costs 
are expected to continue to go up as the U.S. economy continues to 
struggle with supply chain and inflation related issues.
---------------------------------------------------------------------------

    \53\ The Exchange notes that one Member dropped one Trading 
Permit between June 2021 and November 2021, as a result of the 
Proposed Access Fees.
    \54\ The Exchange notes that this profit margin differs from the 
First and Second Proposed Rule Changes because the Exchange now has 
the benefit of using a more recent billing cycle under the Proposed 
Access Fees (November 2021) and comparing it to a baseline month 
(June 2021) from before the Proposed Access Fees were in effect.
    \55\ See ``Supply chain chaos is already hitting global growth. 
And it's about to get worse'', by Holly Ellyatt, CNBC, available at 
https://www.cnbc.com/2021/10/18/supply-chain-chaos-is-hitting-global-growth-and-could-get-worse.html (October 18, 2021); and 
``There will be things that people can't get, at Christmas, White 
House warns'' by Jarrett Renshaw and Trevor Hunnicutt, Reuters, 
available at https://www.reuters.com/world/us/americans-may-not-get-some-christmas-treats-white-house-officials-warn-2021-10-12/ 
(October 12, 2021).
---------------------------------------------------------------------------

    As mentioned above, the Exchange projects that the final annualized 
expense for 2021 to provide the services associated with the Proposed 
Access Fees to be approximately $844,741 per annum or an average of 
$70,395 per month and that these costs are expected to increase not 
only due to anticipated significant inflationary pressure, but also 
periodic fee increases by third parties.\56\ The Exchange notes that 
there

[[Page 10844]]

are material costs associated with providing the infrastructure and 
headcount to fully-support access to the Exchange. The Exchange incurs 
technology expense related to establishing and maintaining Information 
Security services, enhanced network monitoring and customer reporting, 
as well as Regulation SCI mandated processes, associated with its 
network technology. While some of the expense is fixed, much of the 
expense is not fixed, and thus increases the cost to the Exchange to 
provide access services associated with the Proposed Access Fees. For 
example, new Members to the Exchange may require the purchase of 
additional hardware to support those Members as well as enhanced 
monitoring and reporting of customer performance that the Exchange and 
its affiliates provide. Further, as the total number of Members 
increases, the Exchange and its affiliates may need to increase their 
data center footprint and consume more power, resulting in increased 
costs charged by their third-party data center provider. Accordingly, 
the cost to the Exchange and its affiliates to provide access to its 
Members is not fixed and indeed is likely to increase rather than 
decrease over time. The Exchange believes the Proposed Access Fees are 
a reasonable attempt to offset a portion of the costs to the Exchange 
associated with providing access to its network infrastructure.
---------------------------------------------------------------------------

    \56\ For example, on October 20, 2021, ICE Data Services 
announced a 3.5% price increase effective January 1, 2022 for most 
services. The price increase by ICE Data Services includes their 
SFTI network, which is relied on by a majority of market 
participants, including the Exchange. See email from ICE Data 
Services to the Exchange, dated October 20, 2021. The Exchange 
further notes that on October 22, 2019, the Exchange was notified by 
ICE Data Services that it was raising its fees charged to the 
Exchange by approximately 11% for the SFTI network.
---------------------------------------------------------------------------

    The Exchange only has four primary sources of revenue and cost 
recovery mechanisms to fund all of its operations: Transaction fees, 
access fees (which includes the Proposed Access Fees), regulatory fees, 
and market data fees. Accordingly, the Exchange must cover all of its 
expenses from these four primary sources of revenue and cost recovery 
mechanisms. Until recently, the Exchange has operated at a cumulative 
net annual loss since it launched operations in 2017.\57\ This is a 
result of providing a low cost alternative to attract order flow and 
encourage market participants to experience the high determinism and 
resiliency of the Exchange's trading systems. To do so, the Exchange 
chose to waive the fees for some non-transaction related services or 
provide them at a very marginal cost, which was not profitable to the 
Exchange. This resulted in the Exchange forgoing revenue it could have 
generated from assessing higher fees.
---------------------------------------------------------------------------

    \57\ The Exchange has incurred a cumulative loss of $86 million 
since its inception in 2017 to 2020, the last year for which the 
Exchange's Form 1 data is available. See Exchange's Form 1/A, 
Application for Registration or Exemption from Registration as a 
National Securities Exchange, filed July 28, 2021, available at 
https://www.sec.gov/Archives/edgar/vprr/2100/21000461.pdf.
---------------------------------------------------------------------------

    The Exchange believes that the Proposed Access Fees are fair and 
reasonable because they will not result in excessive pricing or supra-
competitive profit, when comparing the total annual expense that the 
Exchange projects to incur in connection with providing these access 
services versus the total annual revenue that the Exchange projects to 
collect in connection with services associated with the Proposed Access 
Fees. For 2021,\58\ the total annual expense for providing the access 
services associated with the Proposed Access Fees for the Exchange is 
projected to be approximately $844,741 or an average of $70,395 per 
month. The $844,741 in projected total annual expense is comprised of 
the following, all of which are directly related to the access services 
associated with the Proposed Access Fees: (1) Third-party expense, 
relating to fees paid by the Exchange to third-parties for certain 
products and services; and (2) internal expense, relating to the 
internal costs of the Exchange to provide the services associated with 
the Proposed Access Fees.\59\ As noted above, the Exchange believes it 
is more appropriate to analyze the Proposed Access Fees utilizing its 
2021 revenue and costs, which utilize the same presentation methodology 
as set forth in the Exchange's previously-issued Audited Unconsolidated 
Financial Statements.\60\ The $844,741 in projected total annual 
expense is directly related to the access services associated with the 
Proposed Access Fees, and not any other product or service offered by 
the Exchange. It does not include general costs of operating matching 
systems and other trading technology, and no expense amount was 
allocated twice.
---------------------------------------------------------------------------

    \58\ The Exchange has not yet finalized its 2021 year end 
results.
    \59\ The percentage allocations used in this proposed rule 
change may differ from past filings from the Exchange or its 
affiliates due to, among other things, changes in expenses charged 
by third-parties, adjustments to internal resource allocations, and 
different system architecture of the Exchange as compared to its 
affiliates.
    \60\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the 
information technology and communication costs line item under the 
section titled ``Operating Expenses Incurred Directly or Allocated 
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing 
its financial statements for 2018. See Securities Exchange Act 
Release No. 87876 (December 31, 2019), 85 FR 757 (January 7, 2020) 
(SR-PEARL-2019-36). Accordingly, the third-party expense described 
in this filing is attributed to the same line item for the 
Exchange's 2021 Form 1 Amendment, which will be filed in 2022.
---------------------------------------------------------------------------

    As discussed, the Exchange conducted an extensive cost review in 
which the Exchange analyzed nearly every expense item in the Exchange's 
general expense ledger (this includes over 150 separate and distinct 
expense items) to determine whether each such expense relates to the 
access services associated with the Proposed Access Fees, and, if such 
expense did so relate, what portion (or percentage) of such expense 
actually supports those services, and thus bears a relationship that 
is, ``in nature and closeness,'' directly related to those services. In 
performing this calculation, the Exchange considered other services and 
to which the expense may be applied and how much of the expense is 
directly or indirectly utilized in providing those other services. The 
sum of all such portions of expenses represents the total cost of the 
Exchange to provide access services associated with the Proposed Access 
Fees.
External Expense Allocations
    For 2021, total third-party expense, relating to fees paid by the 
Exchange to third-parties for certain products and services for the 
Exchange to be able to provide the access services associated with the 
Proposed Access Fees, is projected to be $188,815. This includes, but 
is not limited to, a portion of the fees paid to: (1) Equinix, for data 
center services, for the primary, secondary, and disaster recovery 
locations of the Exchange's trading system infrastructure; (2) Zayo 
Group Holdings, Inc. (``Zayo'') for network services (fiber and 
bandwidth products and services) linking the Exchange's office 
locations in Princeton, New Jersey and Miami, Florida, to all data 
center locations; (3) Secure Financial Transaction Infrastructure 
(``SFTI''),\61\ which

[[Page 10845]]

supports connectivity and feeds for the entire U.S. options industry; 
(4) various other services providers (including Thompson Reuters, NYSE, 
Nasdaq, and Internap), which provide content, connectivity services, 
and infrastructure services for critical components of options 
connectivity and network services; and (5) various other hardware and 
software providers (including Dell and Cisco, which support the 
production environment in which Members connect to the network to 
trade, receive market data, etc.).
---------------------------------------------------------------------------

    \61\ In fact, on October 20, 2021, ICE Data Services announced a 
3.5% price increase effective January 1, 2022 for most services. The 
price increase by ICE Data Services includes their SFTI network, 
which is relied on by a majority of market participants, including 
the Exchange. See email from ICE Data Services to the Exchange, 
dated October 20, 2021. This fee increase by ICE data services, 
while not subject to Commission review, has a material impact on 
costs to exchanges and other market participants that provide 
downstream access to other market participants. The Exchange notes 
that on October 22, 2019, the Exchange was notified by ICE Data 
Services that it was raising its fees charged to the Exchange by 
approximately 11% for the SFTI network, without having to show that 
such fee change complies with the Act by being reasonable, equitably 
allocated, and not unfairly discriminatory. It is unfathomable to 
the Exchange that, given the critical nature of the infrastructure 
services provided by SFTI, that its fees are not required to be 
rule-filed with the Commission pursuant to Section 19(b)(1) of the 
Act and Rule 19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 
240.19b-4, respectively.
---------------------------------------------------------------------------

