Document ID: SEC-2021-1674-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange LLC; MIAX PEARL, LLC
Posted Date: 2021-11-29T05:00Z

[Federal Register Volume 86, Number 226 (Monday, November 29, 2021)]
[Notices]
[Pages 67758-67763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25878]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93639; File Nos. SR-MIAX-2021-41, SR-PEARL-2021-45]

Self-Regulatory Organizations; Miami International Securities 
Exchange LLC, MIAX PEARL, LLC; Suspension of and Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove Proposed Rule 
Changes To Amend the Fee Schedules To Adopt a Tiered-Pricing Structure 
for Certain Connectivity Fees

November 22, 2021.

I. Introduction

    On September 24, 2021, Miami International Securities Exchange LLC, 
LLC (``MIAX'') and MIAX PEARL, LLC (``MIAX Pearl'') (collectively, the 
``Exchanges'') each filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change (File Numbers SR-MIAX-2021-41 and 
SR-PEARL-2021-45) to amend the MIAX Fee Schedule and MIAX Pearl Options 
Fee Schedule (collectively, the ``Fee Schedules'') to adopt a tiered 
pricing structure for certain connectivity fees. The proposed rule 
changes were immediately effective upon filing with the Commission 
pursuant to Section 19(b)(3)(A) of the Act.\3\ The proposed rule 
changes were published for comment in the Federal Register on October 
4, 2021.\4\ Under Section 19(b)(3)(C) of the Act,\5\ the Commission is 
hereby: (i) Temporarily suspending File Numbers SR-MIAX-2021-41 and SR-
PEARL-2021-45; and (ii) instituting proceedings to determine whether to 
approve or disapprove File Numbers SR-MIAX-2021-41 and SR-PEARL-2021-
45.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take 
effect upon filing with the Commission if it is designated by the 
exchange as ``establishing or changing a due, fee, or other charge 
imposed by the self-regulatory organization on any person, whether 
or not the person is a member of the self-regulatory organization.'' 
15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ See Securities Exchange Act Release Nos. 93165 (September 
28, 2021), 86 FR 54750 (``MIAX Notice''); 93162 (September 28, 
2021), 86 FR 54739 (``Pearl Notice''). For ease of reference, 
citations to statements generally applicable to both notices are to 
the MIAX Notice. Comments received on the proposed rule changes are 
available on the Commission's website at: https://www.sec.gov/comments/sr-miax-2021-41/srmiax202141.htm (SR-MIAX-2021-41); https://www.sec.gov/comments/sr-pearl-2021-45/srpearl202145.htm (SR-PEARL-
2021-45).
    \5\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Changes

    The Exchanges propose to modify their Fee Schedules to adopt a 
tiered-pricing structure for 10 gigabit (``Gb'') ultra-low latency 
(``ULL'') fiber connections to the Exchanges' primary and secondary 
facilities available to both Members \6\ and non-Members. Specifically, 
the Exchanges propose to modify the pricing structure for 10Gb ULL 
connections from a flat monthly fee of $10,000 per 10Gb ULL connection 
to the following fees (collectively, the ``Proposed Access Fees''): \7\
---------------------------------------------------------------------------

    \6\ 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 the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \7\ The Exchanges initially filed the proposed fee changes on 
July 30, 2021. See Securities Exchange Act Release Nos. 92643 
(August 11, 2021), 86 FR 46034 (August 17, 2021) (SR-MIAX-2021-35), 
92644 (August 11, 2021), 86 FR 46055 (August 17, 2021) (SR-PEARL-
2021-36). These filings were withdrawn by the Exchanges and replaced 
with the instant filings, with additional information.
---------------------------------------------------------------------------

