Document ID: SEC-2020-1991-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX Emerald, LLC
Posted Date: 2020-12-15T05:00Z

[Federal Register Volume 85, Number 241 (Tuesday, December 15, 2020)]
[Notices]
[Pages 81242-81248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27488]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90612; File No. SR-EMERALD-2020-16]

Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fee Schedule To Establish Market Data Fees

December 9, 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 November 25, 2020, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the 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 Emerald Fee 
Schedule (the ``Fee Schedule'') to establish market data fees.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX's 
principal office, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The

[[Page 81243]]

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 establish market 
data fees. MIAX Emerald commenced operations as a national securities 
exchange registered under Section 6 of the Act \3\ on March 1, 2019.\4\ 
The Exchange adopted its transaction fees and certain of its non-
transaction fees in its filing SR-EMERALD-2019-15.\5\ In that filing, 
the Exchange expressly waived, among others, market data fees to 
provide an incentive to prospective market participants to become 
Members \6\ of the Exchange. At that time, the Exchange waived market 
data fees for the Waiver Period \7\ and stated that it would provide 
notice to market participants when the Exchange intended to terminate 
the Waiver Period.
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    \3\ 15 U.S.C. 78f.
    \4\ See Securities Exchange Act Release No. 84891 (December 20, 
2018), 83 FR 67421 (December 28, 2018) (File No. 10-233) (order 
approving application of MIAX Emerald, LLC for registration as a 
national securities exchange).
    \5\ See Securities Exchange Act Release No. 85393 (March 21, 
2019), 84 FR 11599 (March 27, 2019) (SR-EMERALD-2019-15) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Establish the MIAX Emerald Fee Schedule).
    \6\ ``Member'' means an individual or organization approved to 
exercise the trading rights associated with a Trading Permit. 
Members are deemed ``members'' under the Exchange Act. See Exchange 
Rule 100 and the Definitions Section of the Fee Schedule.
    \7\ ``Waiver Period'' means, for each applicable fee, the period 
of time from the initial effective date of the MIAX Emerald Fee 
Schedule until such time that the Exchange has an effective fee 
filing establishing the applicable fee. The Exchange will issue a 
Regulatory Circular announcing the establishment of an applicable 
fee that was subject to a Waiver Period at least fifteen (15) days 
prior to the termination of the Waiver Period and effective date of 
any such applicable fee. See the Definitions Section of the Fee 
Schedule.
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    On September 15, 2020, the Exchange issued a Regulatory Circular 
which announced, among other things, that the Exchange would be ending 
the Waiver Period for market data fees, beginning October 1, 2020.\8\
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    \8\ See MIAX Emerald Regulatory Circular 2020-41 available at 
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2020_41.pdf.
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    On October 1, 2020, the Exchange filed its proposal to assess fees 
for its market data products, MIAX Emerald Top of Market (``ToM''), 
Administrative Information Subscriber (``AIS'') feed, and MIAX Order 
Feed (``MOR'').\9\ On October 14, 2020, the Exchange withdrew the First 
Proposed Rule Change and refiled its proposal in order to provide more 
description regarding the difference in pricing for internal 
distributors and external distributors.\10\
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    \9\ See SR-EMERALD-2020-10 (the ``First Proposed Rule Change'').
    \10\ See Securities Exchange Act Release No. 90274 (October 27, 
2020), 85 FR 69371 (November 2, 2020) (SR-EMERALD-2020-13) (Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fee Schedule To Establish Market Data Fees) (the ``Second 
Proposed Rule Change'').
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    On November 25, 2020, the Exchange withdrew the Second Proposed 
Rule Change and refiled its proposal to assess fees for its ToM, AIS 
and MOR products in order to provide sufficient information to 
demonstrate that the Exchange is subject to significant substitution-
based competitive forces \11\ in setting the terms of its proposal for 
ToM, AIS and MOR market data fees.\12\
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    \11\ See, e.g., Securities Exchange Act Release No. 90217 
(October 16, 2020), 85 FR 67392 (October 22, 2020) (SR-NYSENAT-2020-
05) (Order Approving a Proposed Rule Change To Establish Fees for 
