Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule, 10363-10367 [2019-05217]

Download as PDF Federal Register / Vol. 84, No. 54 / Wednesday, March 20, 2019 / Notices including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– CboeBZX–2019–014 on the subject line. jbell on DSK30RV082PROD with NOTICES 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–CboeBZX–2019–014. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 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–CboeBZX–2019–014 and should be submitted on or before April 10, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Eduardo A. Aleman, Deputy Secretary. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85318; File No. SR–MIAX– 2019–10] Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule March 14, 2019. 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 March 1, 2019, Miami International Securities Exchange LLC (‘‘MIAX Options’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 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 Options Fee Schedule (the ‘‘Fee Schedule’’) to modify certain of the Exchange’s system connectivity fees. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings, 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 Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. [FR Doc. 2019–05219 Filed 3–19–19; 8:45 am] BILLING CODE 8011–01–P 1 15 22 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:27 Mar 19, 2019 2 17 Jkt 247001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00074 Fmt 4703 Sfmt 4703 10363 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 regarding connectivity to the Exchange. Specifically, the Exchange proposes to amend Sections 5a) and b) of the Fee Schedule to increase the network connectivity fees for the 1 Gigabit (‘‘Gb’’) fiber connection, the 10Gb fiber connection, and the 10Gb ultra-low latency (‘‘ULL’’) fiber connection, which are charged to both Members 3 and non-Members of the Exchange for connectivity to the Exchange’s primary/secondary facility. The Exchange also proposes to increase the network connectivity fees for the 1Gb and 10Gb fiber connections for connectivity to the Exchange’s disaster recovery facility. Each of these connections are shared connections, and thus can be utilized to access both the Exchange and the Exchange’s affiliate, MIAX PEARL, LLC (‘‘MIAX PEARL’’). These proposed fee increases are collectively referred to herein as the ‘‘Proposed Fee Increases.’’ The Exchange initially filed the Proposed Fee Increases on July 31, 2018, designating the Proposed Fee Increases effective August 1, 2018.4 The First Proposed Rule Change was published for comment in the Federal Register on August 13, 2018.5 The Commission received one comment letter on the proposal.6 The Proposed Fee Increases remained in effect until they were temporarily suspended pursuant to a suspension order (the ‘‘Suspension Order’’) issued by the Commission on September 17, 2018.7 The Suspension Order also instituted proceedings to determine whether to approve or 3 The term ‘‘Member’’ means an individual or organization approved to exercise the trading rights associated with a Trading Permit. Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. 4 See Securities Exchange Act Release No. 83786 (August 7, 2018), 83 FR 40106 (August 13, 2018) (SR–MIAX–2018–19). (The ‘‘First Proposed Rule Change’’). 5 Id. 6 See Letter from Tyler Gellasch, Executive Director, The Healthy Markets Association, to Brent J. Fields, Secretary, Commission, dated September 4, 2018 (‘‘Healthy Markets Letter’’). 7 See Securities Exchange Act Release No. 34– 84175 (September 17, 2018), 83 FR 47955 (September 21, 2018) (SR–MIAX–2018–19) (Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend the Fee Schedule Regarding Connectivity Fees for Members and Non-Members). E:\FR\FM\20MRN1.SGM 20MRN1 10364 Federal Register / Vol. 84, No. 54 / Wednesday, March 20, 2019 / Notices disapprove the First Proposed Rule Change.8 The Healthy Markets Letter argued that the Exchange did not provide sufficient information in its filing to support a finding that the proposal is consistent with the Act. Specifically, the Healthy Markets Letter objected to the Exchange’s reliance on the fees of other exchanges to demonstrate that its fee increases are consistent with the Act. In addition, the Healthy Markets Letter argued that the Exchange did not offer any details to support its basis for asserting that the proposed fee increases are consistent with the Act. On October 5, 2018, the Exchange withdrew the First Proposed Rule Change.9 The Exchange refiled the Proposed Fee Increases on September 18, 2018, designating the Proposed Fee Increases immediately effective.10 The Second Proposed Rule Change was published for comment in the Federal Register on October 10, 2018.11 The Commission received one comment letter on the proposal.12 The Proposed Fee Increases remained in effect until they were temporarily suspended pursuant to a suspension order (the ‘‘Second Suspension Order’’) issued by the Commission on October 3, 2018.13 The Second Suspension Order also instituted proceedings to determine whether to approve or disapprove the Second Proposed Rule Change.14 The SIFMA Letter argued that the Exchange did not provide sufficient information in its filing to support a finding that the proposal should be approved by the Commission after further review of the proposed fee increases. Specifically, the SIFMA Letter objected to the Exchange’s reliance on the fees of other exchanges to justify its own fee increases. In jbell on DSK30RV082PROD with NOTICES 8 Id. 9 See Securities Exchange Act Release No. 84398 (October 10, 2018), 83 FR 52264 (October 16, 2018) (SR–MIAX–2018–19 (Notice of Withdrawal of a Proposed Rule Change To Amend the Fee Schedule Regarding Connectivity Fees for Members and NonMembers). 10 See Securities Exchange Act Release No. 84357 (October 3, 2018), 83 FR 50976 (October 10, 2018) (SR–MIAX–2018–25). (The ‘‘Second Proposed Rule Change’’.) (Notice of Filing of a Proposed Rule Change To Amend the Fee Schedule Regarding Connectivity Fees for Members and Non-Members; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change). 11 Id. 12 See Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, and Ellen Greene, Managing Director Financial Services Operations, The Securities Industry and Financial Markets Association (‘‘SIFMA’’), to Brent J. Fields, Secretary, Commission, dated October 15, 2018 (‘‘SIFMA Letter’’). 13 See supra note 10. 14 Id. VerDate Sep<11>2014 17:27 Mar 19, 2019 Jkt 247001 addition, the SIFMA Letter argued that the Exchange did not offer any details to support its basis for asserting that the proposed fee increases are reasonable. On November 23, 2018, the Exchange withdrew the Second Proposed Rule Change.15 The Exchange is now re-filing the Proposed Fee Increases, and is also providing new information, including providing additional detail about the market participants impacted by the Proposed Fee Increases, as well as the additional costs incurred by the Exchange associated with providing the connectivity alternatives, in order to provide more transparency and support relating to the Exchange’s belief that the Proposed Fee Increases are reasonable, equitable, and non-discriminatory, and to provide sufficient information for the Commission to determine that the Proposed Fee Increases are consistent with the Act. The proposed rule change is immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act. The Exchange currently offers various bandwidth alternatives for connectivity to the Exchange, to its primary and secondary facilities, consisting of a 1Gb fiber