     $9,000 each for the 1st and 2nd connections;
     $11,000 each for the 3rd and 4th connections; and
     $13,000 for each additional connection after the 4th 
connection.
    These fees are assessed in any month the Member or non-Member is 
credentialed to use any of the Exchanges' APIs or market data feeds in 
the Exchanges' production environment, pro-rated when a Member or non-
Member makes a change to connectivity by adding or deleting 
connections, and assessed in any month during which the Member or non-
Member has established connectivity with the Exchanges' disaster 
recovery facility.\8\
---------------------------------------------------------------------------

    \8\ See MIAX Notice, supra note 4, at 54751.
---------------------------------------------------------------------------

    The Exchanges state that the Exchanges' MIAX Express Network 
Interconnect (``MENI'') can be configured to provide Members and non-
Members of the Exchanges network connectivity to the trading platforms,

[[Page 67759]]

market data systems, test systems, and disaster recovery facilities of 
both MIAX and MIAX Pearl, via a single, shared connection. The 
Exchanges state that Members and non-Members utilizing the MENI to 
connect to the trading platforms, market data systems, test systems, 
and disaster recovery facilities of MIAX and MIAX Pearl via a single, 
shared connection will be assessed one monthly connectivity fee per 
connection, regardless of the trading platforms, market data systems, 
test systems, and disaster recovery facilities accessed via such 
connection.\9\
---------------------------------------------------------------------------

    \9\ See id. The Exchanges state that a firm that is a Member of 
both MIAX Pearl and MIAX can also allocate connections to the 
exchanges at the lowest rates. For example, a firm that purchases 
three or four total 10 Gb ULL connections can allocate one or two to 
MIAX Pearl and the remaining one or two to MIAX and pay the lowest 
rate of $9,000 for each of these connections, due to the shared MENI 
infrastructure of MIAX Pearl and MIAX. See id.
---------------------------------------------------------------------------

III. Suspension of the Proposed Rule Changes

    Pursuant to Section 19(b)(3)(C) of the Act,\10\ at any time within 
60 days of the date of filing of an immediately effective proposed rule 
change pursuant to Section 19(b)(1) of the Act,\11\ 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 changes is necessary and appropriate to 
allow for additional analysis of the proposed rule changes' consistency 
with the Act and the rules thereunder.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(C).
    \11\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    The Exchanges state that the tiered-pricing structure is 
reasonable, equitably allocated, and not unfairly discriminatory 
because it will encourage Members and non-Members to be more efficient 
and economical when determining how to connect to the Exchanges, and 
also enable the Exchanges to better monitor and provide access to the 
Exchanges' network to ensure sufficient capacity and headroom in the 
System.\12\ The Exchanges also state that the majority of Members and 
non-Members that purchase 10Gb ULL connections will either save money 
or pay the same amount after the tiered-pricing structure is 
implemented.\13\ The Exchanges further state that firms that primarily 
route orders for best executions generally only need a limited number 
of connections to fulfill that obligation and connectivity costs will 
likely to be lower for these firms, while for firms that engaged in 
advanced trading strategies that typically require multiple connections 
will generate higher costs by utilizing more of the Exchanges' 
resources.\14\
---------------------------------------------------------------------------

    \12\ See MIAX Notice, supra note 4, at 54761-62. The term 
``System'' means the automated trading system used by the Exchange 
for the trading of securities. See Exchange Rule 100.
    \13\ See MIAX Notice, supra note 4, at 54752, 54759. The 
Exchanges state that they initially filed the proposed fee changes 
on July 30, 2021 (SR-MIAX-2021-35 and SR-PEARL-2021-36) and, after 
the effective date of SR-MIAX-2021-35 and SR-PEARL-2021-36 on August 
1, 2021, approximately 80% of the firms that purchased at least one 
10Gb ULL connection experienced a decrease in their monthly 
connectivity fees, while approximately 20% of firms experienced an 
increase in their monthly connectivity fees as a result of the 
proposed tiered-pricing structure when compared to the flat monthly 
fee structure. See id. at 54752. The Exchanges also state that no 
Member or non-Member has altered its use of 10Gb ULL connectivity 
since the proposed fees went into effect on August 1, 2021.
    \14\ See id.
---------------------------------------------------------------------------

