Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX PEARL Fee Schedule, 757-770 [2019-28536]
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Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87876; File No. SR–
PEARL–2019–36]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the MIAX
PEARL Fee Schedule
December 31, 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 December
20, 2019, MIAX PEARL, LLC (‘‘MIAX
PEARL’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX PEARL Fee Schedule
(the ‘‘Fee Schedule’’) to modify certain
of the Exchange’s system connectivity
fees.
The Exchange previously filed the
proposal on October 22, 2019 (SR–
PEARL–2019–33). That filing has been
withdrawn and replaced with the
current filing (SR–PEARL–2019–36).
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX PEARL’s principal
office, and at the Commission’s Public
Reference Room.
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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.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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1. Purpose
The Exchange is refiling its proposal
to amend the Fee Schedule to increase
the Exchange’s network connectivity
fees, in order to provide further
clarification regarding the Exchange’s
cost allocation methodology—namely,
information that explains the
Exchange’s rationale for determining
that it was reasonable to allocate certain
expenses described in this filing
towards the total cost to the Exchange
to provide network connectivity
services. The Exchange is also bolstering
its equitable allocation of fees
discussion.
The Exchange had previously
supplemented its connectivity fee
filings in order to provide additional
analysis of its baseline revenues, costs,
and profitability (before the proposed
fee change) and the Exchange’s expected
revenues, costs, and profitability
(following the proposed fee change) for
its network connectivity services. This
additional analysis includes information
regarding its methodology for
determining the baseline costs and
revenues, as well as expected costs and
revenues, for its network connectivity
services. The Exchange previously
refiled its proposal in order to address
certain points raised in the only
comment letter received by the
Commission on the Exchange’s prior
proposal to increase connectivity fees.3
In order to determine the Exchange’s
baseline costs associated with providing
network connectivity services, the
Exchange conducted an extensive cost
review in which the Exchange analyzed
every expense item in the Exchange’s
general expense ledger to determine
whether each such expense relates to
the provision of network connectivity
services, and, if such expense did so
relate, what portion (or percentage) of
such expense actually supports the
provision of network connectivity
services. The sum of all such portions
of expenses represents the total actual
baseline cost of the Exchange to provide
network connectivity services. (For the
avoidance of doubt, no expense amount
was allocated twice.) The Exchange is
presenting the results of its cost review
in a way that corresponds directly with
the Exchange’s 2018 Audited
Unconsolidated Financial Statements,
3 See Letter from John Ramsay, Chief Market
Policy Officer, Investors Exchange LLC (‘‘IEX’’), to
Vanessa Countryman, Secretary, Commission, dated
October 9, 2019 (‘‘Third IEX Letter,’’ as further
described below).
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the relevant sections of which are
attached hereto [sic] as Exhibit 3, which
are publicly available as part of the
Exchange’s Form 1 Amendment.4 The
purpose of presenting it in this manner
is to provide greater transparency into
the Exchange’s actual and expected
revenues, costs, and profitability
associated with providing network
connectivity services. Based on this
analysis, the Exchange believes that its
proposed fee increases are fair and
reasonable because they will permit
recovery of less than all of the
Exchange’s costs for providing the
network connectivity services and will
not result in excessive pricing or supracompetitive profit, when comparing the
Exchange’s total annual expense
associated with providing the network
connectivity services versus the total
projected annual revenue the Exchange
projects to collect for providing the
network connectivity services.
Specifically, the Exchange proposes to
amend Sections 5(a) 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 5 and nonMembers 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, Miami International
Securities Exchange, LLC (‘‘MIAX’’).
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, 2018.6 The First
4 See the complete Audited Unconsolidated
Financial Statements of MIAX PEARL, LLC, LLC as
of December 31, 2018, and the Audited
Unconsolidated Financial Statements of Miami
International Securities Exchange, LLC as of
December 31, 2018, which are listed under Exhibit
D of MIAX Form 1 Amendment 2019–7 Annual
Filing at https://www.sec.gov/Archives/edgar/vprr/
1900/19003680.pdf.
5 The term ‘‘Member’’ means an individual or
organization that is registered with the Exchange
pursuant to Chapter II of the Exchange’s Rules for
purposes of trading on the Exchange as an
‘‘Electronic Exchange Member’’ or ‘‘Market Maker.’’