the NYSE National Integrated Feed) (the ``Integrated Feed Approval 
Order'').
    \12\ See Comment Letter from Joseph W. Ferraro III, SVP, Deputy 
General Counsel, the Exchange, dated November 20, 2020, notifying 
the Commission that the Exchange will withdraw the Second Proposed 
Rule Change.
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    A more detailed description of the ToM, AIS and MOR products can be 
found in the Exchange's previously filed Market Data Product 
filings.\13\ The Exchange notes that it will not be assessing fees for 
Complex Top of Market (``cToM'') \14\ data at this time.
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    \13\ See Securities Exchange Act Release No. 85207 (February 27, 
2019), 84 FR 7963 (March 5, 2019) (SR-EMERALD-2019-09) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Establish MIAX Emerald Top of Market (``ToM'') Data Feed, MIAX 
Emerald Complex Top of Market (``cToM'') Data Feed, MIAX Emerald 
Administrative Information Subscriber (``AIS'') Data Feed, and MIAX 
Emerald Order Feed (``MOR'')).
    \14\ cToM provides subscribers with the same information as the 
ToM market data product as it relates to the strategy book, i.e., 
the Exchange's best bid and offer for a complex strategy, with 
aggregate size, based on displayable order and quoting interest in 
the complex strategy on the Exchange. cToM also provides subscribers 
with the identification of the complex strategies currently trading 
on MIAX Emerald; complex strategy last sale information; and the 
status of securities underlying the complex strategy (e.g., halted, 
open, or resumed). cToM is distinct from ToM, and anyone wishing to 
receive cToM data must subscribe to cToM regardless of whether they 
are a current ToM subscriber. ToM subscribers are not required to 
subscribe to cToM, and cToM subscribers are not required to 
subscribe to ToM. See id.
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    To summarize, ToM provides market participants with a direct data 
feed that includes the Exchange's best bid and offer, with aggregate 
size, and last sale information, based on displayable order and quoting 
interest on the Exchange. The ToM data feed includes data that is 
identical to the data sent to the processor for the Options Price 
Reporting Authority (``OPRA''). ToM also contains a feature that 
provides the number of Priority Customer \15\ contracts that are 
included in the size associated with the Exchange's best bid and offer.
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    \15\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities, and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s). The 
number of orders shall be counted in accordance with Interpretation 
and Policy .01 to Exchange Rule 100. See Exchange Rule 100.
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    AIS provides market participants with a direct data feed that 
allows subscribers to receive real-time updates of products traded on 
MIAX Emerald, trading status for MIAX Emerald and products traded on 
MIAX Emerald, and liquidity seeking event notifications. The AIS market 
data feed includes opening imbalance condition information, opening 
routing information, expanded quote range information, post-halt 
notifications, and liquidity refresh condition information. AIS real-
time messages are disseminated over multicast to achieve a fair 
delivery mechanism. AIS notifications provide current electronic system 
status allowing subscribers to take necessary actions immediately.
    MOR provides market participants with a direct data feed that 
allows subscribers to receive real-time updates of options orders, 
products traded on MIAX Emerald, MIAX Emerald Options System status, 
and MIAX Emerald Options Underlying trading status. Subscribers to the 
data feed will get a list of all options symbols and strategies that 
will be traded and sourced on that feed at the start of every session.
    The Exchange proposes to charge monthly fees to Distributors 
(defined below) of the ToM, AIS, and MOR market data products. MIAX 
Emerald will assess market data fees applicable to the market data 
products on Internal and External Distributors in each month the 
Distributor is credentialed to use the applicable market data product 
in the production environment. A ``Distributor'' of MIAX Emerald data 
is any entity that receives a feed or file of data either directly from 
MIAX Emerald or indirectly through another entity and then distributes 
it either internally (within that entity) or externally (outside that 
entity). All Distributors are required to execute a MIAX Emerald 
Distributor Agreement. Market data fees for ToM, AIS, and MOR will be 
reduced for new Distributors for the first month during which they 
subscribe to the applicable market data product, based on the number of 
trading days that have