    In further support of the proposed fee changes, the Exchanges argue 
principally that the fees for 10Gb ULL connections are constrained by 
competitive forces, and that this is supported by their revenue and 
cost analysis. The Exchanges state that they operate in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive and the Exchanges must continually adjust their fees for 
services and products, and in addition to order flow, to remain 
competitive with other exchanges.\15\ The Exchanges state that they are 
not aware of any evidence that a market share of approximately 5-6% 
provides the Exchanges with anti-competitive pricing power, and that 
market participants may look to connect to the Exchanges via cheaper 
alternatives or choose to disconnect from the Exchanges or reduce the 
number of connections to the Exchanges as a means to reduce costs.\16\ 
The Exchanges state that market participants can and do drop their 
access to exchanges based on non-transaction fee pricing.\17\ The 
Exchanges also state that there is no regulatory requirement that any 
market participant connect to any one options exchange, or connect at a 
particular connection speed or act in a particular capacity on the 
Exchanges, and that the Exchanges are unaware of any one options 
exchange whose membership includes all registered broker-dealers.\18\
---------------------------------------------------------------------------

    \15\ See id. at 54751-52.
    \16\ See id. at 54753. The Exchanges also note that non-Member 
third-parties, such as service bureaus and extranets, resell the 
Exchanges' connectivity, which is another viable alternative for 
market participants to trade on the Exchanges. The Exchanges note 
that they receive no connectivity revenue when connectivity is 
resold, which the Exchanges believe creates and fosters a 
competitive environment and subjects the Exchanges to competitive 
forces in pricing their connectivity and access fees. See id. at 
54759.
    \17\ See id. at 54754.
    \18\ See id. at 54759.
---------------------------------------------------------------------------

    The Exchanges also state that the proposed fees are reasonable and 
appropriate to allow the Exchanges to offset expenses the Exchanges 
have and will incur in relation to providing the Proposed Access Fees 
and provide an analysis of their revenues, costs, and profitability 
associated with these fees.\19\ The Exchanges state that this analysis 
reflects an extensive cost review in which the Exchanges analyzed every 
expense item in the Exchanges' general expense ledgers 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.\20\ The Exchanges state 
that this analysis shows the fee increases will not result in excessive 
pricing or supra-competitive profits when compared to MIAX's and MIAX 
Pearl's annual expense associated with providing the 10Gb ULL 
connections versus the annual revenue for the 10Gb ULL connections.\21\
---------------------------------------------------------------------------

    \19\ See id. at 54754-57.
    \20\ See id. at 54752. The Exchanges also state that no expense 
amount is allocated twice. Id. at 54755, 54757. Expenses associated 
with the MIAX Pearl equities market are accounted for separately and 
are not within the scope of this filing. See id. at 54754.
    \21\ See id. at 54757.
---------------------------------------------------------------------------

    The Exchanges state that, for 2021, the total annual expense for 
providing the access services associated with the Proposed Access Fees 
for MIAX and MIAX Pearl is projected to be approximately $15.9 
million.\22\ The $15.9 million in projected total annual expense is 
comprised of the following, all of which the Exchanges state are 
directly related to the access services associated with the Proposed 
Access Fees: (1) Third-party expense, relating to fees paid by the 
Exchanges to third-parties for certain products and services; and (2) 
internal expense, relating to the internal costs of the Exchanges to 
provide the services associated with the Proposed Access Fees. The 
Exchanges state that the $15.9 million in projected total annual 
expense is directly related to the access services associated with the 
Proposed Access Fees, and not any

[[Page 67760]]

other product or service offered by the Exchanges.
---------------------------------------------------------------------------

    \22\ See id. at 54754.
---------------------------------------------------------------------------