Members are deemed ‘‘members’’ under the
Exchange Act. See Exchange Rule 100.
6 See Securities Exchange Act Release No. 83785
(August 7, 2018), 83 FR 40101 (August 13,
2018)(SR–PEARL–2018–16) (the ‘‘First Proposed
Rule Change’’).
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Proposed Rule Change was published
for comment in the Federal Register on
August 13, 2018.7 The Commission
received one comment letter on the
proposal.8 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, 2018.9 The Suspension
Order also instituted proceedings to
determine whether to approve or
disapprove the First Proposed Rule
Change.10
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.
The Exchange refiled the Proposed
Fee Increases on September 18, 2018,
designating the Proposed Fee Increases
immediately effective.11 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, 2018.12
On October 5, 2018, the Exchange
withdrew the First Proposed Rule
Change.13 The Second Proposed Rule
Change was published for comment in
the Federal Register on October 10,
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7 Id.
8 See Letter from Tyler Gellasch, Executive
Director, The Healthy Markets Association
(‘‘Healthy Markets’’), to Brent J. Fields, Secretary,
Commission, dated September 4, 2018 (‘‘Healthy
Markets Letter’’).
9 See Securities Exchange Act Release No. 84177
(September 17, 2018), 83 FR 47953 (September 21,
2018)(SR–PEARL–2018–16) (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).
10 Id.
11 See Securities Exchange Act Release No. 84358
(October 3, 2018), 83 FR 51022 (October 10,
2018)(SR–PEARL–2018–19) (Notice of Filing of a
Proposed Rule Change to Amend the Fee Schedule
Regarding Connectivity Fees for Members and NonMembers; Suspension of and Order Instituting
Proceedings to Determine Whether to Approve or
Disapprove the Proposed Rule Change) (the
‘‘Second Proposed Rule Change’’).
12 Id.
13 See Securities Exchange Act Release No. 84397
(October 10, 2018), 83 FR 52272 (October 16,
2018)(SR–PEARL–2018–16) (Notice of Withdrawal
of a Proposed Rule Change to Amend the Fee
Schedule Regarding Connectivity Fees for Members
and Non-Members).
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2018.14 The Commission received one
comment letter on the proposal.15 The
Second Suspension Order also
instituted proceedings to determine
whether to approve or disapprove the
Second Proposed Rule Change.16
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.17
The Exchange refiled the Proposed
Fee Increases on March 1, 2019,
designating the Proposed Fee Increases
immediately effective.18 The Third
Proposed Rule Change was published
for comment in the Federal Register on
March 20, 2019.19 The Third Proposed
Rule Change provided new information,
including 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.
On March 29, 2019, the Commission
issued its Order Disapproving Proposed
Rule Changes to Amend the Fee
Schedule on the BOX Market LLC
14 See
supra note 11.
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 (the
‘‘SIFMA Letter’’).
16 See supra note 11.
17 See Securities Exchange Act Release No. 84651
(November 26, 2018), 83 FR 61687 (November 30,
2018)(SR–PEARL–2018–19) (Notice of Withdrawal
of a Proposed Rule Change to Amend the Fee
Schedule Regarding Connectivity Fees for Members
and Non-Members).
18 See Securities Exchange Act Release No. 85317
(March 14, 2019), 84 FR 10380 (March 20,
2019)(SR–PEARL–2019–08) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Amend the MIAX PEARL Fee Schedule) (the
‘‘Third Proposed Rule Change’’).
19 Id.
15 See
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Options Facility to Establish BOX
Connectivity Fees for Participants and
Non-Participants Who Connect to the
BOX Network (the ‘‘BOX Order’’).20 In
the BOX Order, the Commission
highlighted a number of deficiencies it
found in three separate rule filings by
BOX Exchange LLC (‘‘BOX’’) to increase
BOX’s connectivity fees that prevented
the Commission from finding that
BOX’s proposed connectivity fees were
consistent with the Act. These
deficiencies relate to topics that the
Commission believes should be
discussed in a connectivity fee filing.
