Document ID: SEC-2021-0011-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2021-01-05T05:00Z

[Federal Register Volume 86, Number 2 (Tuesday, January 5, 2021)]
[Notices]
[Pages 338-344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-29133]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90812; File No. SR-PEARL-2020-35]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX 
PEARL Fee Schedule

December 29, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 21, 2020, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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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 Fee 
Schedule (the ``Fee Schedule'') to increase the number of additional 
Limited Service MIAX Express Order Interface (``MEO'') Ports available 
to Members.\3\ The Exchange does not propose to amend the fees for 
additional Limited Service MEO Ports.
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    \3\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of these 
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.
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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.

[[Page 339]]

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

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

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule to offer two (2) 
additional Limited Service MEO Ports to Members. The Exchange does not 
propose to amend the fees charged for the additional Limited Service 
MEO Ports.
    The Exchange initially filed the proposal to increase the number of 
Limited Service MEO Ports available to Members on June 30, 2020, with 
no change to the actual fee amounts being charged.\4\ The First 
Proposed Rule Change was published for comment in the Federal Register 
on July 20, 2020.\5\ The Exchange notes that the First Proposed Rule 
Change did not receive any comment letters. Nonetheless, the Exchange 
withdrew the First Proposed Rule Change on August 24, 2020.\6\ On 
August 25, 2020, the Exchange refiled its proposal to increase the 
number of Limited Service MEO Ports available to Members (without 
increasing the actual fee amounts) to provide further clarification 
regarding the Exchange's annual cost for providing additional Limited 
Service MEO Ports.\7\ The Second Proposed Rule Change was published for 
comment in the Federal Register on September 11, 2020.\8\ Like the 
First Proposed Rule Change, the Second Proposed Rule Change did not 
receive any comment letters. Nonetheless, the Exchange withdrew the 
Second Proposed Rule Change on October 23, 2020 \9\ and submitted SR-
PEARL-2020-21 (``Third Proposed Rule Change''). On October 26, 2020, 
the Exchange withdrew the Third Proposed Rule Change and submitted SR-
PEARL-2020-22 (``Fourth Proposed Rule Change''). The Fourth Proposed 
Rule Change to increase the number of additional Limited Service MEO 
Ports available to Members (without increasing the actual fee amounts) 
provides additional information regarding the Exchange's revenues, 
costs, and profitability for the two additional Limited Service MEO 
Ports. This additional analysis includes information regarding the 
Exchange's methodology for determining the costs and revenues for the 
two additional Limited Service MEO Ports.
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    \4\ See Securities Exchange Act Release No. 89316 (July 14, 
2020), 85 FR 43898 (July 20, 2020) (SR-PEARL-2020-09) (the ``First 
Proposed Rule Change'').
    \5\ Id.
    \6\ See Comment Letter from Christopher Solgan, VP, Senior 
Counsel, the Exchange, dated August 24, 2020, notifying the 
Commission that the Exchange will withdraw the First Proposed Rule 
Change.
    \7\ See Securities Exchange Act Release No. 89774 (September 4, 
2020), 85 FR 56281 (September 11, 2020) (SR-PEARL-2020-12) (the 
``Second Proposed Rule Change'').
    \8\ Id.
    \9\ See Comment Letter from Christopher Solgan, VP, Senior 
Counsel, the Exchange, dated October 19, 2020, notifying the 
Commission that the Exchange would withdraw the Second Proposed Rule 
Change.
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    On November 5, 2020, the Exchange withdrew the Fourth Proposed Rule 
Change and refiled its proposal to increase the number of Limited 
Service MEO Ports available to Members (without increasing the actual 