    The Exchanges state that the total third-party expense, relating to 
fees paid by MIAX and MIAX Pearl to third-parties for certain products 
and services for the Exchanges to be able to provide the access 
services associated with the Proposed Access Fees is projected to be 
$3.9 million for 2021.\23\ The Exchanges represent that they determined 
whether third-party expenses related to the access services associated 
with the Proposed Access Fees, and, if such expense did so relate, 
determined what portion (or percentage) of such expense represents the 
cost to the Exchanges to provide access services associated with the 
Proposed Access Fees. This includes allocating a portion of fees paid 
to: (1) Equinix, for data center services (approximately 62% of the 
Exchanges' total applicable Equinix expense); (2) Zayo Group Holdings, 
Inc. for network services (approximately 62%); (3) Secure Financial 
Transaction Infrastructure and various other services providers 
(approximately 75%); \24\ and (4) various other hardware and software 
providers (approximately 51%).
---------------------------------------------------------------------------

    \23\ See id. at 54755.
    \24\ The Exchanges state that on October 22, 2019, the Exchanges 
were notified by Secure Financial Transaction Infrastructure that it 
was raising its fees charged to the Exchanges by approximately 11%, 
without being required to make a rule filing with the Commission 
pursuant to Section 19(b)(1) of the Act and Rule 19b-4 thereunder. 
See id. at 54755 n.29; see also 15 U.S.C. 78s(b)(1) and 17 CFR 
240.19b-4.
---------------------------------------------------------------------------

    In addition, the Exchanges state that the total internal expense, 
relating to the internal costs of the Exchanges to provide the access 
services associated with the Proposed Access Fees, is projected to be 
approximately $12 million for 2021.\25\ The Exchanges represent that: 
(1) The Exchanges' employee compensation and benefits expense relating 
to providing the access services associated with the Proposed Access 
Fees is projected to be approximately $6.1 million, which is a portion 
of the total projected expense of $12.6 million for MIAX and $9.2 
million for MIAX Pearl for employee compensation and benefits; (2) the 
Exchanges' depreciation and amortization expense relating to providing 
the access services associated with the Proposed Access Fees is 
projected to be $5.3 million, which is a portion of the total projected 
expense of $4.8 million for MIAX and $2.9 million for MIAX Pearl for 
depreciation and amortization; and (3) the Exchanges' occupancy expense 
relating to providing the access services associated with the Proposed 
Access Fees is projected to be $0.6 million, which is a portion of the 
Exchanges' total projected expense of $0.6 million for MIAX and $0.5 
million for MIAX Pearl for occupancy.
---------------------------------------------------------------------------

    \25\ See MIAX Notice, supra note 4, at 54756.
---------------------------------------------------------------------------

    The Exchanges state that this cost and revenue analysis shows that 
the proposed rule changes will not result in excessive pricing or 
supra-competitive profit.\26\ The Exchanges project that, on a fully-
annualized basis, the Proposed Access Fees will have an expense of 
approximately $15.9 million per annum and a projected revenue of $22 
million per year, and including projected revenue for providing network 
connectivity for all connectivity alternatives to be approximately 
$22.8 million per annum, resulting in a projected profit margin of 30% 
inclusive of the Proposed Access Fees and all other connectivity 
alternatives ($22.8 million in total projected connectivity revenue 
minus $15.9 million in projected expense = $6.9 million profit per 
year). The Exchanges state that this profit margin does not take into 
account the cost of capital expenditures that MIAX and MIAX Pearl 
historically spent or are projected to spend each year going forward.
---------------------------------------------------------------------------

    \26\ See id. at 54757.
---------------------------------------------------------------------------