After the BOX Order was issued, the
Commission received four comment
letters on the Third Proposed Rule
Change.21
The Second SIFMA Letter argued that
the Exchange did not provide sufficient
information in its Third Proposed Rule
Change to support a finding that the
proposal should be approved by the
Commission after further review of the
proposed fee increases. Specifically, the
Second SIFMA Letter argued that the
Exchange’s market data fees and
connectivity fees were not constrained
by competitive forces, the Exchange’s
filing lacked sufficient information
regarding cost and competition, and that
the Commission should establish a
framework for determining whether fees
for exchange products and services are
reasonable when those products and
services are not constrained by
significant competitive forces.
The IEX Letter argued that the
Exchange did not provide sufficient
information in its Third Proposed Rule
Change to support a finding that the
proposal should be approved by the
Commission and that the Commission
should extend the time for public
comment on the Third Proposed Rule
Change. Despite the objection to the
Proposed Fee Increases, the IEX Letter
did find that ‘‘MIAX has provided more
transparency and analysis in these
filings than other exchanges have sought
to do for their own fee increases.’’ 22 The
20 See Securities Exchange Act Release No. 85459
(March 29, 2019), 84 FR 13363 (April 4, 2019)(SR–
BOX–2018–24, SR–BOX–2018–37, and SR–BOX–
2019–04).
21 See Letter from Joseph W. Ferraro III, SVP &
Deputy General Counsel, MIAX, to Vanessa
Countryman, Acting Secretary, Commission, dated
April 5, 2019 (the ‘‘MIAX Letter’’); Letter from
Theodore R. Lazo, Managing Director and Associate
General Counsel, SIFMA, to Vanessa Countryman,
Acting Secretary, Commission, dated April 10, 2019
(the ‘‘Second SIFMA Letter’’); Letter from John
Ramsay, Chief Market Policy Officer, IEX, to
Vanessa Countryman, Acting Secretary,
Commission, dated April 10, 2019 (the ‘‘IEX
Letter’’); and Letter from Tyler Gellasch, Executive
Director, Healthy Markets, to Brent J. Fields,
Secretary, Commission, dated April 18, 2019 (the
‘‘Second Healthy Markets Letter’’).
22 See IEX Letter, pg. 1.
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IEX Letter specifically argued that the
Proposed Fee Increases were not
constrained by competition, the
Exchange should provide data on the
Exchange’s actual costs and how those
costs relate to the product or service in
question, and whether and how MIAX
considered changes to transaction fees
as an alternative to offsetting exchange
costs.
The Second Healthy Markets Letter
did not object to the Third Proposed
Rule Change and the information
provided by the Exchange in support of
the Proposed Fee Increases. Specifically,
the Second Healthy Markets Letter
stated that the Third Proposed Rule
Change was ‘‘remarkably different,’’ and
went on to further state as follows:
The instant MIAX filings—along with
their April 5th supplement—provide
much greater detail regarding users of
connectivity, the market for
connectivity, and costs than the Initial
MIAX Filings. They also appear to
address many of the issues raised by the
Commission staff’s BOX disapproval
order. This third round of MIAX filings
suggests that MIAX is operating in good
faith to provide what the Commission
and staff seek.23
On April 29, 2019, the Exchange
withdrew the Third Proposed Rule
Change.24
The Exchange refiled the Proposed
Fee Increases on April 30, 2019,
designating the Proposed Fee Increases
immediately effective.25 The Fourth
Proposed Rule Change was published
for comment in the Federal Register on
May 16, 2019.26 The Fourth Proposed
Rule Change provided further cost
analysis information to squarely and
comprehensively address each and
every topic raised for discussion in the
BOX Order, the IEX Letter and the
Second SIFMA Letter to ensure that the
Proposed Fee Increases are reasonable,
equitable, and non-discriminatory, and
that the Commission should find that
the Proposed Fee Increases are
consistent with the Act.
On May 21, 2019, the Commission
issued the Staff Guidance on SRO Rule
Filings Relating to Fees.27
The Commission received two
comment letters on the Fourth Proposed
23 See
Second Healthy Markets Letter, pg. 2.
SR–PEARL–2019–08.
25 See Securities Exchange Act Release No. 85837
(May 10, 2019), 84 FR 22214 (May 16, 2019)(SR–
PEARL–2019–17) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend
the MIAX PEARL Fee Schedule) (the ‘‘Fourth
Proposed Rule Change’’).