    For clarity, the Exchange took a conservative approach in 
determining the expense and the percentage of that expense to be 
allocated to the providing access services in connection with the 
Proposed Access Fees. Only a portion of all fees paid to such third-
parties is included in the third-party expense herein, and no expense 
amount is allocated twice. Accordingly, the Exchange does not allocate 
its entire information technology and communication costs to the access 
services associated with the Proposed Access Fees. This may result in 
the Exchange under allocating an expense to the provision of access 
services in connection with the Proposed Access Fees and such expenses 
may actually be higher or increase above what the Exchange utilizes 
within this proposal. Further, the Exchange notes that, with respect to 
the MIAX Pearl expenses included herein, those expenses only cover the 
MIAX Pearl options market; expenses associated with the MIAX Pearl 
equities market are accounted for separately and are not included 
within the scope of this filing. As noted above, the percentage 
allocations used in this proposed rule change may differ from past 
filings from the Exchange or its affiliates due to, among other things, 
changes in expenses charged by third-parties, adjustments to internal 
resource allocations, and different system architecture of the Exchange 
as compared to its affiliates. Further, as part its ongoing assessment 
of costs and expenses, the Exchange recently conducted a periodic 
thorough review of its expenses and resource allocations which, in 
turn, resulted in a revised percentage allocations in this filing. 
Therefore, the percentage allocations used in this proposed rule change 
may differ from past filings from the Exchange or its affiliates due 
to, among other things, changes in expenses charged by third-parties, 
adjustments to internal resource allocations, and different system 
architecture of the Exchange as compared to its affiliates.
    The Exchange believes it is reasonable to allocate such third-party 
expense described above towards the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
In particular, the Exchange believes it is reasonable to allocate the 
identified portion of the Equinix expense because Equinix operates the 
data centers (primary, secondary, and disaster recovery) that host the 
Exchange's network infrastructure. This includes, among other things, 
the necessary storage space, which continues to expand and increase in 
cost, power to operate the network infrastructure, and cooling 
apparatuses to ensure the Exchange's network infrastructure maintains 
stability. Without these services from Equinix, the Exchange would not 
be able to operate and support the network and provide the access 
services associated with the Proposed Access Fees to its Members and 
their customers. The Exchange did not allocate all of the Equinix 
expense toward the cost of providing the access services associated 
with the Proposed Access Fees, only that portion which the Exchange 
identified as being specifically mapped to providing the access 
services associated with the Proposed Access Fees. According to the 
Exchange's calculations, it allocated approximately 8% of the total 
applicable Equinix expense to providing the services associated with 
the proposed fees. The Exchange believes this allocation is reasonable 
because it represents the Exchange's actual cost to provide the access 
services associated with the Proposed Access Fees, and not any other 
service, as supported by its cost review.\62\
---------------------------------------------------------------------------

    \62\ As noted above, the percentage allocations used in this 
proposed rule change may differ from past filings from the Exchange 
or its affiliates due to, among other things, changes in expenses 
charged by third-parties, adjustments to internal resource 
allocations, and different system architecture of the Exchange as 
compared to its affiliates. Again, as part its ongoing assessment of 
costs and expenses, the Exchange recently conducted a periodic 
thorough review of its expenses and resource allocations which, in 
turn, resulted in a revised percentage allocations in this filing.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified 
portion of the Zayo expense because Zayo provides the internet, fiber 
and bandwidth connections with respect to the network, linking the 
Exchange with its affiliates, MIAX and MIAX Emerald, as well as the 
data center and disaster recovery locations. As such, all of the trade 
data, including the billions of messages each day per exchange, flow 
through Zayo's infrastructure over the Exchange's network. Without 
these services from Zayo, the Exchange would not be able to operate and 
support the network and provide the access services associated with the 
Proposed Access Fees. The Exchange did not allocate all of the Zayo 
expense toward the cost of providing the access services associated 
with the Proposed Access Fees, only the portion which the Exchange 
identified as being specifically mapped to providing the Proposed 
Access Fees. According to the Exchange's calculations, it allocated 
approximately 4% of the total applicable Zayo expense to providing the 
services associated with the proposed fees. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees, and not any other service, as supported by its cost review.\63\
---------------------------------------------------------------------------

    \63\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified 
portions of the SFTI expense and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense 
because those entities provide connectivity and feeds for the entire 
U.S. options industry, as well as the content, connectivity services, 
and infrastructure services for critical components of the network. 
Without these services from SFTI and various other service providers, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and their customers. The Exchange did not 
allocate all of the SFTI and other service providers' expense toward 
the cost of providing the access services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the access services associated with 
the Proposed Access Fees. According to the Exchange's calculations, it 
allocated approximately 3% of the total applicable SFTI and other 
service providers' expense to providing the services associated with 
the proposed fees. The Exchange believes this allocation is reasonable 
because it represents the Exchange's actual cost to provide the access 
services associated with the Proposed Access Fees.\64\
---------------------------------------------------------------------------

    \64\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified 
portion of the other hardware and software provider expense because 
this includes costs for dedicated hardware licenses for switches and 
servers, as well as dedicated software licenses for security

[[Page 10846]]

monitoring and reporting across the network. Without this hardware and 
software, the Exchange would not be able to operate and support the 
network and provide access to its Members and their customers. The 
Exchange did not allocate all of the hardware and software provider 
expense toward the cost of providing the access services associated 
with the Proposed Access Fees, only the portions which the Exchange 
identified as being specifically mapped to providing the access 
services associated with the Proposed Access Fees. According to the 
Exchange's calculations, it allocated approximately 5% of the total 
applicable hardware and software provider expense to providing the 
services associated with the proposed fees. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees.\65\
---------------------------------------------------------------------------

    \65\ Id.
---------------------------------------------------------------------------

Internal Expense Allocations
    For 2021, total projected internal expenses relating to the 
Exchange providing the access services associated with the Proposed 
Access Fees, is projected to be $655,925. This includes, but is not 
limited to, costs associated with: (1) Employee compensation and 
benefits for full-time employees that support the access services 
associated with the Proposed Access Fees, including staff in network 
operations, trading operations, development, system operations, 
business, as well as staff in general corporate departments (such as 
legal, regulatory, and finance) that support those employees and 
functions; (2) depreciation and amortization of hardware and software 
used to provide the access services associated with the Proposed Access 
Fees, including equipment, servers, cabling, purchased software and 
internally developed software used in the production environment to 
support the network for trading; and (3) occupancy costs for leased 
office space for staff that provide the access services associated with 
the Proposed Access Fees. The breakdown of these costs is more fully-
described below.
    For clarity, and as stated above, the Exchange took a conservative 
approach in determining the expense and the percentage of that expense 
to be allocated to providing the access services in connection with the 
Proposed Access Fees. Only a portion of all such internal expenses are 
included in the internal expense herein, and no expense amount is 
allocated twice. Accordingly, the Exchange does not allocate its entire 
costs contained in those items to the access services associated with 
the Proposed Access Fees. This may result in the Exchange under 
allocating an expense to the provision of access services in connection 
with the Proposed Access Fees and such expenses may actually be higher 
or increase above what the Exchange utilizes within this proposal. 
Further, as part its ongoing assessment of costs and expenses 
(described above), the Exchange recently conducted a periodic thorough 
review of its expenses and resource allocations which, in turn, 
resulted in a revised percentage allocations in this filing.
    The Exchange believes it is reasonable to allocate such internal 
expense described above towards the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
In particular, the Exchange's employee compensation and benefits 
expense relating to providing the access services associated with the 
Proposed Access Fees is projected to be $549,834, which is only a 
portion of the $9,163,894 total projected expense for employee 
compensation and benefits. The Exchange believes it is reasonable to 
allocate the identified portion of such expense because this includes 
the time spent by employees of several departments, including 
Technology, Back Office, Systems Operations, Networking, Business 
Strategy Development (who create the business requirement documents 
that the Technology staff use to develop network features and 
enhancements), Trade Operations, Finance (who provide billing and 
accounting services relating to the network), and Legal (who provide 
legal services relating to the network, such as rule filings and 
various license agreements and other contracts). As part of the 
extensive cost review conducted by the Exchange, the Exchange reviewed 
the amount of time spent by each employee on matters relating to the 
provision of access services associated with the Proposed Access Fees. 
Without these employees, the Exchange would not be able to provide the 
access services associated with the Proposed Access Fees to its Members 
and their customers. The Exchange did not allocate all of the employee 
compensation and benefits expense toward the cost of the access 
services associated with the Proposed Access Fees, only the portions 
which the Exchange identified as being specifically mapped to providing 
the access services associated with the Proposed Access Fees. According 
to the Exchange's calculations, it allocated approximately 6% of the 
total applicable employee compensation and benefits expense to 
providing the services associated with the proposed fees. The Exchange 
believes this allocation is reasonable because it represents the 
Exchange's actual cost to provide the access services associated with 
the Proposed Access Fees, and not any other service, as supported by 
its cost review.\66\
---------------------------------------------------------------------------

    \66\ Id.
---------------------------------------------------------------------------