    The Exchanges state that the proposed fees for 10Gb ULL connections 
is equitable and reasonable because the proposed highest tier is still 
less than fees charged for similar connectivity provided by other 
options exchanges.\27\ The Exchanges also state that their projected 
revenue from access fees is less than, or similar to, the access fee 
revenues generated by access fees charged by other U.S. options 
exchanges based on the 2020 audited financial statements within their 
Form 1 filings.\28\ The Exchanges also believe that their overall 
operating margin is in line with or less than the operating margins of 
competing options exchanges, including the revenue and expense 
associated with the Proposed Access Fees.\29\ The Exchanges state that 
this incremental increase in revenue generated from the 30% profit 
margin on connectivity will allow the Exchanges to further invest in 
their system architecture and matching engine functionality to the 
benefit of all market participants.\30\
---------------------------------------------------------------------------

    \27\ See id. at 54753. The Exchanges note that higher 
connectivity fees for competing exchanges have been in place for 
years (over 8 years in some cases), which allowed these exchanges to 
derive significantly more revenue from their access fees. See id. at 
54753-54. The Exchanges state that the Exchanges and their 
affiliates have historically set their fees purposefully low in 
order to attract business and market share, and that it benefits 
overall competition in the marketplace to allow relatively new 
entrants like the Exchanges and their affiliates to propose fees 
that may help these new entrants recoup their substantial investment 
in building out costly infrastructure. See id. at 54758-59.
    \28\ See id. at 54758.
    \29\ See id.
    \30\ See id.
---------------------------------------------------------------------------

    The Exchanges state that the proposed fees are equitably allocated, 
not unfairly discriminatory, and do not impose an unnecessary or 
inappropriate burden on competition because the Proposed Access Fees do 
not favor certain categories of market participants in a manner that 
would impose a burden on competition because the allocation reflects 
the network resources consumed by the various usage of market 
participants, with the lowest bandwidth consuming members paying the 
least, and highest bandwidth consuming members paying the most, 
particularly since higher bandwidth consumption translates to higher 
costs to the Exchanges; \31\ options market participants are not forced 
to connect to all options exchanges; \32\ and options market 
participants may choose alternative methods of connecting to the 
Exchanges, including routing through another participant or market 
center accessing the Exchanges indirectly.\33\
---------------------------------------------------------------------------

    \31\ See id. at 54759.
    \32\ See id.
    \33\ See id.
---------------------------------------------------------------------------

    The Commission received two comment letters from one commenter that 
opposes the proposed rule changes.\34\ This commenter states that the 
Exchanges have not sufficiently demonstrated their proposed fees' 
consistency with the Act or addressed previous concerns with the 
proposed fees raised by the same commenter.\35\ Specifically, this 
commenter argues that there are no reasonable substitutes for the 
Exchanges' 10Gb ULL connectivity lines, particularly for market makers 
whose business models require them to subscribe to direct connectivity 
to the Exchanges in the highest proposed pricing tier.\36\ The 
commenter further

[[Page 67761]]

argues that the fact that no member or non-member has altered its use 
of 10Gb ULL connectivity since the fee changes went into effect serves 
as further support of its claim that there are no reasonable 
alternatives to the service.\37\ This commenter also argues that the 
ability for a member to withdraw from an exchange should not support 
the reasonableness of any individual proposed fee, as a member would 
incur significant costs in withdrawing from an exchange in the form of 
lost infrastructure investments, the cost of withdrawal itself, and 
other opportunity costs.\38\ This commenter further objects that the 
Exchanges have not provided sufficient quantitative support for their 
revenues, costs, and profitability under the current and proposed fees 
to support an analysis that the proposed fees and the Exchanges' 
profitability are reasonable.\39\ Moreover, the commenter argues that 
the Exchanges' comparison of their projected access fee profit margins 
to the overall profit margins of competing exchanges is insufficient as 
it does not appropriately compare the individual components of these 
other exchange fees to those of the Exchanges.\40\ The commenter also 
suggests that any comparisons made by the Exchanges to the revenues and 
margins of other exchanges are inapt because they do not account for 
the circumstances under which other exchanges established their fees, 
including, for example, whether the services are equivalent or the 
costs to provide them are similar.\41\ Finally, this commenter claims 
that the proposed tiers in the new fee structure are unfairly 
discriminatory because the Exchanges have not provided any cost 
breakdown to support the claim that the use of multiple connections 
creates higher costs for the Exchanges.\42\ Instead, the commenter 
argues that market participants who purchase more units of 10Gb ULL 
connections use more exchange bandwidth simply due to the fact that 
they have purchased more units, and that this does not justify the 
proposal to charge a higher rate per unit, which the commenter claims 
is unfairly discriminatory towards market maker subscribers.\43\
---------------------------------------------------------------------------