[[Page 81244]]

been held during the month prior to the date on which they have been 
credentialed to use the applicable market data product in the 
production environment. Such new Distributors will be assessed a pro-
rata percentage of the fees described above, which is the percentage of 
the number of trading days remaining in the affected calendar month as 
of the date on which they have been credentialed to use the applicable 
market data product in the production environment, divided by the total 
number of trading days in the affected calendar month.
    Specifically, the Exchange proposes to assess Internal Distributors 
$1,250 per month and External Distributors $1,750 per month for the ToM 
market data feed. The Exchange proposes to assess Internal Distributors 
$1,250 per month and External Distributors $1,750 per month for the AIS 
market data feed. The Exchange proposes to assess Internal Distributors 
$3,000 per month and External Distributors $3,500 per month for the MOR 
market data feed. The Exchange notes that its data feed prices are 
generally lower than other options exchanges' data feed prices for 
their comparable data feed products.\16\
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    \16\ See Nasdaq PHLX LLC Pricing Schedule, Options 7, Section 
10, Proprietary Data Feed Fees; Cboe BZX Exchange, Inc. Fee 
Schedule, Market Data Fees; Cboe Data Services, LLC, Fee Schedule.
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    The Exchange operates in a highly competitive market. The 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. In Regulation NMS, the Commission 
highlighted the importance of market forces in determining prices and 
SRO revenues and, also, recognized that current regulation of the 
market system ``has been remarkably successful in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.'' \17\
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    \17\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS 
Adopting Release'').
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    There are currently 16 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than approximately 16% 
of the market share of executed volume of multiply-listed equity and 
exchange-traded fund (``ETF'') options trades.\18\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
October 2020, the Exchange had approximately 3.60% market share of 
executed volume of multiply-listed equity & ETF options trades.
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    \18\ The OCC publishes options and futures volume in a variety 
of formats, including daily and monthly volume by exchange, 
available here: https://www.theocc.com/market-data/volume/default.jsp.
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    The recent growth of the Exchange's market share demonstrates this 
competitive marketplace. Up until February 28, 2019, the Exchange was 
non-operational, and therefore had a 0% market share. On March 1, 2019, 
the Exchange launched its current platform as an affiliated exchange of 
Miami International Securities Exchange, LLC (``MIAX'') and MIAX PEARL, 
LLC (``MIAX PEARL''). Within one month, MIAX Emerald began regularly 
executing at least 0.70% of trading volume. By September, 2019, MIAX 
Emerald began executing close to 1% of trading volume on a more regular 
basis. Beginning March of 2020, the Exchange had a regular market share 
of approximately 2-4% of executed volume of equity option trades.\19\
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    \19\ See id.
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    As MIAX Emerald's transaction market share has increased, so has 
the value of its market data. For example, in March 2019, when MIAX 
Emerald launched operations, the Exchange had only 5 subscribers for 
its ToM data feed, 3 subscribers for its AIS data feed, and 2 
subscribers for its MOR data feed--all such feeds were free during that 
time. As MIAX Emerald's market share has increased, the number of 