connection, a 10Gb fiber connection, and a 10Gb ULL fiber connection. The 10Gb ULL offering uses an ultra-low latency switch, which provides faster processing of messages sent to it in comparison to the switch used for the other types of connectivity. The Exchange currently assesses the following monthly network connectivity fees to both Members and non-Members for connectivity to the Exchange’s primary/secondary facility: (a) $1,100 for the 1Gb connection; (b) $5,500 for the 10Gb connection; and (c) $8,500 for the 10Gb ULL connection. The Exchange also assesses to both Members and non-Members a monthly per connection network connectivity fee of $500 for each 1Gb connection to the disaster recovery facility and a monthly per connection network connectivity fee of $2,500 for each 10Gb connection to the disaster recovery facility. The Exchange’s MIAX Express Network Interconnect (‘‘MENI’’) can be configured to provide Members and non-Members of the Exchange network connectivity to the trading platforms, market data systems, test systems, and disaster recovery facilities of both the Exchange and its affiliate, MIAX PEARL, via a single, shared connection. 15 See Securities Exchange Act Release No. 84650 (November 26, 2018), 83 FR 61705 (November 30, 2018) (SR–MIAX–2018–25) (Notice of Withdrawal of a Proposed Rule Change To Amend the Fee Schedule Regarding Connectivity Fees for Members and Non-Members.). PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 Members and non-Members utilizing the MENI to connect to the trading platforms, market data systems, test systems and disaster recovery facilities of the Exchange and MIAX PEARL via a single, shared connection are assessed only one monthly network connectivity fee per connection, regardless of the trading platforms, market data systems, test systems, and disaster recovery facilities accessed via such connection. The Exchange proposes to increase the monthly network connectivity fees for such connections for both Members and non-Members. The network connectivity fees for connectivity to the Exchange’s primary/secondary facility will be increased as follows: (a) From $1,100 to $1,400 for the 1Gb connection; (b) from $5,500 to $6,100 for the 10Gb connection; and (c) from $8,500 to $9,300 for the 10Gb ULL connection. The network connectivity fees for connectivity to the Exchange’s disaster recovery facility will be increased as follows: (a) From $500 to $550 for the 1Gb connection; and (b) from $2,500 to $2,750 for the 10Gb connection. 2. Statutory Basis The Exchange believes that its proposal to amend its Fee Schedule is consistent with Section 6(b) of the Act 16 in general, and furthers the objectives of Section 6(b)(4) of the Act 17 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among Exchange Members and issuers and other persons using any facility or system which the Exchange operates or controls. The Exchange also believes the proposal furthers the objectives of Section 6(b)(5) of the Act 18 in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest and is not designed to permit unfair discrimination between customer, issuers, brokers and dealers. First, the Exchange believes that its proposal is consistent with Section 6(b)(4) of the Act, in that the Proposed Fee Changes are fair, equitable and not unreasonably discriminatory, because the fees for the connectivity alternatives available on the Exchange, as proposed to be increased, are competitive and market-driven. The U.S. options markets are highly competitive (there are currently 16 options markets) and a reliance on competitive markets is an 16 15 U.S.C. 78f(b). U.S.C. 78f(b)(4). 18 15 U.S.C. 78f(b)(5). 17 15 E:\FR\FM\20MRN1.SGM 20MRN1 Federal Register / Vol. 84, No. 54 / Wednesday, March 20, 2019 / Notices jbell on DSK30RV082PROD with NOTICES appropriate means to ensure equitable and reasonable prices. The Exchange acknowledges that there is no regulatory requirement that any market participant connect to the Exchange, or that any participant connect at any specific connection speed. The rule structure for options exchanges are, in fact, fundamentally different from those of equities exchanges. The Exchange further recognizes that the decision of whether to connect to the Exchange is separate and distinct from the decision of whether and how to trade on the Exchange. The Exchange acknowledges that many firms may choose to connect to the Exchange, but ultimately not trade on it. The Exchange 19 and MIAX PEARL 20 are comprised of 41 distinct Members between the two exchanges, excluding any additional affiliates of such Members that are also Members of MIAX Options, MIAX PEARL, or both. Of those 41 distinct Members, 33 Members have purchased the 1Gb, 10Gb, 10Gb ULL connections or some combination of multiple various connections. Furthermore, every Member who has purchased at least one connection also trades on the Exchange, MIAX PEARL, or both, with the exception of one new Member who is currently in the on-boarding process. The 8 remaining Members who have not purchased any connectivity to the Exchange are still able to trade on the Exchange indirectly through other Members or non-Member service bureaus that are connected. These 8 Members who have not purchased connectivity are not forced or compelled to purchase connectivity, and they retain all of the other benefits of Membership with the Exchange. Accordingly, Members have the choice to purchase connectivity and are not compelled to do so in any way. With respect to options trading, the Exchange had only 4.39% market share of the U.S. options industry in 2018 in Equity/ETF classes according to the OCC.21 For all of 2018, the Exchange’s affiliate, MIAX PEARL, had only 4.82% market share of the U.S. options industry in Equity/ETF classes 19 The Exchange has 38 distinct Members, excluding affiliated entities. See MIAX Options Exchange Member Directory, available at https:// www.miaxoptions.com/exchange-members. 20 MIAX PEARL has 36 distinct Members, excluding affiliated entities. See MIAX PEARL Exchange Member Directory, available at https:// www.miaxoptions.com/exchange-members/pearl. 21 See Exchange Market Share of Equity Products—2018, The Options Clearing Corporation, available at https://www.theocc.com/webapps/ exchange-volume. VerDate Sep<11>2014 17:27 Mar 19, 2019 Jkt 247001 according to the OCC.22 The Exchange is aware of no evidence that a combined market share of less than 10% provides the Exchange with anti-competitive pricing power. Separately, the Exchange is not aware of any reason why market participants could not simply drop their connections and cease being Members of the Exchange if the Exchange were to establish unreasonable and uncompetitive price increases for its connectivity alternatives. No options market participant is required by rule, regulation, or competitive forces to be a Member of the Exchange. Several market participants choose not to be Members of the Exchange and choose not to access the Exchange, and several market participants also access the Exchange indirectly through another market participant. To illustrate, the Exchange has only 45 Members (including all such Members’ affiliate Members). However, Cboe Exchange, Inc. (‘‘Cboe’’) has over 200 members,23 Nasdaq ISE, LLC has approximately 100 members,24 and NYSE American LLC has over 80 members.25 If all market participants were required to be Members of the Exchange and connect directly to the Exchange, the Exchange would have over 200 Members, in line with Cboe’s total membership. But it does not. The Exchange only has 45 Members (inclusive of Members’ affiliates). The Exchange finds it compelling that all of the Exchange’s existing Members continued to purchase the Exchange’s connectivity services during the period for which the Proposed Fee Increases took effect in August 2018. In particular, the Exchange believes that the Proposed Fee Increases are reasonable because the Exchange did not lose any Members (or the number of connections each Member purchased) or non-Member connections due to the Exchange increasing its connectivity fees through the First Proposed Rule Change, which fee increase became effective August 1, 2018. For example, in July 2018, fourteen (14) Members purchased 1Gb 22 Id. 23 See Form 1/A, filed August 30, 2018 (https:// www.sec.gov/Archives/edgar/vprr/1800/ 18002831.pdf); Form 1/A, filed August 30, 2018 (https://www.sec.gov/Archives/edgar/vprr/1800/ 18002833.pdf); Form 1/A, filed July 24, 2018 (https://www.sec.gov/Archives/edgar/vprr/1800/ 18002781.pdf); Form 1/A, filed August 30, 2018 (https://www.sec.gov/Archives/edgar/data/ 1473845/999999999718007832/9999999997-18007832-index.htm). 