    The Exchange's depreciation and amortization expense relating to 
providing the access services associated with the Proposed Access Fees 
is projected to be $66,316, which is only a portion of the $1,326,325 
total projected expense for depreciation and amortization. The Exchange 
believes it is reasonable to allocate the identified portion of such 
expense because such expense includes the actual cost of the computer 
equipment, such as dedicated servers, computers, laptops, monitors, 
information security appliances and storage, and network switching 
infrastructure equipment, including switches and taps that were 
purchased to operate and support the network and provide the access 
services associated with the Proposed Access Fees. Without this 
equipment, the Exchange would not be able to operate the network and 
provide the access services associated with the Proposed Access Fees to 
its Members and their customers. The Exchange did not allocate all of 
the depreciation and amortization expense toward the cost of providing 
the access services associated with the Proposed Access Fees, only the 
portion which the Exchange identified as being specifically mapped to 
providing the access services associated with the Proposed Access Fees. 
According to the Exchange's calculations, it allocated approximately 5% 
of the total applicable depreciation and amortization expense to 
providing the services associated with the proposed fees, as these 
access services would not be possible without relying on such. The 
Exchange believes this allocation is reasonable because it represents 
the Exchange's actual cost to provide the access services associated 
with the Proposed Access Fees, and not any other service, as supported 
by its cost review.\67\
---------------------------------------------------------------------------

    \67\ Id.
---------------------------------------------------------------------------

    The Exchange's occupancy expense relating to providing the access 
services associated with the Proposed Access Fees is projected to be 
$39,775, which is only a portion of the $497,180 total projected 
expense for occupancy. The Exchange believes it is reasonable to

[[Page 10847]]

allocate the identified portion of such expense because such expense 
represents the portion of the Exchange's cost to rent and maintain a 
physical location for the Exchange's staff who operate and support the 
network, including providing the access services associated with the 
Proposed Access Fees. This amount consists primarily of rent for the 
Exchange's Princeton, New Jersey office, as well as various related 
costs, such as physical security, property management fees, property 
taxes, and utilities. The Exchange operates its Network Operations 
Center (``NOC'') and Security Operations Center (``SOC'') from its 
Princeton, New Jersey office location. A centralized office space is 
required to house the staff that operates and supports the network. The 
Exchange currently has approximately 200 employees. Approximately two-
thirds of the Exchange's staff are in the Technology department, and 
the majority of those staff have some role in the operation and 
performance of the access services associated with the proposed Trading 
Permit fees. Without this office space, the Exchange would not be able 
to operate and support the network and provide the access services 
associated with the Proposed Access Fees to its Members and their 
customers. Accordingly, the Exchange believes it is reasonable to 
allocate the identified portion of its occupancy expense because such 
amount represents the Exchange's actual cost to house the equipment and 
personnel who operate and support the Exchange's network infrastructure 
and the access services associated with the Proposed Access Fees. The 
Exchange did not allocate all of the occupancy expense toward the cost 
of providing the access services associated with the Proposed Access 
Fees, only the portion which the Exchange identified as being 
specifically mapped to operating and supporting the network. According 
to the Exchange's calculations, it allocated approximately 8% of the 
total applicable occupancy expense to providing the services associated 
with the proposed fees. The Exchange believes this allocation is 
reasonable because it represents the Exchange's cost to provide the 
access services associated with the Proposed Access Fees, and not any 
other service, as supported by its cost review.\68\
---------------------------------------------------------------------------

    \68\ Id.
---------------------------------------------------------------------------

    The Exchange notes that a material portion of its total overall 
expense is allocated to the provision of access services (including 
connectivity, ports, and trading permits). The Exchange believes this 
is reasonable and in line, as the Exchange operates a technology-based 
business that differentiates itself from its competitors based on its 
trading systems that rely on access to a high performance network, 
resulting in significant technology expense. Over two-thirds of 
Exchange staff are technology-related employees. The majority of the 
Exchange's expense is technology-based. As described above, the 
Exchange has only four primary sources of fees to recover its costs, 
thus the Exchange believes it is reasonable to allocate a material 
portion of its total overall expense towards access fees.
    Based on the above, the Exchange believes that its provision of 
access services associated with the Proposed Access Fees will not 
result in excessive pricing or supra-competitive profit. As described 
above, the Exchange projects that the annualized expense for 2021 to 
provide the services associated with Trading Permit to be approximately 
$844,741 per annum or an average of $70,395 per month. The Exchange 
implemented the Proposed Access Fees on July 1, 2021 in the First 
Proposed Rule Change. For June 2021, prior to the Proposed Access Fees, 
Members and non-Members purchased a total of 48 Trading Permits, for 
which the Exchange charged a total of $15,500. This resulted in a loss 
of $54,895 for that month (a margin of -354%). For the month of 
November 2021, which includes the Proposed Access Fees, Members and 
non-Members purchased a total of 47 Trading Permits,\69\ for which the 
Exchange charged a total of approximately $93,500 for that month. This 
resulted in a profit of $23,105 for that month, representing a profit 
margin of approximately 24%. The Exchange believes that the Proposed 
Access Fees are reasonable because they are designed to approximately 
generate a modest profit margin of 24% per-month. The Exchange believes 
this modest profit margin will allow it to continue to recoup its 
expenses and continue to invest in its technology infrastructure. 
Therefore, the Exchange also believes that this proposed profit margin 
increase is reasonable because it represents a reasonable rate of 
return.
---------------------------------------------------------------------------

    \69\ The Exchange notes that one Member dropped one Trading 
Permit between June 2021 and November 2021, as a result of the 
Proposed Access Fees.
---------------------------------------------------------------------------

    Again, the Exchange cautions that this profit margin is likely to 
fluctuate from month to month based in the uncertainty of predicting 
how many Trading Permits may be purchased from month to month as 
Members and non-Members are free to add and drop permits at any time 
based on their own business decisions. Notwithstanding that the revenue 
(and profit margin) may vary from month to month due to changes in the 
number of Trading Permits utilized and volume conducted on the 
Exchange, as well as changes to the Exchange's expenses, the number of 
Trading Permits utilized has not materially changed over previous 
months. Consequently, the Exchange believes that the months it has used 
as a baseline to perform its assessment are representative of 
reasonably anticipated costs and expenses. This profit margin may also 
decrease due to the significant inflationary pressure on capital items 
that it needs to purchase to maintain the Exchange's technology and 
systems.\70\ Accordingly, the Exchange believes its total projected 
revenue for providing the access services associated with the Proposed 
Access Fees will not result in excessive pricing or supra-competitive 
profit.
---------------------------------------------------------------------------

    \70\ See supra note 55.
---------------------------------------------------------------------------

    The Exchange believes that conducting the above analysis on a per 
month basis is reasonable as the revenue generated from access services 
subject to the proposed fee generally remains static from month to 
month. The Exchange also conducted the above analysis on a per month 
basis to comply with the Guidance which requires a baseline analysis to 
assist in determining whether the proposal generates a supra-
competitive profit. This monthly analysis was also provided in response 
to comment received on prior submissions of this proposed rule change.
    The Exchange reiterates that it only has four primary sources of 
revenue and cost recovery mechanisms: Transaction fees, access fees, 
regulatory fees, and market data fees. Accordingly, the Exchange must 
cover all of its expenses from these four primary sources of revenue 
and cost recovery mechanisms. As a result, each of these fees cannot be 
``flat'' and cover only the expenses directly related to the fee that 
is charged. The above revenue and associated profit margin therefore 
are not solely intended to cover the costs associated with providing 
services subject to the proposed fees.
    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to allocate the respective percentages of each expense 
category described above towards the total cost to the Exchange of 
operating and supporting the network, including providing the access 
services associated with the Proposed Access Fees because the Exchange 
performed a line-by-line

[[Page 10848]]

item analysis of nearly every expense of the Exchange, and has 
determined the expenses that directly relate to providing access to the 
Exchange. Further, the Exchange notes that, without the specific third-
party and internal items listed above, the Exchange would not be able 
to provide the access services associated with the Proposed Access Fees 
to its Members and their customers. Each of these expense items, 
including physical hardware, software, employee compensation and 
benefits, occupancy costs, and the depreciation and amortization of 
equipment, have been identified through a line-by-line item analysis to 
be integral to providing access services. The Proposed Access Fees are 
intended to recover the Exchange's costs of providing access to 
Exchange Systems. Accordingly, the Exchange believes that the Proposed 
Access Fees are fair and reasonable because they do not result in 
excessive pricing or supra-competitive profit, when comparing the 
actual costs to the Exchange versus the projected annual revenue from 
the Proposed Access Fees.
The Proposed Tiered-Pricing Structure Is Not Unfairly Discriminatory 
and Provides for the Equitable Allocation of Fees, Dues, and Other 
Charges
    The Exchange believes the proposed tiered-pricing structure is 
reasonable, fair, equitable, and not unfairly discriminatory because it 
is the model adopted by the Exchange when it launched operations for 
its Trading Permit fees. Moreover, the tiered pricing structure for 
Trading Permits is not a new proposal and has been in place since 2018, 
well prior to the filing of the First Proposed Rule Change. The 
proposed tiers of Trading Permit fees will continue to apply to all 
Members and non-Members in the same manner based upon the monthly total 
volume executed by a Member and its Affiliates on the Exchange across 
all origin types, not including Excluded Contracts, as compared to the 
TCV in all MIAX Pearl-listed options. Members and non-Members may 
choose to purchase more than the one Trading Permit based on their own 
business decisions and needs. All similarly situated Members and non-
Members would be subject to the same fees. The fees do not depend on 
any distinction between Members and non-Members because they are solely 
determined by the individual Members' or non-Members' business needs 
and their impact on Exchange resources.
    The proposed tiered-pricing structure is not unfairly 
discriminatory and provides for the equitable allocation of fees, dues, 
and other charges because it is designed to encourage Members and non-
Members to be more efficient and economical when determining how to 
access the Exchange and the amount of the fees are based on the number 
of Trading Permits utilized using the FIX and MEO Interfaces, in 
addition to the amount of volume conducted on the Exchange. The 
proposed tiered pricing structure should also enable the Exchange to 
better monitor and provide access to the Exchange's network to ensure 
sufficient capacity and headroom in the System.
    The proposed tiered-pricing structure is not unfairly 
discriminatory and provides for the equitable allocation of fees, dues, 
and other charges because the amount of the fee is directly related to 
the Member or non-Member's TCV resulting in higher fees for greater 
TCV. The higher the volume, the greater pull on Exchange resources. The 
Exchange's high performance network solutions and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput and the capacity to handle approximately 10.7 million 
order messages per second. On an average day, the Exchange handles over 
approximately 2.7 billion total messages. However, in order to achieve 
a consistent, premium network performance, the Exchange must build out 
and maintain a network that has the capacity to handle the message rate 
requirements of its most heavy network consumers. These billions of 
messages per day consume the Exchange's resources and significantly 
contribute to the overall expense for storage and network transport 
capabilities.\71\
---------------------------------------------------------------------------