26 Id.
27 See Staff Guidance on SRO Rule Filings
Relating to Fees (May 21, 2019), at https://
www.sec.gov/tm/staff-guidance-sro-rule-filings-fees
(the ‘‘Guidance’’).
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24 See
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Rule Change, after the Guidance was
released.28 The Second IEX Letter and
the Third SIFMA Letter argued that the
Exchange did not provide sufficient
information in its Fourth Proposed Rule
Change to justify the Proposed Fee
Increases based on the Guidance and the
BOX Order. Of note, however, is that
unlike their previous comment letter,
the Third SIFMA Letter did not call for
the Commission to suspend the Fourth
Proposed Rule Change. Also, Healthy
Markets did not comment on the Fourth
Proposed Rule Change.
On June 26, 2019, the Exchange
withdrew the Fourth Proposed Rule
Change.29
The Exchange refiled the Proposed
Fee Increases on June 26, 2019,
designating the Proposed Fee Increases
immediately effective.30 The Fifth
Proposed Rule Change was published
for comment in the Federal Register on
July 16, 2019.31 The Fifth Proposed Rule
Change bolstered the Exchange’s
previous cost-based discussion to
support its claim that the Proposed Fee
Increases are fair and reasonable
because they will permit recovery of the
Exchange’s costs and will not result in
excessive pricing or supra-competitive
profit, in light of the Guidance issued by
Commission staff subsequent to the
Fourth Proposed Rule Change, and
primarily through the inclusion of
anticipated revenue figures associated
with the provision of network
connectivity services.
The Commission received three
comment letters on the Fifth Proposed
Rule Change.32
Neither the Third Healthy Markets
Letter nor the Fourth SIFMA Letter
called for the Commission to suspend or
disapprove the Proposed Fee Increases.
28 See Letter from John Ramsay, Chief Market
Policy Officer, Investors Exchange LLC, to Vanessa
Countryman, Acting Secretary, Commission, dated
June 5, 2019 (the ‘‘Second IEX Letter’’) and Letter
from Theodore R. Lazo, Managing Director and
Associate General Counsel, and Ellen Greene,
Managing Director, SIFMA, to Vanessa
Countryman, Acting Secretary, Commission, dated
June 6, 2019 (the ‘‘Third SIFMA Letter’’).
29 See SR–PEARL–2019–17.
30 See Securities Exchange Act Release No. 86343
(July 10, 2019), 84 FR 34003 (July 16, 2019)(SR–
PEARL–2019–21) (the ‘‘Fifth Proposed Rule
Change’’).
31 Id.
32 See Letter from John Ramsay, Chief Market
Policy Officer, IEX, to Vanessa Countryman, Acting
Secretary, Commission, dated August 8, 2019 (the
‘‘Third IEX Letter’’); Letter from Tyler Gellasch,
Executive Director, Healthy Markets, to Vanessa
Countryman, Acting Secretary, Commission, dated
August 5, 2019 (the ‘‘Third Healthy Markets
Letter’’); and Letter from Theodore R. Lazo,
Managing Director and Associate General Counsel
and Ellen Greene, Managing Director Financial
Services Operations, SIFMA, to Vanessa
Countryman, Acting Secretary, Commission, dated
August 5, 2019 (the ‘‘Fourth SIFMA Letter’’).
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In fact, the Third Healthy Markets Letter
acknowledged that ‘‘it appears as
though MIAX [PEARL] is operating in
good faith to provide what the
Commission, its staff, and market
participants the information needed to
appropriately assess the filings.’’ The
Third IEX Letter only reiterated points
from the Second IEX Letter and failed to
address any of the new information in
the Fifth Proposed Rule Change
concerning the Exchange’s revenue
figures, cost allocation or that the
Proposed Fee Increases did not result in
excessive pricing or a supra-competitive
profit for the Exchange.
On August 23, 2019, the Exchange
withdrew the Fifth Proposed Rule
Change.33
The Exchange refiled the Proposed
Fee Increases on August 23, 2019,
designating the Proposed Fee Increases
immediately effective.34 The Sixth
Proposed Rule Change was published
for comment in the Federal Register on
July 16, 2019.35 The Sixth Proposed
Rule Change provided greater detail and
clarity concerning the Exchange’s cost
methodology as it pertains to the
Exchange’s expenses for network
connectivity services, using a line-byline analysis of the Exchange’s general
expense ledger to determine what, if
any, portion of those expenses supports
the provision of network connectivity
services.