24 See Form 1/A, filed July 1, 2016 (https:// www.sec.gov/Archives/edgar/vprr/1601/ 16019243.pdf). 25 See https://www.nyse.com/markets/americanoptions/membership#directory. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 10365 connections, ten (10) Members purchased 10Gb connections, and fifteen (15) Members purchased 10Gb ULL connections. (The Exchange notes that 1Gb connections are purchased primarily by EEM Members; 10Gb ULL connections are purchased primarily by higher volume Market Makers quoting all products across both MIAX and MIAX PEARL; and 10Gb connections are purchased by higher volume EEMs and lower volume Market Makers.) The vast majority of those Members purchased multiple such connections with the actual number of connections depending on the Member’s throughput requirements based on the volume of their quote/order traffic associated with their business model. After the fee increase, beginning August 1, 2018, the same number of Members purchased the same number of connections.26 Furthermore, the total number of connections did not decrease from July to August 2018, and in fact one Member even purchased two (2) additional 10Gb ULL connections in August 2018, after the fee increase. Also, in July 2018, four (4) nonMembers purchased 1Gb connections, two (2) non-Members purchased 10Gb connections, and one (1) non-Member purchased 10Gb ULL connections. After the fee increase, beginning August 1, 2018, the same non-Members purchased the same number of connections across all available alternatives and two (2) additional non-Members purchased three (3) more connections after the fee increase. These non-Members freely purchased their connectivity with the Exchange in order to offer trading services to other firms and customers, as well as access to the market data services that their connections to the Exchange provide them, but they are not required or compelled to purchase any of the Exchange’s connectivity options. Of those Members and non-Members that bought multiple connections, no firm dropped any connections beginning August 1, 2018, when the Exchange increased its fees. Nor did the Exchange lose any Members. Furthermore, the Exchange did not receive any comment letters or official complaints from any Member or nonMember purchaser of connectivity regarding the increased fees regarding how the fee increase was unreasonable, unduly burdensome, or would negatively impact their competitiveness 26 The Exchange notes that one Member downgraded one connection in July, however such downgrade was done well ahead of notice of the Proposed Fee Increase and was the result of a change to the Member’s business operation that was completely independent of, and unrelated to, the Proposed Fee Increases. E:\FR\FM\20MRN1.SGM 20MRN1 jbell on DSK30RV082PROD with NOTICES 10366 Federal Register / Vol. 84, No. 54 / Wednesday, March 20, 2019 / Notices amongst other market participants. Therefore, the Exchange believes that the Proposed Fee Increases are fair, equitable, and non-discriminatory, as the fees are competitive. The Exchange believes that the Proposed Fee Increases are equitably allocated among Members and nonMembers, as evidenced by the fact that the fee increases are allocated across all connectivity alternatives, and there is not a disproportionate number of Members purchasing any alternative— fourteen (14) Members purchased 1Gb connections, ten (10) Members purchased 10Gb connections, fifteen (15) Members purchased 10Gb ULL connections, four (4) non-Members purchased 1Gb connections, two (2) non-Members purchased 10Gb connections, and one (1) non-Member purchased 10Gb ULL connections. The Exchange recognizes that the relative fee increases are 27% for the 1Gb connection, 10.9% for the 10Gb connection, and 9.4% for the 10Gb ULL connection, but the Exchange believes that percentage increase differentiation is appropriate, given the different levels of service provided and the largest percentage increase being associated with the lowest cost connection. Second, the Exchange believes that its proposal is consistent with Section 6(b)(4) of the Act because the Proposed Fee Increases allow the Exchange to recover a portion (less than all) of the increased costs incurred by the Exchange associated with providing and maintaining the necessary hardware and other infrastructure to support this technology since it last filed to increase its connectivity fees in December 2016, which became effective on January 1, 2017.27 Put simply, the costs of the Exchange to provide these services have increased considerably over this time, as more fully-detailed and quantified below. The Exchange believes that it is reasonable and appropriate to increase its fees charged for use of its connectivity to partially offset the increased costs the Exchange incurred during this time associated with maintaining and enhancing a state-ofthe-art exchange network infrastructure in the U.S. options industry. In particular, the Exchange’s increased costs associated with supporting its network are due to several factors, including increased costs associated with maintaining and expanding a team of highly-skilled 27 See Securities Exchange Act Release No. 79666 (December 22, 2016), 81 FR 96133 (December 29, 2016) (SR–MIAX–2016–47) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Modify the Exchange’s Connectivity Fees). VerDate Sep<11>2014 17:27 Mar 19, 2019 Jkt 247001 network engineers (the Exchange also hired additional network engineering staff in 2017 and 2018), increasing fees charged by the Exchange’s third-party data center operator, and costs associated with projects and initiatives designed to improve overall network performance and stability, through the Exchange’s R&D efforts. In order to provide more detail and to quantify the Exchange’s increased costs, the Exchange notes that increased costs are associated with the infrastructure and increased headcount to fullysupport the advances in infrastructure and expansion of network level services, including customer monitoring, alerting and reporting. Additional technology expenses were incurred related to the expanding its Information Security services, monitoring and remediation, as well as Regulation SCI mandated processes associated with network technology. All of these additional expenses have been incurred by the Exchange since it last increased its connectivity fees on January 1, 2017. Examples include an approximate 70% increase in technology-related personnel costs in infrastructure, due to expansion of services/support; an approximate 10% increase in datacenter costs due to price increases and footprint expansion; an approximate 