    \71\ Over the period from April 2021 until September 2021, the 
Exchange processed 3.15 billion messages via the FIX interface 
(0.43% of total messages received). Over that same time period, the 
Exchange processed 731.4 billion messages (99.57% of total messages 
received) over the MEO interface. This marked difference between the 
number of FIX and MEO messages processed, when mapped to servers, 
software, storage, and networking results in a much higher 
allocation of total capital and operational expense to support the 
MEO interface. For one, the Exchange incurs greater expense in 
maintaining the resilience of the MEO interface to ensure its 
ongoing operation in accordance with Regulation SCI. Another, the 
Exchange must purchase and expand its storage capacity to retain 
these increased messages in compliance with its record keeping 
obligations. The Exchange has also seen significant inflationary 
pressure on capital items that it needs to purchase to maintain its 
technology. The Exchange has seen pricing increases upwards of 30% 
on network equipment due to supply chain shortages.
---------------------------------------------------------------------------

    There are material costs associated with providing the 
infrastructure and headcount to fully-support access to the Exchange. 
The Exchange incurs technology expense related to establishing and 
maintaining Information Security services, enhanced network monitoring 
and customer reporting, as well as Regulation SCI mandated processes, 
associated with its network technology. While some of the expense is 
fixed, much of the expense is not fixed, and thus increases as the 
services associated with the Proposed Access Fees increase. For 
example, new Members to the Exchange may require the purchase of 
additional hardware to support those Members as well as enhanced 
monitoring and reporting of customer performance that the Exchange and 
its affiliates provide. Further, as the total number of Members 
increases, the Exchange and its affiliates may need to increase their 
data center footprint and consume more power, resulting in increased 
costs charged by their third-party data center provider. Accordingly, 
the cost to the Exchange and its affiliates to provide access to its 
Members is not fixed. The Exchange believes the Proposed Access Fees 
are reasonable in order to offset a portion of the costs to the 
Exchange associated with providing access to its network 
infrastructure.
The Proposed Fees Are Reasonable When Compared to the Fees of Other 
Options Exchanges With Similar Market Share
    The Exchange does not have visibility into other equities 
exchanges' costs to provide access or their fee markup over those 
costs, and therefore cannot use other exchanges' membership and access 
fees as a benchmark to determine a reasonable markup over the costs of 
providing the services associated with the Proposed Access Fees. 
Nevertheless, the Exchange believes the other exchanges' membership and 
participation fees are a useful example of alternative approaches to 
providing and charging for similar types of access. To that end, the 
Exchange believes the proposed tiered-pricing structure for its Trading 
Permits is reasonable because the proposed highest tier is still less 
than or similar to fees charged for similar access provided by other 
options exchanges with comparable market shares. The below table 
further illustrates this comparison.

[[Page 10849]]

----------------------------------------------------------------------------------------------------------------
                                     Type of
                                  membership or
           Exchange               trading permit                            Monthly fee
                                       fees
----------------------------------------------------------------------------------------------------------------
MIAX Pearl (as proposed)......  Trading Permit     Tier 1: $500.
                                 access via FIX
                                 Interface.
                                                   Tier 2: $1,000.
                                                   Tier 3: $1,500.
                                Trading Permit     Tier 1: $2,500.
                                 access via MEO    Tier 2: $4,000.
                                 Interface.        Tier 3: $6,000.
NYSE Arca \72\................  Options Trading    $6,000 for up to 175 option issues.
                                 Permits
                                 (``OTP'').
                                                   Additional $5,000 for up to 350 option issues.
                                                   Additional $4,000 for up to 1,000 option issues.
                                                   Additional $3,000 for all option issues.
                                                   Additional $1,000 for the 5th OTP and each OTP thereafter.
NYSE American \73\............  ATP Trading        $8,000 for up to 60 plus the bottom 45% of option issues.
                                 Permits.
                                                   Additional $6,000 for up to 150 plus the bottom 45% of option
                                                    issues.
                                                   Additional $5,000 for up to 500 plus the bottom 45% of option
                                                    issues.
                                                   Additional $4,000 for up to 1,100 plus the bottom 45% of
                                                    option issues.
                                                   Additional $3,000 for all option issues.
                                                   Additional $2,000 for 6th to 9th ATPs (plus additional fee
                                                    for premium products).
Nasdaq PHLX \74\..............  Streaming Quote    Tier 1 (up to 200 option classes): $0.00.
                                 Trader permit
                                 fees.
                                                   Tier 2 (up to 400 option classes): $2,200.
                                                   Tier 3 (up to 600 option classes): $3,200.
                                                   Tier 4 (up to 800 option classes): $4,200.
                                                   Tier 5 (up to 1,000 option classes): $5,200.
                                                   Tier 6 (up to 1,200 option classes): $6,200.
                                                   Tier 7 (all option classes): $7,200.
                                Remote Market      Tier 1 (less than 100 option classes): $5,500.
                                 Maker
                                 Organization
                                 permit fees.
                                                   Tier 2 (more than 100 and less than 999 option classes):
                                                    $8,000.
                                                   Tier 3 (1,000 or more option classes): $11,000.
Nasdaq ISE \75\...............  Access Fees......  Primary Market Maker: $5,000 per membership.
                                                   Competitive Market Maker: $2,500 per membership.
Cboe C2 \76\..................  Access Permit      Market Makers: $5,000.
                                 Fees.
                                                   Electronic Access Permits: $1,000.
----------------------------------------------------------------------------------------------------------------

    In each of the above cases, the Exchange's highest tiered Trading 
Permit fee, as proposed, is similar to or less than the fees of 
competing options exchanges with like market share for similar access. 
Further, as described in more detail below, many competing exchanges 
generate higher overall operating profit margins and higher ``access 
fees'' than the Exchange, inclusive of the projected revenues 
associated with the proposed fees. The Exchange believes that it 
provides a premium network experience to its Members and non-Members 
via a highly deterministic system, enhanced network monitoring and 
customer reporting, and a superior network infrastructure than markets 
with higher market shares and more expensive access fees. Each of the 
membership, trading permit and participation fee rates in place at 
competing options exchanges were filed with the Commission for 
immediate effectiveness and remain in place today.
---------------------------------------------------------------------------

    \72\ See supra note 26.
    \73\ See supra note 27.
    \74\ See supra note 28.
    \75\ See supra note 29.
    \76\ See supra note 30.
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes that the Proposed Access Fees do not place 
certain market participants at a relative disadvantage to other market 
participants because the Proposed Access Fees do not favor certain 
categories of market participants in a manner that would impose a 
burden on competition; rather, the fee rates are designed in order to 
provide objective criteria for users that connect via the MEO Interface 
of different sizes and business models that best matches their activity 
on the Exchange.
    The Exchange believes the removal of the Monthly Volume Credit and 
Trading Permit fee credit will not place certain market participants at 
a relative disadvantage to other market participants because, in order 
to attract order flow when the Exchange first launched operations, the 
Exchange established these credits to lower the initial fixed cost for 
Members. The Exchange now believes that it is appropriate to remove 
this credit in light of the current operating conditions, including the 
Exchange's overall membership and the current type and amount of volume 
executed on the Exchange. The Exchange believes that the Exchange's 
rebates and fees will still allow the Exchange to remain highly 
competitive such that the Exchange should continue to attract order 
flow and maintain market share.