fee amounts) to provide further clarification regarding the Exchange's 
revenues, costs, and profitability for the two additional Limited 
Service MEO Ports (including information regarding the Exchange's 
methodology for determining the costs and revenues for the two 
additional Limited Service MEO Ports).\10\ The Fifth Proposed Rule 
Change was published for comment in the Federal Register on November 
24, 2020.\11\ Like the First, Second, Third and Fourth Proposed Rule 
Changes, the Fifth Proposed Rule Change did not receive any comment 
letters. Nonetheless, the Exchange withdrew the Fifth Proposed Rule 
Change on December 21, 2020.\12\
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    \10\ See Securities Exchange Act Release No. 90449 (November 18, 
2020), 85 FR 75079 (November 24, 2020) (SR-PEARL-2020-25) (the 
``Fifth Proposed Rule Change'').
    \11\ Id.
    \12\ See Comment Letter from Christopher Solgan, VP, Senior 
Counsel, the Exchange, dated December 18, 2020, notifying the 
Commission that the Exchange would withdraw the Fifth Proposed Rule 
Change.
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    The Exchange now submits this filing to increase the number of 
additional Limited Service MEO Ports available to Members (without 
increasing the actual fee amounts) to provide further clarification 
regarding the Exchange's cost analysis for the two additional Limited 
Service MEO Ports.
    The Exchange currently offers different options of MEO Ports 
depending on the services required by an Exchange Member, including a 
Full Service MEO Port-Bulk,\13\ a Full Service MEO Port-Single,\14\ and 
a Limited Service MEO Port.\15\ Currently, a Member may be allocated 
two (2) Full-Service MEO Ports of either type, Bulk and/or Single, per 
Matching Engine, and up to eight (8) Limited Service MEO Ports, per 
Matching Engine. The two (2) Full-Service MEO Ports that may be 
allocated per Matching Engine to a Member currently may consist of: (a) 
Two (2) Full Service MEO Ports--Bulk; or (b) two (2) Full Service MEO 
Ports--Single. The Exchange also has a third option, option (c), which 
permits a Member to have one (1) Full Service MEO Port--Bulk, and one 
(1) Full Service MEO Port--Single.
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    \13\ ``Full Service MEO Port--Bulk'' means an MEO port that 
supports all MEO input message types and binary bulk order entry. 
See the Definitions Section of the Fee Schedule.
    \14\ ``Full Service MEO Port--Single'' means an MEO port that 
supports all MEO input message types and binary order entry on a 
single order-by-order basis, but not bulk orders. See the 
Definitions Section of the Fee Schedule.
    \15\ ``Limited Service MEO Port'' means an MEO port that 
supports all MEO input message types, but does not support bulk 
order entry and only supports limited order types, as specified by 
the Exchange via Regulatory Circular. See the Definitions Section of 
the Fee Schedule.
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    The Exchange currently provides Members the first two (2) requested 
Limited Service MEO Ports free of charge and charges $200 per month for 
Limited Service MEO Ports three (3) and four (4), $300 per month for 
Limited Service MEO Ports five (5) and six (6), and $400 per month for 
Limited Service MEO Ports seven (7) and eight (8). These fees have been 
unchanged since they were adopted in 2018.\16\
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    \16\ See Securities Exchange Act Release No. 83867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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    The Exchange originally added the Limited Service MEO Ports to 
enhance the MEO Port connectivity made available to Members. Limited 
Service MEO Ports have been well received by Members since their 
addition. The Exchange now proposes to offer to Members the ability to 
purchase an additional two (2) Limited Service MEO Ports per matching 
engine over and above the current six (6) additional Limited Service 
MEO Ports per matching engine that are available for purchase by 
Members. The Exchange proposes making a corresponding change to the 
text in the Port Fee table and to the text below the Port Fee table in 
Section 5(d) of the Fee Schedule to specify that Members will now be 
limited to purchasing eight (8)