5% increase in vendorsupplied dark fiber due to price increases and expanded capabilities; and a 30% increase in market data connectivity fees. The Exchange also incurred significant capital expenditures over this same period to upgrade and enhance the underlying technology components, as more fullydetailed below. Further, because the costs of operating a data center are significant and not economically feasible for the Exchange, the Exchange does not operate its own data centers, and instead contracts with a third-party data center provider. The Exchange notes that larger, dominant exchange operators own/operate their data centers, which offers them greater control over their data center costs. Because those exchanges own and operate their data centers as profit centers, the Exchange is subject to additional costs. As a result, the Exchange is subject to fee increases from its data center provider, which the Exchange experienced in 2017 and 2018 of approximately 10%, as cited above. Further, the Exchange invests significant resources in network R&D to improve the overall performance and stability of its network. For example, the Exchange has a number of network monitoring tools (some of which were developed in-house, and some of which are licensed from third-parties), that PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 continually monitor, detect, and report network performance, many of which serve as significant value-adds to the Exchange’s Members and enable the Exchange to provide a high level of customer service. These tools detect and report performance issues, and thus enable the Exchange to proactively notify a Member (and the SIPs) when the Exchange detects a problem with a Member’s connectivity. The costs associated with the maintenance and improvement of existing tools and the development of new tools resulted in significant increased cost to the Exchange since January 1, 2017. Certain recently developed network aggregation and monitoring tools provide the Exchange with the ability to measure network traffic with a much more granular level of variability. This is important as Exchange Members demand a higher level of network determinism and the ability to measure variability in terms of single digit nanoseconds. Also, the Exchange routinely conducts R&D projects to improve the performance of the network’s hardware infrastructure. As an example, in the last year, the Exchange’s R&D efforts resulted in a performance improvement, requiring the purchase of new equipment to support that improvement, and thus resulting in increased costs in the hundreds of thousands of dollars range. In sum, the costs associated with maintaining and enhancing a state-ofthe-art exchange network infrastructure in the U.S. options industry is a significant expense for the Exchange that continues to increase, and thus the Exchange believes that it is reasonable to offset a portion of those increased costs by increasing its network connectivity fees, as proposed herein. Overall, the Proposed Fee Increases are projected to offset only a portion of the Exchange’s increased network connectivity costs that were incurred by the Exchange since it last adjusted its connectivity fees.28 The Exchange notes that other exchanges have similar connectivity alternatives for their participants, including similar low-latency connectivity. For example, Nasdaq PHLX LLC (‘‘Phlx’’), NYSE Arca, Inc. (‘‘Arca’’), NYSE American LLC (‘‘NYSE American’’) and Nasdaq ISE, LLC (‘‘ISE’’) all offer a 1Gb, 10Gb and 10Gb low latency ethernet connectivity alternatives to each of their participants.29 The Exchange further 28 See id. Phlx and ISE Rules, General Equity and Options Rules, General 8, Section 1(b). Phlx and ISE each charge a monthly fee of $2,500 for each 1Gb 29 See E:\FR\FM\20MRN1.SGM 20MRN1 Federal Register / Vol. 84, No. 54 / Wednesday, March 20, 2019 / Notices notes that Phlx, ISE, Arca and NYSE American each charge higher rates for such similar connectivity to primary and secondary facilities.30 Additionally, the Exchange’s proposed connectivity fees to its disaster recovery facility are within the range of the fees charged by other exchanges for similar connectivity alternatives.31 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule changes will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In particular, the Exchange has received no official complaints from Members or others who connect to it that its fees or the Proposed Fee Increases are negatively impacting or would negatively impact their abilities to compete with other market participants. Further, the Exchange is unaware of any assertion that its existing fee levels or the Proposed Fee Increases would somehow unduly impair its competition with other options exchanges. To the contrary, if the fees charged are deemed too high by market participants, they can simply disconnect. While the Exchange recognizes the distinction between connecting to an exchange and trading at the exchange, the Exchange notes that it operates in a highly competitive options market in which market participants can readily connect and trade with venues they desire. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges. The Exchange believes that the proposed changes reflect this competitive environment. jbell on DSK30RV082PROD with NOTICES 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. connection, $10,000 for each 10Gb connection and $15,000 for each 10Gb Ultra connection, which the equivalent of the Exchange’s 10Gb ULL connection. See also NYSE American Fee Schedule, Section V.B, and Arca Fees and Charges, Co-Location Fees. NYSE American and Arca each charge a monthly fee of $5,000 for each 1Gb circuit, $14,000 for each 10Gb circuit and $22,000 for each 10Gb LX circuit, which the equivalent of the Exchange’s 10Gb ULL connection. 30 Id. 31 See Nasdaq ISE, Options Rules, Options 7, Pricing Schedule, Section 11.D. (charging $3,000 for disaster recovery testing & relocation services); see also Cboe Exchange, Inc. (‘‘Cboe’’) Fees Schedule, p. 14, Cboe Command Connectivity Charges (charging a monthly fee of $2,000 for a 1Gb disaster recovery network access port and a monthly fee of $6,000 for a 10Gb disaster recovery network access port). VerDate Sep<11>2014 17:27 Mar 19, 2019 Jkt 247001 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,32 and Rule 19b–4(f)(2) 33 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. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– MIAX–2019–10 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–MIAX–2019–10. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 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–MIAX–2019–10 and should be submitted on or before April 10, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.34 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–05217 Filed 3–19–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85315; File No. SR–ISE– 2019–06] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Delay for Re-Introduction of Legging Functionality for Stock-Option Orders March 14, 2019. 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 March 11, 2019, Nasdaq ISE, LLC (‘‘ISE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to extend the delay for re-introduction of legging functionality for Stock-Option Orders. The text of the proposed rule change is available on the Exchange’s website at https://ise.cchwallstreet.com/, at the principal office of the Exchange, and at 34 17 32 15 U.S.C. 78s(b)(3)(A)(ii). 33 17 CFR 240.19b–4(f)(2). PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 10367 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\20MRN1.SGM 20MRN1