[[Page 10850]]

Inter-Market Competition
    The Exchange believes the Proposed Access Fees do not place an 
undue burden on competition on other options exchanges that is not 
necessary or appropriate. In particular, options market participants 
are not forced to become members of all options exchanges. The Exchange 
notes that it has far less Members as compared to the much greater 
number of members at other options exchanges. There are a number of 
large users that connect via the MEO Interface and broker-dealers that 
are members of other options exchange but not Members of the Exchange. 
The Exchange is also unaware of any assertion that its existing fee 
levels or the Proposed Access Fees would somehow unduly impair its 
competition with other options exchanges. To the contrary, if the fees 
charged are deemed too high by market participants, they can simply 
discontinue their membership with the Exchange.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 15 competing options 
venues if they deem fee levels at a particular venue to be excessive. 
Based on publicly-available information, and excluding index-based 
options, no single exchange has more than approximately 16% market 
share. Therefore, no exchange possesses significant pricing power in 
the execution of multiply-listed equity and ETF options order flow. 
Over the course of 2021, the Exchange's market share has fluctuated 
between approximately 3-6% of the U.S. equity options industry.\77\ The 
Exchange is not aware of any evidence that a market share of 
approximately 3-6% provides the Exchange with anti-competitive pricing 
power. The Exchange believes that the ever-shifting market share among 
exchanges from month to month demonstrates that market participants can 
discontinue or reduce use of certain categories of products, or shift 
order flow, in response to fee changes. In such an environment, the 
Exchange must continually adjust its fees to remain competitive with 
other exchanges and to attract order flow to the Exchange.
---------------------------------------------------------------------------

    \77\ See ``The market at a glance,'' available at https://www.miaxoptions.com/ (last visited December 20, 2021).
---------------------------------------------------------------------------

    Regrettably, the Exchange believes that the application of the 
Guidance to date has adversely affected inter-market competition by 
impeding the ability of smaller, low cost exchanges to adopt or 
increase fees for their market data and access services (including 
connectivity and port products and services). Since the adoption of the 
Guidance, and even more so recently, it has become harder, particularly 
for smaller, low cost exchanges, 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 the affected exchanges' market participants. Although the Guidance 
has served an important policy goal of improving disclosures in 
proposed rule changes and requiring exchanges to more clearly justify 
that their market data and access fee proposals are fair and 
reasonable, it has also been inconsistently applied and therefore 
negatively impacted exchanges, and particularly many smaller, low cost 
exchanges, that seek to adopt or increase fees despite providing 
enhanced disclosures and rationale 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

    As described above, the Exchange received one comment letter on the 
First Proposed Rule Change \78\ and no comment letters on the Second or 
Third Proposed Rule Changes. The SIG Letter cites Rule 700(b)(3) of the 
Commission's Rules of Fair Practice which places ``the burden to 
demonstrate that a proposed rule change is consistent with the Act on 
the self-regulatory organization that proposed the rule change'' and 
states that a ``mere assertion that the proposed rule change is 
consistent with those requirements . . . is not sufficient.'' \79\ The 
SIG Letter's assertion that the Exchange has not met this burden is 
without merit, especially considering the overwhelming amounts of 
revenue and cost information the Exchange included in the First and 
Second Proposed Rule Changes and this filing.
---------------------------------------------------------------------------

    \78\ See supra note 7.
    \79\ 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

    Until recently, the Exchange has operated at a net annual loss 
since it launched operations in 2017.\80\ As stated above, the Exchange 
believes that exchanges in setting fees of all types should meet very 
high standards of transparency to demonstrate why each new fee or fee 
increase meets the requirements of the Act that fees be reasonable, 
equitably allocated, not unfairly discriminatory, and not create an 
undue burden on competition among market participants. The Exchange 
believes this high standard is especially important when an exchange 
imposes various access fees for market participants to access an 
exchange's marketplace. The Exchange believes it has achieved this 
standard in this filing and in the First and Second Proposed Rules 
Changes. Similar justifications for the proposed fee change included in 
the First and Second Proposed Rule Changes, but also in this filing, 
were previously included in similar fee changes filed by the Exchange 
and its affiliates, MIAX Emerald and MIAX, and SIG did not submit a 
comment letter on those filings.\81\ Those filings were not suspended 
by the Commission and continue to remain in effect. The justification 
included in each of the prior filings was the result of numerous 
withdrawals and re-filings of the proposals to address comments 
received from Commission Staff over many months. The Exchange and its 
affiliates have worked diligently with Commission Staff on ensuring the 
justification included in past fee filings fully supported an assertion 
that those proposed fee changes were consistent with the Act.\82\ The 
Exchange leveraged

[[Page 10851]]

its past work with Commission Staff to ensure the justification 
provided herein and in the First, Second, and Third Proposed Rule 
Changes included the same level of detail (or more) as the prior fee 
changes that survived Commission scrutiny. The Exchange's detailed 
disclosures in fee filings have also been applauded by one industry 
group which noted, ``[the Exchange's] filings contain significantly 
greater information about who is impacted and how than other filings 
that have been permitted to take effect without suspension.'' \83\ That 
same industry group also noted their ``worry that the Commission's 
process for reviewing and evaluating exchange filings may be 
inconsistently applied.'' \84\ Therefore, a finding by the Commission 
that the Exchange has not met its burden to show that the proposed fee 
change is consistent with the Act would be different than the 
Commission's treatment of similar past filings, would create further 
ambiguity regarding the standards exchange fee changes should satisfy, 
and is not warranted here.
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    \80\ The Exchange has incurred a cumulative loss of $86 million 
since its inception in 2017 to 2020, the last year for which the 
Exchange's Form 1 data is available. See Exchange's Form 1/A, 
Application for Registration or Exemption from Registration as a 
National Securities Exchange, filed July 29, 2021, available at 
https://sec.report/Document/9999999997-21-004367/.
    \81\ See Securities Exchange Act Release Nos. 91858 (May 12, 
2021), 86 FR 26967 (May 18, 2021) (SR-PEARL-2021-23) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Amend the MIAX Pearl Fee Schedule to Remove the Cap on the Number of 
Additional Limited Service Ports Available to Market Makers); 91460 
(April 2, 2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11) 
(Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend Its Fee Schedule To Adopt Port Fees, Increase 
Certain Network Connectivity Fees, and Increase the Number of 
Additional Limited Service MIAX Emerald Express Interface Ports 
Available to Market Makers); and 91857 (May 12, 2021), 86 FR 26973 
(May 18, 2021) (SR-MIAX-2021-19) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To 
Remove the Cap on the Number of Additional Limited Service Ports 
Available to Market Makers).
    \82\ See, e.g., Securities Exchange Act Release No. 90196 
(October 15, 2020), 85 FR 67064 (October 21, 2020) (SR-EMERALD-2020-
11) (Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend Its Fee Schedule To Adopt One-Time Membership 
Application Fees and Monthly Trading Permit Fees). See Securities 
Exchange Act Release Nos. 90601 (December 8, 2020), 85 FR 80864 
(December 14, 2020) (SR-EMERALD-2020-18) (re-filing with more detail 
added in response to Commission Staff's feedback and after 
withdrawing SR-EMERALD-2020-11); and 91033 (February 1, 2021), 86 FR 
8455 (February 5, 2021) (SR-EMERALD-2021-03) (re-filing with more 
detail added in response to Commission Staff's feedback and after 
withdrawing SR-EMERALD-2020-18). The Exchange initially filed a 
proposal to remove the cap on the number of additional Limited 
Service MEO Ports available to Members on April 9, 2021. See SR-
PEARL-2021-17. On April 22, 2021, the Exchange withdrew SR-PEARL-
2021-17 and refiled that proposal (without increasing the actual fee 
amounts) to provide further clarification regarding the Exchange's 
revenues, costs, and profitability any time more Limited Service MEO 
Ports become available, in general, (including information regarding 
the Exchange's methodology for determining the costs and revenues 
for additional Limited Service MEO Ports). See SR-PEARL-2021-20. On 
May 3, 2021, the Exchange withdrew SR-PEARL-2021-20 and refiled that 
proposal to further clarify its cost methodology. See SR-PEARL-2021-
22. On May 10, 2021, the Exchange withdrew SR-PEARL-2021-22 and 
refiled that proposal as SR-PEARL-2021-23. See Securities Exchange 
Act Release No. 91858 (May 12, 2021), 86 FR 26967 (May 18, 2021) 
(SR-PEARL-2021-23).
    \83\ See letter from Tyler Gellasch, Executive Director, Healthy 
Markets Association, to Hon. Gary Gensler, Chair, Commission, dated 
October 29, 2021.
    \84\ Id. (providing examples where non-transaction fee filings 
by other exchanges have been permitted to remain effective and not 
suspended by the Commission despite less disclosure and 
justification).
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    In addition, the arguments in the SIG Letter do not support their 
claim that the Exchange has not met its burden to show the proposed 
rule change is consistent with the Act. Prior to and after submitting 
the First Proposed Rule Change, the Exchange solicited feedback from 
its Members, including SIG. SIG relayed their concerns regarding the 
proposed change. The Exchange then sought to work with SIG to address 
their concerns and gain a better understanding of the access/
connectivity/quoting infrastructure of other exchanges. In response, 
SIG provided no substantive suggestions on how to amend the First 
Proposed Rule Change to address their concerns and instead chose to 
submit a comment letter. One could argue that SIG is using the comment 
letter process not to raise legitimate regulatory concerns regarding 
the proposal, but to inhibit or delay proposed fee changes by the 
Exchange. Nonetheless, the Exchange has further enhanced its cost and 
revenue analysis and data in this Third [sic] Proposed Rule Change to 
further justify that the Proposed Access Fees are reasonable in 
accordance with the Commission Staff's Guidance. Among other things, 
these enhancements include providing baseline information in the form 
of data from the month before the Proposed Access Fees became 
effective.
MIAX Pearl Provided More Than Sufficient Justification for the Proposed 
Fees
    The SIG Letter asserts that the Exchange provided ``no affirmative 
justifiable reason that its legacy fees are no longer sufficient.'' 
\85\ This statement assumes that the previous fees were ``sufficient'' 
and does not state how the legacy fees might have been sufficient to 
cover the Exchange's expenses. As evidenced above, the previous fees 
were not sufficient to cover the costs the Exchange incurred in 
providing access to the Exchange. However, the previous fees were 
sufficient to attract order flow as the pricing was set to not 
discourage participation on the Exchange. The Exchange is relatively 
new as it only began operations in 2017.\86\ Like other new exchange 
entrants, the Exchange chose to charge lower fees than other more 
established exchanges to attract order flow and increase 
membership.\87\ The Exchange chose that approach by setting the price 
of its Trading Permits (as well as other access-type fees) below market 
rates. SIG's statement assumes that exchanges should charge at market 
rates that are sufficient to cover its costs. This statement ignores 
pricing incentives exchanges may offer to attract order flow and that 
exchanges, like many businesses including SIG, may make a business 
decision to price certain offerings at a loss or ``on sale'' as they 
build their business. Further, a vast majority of the Exchange's 
Members, if not all, benefited from these lower fees.
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    \85\ See SIG Letter, supra note 7.
    \86\ See ``Miami International Holdings Receives Approval from 
SEC to Launch MIAX PEARL; Targets February 6, 2017 Launch'' 
(December 14, 2016) available at https://www.miaxoptions.com/sites/default/files/press_release-files/MIAX_Press_Release_12142016.pdf 
(last visited October 18, 2021) (stating that the Exchange ``plans 
to launch with an initial moratorium on most non-transaction 
fees.'')
    \87\ See, e.g., ``Members Exchange Unveils Transaction Pricing'' 
(September 10, 2020), available at https://www.businesswire.com/news/home/20200910005183/en/Members-Exchange-Unveils-Transaction-Pricing (last visited October 18, 2021) (quoting Jonathan Kellner, 
CEO of Members Exchange, ``[t]o further incentivize participants to 
connect to a new destination, we are implementing initial pricing 
that generates a net loss for the exchange on each transaction. We 
are confident that as participants experience the benefits of our 
platform, they will continue to incorporate MEMX in their routing 
strategies.''); and ``Miami International Holdings Announces Fully 
Subscribed Strategic Equity Rights Transaction with Leading Equities 
Firms to Trade on MIAX PEARL Equities Trading to Begin September 25, 
2020'' available at https://www.miaxoptions.com/sites/default/files/press_release-files/Press_Release_09142020.pdf (last visited October 
18, 2021) (quoting Douglas M. Schafer, Jr., Executive Vice President 
and Chief Information Officer of MIH, MIAX PEARL Equities, ``[w]e 
are excited to be offering a simpler, transparent, low cost venue to 
market participants and have no doubt that MIAX PEARL Equities will 
become a competitive alternative venue following our launch on 
September 25th.'')
---------------------------------------------------------------------------