    \34\ See letters from Richard J. McDonald, Susquehanna 
International Group, LLP, to Vanessa Countryman, Secretary, 
Commission, dated October 1, 2021 (``First SIG Letter'') and October 
26, 2021 (``Second SIG Letter'').
    \35\ See Second SIG Letter, at 2. In the First SIG Letter the 
commenter requested that the Commission suspend the proposals and 
institute proceedings to determine whether to approve or disapprove 
the proposals on the basis that the proposals represent the same fee 
changes previously proposed by the Exchanges for which the commenter 
expressed concerns. See also letter from Richard J. McDonald, 
Susquehanna International Group, LLP, to Vanessa Countryman, 
Secretary, Commission, dated September 7, 2021, available at https://www.sec.gov/comments/sr-miax-2021-35/srmiax202135-9208444-249989.pdf (comment letter submitted to File Nos. SR-MIAX-2021-35, 
SR-MIAX-2021-37, SR-PEARL-2021-33, SR-PEARL-2021-36, SR-EMERALD-
2021-23, and SR-EMERALD-2021-25, and expressing similar concerns to 
those described herein).
    \36\ See Second SIG Letter, supra note 36, at 2-3.
    \37\ See id. at 3.
    \38\ See id.
    \39\ See id. at 4. The commenter further argues that the 
Exchanges have not sufficiently justified the profit margins they 
would be accruing with the proposed fees by, for example, explaining 
specific technological undertakings the Exchanges expect to fund 
with the revenue from the new fees. See id.
    \40\ See id. at 4-5.
    \41\ See id.
    \42\ See id. at 5.
    \43\ See id. at 6.
---------------------------------------------------------------------------

    Another commenter opposing the proposed rule changes states that 
the Exchanges have not met their burden of demonstrating that the 
proposed fees are consistent with the standards under the Act.\44\ This 
commenter states that the Exchanges' argument that competition for 
order flow constrains pricing for products and services exclusively 
offered by the Exchanges does not demonstrate that the fees are 
reasonable.\45\ This commenter also disagrees with the Exchanges' 
statement that they must continually adjust the fees for these services 
as a result of competition from other markets, arguing that this does 
not reflect marketplace reality.\46\ This commenter also states that 
the Exchanges have failed to demonstrate that the proposed fees are 
equitably allocated and not unfairly discriminatory, claiming that the 
proposed fee changes directly impact market makers and the burden of 
the fee increases fall predominantly on market makers operating on the 
Exchanges because 10Gb ULL connections are an essential technology tool 
for market makers.\47\ The commenter states that the Exchanges offer no 
concrete support for their arguments that the tiered pricing structure 
would encourage firms to be more economical and efficient in the number 
of connections they purchase, allowing the Exchanges to better monitor 
and provide access to their networks to ensure that they have 
sufficient capacity and headroom in their systems.\48\ This commenter 
also states that the Exchanges provide no support for their position 
that the use of multiple 10Gb ULL connections generates higher costs 
for the Exchanges, positing that it is likely the Exchanges have fixed 
costs associated with providing connections and any additional 
connections purchased by users will result in greater Exchange 
profits.\49\ The commenter also states that the Exchanges have provided 
no public information on how they derived the cost amounts they 
determined to allocate to the products and services subject to the 
proposed fee changes nor any meaningful baseline information regarding 
the Exchanges' overall costs.\50\ This commenter believes that the 
Exchanges have withdrawn and refiled essentially identical 
proposals,\51\ subverting proper consideration of the proposed fee 
changes under the process set forth in the Act.\52\
---------------------------------------------------------------------------