[[Page 340]]

additional Limited Service MEO Ports per matching engine, for a total 
of ten (10) per matching engine. All fees related to MEO Ports shall 
remain unchanged and Members that voluntarily purchase the additional 
ninth or tenth Limited Service MEO Ports will be subject to the 
existing $400 monthly fee per port that is charged to Members that 
request a seventh or eighth Limited Service MEO Port.
    The Exchange is increasing the number of additional Limited Service 
MEO Ports because the Exchange is expanding its network. This network 
expansion is necessary due to increased customer demand and increased 
volatility in the marketplace, both of which have translated into 
increased message traffic rates across the network. Consequently, this 
network expansion, which increases the number of switches supporting 
customer facing systems, is necessary in order to provide sufficient 
access to new and existing Members, to maintain a sufficient amount of 
network capacity head-room, and to continue to provide the same level 
of service across the Exchange's low-latency, high-throughput 
technology environment.
    Currently, the Exchange has 8 network switches that support the 
entire customer base of MIAX PEARL. The Exchange plans to increase this 
to 10 switches, which will increase the number of available customer 
ports by 25%. This increase in the number of available customer ports 
will enable the Exchange to continue to provide sufficient and equal 
access to the MIAX PEARL System to all Members. Absent the proposed 
increase in available MEO Ports, the Exchange projects that its current 
inventory will be depleted and it will lack sufficient capacity to 
continue to meet Members' access needs.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \17\ in general, and 
furthers the objectives of Section 6(b)(5) of the Act \18\ 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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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal is consistent with the 
objectives of Section 6(b)(5) of the Act \19\ because the proposed 
additional Limited Service MEO Ports will be available to all Members 
and the current fees for the additional Limited Service MEO Ports apply 
equally to all Members regardless of type, and access to the Exchange 
is offered on terms that are not unfairly discriminatory. The Exchange 
is proposing to increase the number of available Limited Service MEO 
Ports because the Exchange is expanding its network. This network 
expansion is necessary due to increased customer demand and increased 
volatility in the marketplace, both of which have translated into 
increased message traffic rates across the network. Consequently, this 
network expansion, which increases the number of switches supporting 
customer facing systems, is necessary in order to provide sufficient 
and equal access to new and existing Members, to maintain a sufficient 
amount of network capacity head-room, and to continue to provide the 
same level of service across the Exchange's low-latency, high-
throughput technology environment.
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    \19\ 15 U.S.C. 78f(b)(5).
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    Currently, the Exchange has 8 network switches that support the 
entire customer base of MIAX PEARL. The Exchange plans to increase this 
to 10 switches, which will increase the number of available customer 
ports by 25%. This increase in the number of available customer ports 
will enable the Exchange to continue to provide sufficient and equal 