    As a new entrant in the market, the Exchange chose to forgo any 
potential additional revenue that may have been generated by higher 
Trading Permit fees to encourage participation on the new platform. 
This served to attract participation on the Exchange so market 
participants could evaluate the Exchange's quality, technology and the 
quality of their overall customer/user experience. Setting higher rates 
for non-transaction fees could have served to dissuade market 
participants from trading on the Exchange and not experiencing the high 
quality technological system the Exchange built.
    Nonetheless, the Exchange provided significant cost based 
justification for the proposed fees not only in this filing, but also 
in the First and Second Proposed Rule Changes. The SIG Letter 
conveniently ignores this fact. In fact, the level of disclosure the 
Exchange provided in this filing and in the First, Second, and Third 
Proposed Rule Changes has been worked on with Commission Staff over 
numerous past filings that have been published for comment and remain 
effect.\88\ The Exchange's detailed disclosures in fee filings have 
also been applauded by one industry group which noted, ``[the 
Exchange's] filings contain significantly greater information about who 
is impacted and how than other filings that have been permitted to take 
effect without suspension.'' \89\ That same industry group also noted 
their ``worry that the Commission's process for reviewing and 
evaluating exchange filings may be inconsistently applied.'' \90\
---------------------------------------------------------------------------

    \88\ See supra note 82.
    \89\ See supra note 83.
    \90\ Id. (providing examples where non-transaction fee filings 
by other exchanges have been permitted to remain effective and not 
suspended by the Commission despite less disclosure and 
justification).

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[[Page 10852]]

    The Exchange believes the proposed fees will allow the Exchange to 
offset expenses the Exchange has and will incur, and that the Exchange 
provided sufficient transparency into how the Exchange determined to 
charge such fees. Accordingly, the Exchange provided an analysis of its 
revenues, costs, and profitability associated with the proposed fees. 
This analysis included information regarding its methodology for 
determining the costs and revenues associated with the proposal.
    To determine the Exchange's costs to provide the access services 
associated with the proposed fees, the Exchange conducted an extensive 
cost review in which the Exchange analyzed nearly every expense item in 
the Exchange's general expense ledger to determine whether each such 
expense relates to the proposed fees, and, if such expense did so 
relate, what portion (or percentage) of such expense actually supports 
the access services. The sum of all such portions of expenses 
represents the total cost of the Exchange to provide the access 
services associated with the proposed fees.
    Furthermore, the Exchange is beginning to see significant 
inflationary pressure on capital items that it needs to purchase to 
maintain the Exchange's technology and systems.\91\ The Exchange has 
seen pricing increases upwards of 30% on network equipment due to 
supply chain shortages. This, in turn, results in higher overall costs 
for ongoing system maintenance, but also to purchase the items 
necessary to ensure ongoing system resiliency, performance, and 
determinism. These costs are expected to continue to go up as the U.S. 
economy continues to struggle with supply chain and inflation related 
issues.
---------------------------------------------------------------------------

    \91\ See supra note 55.
---------------------------------------------------------------------------

The Proposed Fee Increases Are Not Part of a Discriminatory Fee 
Structure and Tiered Fee Structures Are Commonplace Amongst Exchanges
    The SIG Letter correctly notes that the proposed Trading Permit 
fees are higher for Members who connect through the MEO Interface than 
for Members who connect through the FIX Interface. Members who use the 
MEO Interface may also connect to the System through the FIX Interface 
as well, and vice versa. The Exchange notes that the Trading Permit 
fees for Members who connect through the MEO Interface are higher than 
the Trading Permit fees for Members who connect through the FIX 
Interface, since the FIX Interface utilizes less capacity and resources 
of the Exchange. The MEO Interface offers lower latency and higher 
throughput, which utilizes greater capacity and resources of the 
Exchange. The FIX Interface offers lower bandwidth requirements and an 
industry-wide uniform message format. Both EEMs and Market Makers may 
connect to the Exchange using either interface.
    The SIG Letter asserts that the Exchange ``provides no description 
of the `capacity and resources' being utilized, and no information on 
the nature or extent of the disparity in such utilization between the 
two Interface types.'' As a MEO user, SIG is uniquely positioned to 
understand and appreciate the differences between the MEO and FIX 
interfaces and why rates for the MEO interface are justifiably higher. 
Nonetheless, the Exchange is providing the below additional data to 
address the statements made in the SIG Letter.
    Orders on the Exchange are supplied by Members via two different 
interfaces, FIX and MEO. MEO is the Exchange's proprietary binary order 
interface. Over the period from April 2021 until September 2021, 3.15 
billion messages were processed via the FIX interface (0.43% of total 
messages received). Over that same time period, 731.4 billion messages 
(99.57% of total messages received) were processed over the MEO 
interface. Also, the MEO interface allows for mass purging of orders 
which has a significant impact on the number of messages processed. 
This marked difference between the number of FIX and MEO messages 
processed, when mapped to servers, software, storage, and networking 
results in a much higher allocation of total capital and operational 
expense to support the MEO interface. For one, the Exchange incurs 
greater expense in maintaining the resilience of the MEO interface to 
ensure its ongoing operation in accordance with Regulation SCI. 
Another, the Exchange must purchase and expand its storage capacity to 
retain these increased messages in compliance with its record keeping 
obligations. As noted above, the Exchange has seen significant 
inflationary pressure on capital items that it needs to purchase to 
maintain its technology.\92\ The Exchange has seen pricing increases 
upwards of 30% on network equipment due to supply chain shortages.
---------------------------------------------------------------------------

    \92\ See id.
---------------------------------------------------------------------------

    SIG is also uniquely positioned to know that the fee structure 
utilized by the Exchange, which charges different Trading Permit fees 
for MEO interface users than FIX interface users is not a new proposal. 
In fact, it was first adopted by the Exchange over 3\1/2\ years ago in 
March 2018, published by the Commission and received no comment 
letters, not even by SIG.\93\ SIG claims a fee structure that they have 
been subject to for years as an MEO interface user is just now unfairly 
discriminatory.
---------------------------------------------------------------------------

    \93\ See supra note 13.
---------------------------------------------------------------------------

The Proposed Fees Are in Line With, or Cheaper Than, the Trading Permit 
Fees or Similar Membership/Access Fees Charged by Other Options 
Exchanges
    The Exchange correctly asserts herein and in the Initial Proposed 
Fee Change that it's proposed Trading Permit fees ``are in line with, 
or cheaper than, the trading permit fees or similar membership fees 
charged by other options exchanges.'' The SIG letter challenges this 
assertion is an ``apples to oranges'' comparison because NYSE American 
and NYSE Arca based their rates on the number of options issued to the 
member and not trading volume, like the exchange does. In fact, the 
number of options traded by a member of NYSE American or NYSE Arca is 
an appropriate proxy for trading volume as the more options issued to 
the member would result in higher volumes traded by that member. Firms 
that trade more liquid options generate increased message traffic and 
greater pull on exchange resources. Therefore, comparing options traded 
to trading volume is an ``apples to apples'' comparison.
    The Exchange proposes a range of fees from $500 to $6,000 per month 
depending on trading volume and the type of interface that is utilized 
by the Member. These rates are undoubtedly similar to or lower than the 
rates charged by NYSE Arca and NYSE American. As of December 20, 2021, 
the Exchange maintained a market share of approximately 4.03%.\94\ 
Among Exchanges with similar market share, the Exchange's proposed 
Trading Permit Fees remain similar to or lower than fees charged by 
other options exchanges with comparable market share for access/
membership fees.\95\ The proposed rates are also lower than those of 
its affiliates, MIAX and MIAX