Agencies

[Federal Register Volume 84, Number 54 (Wednesday, March 20, 2019)]
[Notices]
[Pages 10363-10367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05217]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85318; File No. SR-MIAX-2019-10]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Its Fee Schedule

March 14, 2019.
    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 March 1, 2019, Miami International Securities Exchange LLC (``MIAX 
Options'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 Options Fee 
Schedule (the ``Fee Schedule'') to modify certain of the Exchange's 
system connectivity fees.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxoptions.com/rule-filings, 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 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 regarding 
connectivity to the Exchange. Specifically, the Exchange proposes to 
amend Sections 5a) and b) of the Fee Schedule to increase the network 
connectivity fees for the 1 Gigabit (``Gb'') fiber connection, the 10Gb 
fiber connection, and the 10Gb ultra-low latency (``ULL'') fiber 
connection, which are charged to both Members \3\ and non-Members of 
the Exchange for connectivity to the Exchange's primary/secondary 
facility. The Exchange also proposes to increase the network 
connectivity fees for the 1Gb and 10Gb fiber connections for 
connectivity to the Exchange's disaster recovery facility. Each of 
these connections are shared connections, and thus can be utilized to 
access both the Exchange and the Exchange's affiliate, MIAX PEARL, LLC 
(``MIAX PEARL''). These proposed fee increases are collectively 
referred to herein as the ``Proposed Fee Increases.''
---------------------------------------------------------------------------

    \3\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
---------------------------------------------------------------------------

    The Exchange initially filed the Proposed Fee Increases on July 31, 
2018, designating the Proposed Fee Increases effective August 1, 
2018.\4\ The First Proposed Rule Change was published for comment in 
the Federal Register on August 13, 2018.\5\ The Commission received one 
comment letter on the proposal.\6\ The Proposed Fee Increases remained 
in effect until they were temporarily suspended pursuant to a 
suspension order (the ``Suspension Order'') issued by the Commission on 
September 17, 2018.\7\ The Suspension Order also instituted proceedings 
to determine whether to approve or

[[Page 10364]]

disapprove the First Proposed Rule Change.\8\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 83786 (August 7, 
2018), 83 FR 40106 (August 13, 2018) (SR-MIAX-2018-19). (The ``First 
Proposed Rule Change'').
    \5\ Id.
    \6\ See Letter from Tyler Gellasch, Executive Director, The 
Healthy Markets Association, to Brent J. Fields, Secretary, 
Commission, dated September 4, 2018 (``Healthy Markets Letter'').
    \7\ See Securities Exchange Act Release No. 34-84175 (September 
17, 2018), 83 FR 47955 (September 21, 2018) (SR-MIAX-2018-19) 
(Suspension of and Order Instituting Proceedings To Determine 
Whether To Approve or Disapprove a Proposed Rule Change To Amend the 
Fee Schedule Regarding Connectivity Fees for Members and Non-
Members).
    \8\ Id.
---------------------------------------------------------------------------

    The Healthy Markets Letter argued that the Exchange did not provide 
sufficient information in its filing to support a finding that the 
proposal is consistent with the Act. Specifically, the Healthy Markets 
Letter objected to the Exchange's reliance on the fees of other 
exchanges to demonstrate that its fee increases are consistent with the 
Act. In addition, the Healthy Markets Letter argued that the Exchange 
did not offer any details to support its basis for asserting that the 
proposed fee increases are consistent with the Act.
    On October 5, 2018, the Exchange withdrew the First Proposed Rule 
Change.\9\ The Exchange refiled the Proposed Fee Increases on September 
18, 2018, designating the Proposed Fee Increases immediately 
effective.\10\ The Second Proposed Rule Change was published for 
comment in the Federal Register on October 10, 2018.\11\ The Commission 
received one comment letter on the proposal.\12\ The Proposed Fee 
Increases remained in effect until they were temporarily suspended 
pursuant to a suspension order (the ``Second Suspension Order'') issued 
by the Commission on October 3, 2018.\13\ The Second Suspension Order 
also instituted proceedings to determine whether to approve or 
disapprove the Second Proposed Rule Change.\14\
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 84398 (October 10, 
2018), 83 FR 52264 (October 16, 2018) (SR-MIAX-2018-19 (Notice of 
Withdrawal of a Proposed Rule Change To Amend the Fee Schedule 
Regarding Connectivity Fees for Members and Non-Members).
    \10\ See Securities Exchange Act Release No. 84357 (October 3, 
2018), 83 FR 50976 (October 10, 2018) (SR-MIAX-2018-25). (The 
``Second Proposed Rule Change''.) (Notice of Filing of a Proposed 
Rule Change To Amend the Fee Schedule Regarding Connectivity Fees 
for Members and Non-Members; Suspension of and Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change).
    \11\ Id.
    \12\ See Letter from Theodore R. Lazo, Managing Director and 
Associate General Counsel, and Ellen Greene, Managing Director 
Financial Services Operations, The Securities Industry and Financial 
Markets Association (``SIFMA''), to Brent J. Fields, Secretary, 
Commission, dated October 15, 2018 (``SIFMA Letter'').
    \13\ See supra note 10.
    \14\ Id.
---------------------------------------------------------------------------

    The SIFMA Letter argued that the Exchange did not provide 
sufficient information in its filing to support a finding that the 
proposal should be approved by the Commission after further review of 
the proposed fee increases. Specifically, the SIFMA Letter objected to 
the Exchange's reliance on the fees of other exchanges to justify its 
own fee increases. In addition, the SIFMA Letter argued that the 
Exchange did not offer any details to support its basis for asserting 
that the proposed fee increases are reasonable. On November 23, 2018, 
the Exchange withdrew the Second Proposed Rule Change.\15\
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 84650 (November 26, 
2018), 83 FR 61705 (November 30, 2018) (SR-MIAX-2018-25) (Notice of 
Withdrawal of a Proposed Rule Change To Amend the Fee Schedule 
Regarding Connectivity Fees for Members and Non-Members.).
---------------------------------------------------------------------------