access to MIAX PEARL Systems for all Members. Absent the proposed 
increase in available MEO Ports, the Exchange projects that its current 
inventory will be depleted and it will lack sufficient capacity to 
continue to meet Members' access needs. Further, the Exchange notes 
that decision of whether to purchase two additional Limited Service MEO 
Ports is completely optional and it is a business decision for each 
Member to determine whether the additional Limited Service MEO Ports 
are necessary to meet their business requirements.
    The Exchange further believes that the availability of the 
additional Limited Service MEO Ports is equitable and not unfairly 
discriminatory because it will enable Members to maintain uninterrupted 
access to the MIAX PEARL System and consequently enhance the 
marketplace by helping Members to better manage risk, thus preserving 
the integrity of the MIAX markets, all to the benefit of and protection 
of investors and the public as a whole.
    The Exchange also believes that its proposal is consistent with 
Section 6(b)(4) of the Act because only Members that voluntarily 
purchase the two additional Limited Service MEO Ports will be charged 
the existing $400 monthly fee per port applicable to ports seven (7) 
and eight (8), which has been unchanged since adopted 2018.\20\ The 
Exchange does not propose to amend the fees applicable to additional 
Limited Service MEO Ports which have been previously filed with the 
Commission and become effective after notice and public comment.\21\ As 
stated above, the Exchange proposes to expand its network by making 
available two additional Limit Service MEO Ports due to increased 
customer demand and increased volatility in the marketplace, both of 
which have translated into increased message traffic rates across the 
network. The cost to expand the network in this manner is greater than 
the revenue the Exchange anticipates the additional Limited Service MEO 
Ports will generate. Specifically, the Exchange estimates it will incur 
a one-time cost of approximately $175,000 in capital expenditures 
(``CapEx'') on hardware, software, and other items to expand the 
network to make available the two additional Limited Service MEO Ports. 
This estimated cost also includes expense associated with providing the 
necessary engineering and support personnel to transition those Members 
who wish to acquire the two additional Limited Service MEO Ports.
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    \20\ See supra note 16.
    \21\ Id.
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    The Exchange projects that approximately six to seven Members will 
purchase the additional Limited Service MEO Ports, which will be 
subject to the existing monthly fee of $400 per port applicable to 
ports seven (7) and eight (8). Accordingly, the Exchange projects that 
the annualized revenue from the two additional Limited Service MEO 
Ports will be approximately $67,200 (assuming seven Members purchase 
the two additional Limited Service MEO Ports). Therefore, the 
Exchange's upfront cost in expanding its network to provide its Members 
with the two additional Limited Service MEO Ports--approximately 
$175,000--is significant relative to the anticipated annualized revenue 
the Exchange expects to bring in from the two additional Limited 
Service MEO Ports--approximately $67,200. Further, the Exchange 
anticipates it will incur approximately $77,712 in annualized ongoing 
operating expense in order to support the expanded network and the two