[[Page 10853]]

Emerald, which remain in effect today.\96\
---------------------------------------------------------------------------

    \94\ See supra note 77.
    \95\ See supra notes 26-30, and accompanying table. The below 
market share numbers are as of December 20, 2021. Id. Cboe C2 had a 
market share of 3.72% and charges a monthly Access Fee of $5,000 for 
market makers and $1,000 per month for an additional Electronic 
Access Permit regardless of trading volume or options traded. See 
supra note 28. Nasdaq ISE had a market share of 6.95% and charges a 
monthly Access Fee to Primary Market Makers of $5,000 and 
Competitive Market Maker of $2,500 regardless of trading volume or 
options traded. See supra note 77.
    \96\ See MIAX Fee Schedule, Section 3(b); MIAX Emerald Fee 
Schedule, Section 3(b).
---------------------------------------------------------------------------

    The SIG Letter states that ``[the Exchange] offers no information 
about the capacity and resource costs of access to the other exchanges 
or any other basis to support the reasonability of those fees, let 
alone compare such costs to those of MIAX Pearl.'' \97\ This statement 
is misleading as SIG should be aware that the Exchange does not have 
access to this information and when it asked SIG to assist the Exchange 
in better understanding the access structure of other exchanges, SIG 
refused.
---------------------------------------------------------------------------

    \97\ See SIG Letter, supra note 7.
---------------------------------------------------------------------------

    The SIG Letter further asserts that the Exchange ``has not 
established that the other exchange fees are reasonable, nor that this 
would mean that the MIAX Pearl fees are reasonable as well.\98\ SIG 
should be aware that it is not the Exchange's obligation to justify why 
another exchange's fees are reasonable and it is presumed that such 
fees were deemed reasonable by the Commission when filed by the 
exchange that proposed said fee. If SIG felt another exchange's fees 
were or are unreasonable, they are free to share that concern with the 
Commission and were provided an opportunity to submit comment letter on 
those earlier proposals from other exchanges. It is the Exchange's 
responsibility to show that its own proposed fee change is reasonable 
and consistent with the Act, and that assertion is amply supported by 
the statements made in this Item 5 and elsewhere herein.
---------------------------------------------------------------------------

    \98\ See id.
---------------------------------------------------------------------------

The Proposed Fees Are Consistent With Section 6(b)(4) of the Act 
Because the Proposed Fees Will Not Result in Excessive Pricing or 
Supra-Competitive Profit
    The Exchange has provided ample data that the proposed fees would 
not result in excessive pricing or a supra-competitive profit. In this 
Third [sic] Proposed Rule Change, the Exchange no longer utilizes a 
comparison of its profit margin to that of other options exchanges as a 
basis that the Proposed Access Fees are reasonable. Rather, the 
Exchange has enhanced its cost and revenue analysis and data in this 
Third [sic] Proposed Rule Change to further justify that the Proposed 
Access Fees are reasonable in accordance with the Commission Staff's 
Guidance. Therefore, the Exchange believes it is no longer necessary to 
respond to this portion of the SIG Letter.
Recoupment of Exchange Infrastructure Costs
    Nowhere in this proposal or in the First Proposed Rule Change did 
the Exchange assert that it benefits competition to allow a new 
exchange entrant to recoup their infrastructure costs. Rather, the 
Exchange asserts above that its ``proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory because the 
Exchange, and its affiliates, are still recouping the initial 
expenditures from building out their systems while the legacy exchanges 
have already paid for and built their systems.'' The Exchange no longer 
makes this assertion in this filing and, therefore, does not believe is 
it necessary to respond to SIG's assertion here.

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\99\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\100\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization (``SRO'') if it appears to the Commission that such action 
is necessary or appropriate in the public interest, for the protection 
of investors, or otherwise in furtherance of the purposes of the Act. 
As discussed below, the Commission believes a temporary suspension of 
the proposed rule change is necessary and appropriate to allow for 
additional analysis of the proposed rule change's consistency with the 
Act and the rules thereunder.
---------------------------------------------------------------------------

    \99\ 15 U.S.C. 78s(b)(3)(C).
    \100\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    As the Exchange further details above, the Exchange first filed a 
proposed rule change proposing fee changes as proposed herein on July 
1, 2021, with the proposed fee changes being immediately effective. 
That proposal, SR-PEARL-2021-32, was published for comment in the 
Federal Register on July 15, 2021.\101\ On August 27, 2021, pursuant to 
Section 19(b)(3)(C) of the Act, the Commission: (1) Temporarily 
suspended the proposed rule change (SR-PEARL-2021-32) and (2) 
instituted proceedings to determine whether to approve or disapprove 
the proposed rule change.\102\ On October 12, 2021, the Exchange 
withdrew SR-PEARL-2021-32. On November 1, 2021, the Exchange filed a 
proposed rule change proposing fee changes as proposed herein. That 
proposal, SR-PEARL-2021-54, was published for comment in the Federal 
Register on November 17, 2021.\103\ On December 20, 2021, the Exchange 
withdrew SR-PEARL-2021-54 and filed a proposed rule change proposing 
fee changes as proposed herein on December 20, 2021. That filing, SR-
PEARL-2021-59,\104\ was published for comment in the Federal Register 
on January 10, 2022.\105\ On February 15, 2022 the Exchange withdrew 
SR-PEARL-2021-59 and filed the instant filing, which is substantially 
similar.
---------------------------------------------------------------------------

    \101\ See Securities Exchange Act Release No. 92366 (July 9, 
2021), 86 FR 37379 (SR-PEARL-2021-32). The Commission received one 
comment letter on that proposal. Comment for SR-PEARL-2021-32 can be 
found at: https://www.sec.gov/comments/sr-pearl-2021-32/srpearl202132.htm.
    \102\ See Securities Exchange Act Release No. 92797 (August 27, 
2021), 86 FR 49399 (September 2, 2021).
    \103\ See Securities Exchange Act Release No. 93555 (November 
10, 2021), 86 FR 64254 (November 17, 2021) (SR-PEARL-2021-54).
    \104\ See text accompanying supra note 10.
    \105\ See Securities Exchange Act Release No. 93895 (January 4, 
2022), 87 FR 1217 (January 10, 2022) (SR-PEARL-2021-59).
---------------------------------------------------------------------------

    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\106\ The instructions to Form 19b-4, on which 
exchanges file their proposed rule changes, specify that such statement 
``should be sufficiently detailed and specific to support a finding 
that the proposed rule change is consistent with [those] 
requirements.'' \107\
---------------------------------------------------------------------------

    \106\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \107\ Id.
---------------------------------------------------------------------------

    Among other things, exchange proposed rule changes are subject to 
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which 
requires the rules of an exchange to: (1) Provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \108\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not permit unfair discrimination between 
customers, issuers, brokers, or dealers; \109\ and (3) not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\110\
---------------------------------------------------------------------------

    \108\ 15 U.S.C. 78f(b)(4).
    \109\ 15 U.S.C. 78f(b)(5).
    \110\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether the proposal to remove certain 
credits and

[[Page 10854]]

increase the monthly Trading Permits fees are consistent with the 
statutory requirements applicable to a national securities exchange 
under the Act. In particular, the Commission will consider whether the 
proposed rule change satisfies the standards under the Act and the 
rules thereunder requiring, among other things, that an exchange's 
rules provide for the equitable allocation of reasonable fees among 
members, issuers, and other persons using its facilities; not be 
designed to permit unfair discrimination between customers, issuers, 
brokers or dealers; and not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the 
Act.\111\
---------------------------------------------------------------------------

    \111\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\112\
---------------------------------------------------------------------------

    \112\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    The Commission is instituting proceedings pursuant to Sections 
19(b)(3)(C) \113\ and 19(b)(2)(B) \114\ of the Act to determine whether 
the Exchange's proposed rule change should be approved or disapproved. 
Institution of such proceedings is appropriate at this time in view of 
the legal and policy issues raised by the proposed rule change. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, as described below, the Commission seeks and encourages 
interested persons to provide comments on the proposed rule change to 
inform the Commission's analysis of whether to approve or disapprove 
the proposed rule change.
---------------------------------------------------------------------------