    The Exchange is now re-filing the Proposed Fee Increases, and is 
also providing new information, including providing additional detail 
about the market participants impacted by the Proposed Fee Increases, 
as well as the additional costs incurred by the Exchange associated 
with providing the connectivity alternatives, in order to provide more 
transparency and support relating to the Exchange's belief that the 
Proposed Fee Increases are reasonable, equitable, and non-
discriminatory, and to provide sufficient information for the 
Commission to determine that the Proposed Fee Increases are consistent 
with the Act. The proposed rule change is immediately effective upon 
filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.
    The Exchange currently offers various bandwidth alternatives for 
connectivity to the Exchange, to its primary and secondary facilities, 
consisting of a 1Gb fiber connection, a 10Gb fiber connection, and a 
10Gb ULL fiber connection. The 10Gb ULL offering uses an ultra-low 
latency switch, which provides faster processing of messages sent to it 
in comparison to the switch used for the other types of connectivity. 
The Exchange currently assesses the following monthly network 
connectivity fees to both Members and non-Members for connectivity to 
the Exchange's primary/secondary facility: (a) $1,100 for the 1Gb 
connection; (b) $5,500 for the 10Gb connection; and (c) $8,500 for the 
10Gb ULL connection. The Exchange also assesses to both Members and 
non-Members a monthly per connection network connectivity fee of $500 
for each 1Gb connection to the disaster recovery facility and a monthly 
per connection network connectivity fee of $2,500 for each 10Gb 
connection to the disaster recovery facility.
    The Exchange's MIAX Express Network Interconnect (``MENI'') can be 
configured to provide Members and non-Members of the Exchange network 
connectivity to the trading platforms, market data systems, test 
systems, and disaster recovery facilities of both the Exchange and its 
affiliate, MIAX PEARL, via a single, shared connection. Members and 
non-Members utilizing the MENI to connect to the trading platforms, 
market data systems, test systems and disaster recovery facilities of 
the Exchange and MIAX PEARL via a single, shared connection are 
assessed only one monthly network connectivity fee per connection, 
regardless of the trading platforms, market data systems, test systems, 
and disaster recovery facilities accessed via such connection.
    The Exchange proposes to increase the monthly network connectivity 
fees for such connections for both Members and non-Members. The network 
connectivity fees for connectivity to the Exchange's primary/secondary 
facility will be increased as follows: (a) From $1,100 to $1,400 for 
the 1Gb connection; (b) from $5,500 to $6,100 for the 10Gb connection; 
and (c) from $8,500 to $9,300 for the 10Gb ULL connection. The network 
connectivity fees for connectivity to the Exchange's disaster recovery 
facility will be increased as follows: (a) From $500 to $550 for the 
1Gb connection; and (b) from $2,500 to $2,750 for the 10Gb connection.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \16\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \17\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposal 
furthers the objectives of Section 6(b)(5) of the Act \18\ in that it 
is designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general to protect 
investors and the public interest and is not designed to permit unfair 
discrimination between customer, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    First, the Exchange believes that its proposal is consistent with 
Section 6(b)(4) of the Act, in that the Proposed Fee Changes are fair, 
equitable and not unreasonably discriminatory, because the fees for the 
connectivity alternatives available on the Exchange, as proposed to be 
increased, are competitive and market-driven. The U.S. options markets 
are highly competitive (there are currently 16 options markets) and a 
reliance on competitive markets is an

[[Page 10365]]

appropriate means to ensure equitable and reasonable prices.
    The Exchange acknowledges that there is no regulatory requirement 
that any market participant connect to the Exchange, or that any 
participant connect at any specific connection speed. The rule 
structure for options exchanges are, in fact, fundamentally different 
from those of equities exchanges. The Exchange further recognizes that 
the decision of whether to connect to the Exchange is separate and 
distinct from the decision of whether and how to trade on the Exchange. 
The Exchange acknowledges that many firms may choose to connect to the 
Exchange, but ultimately not trade on it.
    The Exchange \19\ and MIAX PEARL \20\ are comprised of 41 distinct 
Members between the two exchanges, excluding any additional affiliates 
of such Members that are also Members of MIAX Options, MIAX PEARL, or 
both. Of those 41 distinct Members, 33 Members have purchased the 1Gb, 
10Gb, 10Gb ULL connections or some combination of multiple various 
connections. Furthermore, every Member who has purchased at least one 
connection also trades on the Exchange, MIAX PEARL, or both, with the 
exception of one new Member who is currently in the on-boarding 
process. The 8 remaining Members who have not purchased any 
connectivity to the Exchange are still able to trade on the Exchange 
indirectly through other Members or non-Member service bureaus that are 
connected. These 8 Members who have not purchased connectivity are not 
forced or compelled to purchase connectivity, and they retain all of 
the other benefits of Membership with the Exchange. Accordingly, 
Members have the choice to purchase connectivity and are not compelled 
to do so in any way.
---------------------------------------------------------------------------

    \19\ The Exchange has 38 distinct Members, excluding affiliated 
entities. See MIAX Options Exchange Member Directory, available at 
https://www.miaxoptions.com/exchange-members.
    \20\ MIAX PEARL has 36 distinct Members, excluding affiliated 
entities. See MIAX PEARL Exchange Member Directory, available at 
https://www.miaxoptions.com/exchange-members/pearl.
---------------------------------------------------------------------------

    With respect to options trading, the Exchange had only 4.39% market 
share of the U.S. options industry in 2018 in Equity/ETF classes 
according to the OCC.\21\ For all of 2018, the Exchange's affiliate, 
MIAX PEARL, had only 4.82% market share of the U.S. options industry in 
Equity/ETF classes according to the OCC.\22\ The Exchange is aware of 
no evidence that a combined market share of less than 10% provides the 
Exchange with anti-competitive pricing power.
---------------------------------------------------------------------------

    \21\ See Exchange Market Share of Equity Products--2018, The 
Options Clearing Corporation, available at https://www.theocc.com/webapps/exchange-volume.
    \22\ Id.
---------------------------------------------------------------------------

    Separately, the Exchange is not aware of any reason why market 
participants could not simply drop their connections and cease being 
Members of the Exchange if the Exchange were to establish unreasonable 
and uncompetitive price increases for its connectivity alternatives. No 
options market participant is required by rule, regulation, or 
competitive forces to be a Member of the Exchange. Several market 
participants choose not to be Members of the Exchange and choose not to 
access the Exchange, and several market participants also access the 
Exchange indirectly through another market participant. To illustrate, 
the Exchange has only 45 Members (including all such Members' affiliate 
Members). However, Cboe Exchange, Inc. (``Cboe'') has over 200 
members,\23\ Nasdaq ISE, LLC has approximately 100 members,\24\ and 
NYSE American LLC has over 80 members.\25\ If all market participants 
were required to be Members of the Exchange and connect directly to the 
Exchange, the Exchange would have over 200 Members, in line with Cboe's 
total membership. But it does not. The Exchange only has 45 Members 
(inclusive of Members' affiliates).
---------------------------------------------------------------------------