[[Page 341]]

additional Limited Service MEO Ports. Thus, even excluding the upfront 
CapEx expense of $175,000, the Exchange is not generating a supra-
competitive profit from the provision of these two additional Limited 
Service MEO Ports. In fact, even excluding the one-time CapEx expense 
$175,000, the Exchange anticipates generating an annual loss from the 
provision of these two additional Limited Service MEO Ports of 
($10,512)--that is, $67,200 in revenue minus $77,712 in expense equates 
to a loss of ($10,512) to support the additional ports annually.
    The Exchange conducted an extensive cost review in which the 
Exchange analyzed every expense item in the Exchange's general expense 
ledger (this includes over 150 separate and distinct expense items) to 
determine whether each such expense relates to the additional Limited 
Service MEO Ports, and, if such expense did so relate, what portion (or 
percentage) of such expense actually supports the additional Limited 
Service MEO Ports, and thus bears a relationship that is, ``in nature 
and closeness,'' directly related to those services. The sum of all 
such portions of expenses represents the total cost of the Exchange to 
provide services associated with the two additional Limited Service MEO 
Ports. For the avoidance of doubt, none of the expenses included herein 
relating to the services associated with providing the two additional 
Limited Service MEO Ports also relate to the provision of any other 
services offered by the Exchange. Stated differently, no expense amount 
of the Exchange is allocated twice. The Exchange notes that it made 
certain representations in a previous filing \22\ regarding its expense 
allocation for the provision of network connectivity services. The 
Exchange represents that none of the expenses allocated to the 
provision of network connectivity services are also allocated to the 
provision of ports--that is, there is no overlap of any such expenses 
that are included in the costs associated with services the Exchange 
provides for connectivity and for the services the Exchange provides 
for ports.
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    \22\ See Securities Exchange Act Release No. 87876 (December 31, 
2019), 85 FR 757 (January 7, 2020) (SR-PEARL-2019-36).
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    Specifically, utilizing 2019 expense figures,\23\ 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 two additional Limited Service MEO Ports, was approximately 
$10,701. 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, NJ and Miami, FL to all 
data center locations; (3) Secure Financial Transaction Infrastructure 
(``SFTI''),\24\ which supports network feeds for the entire U.S. 
options industry; (4) various other services providers (including 
Thompson Reuters, NYSE, Nasdaq, and Internap), which provide content, 
network services, and infrastructure services for critical components 
of options network services; and (5) various other hardware and 
software providers (including Dell and Cisco, which support the 
production environment in which Members and non-Members connect to the 
network to trade, receive market data, etc.).
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    \23\ The Exchange notes that the total 2019 expense figures for 
each of the external and internal expenses described herein relate 
only to the Exchange's options market. No expense relating to the 
Exchange's equities market is included in this filing.
    \24\ In fact, on October 22, 2019, the Exchange was notified by 
SFTI that it is again raising its fees charged to the Exchange by 
approximately 11%, without having to show that such fee change 
complies with the Act by being reasonable, equitably allocated, and 
not unfairly discriminatory. It is unfathomable to the Exchange 
that, given the critical nature of the infrastructure services 
provided by SFTI, that its fees are not required to be rule-filed 
with the Commission pursuant to Section 19(b)(1) of the Act and Rule 
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, 
respectively.
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    For clarity, only a portion of all fees paid to such third-parties 
is included in the third-party expense herein, and no expense amount is 
allocated twice. Accordingly, the Exchange does not allocate its entire 
information technology and communication costs to the services 
associated with providing the two additional Limited Service MEO Ports.
    The Exchange believes it is reasonable to allocate such third-party 
expense described above towards the total cost to the Exchange to 
provide the services associated with the two additional Limited Service 
MEO Ports. 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 
services associated with the two additional Limited Service MEO Ports 
to its Members and non-Members and their customers. The Exchange did 
not allocate all of the Equinix expense toward the cost of providing 
the services associated with the two additional Limited Service MEO 
Ports, only that portion which the Exchange identified as being 
specifically mapped to providing the services associated with the two 
additional Limited Service MEO Ports, approximately 0.5% of the total 
Equinix expense. The Exchange believes this allocation is reasonable 
because it represents the Exchange's actual cost to provide the 
services associated with the two additional Limited Service MEO Ports, 
and not any other service, as supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portion of the Zayo expense because Zayo provides the internet, fiber 
and bandwidth connections with respect to the network, linking 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 services associated with the two 
additional Limited Service MEO Ports. The Exchange did not allocate all 
of the Zayo expense toward the cost of providing the services 
associated with the two additional Limited Service MEO Ports, only the 
portion which the Exchange identified as being specifically mapped to 
providing the two additional Limited Service MEO Ports, approximately 
0.4% of the total Zayo expense. The Exchange believes this allocation 
is reasonable because it represents the Exchange's actual cost to 
provide the services associated with the two additional Limited Service 
MEO Ports, and not any other service, as supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portions of the SFTI expense and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense 
because those entities provide connectivity and feeds for the entire 
U.S. options industry, as well as the content, network services, and