subscribers of the ToM, AIS and MOR data feeds has steadily increased 
and as of September 2020, prior to the First Proposed Rule Change, the 
Exchange had 14 subscribers for its ToM data feed, 13 subscribers for 
its AIS data feed, and 9 subscribers for its MOR data feed--all such 
feeds were free during that time. However, notwithstanding this 
subscriber growth, only a fraction of the total MIAX Emerald Members 
subscribe to MIAX Emerald data feed products. For example, as of 
September 2020, MIAX Emerald had 42 Members. However, during that same 
period, only 14 Members subscribed to MIAX Emerald data feed products. 
That is only an approximately 30% subscription rate. Accordingly, 
approximately 70% of the MIAX Emerald Members rely on substitute market 
data products to satisfy their trading needs on MIAX Emerald.
    On September 15, 2020, the Exchange issued a Regulatory Circular to 
announce that the Exchange would be ending the Waiver Period for its 
ToM, AIS and MOR data feeds, beginning October 1, 2020, which provided 
market participants with sufficient advance notice of the proposed fees 
for those data feeds. This notice also afforded market participants 
with reasonable time to consider the value of the MIAX Emerald ToM, AIS 
and MOR data feeds on their businesses, and make a determination of 
whether to continue using the products or not, once they were no longer 
provided for free.\20\
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    \20\ See supra, note 8.
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    Since the First Proposed Rule Change went into effect, 1 subscriber 
of the ToM data feed product (i.e., nearly 7% of the prior subscriber 
base), 2 subscribers of the AIS data feed product (i.e., nearly 16.66% 
of the prior subscriber base), and 1 subscriber of the MOR data feed 
product (i.e., nearly 11% of the prior subscriber base) cancelled their 
subscriptions. In each instance, the subscribers told the Exchange that 
their reasons for cancelling their subscriptions were the imminent 
imposition of fees. The total number of subscriptions lost constitute 
11.4% of the prior subscriber base.
    The Exchange is not required to make the ToM, AIS and MOR data 
feeds available or to offer any specific pricing alternatives to any 
customers, nor is any firm required to purchase the ToM, AIS and MOR 
data feeds. Firms that choose to purchase the ToM, AIS and MOR data 
feeds do so for the primary goals of using them to increase their 
revenues, reduce their expenses, and in some instances to compete 
directly with the Exchange (including for order flow). Those firms are 
able to determine for themselves whether or not the ToM, AIS and MOR 
data feeds or any other similar products are attractively priced.\21\
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    \21\ See Securities Exchange Act Release Nos. 60459 (August 7, 
2009), 74 FR 41466 (August 17, 2009) (SR-Phlx-2009-54) (Order 
Approving a Proposed Rule Change to Establish Fees for the Top of 
PHLX Options Direct Data Feed Product); 66993 (May 15, 2012), 77 FR 
30043 (May 21, 2012) (SR-PHLX-2012-63). See also Nasdaq GEMX Options 
7, Pricing Schedule, Section 7, Market Data.
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    The Exchange produces and disseminates the ToM, AIS and MOR data 
feeds as part of its market data offerings to support its transaction 
execution services. Since March 2019, when the Exchange launched 
trading, the Exchange has observed a direct correlation between the 
steady increase of subscribers to the ToM, AIS and MOR data feeds and 
the increase in the Exchange's transaction market share volume over the 
same period.
    The Exchange determined the level of fees to charge for the ToM, 
AIS and MOR data feeds based on the value of the Exchange's transaction 
services. As noted above, over an initial 12-month period, the Exchange 
has grown from 0% to approximately 2-4% market share of consolidated 
trading volume on