    \113\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \114\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\115\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of whether the Exchange has sufficiently 
demonstrated how the proposed rule change is consistent with Sections 
6(b)(4),\116\ 6(b)(5),\117\ and 6(b)(8) \118\ of the Act. Section 
6(b)(4) of the Act requires that the rules of a national securities 
exchange provide for the equitable allocation of reasonable dues, fees, 
and other charges among its members and issuers and other persons using 
its facilities. Section 6(b)(5) of the Act requires that the rules of a 
national securities exchange be designed, among other things, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest, and not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act 
requires that the rules of a national securities exchange not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \115\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act 
also provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding, or if the 
exchange consents to the longer period. See id.
    \116\ 15 U.S.C. 78f(b)(4).
    \117\ 15 U.S.C. 78f(b)(5).
    \118\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, in addition to any 
other comments they may wish to submit about the proposed rule change. 
In particular, the Commission seeks comment on the following aspects of 
the proposal and asks commenters to submit data where appropriate to 
support their views:
    1. Cost Estimates and Allocation. The Exchange states that it is 
not asserting that the Proposed Access Fees are constrained by 
competitive forces, but rather set forth a ``cost-plus model,'' 
employing a ``conservative methodology'' that ``strictly considers only 
those costs that are most clearly directly related to the provision and 
maintenance of Trading Permits.'' \119\ Setting forth its costs in 
providing the Proposed Access Fees, and as summarized in greater detail 
above, the Exchange projects $844,741 in aggregate annual estimated 
costs for 2021 as the sum of: (1) $188,815 in third-party expenses paid 
in total to Equinix (8% of the total applicable expense) for data 
center services; Zayo Group Holdings, for network services (4% of the 
total applicable expense); SFTI for connectivity support, Thompson 
Reuters, NYSE, Nasdaq, and Internap and others (3% of the total 
applicable expense) for content, connectivity services, and 
infrastructure services; and various other hardware and software 
providers (5% of the total applicable expense) supporting the 
production environment, and (2) $655,925 in internal expenses, 
allocated to (a) employee compensation and benefit costs ($549,824, 
approximately 6% of the Exchange's total applicable employee 
compensation and benefits expense); (b) depreciation and amortization 
($66,316, approximately 5% of the Exchange's total applicable 
depreciation and amortization expense); and (c) occupancy costs 
($39,775 approximately 8% of the Exchange's total applicable occupancy 
expense). Do commenters believe that the Exchange has provided 
sufficient detail about how it determined which costs are most clearly 
directly associated with providing and maintaining the Proposed Access 
Fees? The Exchange describes a ``proprietary'' process involving all 
Exchange department heads, including the finance department and 
numerous meetings between the Exchange's Chief Information Officer, 
Chief Financial Officer, Head of Strategic Planning and Operations, 
Chief Technology Officer, various members of the Legal Department, and 
other group leaders, but do not specify further what principles were 
applied in making these determinations or arriving at particular 
allocations. Do commenters believe further explanation is necessary? 
For employee compensation and benefit costs, for example, the Exchange 
calculated an allocation of employee time in several departments, 
including Technology, Back Office, Systems Operations, Networking, 
Business Strategy Development, Trade Operations, Finance, and Legal, 
but do not provide the job titles and salaries of persons whose time 
was accounted for, or explain the methodology used to determine how 
much of an employee's time is devoted to that specific activity. What 
are commenters' views on whether the Exchange has provided sufficient 
detail on the identity and nature of services provided by third 
parties? Across all of the Exchange's projected costs, what are 
commenters' views on whether the Exchange has provided sufficient 
detail on the elements that go into Trading Permit costs, including how 
shared costs are

[[Page 10855]]

allocated and attributed to Trading Permit expenses, to permit an 
independent review and assessment of the reasonableness of purported 
cost-based fees and the corresponding profit margin thereon? Should the 
Exchange be required to identify for what services or fees the 
remaining percentage of un-allocated expenses are attributable to? Do 
commenters believe that the costs projected for 2021 are generally 
representative of expected costs going forward (to the extent 
commenters consider 2021 to be a typical or atypical year), or should 
an exchange present an estimated range of costs with an explanation of 
how profit margins could vary along the range of estimated costs? 
Should the Exchange use cost projections or actual costs estimated for 
2021 in a filing made in 2022, or make cost projections for 2022?
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    \119\ See supra Section II.A.2.
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    2. Revenue Estimates and Profit Margin Range. The Exchange provides 
a single monthly revenue figure as the basis for calculating the profit 
margin of 24%. Do commenters believe this is reasonable? If not, why 
not? The Exchange states that their proposed fee structure is 
``designed to cover its costs with a limited return in excess of such 
costs,'' and that ``revenue and associated profit margin [ ] are not 
solely intended to cover the costs associated with providing services 
subject to the proposed fees,'' and believes that a 24% margin is a 
limited return over such costs.\120\ The profit margin is also 
dependent on the accuracy of the cost projections which, if inflated 
(intentionally or unintentionally), may render the projected profit 
margin meaningless. The Exchange acknowledges that this margin may 
fluctuate from month to month due to changes in the number of Trading 
Permits purchased, and that costs may increase. They also state that 
the number of Trading Permits has not materially changed over the prior 
months and so the months that the Exchange has used as a baseline to 
perform its assessment are representative of reasonably anticipated 
costs and expenses.\121\ The Exchange does not account for the 
possibility of cost decreases, however. What are commenters' views on 
the extent to which actual costs (or revenues) deviate from projected 
costs (or revenues)? Do commenters believe that the Exchange's 
methodology for estimating the profit margin is reasonable? Should the 
Exchange provide a range of profit margins that they believe are 
reasonably possible, and the reasons therefor?
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    \120\ See supra Section II.A.2.
    \121\ See id.
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    3. Reasonable Rate of Return. Do commenters agree with the Exchange 
that its expected 24% profit margin would constitute a reasonable rate 
of return over cost for Trading Permits? If not, what would commenters 
consider to be a reasonable rate of return and/or what methodology 
would they consider to be appropriate for determining a reasonable rate 
of return? What are commenters' views regarding what factors should be 
considered in determining what constitutes a reasonable rate of return 
for Trading Permits? Do commenters believe it relevant to an assessment 
of reasonableness that the Exchange's proposed fees for Trading 
Permits, even at the highest tier, are lower than those of other 
options exchanges to which the Exchange has compared the Proposed 
Access Fees? Should an assessment of reasonable rate of return include 
consideration of factors other than costs; and if so, what factors 
should be considered, and why?
    4. Periodic Reevaluation. The Exchange has addressed whether it 
believes a material deviation from the anticipated profit margin would 
warrant the need to make a rule filing pursuant to Section 19(b) of the 
Act to increase or decrease the fees accordingly, stating that ``[a]ny 
requirement that an exchange should conduct a periodic re-evaluation on 
a set timeline of its cost justification and amend its fees accordingly 
should be established by the Commission holistically, applied to all 
exchanges and not just pending fee proposals, such as this filing,'' 
and that ``[i]n order to be fairly applied, such a mandate should be 
applied to existing market data fees as well.'' \122\ In light of the 
impact that the number of subscribers has on Trading Permit profit 
margins, and the potential for costs to decrease (or increase) over 
time, what are commenters' views on the need for exchanges to commit to 
reevaluate, on an ongoing and periodic basis, their cost-based Trading 
Permit fees to ensure that they stay in line with their stated 
profitability target and do not become unreasonable over time, for 
example, by failing to adjust for efficiency gains, cost increases or 
decreases, and changes in subscribers? How formal should that process 
be, how often should that reevaluation occur, and what metrics and 
thresholds should be considered? How soon after a new Trading Permit 
fee change is implemented should an exchange assess whether its 
subscriber estimates were accurate and at what threshold should an 
exchange commit to file a fee change if its estimates were inaccurate? 
Should an initial review take place within the first 30 days after a 
Trading Permit fee is implemented? 60 days? 90 days? Some other period?
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    \122\ See supra Section II.A.2.
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    5. Tiered Structure for Trading Permits. The Exchange states that 
proposed tiered-pricing structure is reasonable, fair, equitable, and 
not unfairly discriminatory because it is the model adopted by the 
Exchange when it launched operations for its Trading Permit fees, and 
further, that the amount of the fee is directly related to the Member 
or non-Member's TCV resulting in higher fees for greater TCV.\123\ What 
are commenters' views on the adequacy of the information the Exchange 
provides regarding the proposed differentials in fees? Do commenters 
believe that the proposed price differences are supported by the 
Exchange's assertions that it set the level of each proposed new fee in 
a manner that it equitable and not unfairly discriminatory?
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    \123\ See id.
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
[SRO] that proposed the rule change.'' \124\ The description of a 
proposed rule change, its purpose and operation, its effect, and a 
legal analysis of its consistency with applicable requirements must all 
be sufficiently detailed and specific to support an affirmative 
Commission finding,\125\ and any failure of an SRO to provide this 
information may result in the Commission not having a sufficient basis 
to make an affirmative finding that a proposed rule change is 
consistent with the Act and the applicable rules and regulations.\126\ 
Moreover, ``unquestioning reliance'' on an SRO's representations in a 
proposed rule change would not be sufficient to justify Commission 
approval of a proposed rule change.\127\
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    \124\ 17 CFR 201.700(b)(3).
    \125\ See id.
    \126\ See id.
    \127\ See Susquehanna Int'l Group, LLP v. Securities and 
Exchange Commission, 866 F.3d 442, 446-47 (D.C. Cir. 2017) 
(rejecting the Commission's reliance on an SRO's own determinations 
without sufficient evidence of the basis for such determinations).
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    The Commission believes it is appropriate to institute proceedings 
to allow for additional consideration and comment on the issues raised 
herein, including as to whether the proposal is consistent with the 
Act, any potential comments or supplemental information

[[Page 10856]]

provided by the Exchange, and any additional independent analysis by 
the Commission.

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. In particular, the Commission invites the written views of 
interested persons concerning whether the proposal is consistent with 
Sections 6(b)(4), 6(b)(5), and 6(b)(8), or any other provision of the 
Act, or the rules and regulations thereunder. The Commission asks that 
commenters address the sufficiency and merit of the Exchange's 
statements in support of the proposal, in addition to any other 
comments they may wish to submit about the proposed rule change. 
Although there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral 
presentation.\128\
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    \128\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by an SRO. 
See Securities Acts Amendments of 1975, Report of the Senate 
Committee on Banking, Housing and Urban Affairs to Accompany S. 249, 
S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by March 18, 2022. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by April 1, 
2022.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-PEARL-2022-05 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-PEARL-2022-05. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2022-05 and should be submitted on 
or before March 18, 2022. Rebuttal comments should be submitted by 
April 1, 2022.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\129\ that File Numbers SR-PEARL-2022-05 be, and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \129\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\130\
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    \130\ 17 CFR 200.30-3(a)(12), (57) and (58).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03965 Filed 2-24-22; 8:45 am]
BILLING CODE 8011-01-P