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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 non-Members and their customers. The 
Exchange did not allocate all of the SFTI and other service providers' 
expense toward the cost of providing the services associated with the 
two additional Limited Service MEO Ports, only the portions which the 
Exchange identified as being specifically mapped to providing the 
services associated with the two additional Limited Service MEO Ports, 
approximately 0.5% of the total SFTI and other service providers' 
expense. The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the services 
associated with the two additional Limited Service MEO Ports.
    The Exchange believes it is reasonable to allocate the identified 
portion of the other hardware and software provider expense because 
this includes costs for dedicated hardware licenses for switches and 
servers, as well as dedicated software licenses for security monitoring 
and reporting across the network. Without this hardware and software, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and non-Members and their customers. The 
Exchange did not allocate all of the hardware and software provider 
expense toward the cost of providing the services associated with the 
two additional Limited Service MEO Ports, only the portions which the 
Exchange identified as being specifically mapped to providing the 
services associated with the two additional Limited Service MEO Ports, 
approximately 0.3% of the total hardware and software provider expense. 
The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the services 
associated with the two additional Limited Service MEO Ports.
    For 2019, total internal expense, relating to the internal costs of 
the Exchange to provide the services associated with the two additional 
Limited Service MEO Ports was $67,011. This includes, but is not 
limited to, costs associated with: (1) Employee compensation and 
benefits for full-time employees that support the services associated 
with providing the two additional Limited Service MEO Ports, including 
staff in network operations, trading operations, development, system 
operations, business, as well as staff in general corporate departments 
(such as legal, regulatory, and finance) that support those employees 
and functions (including an increase as a result of the higher 
determinism project); (2) depreciation and amortization of hardware and 
software used to provide the services associated with the two 
additional Limited Service MEO Ports, 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 
services associated with the two additional Limited Service MEO Ports. 
The breakdown of these costs is more fully-described below. For 
clarity, only a portion of all such internal expenses are included in 
the internal expense herein, and no expense amount is allocated twice. 
Accordingly, the Exchange does not allocate its entire costs contained 
in those items to the services associated with providing the two 
additional Limited Service MEO Ports.
    The Exchange believes it is reasonable to allocate such internal 
expense described above towards the total cost to the Exchange to 
provide the services associated with the two additional Limited Service 
MEO Ports. In particular, the Exchange's employee compensation and 
benefits expense relating to providing the services associated with the 
two additional Limited Service MEO Ports was approximately $49,067, 
which is only a portion of the $8,177,821 total 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 services associated with the two additional Limited 
Service MEO Ports. Without these employees, the Exchange would not be 
able to provide the services associated with the two additional Limited 
Service MEO Ports to its Members and non-Members and their customers. 
The Exchange did not allocate all of the employee compensation and 
benefits expense toward the cost of the services associated with 
providing the two additional Limited Service MEO Ports, only the 
portions which the Exchange identified as being specifically mapped to 
providing the services associated with the two additional Limited 
Service MEO Ports, approximately 0.6% of the total employee 
compensation and benefits expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the services associated with the two additional Limited 
Service MEO Ports, and not any other service, as supported by its cost 
review.
    The Exchange's depreciation and amortization expense relating to 
providing the services associated with the two additional Limited 
Service MEO Ports was $15,584, which is only a portion of the 
$3,116,781 total 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 
services associated with the two additional Limited Service MEO Ports. 
Without this equipment, the Exchange would not be able to operate the 
network and provide the services associated with the two additional 
Limited Service MEO Ports to its Members and non-Members and their 
customers. The Exchange did not allocate all of the depreciation and 
amortization expense toward the cost of providing the services 
associated with the two additional Limited Service MEO Ports, only the 
portion which the Exchange identified as being specifically mapped to 
providing the services associated with the two additional Limited 
Service MEO Ports, approximately 0.5% of the total depreciation and 
amortization expense, as these services would not be possible without 
relying on such equipment. The Exchange believes this allocation is 
reasonable because it represents the Exchange's actual cost to provide 
the services associated with the two additional Limited Service MEO 
Ports, and not any other service, as supported by its cost review.