    \23\ See Form 1/A, filed August 30, 2018 (https://www.sec.gov/Archives/edgar/vprr/1800/18002831.pdf); Form 1/A, filed August 30, 
2018 (https://www.sec.gov/Archives/edgar/vprr/1800/18002833.pdf); 
Form 1/A, filed July 24, 2018 (https://www.sec.gov/Archives/edgar/vprr/1800/18002781.pdf); Form 1/A, filed August 30, 2018 (https://www.sec.gov/Archives/edgar/data/1473845/999999999718007832/9999999997-18-007832-index.htm).
    \24\ See Form 1/A, filed July 1, 2016 (https://www.sec.gov/Archives/edgar/vprr/1601/16019243.pdf).
    \25\ See https://www.nyse.com/markets/american-options/membership#directory.
---------------------------------------------------------------------------

    The Exchange finds it compelling that all of the Exchange's 
existing Members continued to purchase the Exchange's connectivity 
services during the period for which the Proposed Fee Increases took 
effect in August 2018. In particular, the Exchange believes that the 
Proposed Fee Increases are reasonable because the Exchange did not lose 
any Members (or the number of connections each Member purchased) or 
non-Member connections due to the Exchange increasing its connectivity 
fees through the First Proposed Rule Change, which fee increase became 
effective August 1, 2018. For example, in July 2018, fourteen (14) 
Members purchased 1Gb connections, ten (10) Members purchased 10Gb 
connections, and fifteen (15) Members purchased 10Gb ULL connections. 
(The Exchange notes that 1Gb connections are purchased primarily by EEM 
Members; 10Gb ULL connections are purchased primarily by higher volume 
Market Makers quoting all products across both MIAX and MIAX PEARL; and 
10Gb connections are purchased by higher volume EEMs and lower volume 
Market Makers.) The vast majority of those Members purchased multiple 
such connections with the actual number of connections depending on the 
Member's throughput requirements based on the volume of their quote/
order traffic associated with their business model. After the fee 
increase, beginning August 1, 2018, the same number of Members 
purchased the same number of connections.\26\ Furthermore, the total 
number of connections did not decrease from July to August 2018, and in 
fact one Member even purchased two (2) additional 10Gb ULL connections 
in August 2018, after the fee increase.
---------------------------------------------------------------------------

    \26\ The Exchange notes that one Member downgraded one 
connection in July, however such downgrade was done well ahead of 
notice of the Proposed Fee Increase and was the result of a change 
to the Member's business operation that was completely independent 
of, and unrelated to, the Proposed Fee Increases.
---------------------------------------------------------------------------

    Also, in July 2018, four (4) non-Members purchased 1Gb connections, 
two (2) non-Members purchased 10Gb connections, and one (1) non-Member 
purchased 10Gb ULL connections. After the fee increase, beginning 
August 1, 2018, the same non-Members purchased the same number of 
connections across all available alternatives and two (2) additional 
non-Members purchased three (3) more connections after the fee 
increase. These non-Members freely purchased their connectivity with 
the Exchange in order to offer trading services to other firms and 
customers, as well as access to the market data services that their 
connections to the Exchange provide them, but they are not required or 
compelled to purchase any of the Exchange's connectivity options.
    Of those Members and non-Members that bought multiple connections, 
no firm dropped any connections beginning August 1, 2018, when the 
Exchange increased its fees. Nor did the Exchange lose any Members. 
Furthermore, the Exchange did not receive any comment letters or 
official complaints from any Member or non-Member purchaser of 
connectivity regarding the increased fees regarding how the fee 
increase was unreasonable, unduly burdensome, or would negatively 
impact their competitiveness

[[Page 10366]]

amongst other market participants. Therefore, the Exchange believes 
that the Proposed Fee Increases are fair, equitable, and non-
discriminatory, as the fees are competitive.
    The Exchange believes that the Proposed Fee Increases are equitably 
allocated among Members and non-Members, as evidenced by the fact that 
the fee increases are allocated across all connectivity alternatives, 
and there is not a disproportionate number of Members purchasing any 
alternative--fourteen (14) Members purchased 1Gb connections, ten (10) 
Members purchased 10Gb connections, fifteen (15) Members purchased 10Gb 
ULL connections, four (4) non-Members purchased 1Gb connections, two 
(2) non-Members purchased 10Gb connections, and one (1) non-Member 
purchased 10Gb ULL connections. The Exchange recognizes that the 
relative fee increases are 27% for the 1Gb connection, 10.9% for the 
10Gb connection, and 9.4% for the 10Gb ULL connection, but the Exchange 
believes that percentage increase differentiation is appropriate, given 
the different levels of service provided and the largest percentage 
increase being associated with the lowest cost connection.
    Second, the Exchange believes that its proposal is consistent with 
Section 6(b)(4) of the Act because the Proposed Fee Increases allow the 
Exchange to recover a portion (less than all) of the increased costs 
incurred by the Exchange associated with providing and maintaining the 
necessary hardware and other infrastructure to support this technology 
since it last filed to increase its connectivity fees in December 2016, 
which became effective on January 1, 2017.\27\ Put simply, the costs of 
the Exchange to provide these services have increased considerably over 
this time, as more fully-detailed and quantified below. The Exchange 
believes that it is reasonable and appropriate to increase its fees 
charged for use of its connectivity to partially offset the increased 
costs the Exchange incurred during this time associated with 
maintaining and enhancing a state-of-the-art exchange network 
infrastructure in the U.S. options industry.
---------------------------------------------------------------------------

    \27\ See Securities Exchange Act Release No. 79666 (December 22, 
2016), 81 FR 96133 (December 29, 2016) (SR-MIAX-2016-47) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fee Schedule To Modify the Exchange's Connectivity Fees).
---------------------------------------------------------------------------