    \44\ See letter from Ellen Green, Managing Director, Equity and 
Options Market Structure, Securities Industry and Financial Markets 
Association, to Vanessa Countryman, Secretary, Commission, dated 
November 16, 2021 (``SIFMA Letter'').
    \45\ See id. at 3. This commenter asserts that the proposals are 
similar to proprietary market data products offered by the 
Exchanges, which the commenter states are unique to the Exchanges 
and market participants cannot obtain anywhere else. Id.
    \46\ See id. at 4.
    \47\ See id. at 4-5. The commenter asserts that without high 
speed access provided through 10Gb ULL connections, market makers 
could be exposed to tremendous risk if their quotes become ``stale'' 
due to price movements in underlying securities. See id. at 4.
    \48\ See id. at 4. The commenter also states that the Exchanges 
fail to provide any discussion of why their current capacity needs 
are constrained under the current pricing structure.
    \49\ See id. at 5.
    \50\ See id. The commenter believes that such information is 
needed to allow commenters to judge whether the allocations are 
supportable. Id. This commenter also believes that the Exchanges' 
discussion of profit margins are ``high-level and conclusory,'' and 
fail to provide sufficient detail to understand whether or not the 
fees are reasonable. Id.
    \51\ See supra note 8.
    \52\ See SIFMA Letter, supra note 46, at 5-6.
---------------------------------------------------------------------------

    A different commenter, while not expressing support or opposition 
for the specific proposed fee changes, applauds the Exchanges for the 
enhanced disclosure they have provided with respect to their proposed 
fee changes as compared to the information in prior rule filings by 
other exchanges proposing similar types of market data or connectivity 
fees.\53\ This commenter states that the proposed fee changes would 
``materially lower costs for many users, while increasing the costs for 
some of [the Exchanges'] heaviest of users,'' noting that when these 
fee filing proposals were withdrawn and refiled, they contained 
``significantly greater information about who is impacted and how than 
other filings that have been permitted to take effect without 
suspension.'' \54\
---------------------------------------------------------------------------

    \53\ See letter from Tyler Gellasch, Executive Director, Healthy 
Markets Association, to Gary Gensler, Chair, Commission, dated 
October 29, 2021, at 17. This commenter also petitioned the 
Commission for rulemaking regarding the process for reviewing self-
regulatory organization fee filings.
    \54\ See id. The commenter highlights that the Exchanges' 
proposals detailed both the projected revenues generated from the 
proposed fees by user class as well as the percentage of subscribers 
whose fees increased or decreased as a result of the proposed 
changes. See id.
---------------------------------------------------------------------------

    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchanges' 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.\55\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement

[[Page 67762]]

``should be sufficiently detailed and specific to support a finding 
that the proposed rule change is consistent with [those] 
requirements.'' \56\
---------------------------------------------------------------------------

    \55\ 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'').
    \56\ Id.
---------------------------------------------------------------------------

    Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
require 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; \57\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \58\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\59\
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 78f(b)(4).
    \58\ 15 U.S.C. 78f(b)(5).
    \59\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchanges' fee changes, the 
Commission intends to further consider whether the proposals to modify 
fees for certain connectivity options and implement a tiered pricing 
fee structure is consistent with the statutory requirements applicable 
to a national securities exchange under the Act. In particular, the 
Commission will consider whether the proposed rule changes satisfy 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 permit unfair discrimination between customers, 
issuers, brokers or dealers; and do not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.\60\
---------------------------------------------------------------------------

    \60\ 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 changes.\61\
---------------------------------------------------------------------------

    \61\ For purposes of temporarily suspending the proposed rule 
changes, the Commission has considered the proposed rules' 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 Changes