[[Page 81245]]

a regular monthly basis. During that same period, the Exchange had a 
steady increase in the number of subscribers to its ToM, AIS and MOR 
data feeds. However, as discussed above, only approximately 30% of MIAX 
Emerald Members subscribe to market data products from the Exchange. 
Conversely, approximately 70% of the MIAX Emerald Members rely on 
substitute market data products to satisfy their trading needs on MIAX 
Emerald.
    The proposed fee structure is not novel as it is based on the fee 
structure currently in place for the ToM, AIS and MOR data feeds at the 
Exchange's affiliate, MIAX.\22\ Both MIAX and MIAX Emerald trade over 
approximately 2,700 equity options. The Exchange now proposes fees for 
its ToM, AIS and MOR data feeds that are based on the existing fee 
structure and rates that data recipients already pay for the MIAX ToM, 
AIS and MOR data feeds.
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    \22\ See MIAX Fee Schedule, Section 6, Market Data Fees.
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    At the time the Exchange filed the First Proposed Rule Change, the 
Exchange did not know the full impact of the proposed fees on current 
data recipients because subscribers may choose to reduce or eliminate 
their use of data. The Exchange anticipated that there might be data 
recipients of the ToM, AIS and MOR data feeds that subscribed only 
because they were free and might choose to discontinue using the 
products once the fees were implemented. The Exchange anticipated that 
data recipients that choose to discontinue the ToM, AIS and MOR data 
feeds may also choose to shift order flow away from the Exchange, and 
that, given the current competitive environment, if data recipients 
were to both discontinue the product and shift order flow away from the 
Exchange, the Exchange would reevaluate the fees and potentially file a 
separate proposed rule change to amend its fees. Prior to the 
imposition of the First Proposed Rule Change, the Exchange could not 
estimate the impact of the proposed fees on the Exchange's transaction 
services business or the number of subscribers for the Exchange's ToM, 
AIS and MOR data feeds. Since October 1, 2020, when the fees for the 
ToM, AIS and MOR data feeds took effect, 4 subscribers to the ToM, AIS 
and MOR data feeds have cancelled their subscriptions. In each 
instance, the subscribers told the Exchange that the reason for ending 
their subscriptions was the imminent imposition of fees. Additionally, 
this data must be considered in the context that only approximately 30% 
of MIAX Emerald Members subscribe to market data products from the 
Exchange. Conversely, approximately 70% of the MIAX Emerald Members 
rely on substitute market data products to satisfy their trading needs 
on MIAX Emerald.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \23\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \24\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees and other charges among its members and issuers and other persons 
using its facilities. The Exchange also believes the proposal furthers 
the objectives of Section 6(b)(5) of the Act in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(4) and (5).
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Exchange Market Data Fees Are Constrained by the Availability of 
Substitute Platforms
    The fierce competition for order flow constrains any exchange from 
pricing its market data at a supracompetitive price, and constrains the 
Exchange in setting its fees for the ToM, AIS and MOR data feeds. The 
proposed fees are therefore reasonable because in setting them, the 
Exchange is constrained by the availability of 15 substitute options 
exchanges offering market data products and trading capabilities. Such 
substitutes need not be identical, but only substantially similar to 
the product at hand.
    More specifically, in setting fees for ToM, AIS and MOR data feeds, 
the Exchange is constrained by the fact that, if its pricing is 
unattractive to customers, customers have their pick of an increasing 
number of alternative options exchanges to use instead of the Exchange. 
To illustrate, MIAX Emerald has 42 Exchange Members. The Cboe Exchange, 
Inc. (``Cboe'') has approximately 229 exchange members.\25\ The 
Exchange believes that it has considered all relevant factors and has 
not considered irrelevant factors in order to establish fees. The 
existence of numerous alternative options exchanges to the Exchange's 
trading system ensures that the Exchange cannot set unreasonable market 
data fees without suffering the negative effects of that decision in 
the fiercely competitive market in which it operates as a platform.
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    \25\ See Cboe Form 1 Amendment, Exhibit M (June 26, 2020), 
available at https://www.sec.gov/Archives/edgar/vprr/2001/20012232.pdf.
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MIAX Emerald ToM, AIS and MOR Data Feeds Are Optional Market Data 
Products
    The decision to subscribe to the Exchange's ToM, AIS and/or MOR 
data feeds is entirely optional and is a business decision that is made 
by each firm. The Exchange is not required to make the ToM, AIS and MOR 
data feeds available to any customers, nor is any customer required to 
purchase the ToM, AIS and MOR data feeds. A customer's decision whether 
to purchase the ToM, AIS and MOR data feeds is entirely discretionary. 
Most firms that choose to subscribe to the ToM, AIS and MOR data feeds 
do so for the primary goals of using it to increase their revenues, 
reduce their expenses, and in some instances to compete directly with 
the Exchange for order flow. Such firms are able to determine for 
themselves whether the ToM, AIS and MOR data feeds are necessary for 
their business needs, and if so, whether or not they are attractively 
priced. If the ToM, AIS and MOR data feeds do not provide sufficient 
value to firms based on the uses those firms may have for them, those 
firms may simply choose to conduct their business operations in ways 
that do not use the ToM, AIS and MOR data feeds. If they do not choose 
to use the ToM, AIS and MOR data feeds, they could also choose not to 
direct order flow to the Exchange.
    As noted above, after the First Proposed Rule Change, current 
subscribers to the ToM, AIS and MOR data feeds began changing their 
behavior in response to the imposition of fees for those data feed 
products. Since October 1, 2020, when the First Proposed Rule Change 
took effect, 4 subscribers to the ToM, AIS and MOR data feeds cancelled 
their subscriptions. In each instance, the subscriber told the Exchange 
that the reason for ending its subscription was the imminent imposition 
of fees. These cancellations are evidence that subscribing to the ToM, 
AIS and MOR data feeds is discretionary, that each customer makes the 
decision whether to subscribe based on its own analysis of the benefits 
and costs to itself, and that customers can and do make those decisions 
quickly based on reactions to fee changes.
    However, only a fraction of total MIAX Emerald Members subscribe to 
MIAX Emerald data feed products. For

[[Page 81246]]