[[Page 343]]

    The Exchange's occupancy expense relating to providing the services 
associated with providing the two additional Limited Service MEO Ports 
was approximately $2,360, which is only a portion of the $590,157 total 
expense for occupancy. The Exchange believes it is reasonable to 
allocate the identified portion of such expense because such expense 
represents the portion of the Exchange's cost to rent and maintain a 
physical location for the Exchange's staff who operate and support the 
network, including providing the services associated with the two 
additional Limited Service MEO Ports. This amount consists primarily of 
rent for the Exchange's Princeton, NJ office, as well as various 
related costs, such as physical security, property management fees, 
property taxes, and utilities. The Exchange operates its Network 
Operations Center (``NOC'') and Security Operations Center (``SOC'') 
from its Princeton, New Jersey office location. A centralized office 
space is required to house the staff that operates and supports the 
network. The Exchange currently has approximately 160 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 services associated with providing the 
two additional Limited Service MEO Ports. Without this office space, 
the Exchange would not be able to operate and support the network and 
provide the services associated with the two additional Limited Service 
MEO Ports to its Members and non-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 services associated with the two additional Limited Service MEO 
Ports. The Exchange did not allocate all of the occupancy expense 
toward the cost of providing the services associated with the two 
additional Limited Service MEO Ports, only the portion which the 
Exchange identified as being specifically mapped to operating and 
supporting the network, approximately 0.4% of the total occupancy 
expense. The Exchange believes this allocation is reasonable because it 
represents the Exchange's cost to provide the services associated with 
the two additional Limited Service MEO Ports, and not any other 
service, as supported by its cost review.
    Accordingly, based on the facts and circumstances presented, the 
Exchange believes that its provision of the services associated with 
the two additional Limited Service MEO Ports will not result in 
excessive pricing or supra-competitive profit.
    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 services 
associated with the two additional Limited Service MEO Ports because 
the Exchange performed a line-by-line item analysis of all the expenses 
of the Exchange, and has determined the expenses that directly relate 
to operation and support of the network. Further, the Exchange notes 
that, without the specific third-party and internal items listed above, 
the Exchange would not be able to operate and support the network, 
including providing the services associated with the two additional 
Limited Service MEO Ports to its Members and non-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 the operation 
and support of the network. Providing the two additional Limited 
Service MEO Ports at the existing rates is intended to recover the 
Exchange's costs of operating and supporting the network.
    Accordingly, the Exchange believes that providing the two 
additional Limited Service MEO Ports at the existing rate is fair and 
reasonable because it does not result in excessive pricing or supra-
competitive profit, when comparing the actual network operation and 
support costs to the Exchange versus the projected annual revenue from 
providing the two additional Limited Service MEO Ports.
    Further, subjecting the two additional Limited Service MEO Ports to 
the existing $400 monthly fee per port applicable to ports seven (7) 
and eight (8) is also designed to encourage Members to be efficient 
with their port usage, thereby resulting in a corresponding increase in 
the efficiency that the Exchange would be able to realize in managing 
its aggregate costs for providing the two additional ports. There is no 
requirement that any Member maintain a specific number of Limited 
Service MEO Ports and a Member may choose to maintain as many or as few 
of such ports as each Member deems appropriate.
    Finally, subjecting the two additional Limited Service MEO Ports to 
the existing $400 monthly fee applicable to ports seven (7) and eight 
(8) will help to encourage Limited Service MEO Port usage in a way that 
aligns with the Exchange's regulatory obligations. As a national 
securities exchange, the Exchange is subject to Regulation Systems 
Compliance and Integrity (``Reg. SCI'').\25\ Reg. SCI Rule 1001(a) 
requires that the Exchange establish, maintain, and enforce written 
policies and procedures reasonably designed to ensure (among other 
things) that its Reg. SCI systems have levels of capacity adequate to 
maintain the Exchange's operational capability and promote the 
maintenance of fair and orderly markets.\26\ By encouraging Members to 
be efficient with their usage of Limited MEO Ports, the current fee 
that will continue to apply to the proposed two (2) additional Limited 
Service MEO Ports will support the Exchange's Reg. SCI obligations in 
this regard by ensuring that unused ports are available to be allocated 
based on individual Members needs and as the Exchange's overall order 
and trade volumes increase.
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    \25\ 17 CFR 242.1000-1007.
    \26\ 17 CFR 242.1001(a).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    MIAX PEARL does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
proposed rule change will not impose a burden on competition but will 
benefit competition by enhancing the Exchange's ability to compete by 
providing additional services to market participants. It is not 
intended to address a competitive issue. Rather, the proposed increase 
in the number of additional Limited Service MEO Ports available per 
Member is intended to allow the Exchange to increase its inventory of 
MEO Ports to meet increased Member demand. The Exchange is increasing 
the number of available additional Limited Service MEO Ports in 
response to Member demand for increased connectivity to the MIAX PEARL 
System. The Exchange's current inventory may soon be insufficient to 
meet those needs. Again, the Exchange is not proposing to amend the 
fees for MEO Ports, just to increase the number of MEO Ports available 
per Member. The Exchange also does not believe that the proposed

[[Page 344]]

rule change will impose a burden on intramarket competition because the 
two additional Limited Service MEO Ports will be available to all 
Members on an equal basis. It is a business decision of each Member 
whether to pay for the additional Limited Service MEO Ports.

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\27\ and Rule 19b-4(f)(2) \28\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \27\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \28\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-PEARL-2020-35 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-2020-35. 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-2020-35 and should be submitted on 
or before January 26, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-29133 Filed 1-4-21; 8:45 am]
BILLING CODE P