    In addition to temporarily suspending the proposals, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\62\ and 19(b)(2)(B) of the Act \63\ to determine whether the proposed 
rule changes should be approved or disapproved. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule changes to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule changes.
---------------------------------------------------------------------------

    \62\ 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.
    \63\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\64\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
---------------------------------------------------------------------------

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

     Whether the Exchanges have demonstrated how the proposals 
are consistent with Section 6(b)(4) of the Act, which 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;'' \65\
---------------------------------------------------------------------------

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

     Whether the Exchanges have demonstrated how the proposals 
are consistent with Section 6(b)(5) of the Act, which requires, among 
other things, that the rules of a national securities exchange be 
``designed to perfect the operation of a free and open market and a 
national market system'' and ``protect investors and the public 
interest,'' and not be ``designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers;'' \66\ and
---------------------------------------------------------------------------

    \66\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

     Whether the Exchanges have demonstrated how the proposals 
are consistent with Section 6(b)(8) of the Act, which requires that the 
rules of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Act].'' \67\
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    As discussed in Section III above, the Exchanges makes various 
arguments in support of the proposals, and the Commission received 
comment letters disputing the Exchanges' arguments and expressing 
concerns regarding the proposals.\68\ In particular, two commenters 
argue that the Exchanges did not provide sufficient information to 
establish that the proposed fees are consistent with the Act and the 
rules thereunder.\69\ The Commission believes that there are questions 
as to whether the Exchanges have provided sufficient information to 
demonstrate that the proposed 10Gb ULL connectivity fees are consistent 
with the Act and the rules thereunder.
---------------------------------------------------------------------------

    \68\ See First SIG Letter and Second SIG Letter, supra note 36; 
SIFMA Letter, supra note 46.
    \69\ See id.
---------------------------------------------------------------------------

    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.'' \70\ 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,\71\ 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.\72\
---------------------------------------------------------------------------

    \70\ 17 CFR 201.700(b)(3).
    \71\ See id.
    \72\ See id.
---------------------------------------------------------------------------

    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposals are consistent with the Act, specifically, with 
its requirements that the rules of a national securities exchange 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members, issuers, and other persons using its 
facilities; are designed to perfect the operation of a free and open 
market and a national market system, and to protect investors and the 
public interest; are not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers; and do not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act; \73\ as well as any other 
provision of the Act, or the rules and regulations thereunder.
---------------------------------------------------------------------------

    \73\ See 15 U.S.C. 78f(b)(4), (5), and (8).
---------------------------------------------------------------------------

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect

[[Page 67763]]

to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by December 20, 2021. 
Rebuttal comments should be submitted by January 3, 2022. 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.\74\
---------------------------------------------------------------------------

    \74\ 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).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency and 
merit of the Exchanges' statements in support of the proposals, in 
addition to any other comments they may wish to submit about the 
proposed rule changes.
    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule changes, including whether the 
proposals are consistent with the Act. Comments may be submitted by any 
of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Nos. SR-MIAX-2021-41 and SR-PEARL-2021-45 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 Numbers SR-MIAX-2021-41 and SR-
PEARL-2021-45. These file numbers 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 
changes that are filed with the Commission, and all written 
communications relating to the proposed rule changes 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 filings also will be available for inspection and copying at the 
principal office of each 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 Numbers SR-
MIAX-2021-41 and SR-PEARL-2021-45 and should be submitted on or before 
December 20, 2021. Rebuttal comments should be submitted by January 3, 
2022.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\75\ that File Numbers SR-MIAX-2021-41 and SR-PEARL-2021-45 be, and 
hereby are, temporarily suspended. In addition, the Commission is 
instituting proceedings to determine whether the proposed rule changes 
should be approved or disapproved.
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\76\
---------------------------------------------------------------------------

    \76\ 17 CFR 200.30-3(a)(57) and (58).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25878 Filed 11-26-21; 8:45 am]
BILLING CODE 8011-01-P