example, as of September 2020, MIAX Emerald had 42 Members. However, 
during that same period, only 14 Members subscribed to MIAX Emerald 
data feed products. That is only an approximately 30% subscription 
rate. Accordingly, approximately 70% of the MIAX Emerald Members rely 
on substitute market data products to satisfy their trading needs on 
MIAX Emerald.
    But even if such firms determine that the fees for the ToM, AIS and 
MOR data feeds are too high, customers can access much of the same data 
by subscribing to the data feed of the Options Price Reporting 
Authority (``OPRA''), which consists of: last sale reports (price, 
volume and related information with respect to completed transactions); 
quotation information (bids and offers and related information 
pertaining to quotations in eligible securities available for trading); 
and other related information with respect to trading and 
administrative messages. Although not free of charge, the fees for 
subscribing to OPRA's substitute data feeds are significantly 
discounted.\26\ Customers can also access much of this same data 
through one of the numerous OPRA Vendors.\27\ In this way, OPRA and 
OPRA Vendors are substitutes for a significant portion of the data 
available on the ToM, AIS and MOR data feeds. This is clear evidence 
that the availability of these substitute products constrains the 
Exchange's ability to charge supracompetitive prices for the ToM, AIS 
and MOR data feeds.
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    \26\ See OPRA Fee Schedule, available at https://assets.website-files.com/5ba40927ac854d8c97bc92d7/5bf2f4661faec762fa07826a_OPRA_Fee_Schedule.pdf (charging 
professional subscriber device-based fees of $31.50 per display 
device and non-professional subscriber fees starting at $1.25 per 
non-professional subscriber, up to 75,000, for OPRA's Basis 
Service).
    \27\ See the list of OPRA Vendors, available at https://assets.website-files.com/5ba40927ac854d8c97bc92d7/5c671220ff4c29504e423d0d_190215R2_OPRA_Vendors.pdf.
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    Further, in the case of data that is redistributed through OPRA 
Vendors, of which there are numerous firms, the vendors themselves 
provide additional price discipline for proprietary data products 
because they control the primary means of access to certain end users. 
These vendors impose price discipline based upon their business models. 
For example, vendors that assess a surcharge on data they sell are able 
to refuse to offer proprietary products that their end users do not or 
will not purchase in sufficient numbers.
    In setting the proposed fees for the ToM, AIS and MOR data feeds, 
the Exchange considered the competitiveness of the market for 
proprietary data and all of the implications of that competition. The 
Exchange believes that it has considered all relevant factors and has 
not considered irrelevant factors in order to establish reasonable 
fees. The existence of alternatives to the Exchange's trading system 
and the continued availability of the Exchange's separate data feeds at 
a steep discount ensure that the Exchange cannot set unreasonable fees 
when vendors and subscribers can elect these alternatives or choose not 
to purchase a specific proprietary data product if the attendant fees 
are not justified by the returns that any particular vendor or data 
recipient would achieve through the purchase.
    Further, the Exchange no longer believes it is necessary to waive 
its market data fees to attract market participants to the MIAX Emerald 
market since this market is now established and MIAX Emerald no longer 
needs to rely on such waivers to attract market participants. The 
Exchange believes that the proposed change is equitable and not 
unfairly discriminatory because the elimination of the fee waiver for 
market data fees will uniformly apply to all market participants and 
market participants are not required to purchase any market data feed 
from the Exchange. As described above, the Exchange does not offer 
trading in any proprietary or singly-list options products. 
Accordingly, the Exchange is not the sole source of market data for any 
products listed on the Exchange. Therefore, it is a business decision 
as to whether a firm purchases the Exchange's market data feeds. 
Additionally, the Exchange believes its proposal to establish market 
data fees is reasonable and well within the range of fees assessed 
among other exchanges, including the Exchange's affiliate, MIAX.\28\
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    \28\ See the MIAX Options Fee Schedule.
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    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to assess internal distributors fees that are 
less than the fees assessed for external distributors for subscriptions 
to the Exchange's ToM, AIS and MOR data feeds because internal 
distributors have limited, restricted usage rights to the market data, 
as compared to external distributors which have more expansive usage 
rights. All Members and non-Members that determine to receive any 
market data feed of the Exchange (or its affiliates, MIAX and MIAX 
PEARL), must first execute, among other things, the MIAX Exchange Group 
Exchange Data Agreement (the ``Exchange Data Agreement'').\29\ Pursuant 
to the Exchange Data Agreement, internal distributors are restricted to 
the ``internal use'' of any market data they receive. This means that 
internal distributors may only distribute the Exchange's market data to 
the recipient's officers and employees and its affiliates.\30\ External 
distributors may distribute the Exchange's market data to persons who 
are not officers, employees or affiliates of the external 
distributor,\31\ and may charge their own fees for the distribution of 
such market data. Accordingly, the Exchange believes it is fair, 
reasonable and not unfairly discriminatory to assess external 
distributors a higher fee for the Exchange's market data products as 
external distributors have greater usage rights to commercialize such 
market data. The Exchange believes the proposed fees are a reasonable 
allocation of its costs and expenses among its Members and other 
persons using its facilities since it is recovering the costs 
associated with distributing such data. Access to the Exchange is 
provided on fair and non-discriminatory terms. The Exchange believes 
the proposed fees are equitable and not unfairly discriminatory because 
the fee level results in a reasonable and equitable allocation of fees 
amongst users for similar services. Moreover, the decision as to 
whether or not to purchase market data is entirely optional to all 
users. Potential purchasers are not required to purchase the market 
data, and the Exchange is not required to make the market data 
available. Purchasers may request the data at any time or may decline 
to purchase such data. The allocation of fees among users is fair and 
reasonable because, if the market deems the proposed fees to be unfair 
or inequitable, firms can diminish or discontinue their use of this 
data.
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    \29\ See Exchange Data Agreement, available at https://miaxweb2.pairsite.com/sites/default/files/page-files/MIAX_Exchange_Group_Data_Agreement_09032020.pdf.
    \30\ See id.
    \31\ See id.
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    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility to 
offer new and unique market data to the public. It was believed that 
this authority would expand the amount of data available to consumers, 
and also spur innovation and competition for the provision of market 
data:

    ``[E]fficiency is promoted when broker-dealers who do not need 
the data beyond the prices, sizes, market center identifications of

[[Page 81247]]

the NBBO and consolidated last sale information are not required to 
receive (and pay for) such data when broker-dealers may choose to 
receive (and pay for) additional market data based on their own 
internal analysis of the need for such data.'' \32\
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    \32\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).

    By removing ``unnecessary regulatory restrictions'' on the ability 
of exchanges to sell their own data, Regulation NMS advanced the goals 
of the Act and the principles reflected in its legislative history. If 
the free market should determine whether proprietary data is sold to 
broker-dealers at all, it follows that the price at which such data is 
sold should be set by the market as well.
    In July, 2010, Congress adopted H.R. 4173, the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act''), 
which amended Section 19 of the Act. Among other things, Section 916 of 
the Dodd-Frank Act amended paragraph (A) of Section 19(b)(3) of the Act 
by inserting the phrase ``on any person, whether or not the person is a 
member of the self-regulatory organization'' after ``due, fee or other 
charge imposed by the self-regulatory organization.'' As a result, all 
SRO rule proposals establishing or changing dues, fees or other charges 
are immediately effective upon filing regardless of whether such dues, 
fees or other charges are imposed on members of the SRO, non-members, 
or both. Section 916 further amended paragraph (C) of Section 19(b)(3) 
of the Act to read, in pertinent part, ``At any time within the 60-day 
period beginning on the date of filing of such a proposed rule change 
in accordance with the provisions of paragraph (1) [of Section 19(b)], 
the Commission summarily may temporarily suspend the change in the 
rules of the self-regulatory organization made thereby, 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 this title. If the Commission takes such 
action, the Commission shall institute proceedings under paragraph 
(2)(B) [of Section 19(b)] to determine whether the proposed rule should 
be approved or disapproved.''
    The Exchange believes that these amendments to Section 19 of the 
Act reflect Congress's intent to allow the Commission to rely upon the 
forces of competition to ensure that fees for market data are 
reasonable and equitably allocated. Although Section 19(b) had formerly 
authorized immediate effectiveness for a ``due, fee or other charge 
imposed by the self-regulatory organization,'' the Commission adopted a 
policy and subsequently a rule stating that fees for data and other 
products available to persons that are not members of the self-
regulatory organization must be approved by the Commission after first 
being published for comment. At the time, the Commission supported the 
adoption of the policy and the rule by pointing out that unlike 
members, whose representation in self-regulatory organization 
governance was mandated by the Act, non-members should be given the 
opportunity to comment on fees before being required to pay them, and 
that the Commission should specifically approve all such fees. The 
Exchange believes that the amendment to Section 19 reflects Congress's 
conclusion that the evolution of self-regulatory organization 
governance and competitive market structure have rendered the 
Commission's prior policy on non-member fees obsolete. Specifically, 
many exchanges have evolved from member-owned, not-for-profit 
corporations into for-profit, investor-owned corporations (or 
subsidiaries of investor-owned corporations). Accordingly, exchanges no 
longer have narrow incentives to manage their affairs for the exclusive 
benefit of their members, but rather have incentives to maximize the 
appeal of their products to all customers, whether members or non-
members, so as to broaden distribution and grow revenues. Moreover, the 
Exchange believes that the change also reflects an endorsement of the 
Commission's determinations that reliance on competitive markets is an 
appropriate means to ensure equitable and reasonable prices. Simply 
put, the change reflects a presumption that all fee changes should be 
permitted to take effect immediately, since the level of all fees are 
constrained by competitive forces.
    Selling proprietary market data is a means by which exchanges 
compete to attract business. To the extent that exchanges are 
successful in such competition, they earn trading revenues and also 
enhance the value of their data products by increasing the amount of 
data they provide. The need to compete for business places substantial 
pressure upon exchanges to keep their fees for both executions and data 
reasonable.\33\ The Exchange therefore believes that the fees for 
market data are properly assessed on Members and Non-Member users.
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    \33\ See Sec. Indus. Fin. Mkts. Ass'n (SIFMA), Initial Decision 
Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June 1, 2016) (finding 
the existence of vigorous competition with respect to non-core 
market data).
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    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, No. 09-1042 (D.C. Cir. 
2010), although reviewing a Commission decision made prior to the 
effective date of the Dodd-Frank Act, upheld the Commission's reliance 
upon competitive markets to set reasonable and equitably allocated fees 
for market data:

    ``In fact, the legislative history indicates that the Congress 
intended that the market system `evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed' and that the SEC wield its regulatory power `in those 
situations where competition may not be sufficient,' such as in the 
creation of a `consolidated transactional reporting system.' '' \34\
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    \34\ NetCoalition, at 15 (quoting H.R. Rep. No. 94-229, at 92 
(1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323).

    The court's conclusions about Congressional intent are therefore 
reinforced by the Dodd-Frank Act amendments, which create a presumption 
that exchange fees, including market data fees, may take effect 
immediately, without prior Commission approval, and that the Commission 
should take action to suspend a fee change and institute a proceeding 
to determine whether the fee change should be approved or disapproved 
only where the Commission has concerns that the change may not be 
consistent with the Act.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive. In such an 
environment, the Exchange must continually adjust its fees for services 
and products, in addition to order flow, to remain competitive with 
other exchanges. The Exchange believes that the proposed changes 
reflect this competitive environment.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes that the proposed fees do not put any market 
participants at a relative disadvantage compared to other market 
participants.

[[Page 81248]]

As noted above, the proposed fee schedule would apply to all 
subscribers of the ToM, AIS and MOR data feeds, and customers may 
choose whether to subscribe to any or all of the feeds. The Exchange 
also believes that the proposed fees neither favor nor penalize one or 
more categories of market participants in a manner that would impose an 
undue market on competition. Further, the Exchange's proposed market 
data fee levels, as described herein, are comparable to fee levels 
charged by other options exchanges for the same or similar services, 
including those fees assessed by the Exchange's affiliate, MIAX.\35\
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    \35\ See the MIAX Options Fee Schedule.
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    The Exchange believes that the proposed market data fees do not 
place certain market participants at a relative disadvantage to other 
market participants because the fees do not apply unequally to 
different size market participants, but instead would allow the 
Exchange charge for the time and resource necessary for providing 
market data to the market participants that request such data. 
Accordingly, the Exchange believes that the proposed market data fees 
do not favor certain categories of market participants in a manner that 
would impose a burden on competition.
Inter-Market Competition
    The Exchange believes that the proposed fees do not impose a burden 
on competition or on other SROs that is not necessary or appropriate. 
In setting the proposed fees, the Exchange was constrained by the 
availability of numerous substitute trading platforms and services also 
offering market data products and trading capabilities, and low 
barriers to entry mean new exchanges are frequently introduced. In 
addition, the Exchange believes that the proposed fees do not impose a 
burden on competition or on other exchanges that is not necessary or 
appropriate because of the availability of numerous substitute market 
data products. Many other exchanges offer proprietary data feeds 
similar to the Exchange's ToM, AIS and MOR data feeds. Because market 
data users can find suitable substitute feeds, an exchange that 
overprices its market data products stands a high risk that users may 
substitute another platform, in which case the platform would stand to 
lose both market data and trading fees. These competitive pressures 
ensure that no one exchange's market data fees can impose an 
unnecessary burden on competition, and the Exchange's proposed fees do 
not do so here.

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,\36\ and Rule 19b-4(f)(2) \37\ 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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    \36\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \37\ 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-EMERALD-2020-16 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EMERALD-2020-16. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-EMERALD-2020-16, and should be submitted 
on or before January 5, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27488 Filed 12-14-20; 8:45 am]
BILLING CODE 8011-01-P