    In particular, the Exchange's increased costs associated with 
supporting its network are due to several factors, including increased 
costs associated with maintaining and expanding a team of highly-
skilled network engineers (the Exchange also hired additional network 
engineering staff in 2017 and 2018), increasing fees charged by the 
Exchange's third-party data center operator, and costs associated with 
projects and initiatives designed to improve overall network 
performance and stability, through the Exchange's R&D efforts.
    In order to provide more detail and to quantify the Exchange's 
increased costs, the Exchange notes that increased costs are associated 
with the infrastructure and increased headcount to fully-support the 
advances in infrastructure and expansion of network level services, 
including customer monitoring, alerting and reporting. Additional 
technology expenses were incurred related to the expanding its 
Information Security services, monitoring and remediation, as well as 
Regulation SCI mandated processes associated with network technology. 
All of these additional expenses have been incurred by the Exchange 
since it last increased its connectivity fees on January 1, 2017. 
Examples include an approximate 70% increase in technology-related 
personnel costs in infrastructure, due to expansion of services/
support; an approximate 10% increase in datacenter costs due to price 
increases and footprint expansion; an approximate 5% increase in 
vendor-supplied dark fiber due to price increases and expanded 
capabilities; and a 30% increase in market data connectivity fees. The 
Exchange also incurred significant capital expenditures over this same 
period to upgrade and enhance the underlying technology components, as 
more fully-detailed below.
    Further, because the costs of operating a data center are 
significant and not economically feasible for the Exchange, the 
Exchange does not operate its own data centers, and instead contracts 
with a third-party data center provider. The Exchange notes that 
larger, dominant exchange operators own/operate their data centers, 
which offers them greater control over their data center costs. Because 
those exchanges own and operate their data centers as profit centers, 
the Exchange is subject to additional costs. As a result, the Exchange 
is subject to fee increases from its data center provider, which the 
Exchange experienced in 2017 and 2018 of approximately 10%, as cited 
above.
    Further, the Exchange invests significant resources in network R&D 
to improve the overall performance and stability of its network. For 
example, the Exchange has a number of network monitoring tools (some of 
which were developed in-house, and some of which are licensed from 
third-parties), that continually monitor, detect, and report network 
performance, many of which serve as significant value-adds to the 
Exchange's Members and enable the Exchange to provide a high level of 
customer service. These tools detect and report performance issues, and 
thus enable the Exchange to proactively notify a Member (and the SIPs) 
when the Exchange detects a problem with a Member's connectivity. The 
costs associated with the maintenance and improvement of existing tools 
and the development of new tools resulted in significant increased cost 
to the Exchange since January 1, 2017.
    Certain recently developed network aggregation and monitoring tools 
provide the Exchange with the ability to measure network traffic with a 
much more granular level of variability. This is important as Exchange 
Members demand a higher level of network determinism and the ability to 
measure variability in terms of single digit nanoseconds. Also, the 
Exchange routinely conducts R&D projects to improve the performance of 
the network's hardware infrastructure. As an example, in the last year, 
the Exchange's R&D efforts resulted in a performance improvement, 
requiring the purchase of new equipment to support that improvement, 
and thus resulting in increased costs in the hundreds of thousands of 
dollars range. In sum, the costs associated with maintaining and 
enhancing a state-of-the-art exchange network infrastructure in the 
U.S. options industry is a significant expense for the Exchange that 
continues to increase, and thus the Exchange believes that it is 
reasonable to offset a portion of those increased costs by increasing 
its network connectivity fees, as proposed herein. Overall, the 
Proposed Fee Increases are projected to offset only a portion of the 
Exchange's increased network connectivity costs that were incurred by 
the Exchange since it last adjusted its connectivity fees.\28\
---------------------------------------------------------------------------

    \28\ See id.
---------------------------------------------------------------------------

    The Exchange notes that other exchanges have similar connectivity 
alternatives for their participants, including similar low-latency 
connectivity. For example, Nasdaq PHLX LLC (``Phlx''), NYSE Arca, Inc. 
(``Arca''), NYSE American LLC (``NYSE American'') and Nasdaq ISE, LLC 
(``ISE'') all offer a 1Gb, 10Gb and 10Gb low latency ethernet 
connectivity alternatives to each of their participants.\29\ The 
Exchange further

[[Page 10367]]

notes that Phlx, ISE, Arca and NYSE American each charge higher rates 
for such similar connectivity to primary and secondary facilities.\30\ 
Additionally, the Exchange's proposed connectivity fees to its disaster 
recovery facility are within the range of the fees charged by other 
exchanges for similar connectivity alternatives.\31\
---------------------------------------------------------------------------

    \29\ See Phlx and ISE Rules, General Equity and Options Rules, 
General 8, Section 1(b). Phlx and ISE each charge a monthly fee of 
$2,500 for each 1Gb connection, $10,000 for each 10Gb connection and 
$15,000 for each 10Gb Ultra connection, which the equivalent of the 
Exchange's 10Gb ULL connection. See also NYSE American Fee Schedule, 
Section V.B, and Arca Fees and Charges, Co-Location Fees. NYSE 
American and Arca each charge a monthly fee of $5,000 for each 1Gb 
circuit, $14,000 for each 10Gb circuit and $22,000 for each 10Gb LX 
circuit, which the equivalent of the Exchange's 10Gb ULL connection.
    \30\ Id.
    \31\ See Nasdaq ISE, Options Rules, Options 7, Pricing Schedule, 
Section 11.D. (charging $3,000 for disaster recovery testing & 
relocation services); see also Cboe Exchange, Inc. (``Cboe'') Fees 
Schedule, p. 14, Cboe Command Connectivity Charges (charging a 
monthly fee of $2,000 for a 1Gb disaster recovery network access 
port and a monthly fee of $6,000 for a 10Gb disaster recovery 
network access port).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In particular, the Exchange has 
received no official complaints from Members or others who connect to 
it that its fees or the Proposed Fee Increases are negatively impacting 
or would negatively impact their abilities to compete with other market 
participants. Further, the Exchange is unaware of any assertion that 
its existing fee levels or the Proposed Fee Increases would somehow 
unduly impair its competition with other options exchanges. To the 
contrary, if the fees charged are deemed too high by market 
participants, they can simply disconnect.
    While the Exchange recognizes the distinction between connecting to 
an exchange and trading at the exchange, the Exchange notes that it 
operates in a highly competitive options market in which market 
participants can readily connect and trade with venues they desire. In 
such an environment, the Exchange must continually adjust its fees to 
remain competitive with other exchanges. The Exchange believes that the 
proposed changes reflect this competitive environment.

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,\32\ and Rule 19b-4(f)(2) \33\ 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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    \32\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \33\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MIAX-2019-10 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-MIAX-2019-10. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 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-MIAX-2019-10 and should be submitted on 
or before April 10, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05217 Filed 3-19-19; 8:45 am]
 BILLING CODE 8011-01-P
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