The Commission received only one
comment letter on the Sixth Proposed
Rule Change, twelve days after the
comment period deadline ended.36 Of
note, no member of the Exchange
commented on the Sixth Proposed Rule
Change. Also, no issuer or other person
using the facilities of the Exchange
commented on the Sixth Proposed Rule
Change. Also, no industry group that
represents members, issuers, or other
persons using the facilities of the
Exchange commented on the Sixth
Proposed Rule Change. Also, no
operator of an options market
commented on the Sixth Proposed Rule
Change. Also, no operator of a high
performance, ultra-low latency network,
which network can support access to
three distinct exchanges and provides
premium network monitoring and
reporting services to customers,
commented on the Sixth Proposed Rule
Change. Rather, the only comment letter
came from an operator of a single
equities market (equities market
33 See
SR–PEARL–2019–21.
Securities Exchange Act Release No. 86837
(August 30, 2019), 84 FR 46988 (September 6,
2019)(SR–PEARL–2019–25) (the ‘‘Sixth Proposed
Rule Change’’).
35 Id.
36 See supra note 3.
34 See
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structure and resulting network
demands are fundamentally different
from those in the options markets),37
which operator also has a
fundamentally different business model
(and agenda) than does the Exchange.
That letter—the Third IEX Letter—
called for, among other things, the
Exchange to explain its basis for
concluding that it incurred substantially
higher costs to provide lower-latency
connections and further describe the
nature and closeness of the relationship
between the identified costs and
connectivity products and services as
stated in the Exchange’s cost allocation
analysis.
On October 22, 2019, the Exchange
withdrew the Sixth Proposed Rule
Change.38
The Exchange refiled the Proposed
Fee Increases on October 22, 2019,
designating the Proposed Fee Increases
immediately effective.39 The Seventh
Proposed Rule Change was published
for comment in the Federal Register on
November 6, 2019.40 The Seventh
Proposed Rule Change provided
additional analysis of the Exchange’s
baseline revenues, costs, and
profitability (before the proposed fee
change) and the Exchange’s expected
revenues, costs, and profitability
(following the proposed fee change) for
its network connectivity services. This
additional analysis includes information
regarding its methodology for
determining the baseline costs and
revenues, as well as expected costs and
revenues, for its network connectivity
services. The Seventh Proposed Rule
Change also addressed certain points
raised in the Third IEX Letter.
On December 20, 2019, the Exchange
withdrew the Seventh Proposed Rule
Change.41 The Exchange notes that the
Seventh Proposed Rule Change did not
receive any comment letters, however
the Exchange has determined to refile
the Proposed Fee Increases to provide
further clarification regarding the
Exchange’s cost allocation
methodology—namely, information that
explains the Exchange’s rationale for
determining that it was reasonable to
allocate certain expenses described in
this filing towards the total cost to the
Exchange of providing network
connectivity services. The Exchange is
37 See infra pages 19 to 20 (describing the
differences in equity market structure and options
market structure).
38 See SR–PEARL–2019–25.
39 See Securities Exchange Act Release No. 87432
(October 31, 2019), 84 FR 59889 (November 6,
2019)(SR–PEARL–2019–33) (the ‘‘Seventh Proposed
Rule Change’’).
40 Id.
41 See SR–PEARL–2019–33.
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also bolstering its equitable allocation of
fees discussion. The Exchange believes
that the Proposed Fee Increases are
consistent with the Act because they (i)
are reasonable, equitably allocated, not
unfairly discriminatory, and not an
undue burden on competition; (ii)
comply with the BOX Order and the
Guidance; (iii) are supported by
evidence (including data and analysis),
constrained by significant competitive
forces; and (iv) are supported by specific
information (including quantitative
information), fair and reasonable
because they will permit recovery of the
Exchange’s costs (less than all) and will
not result in excessive pricing or supracompetitive profit. Accordingly, the
Exchange believes that the Commission
should find 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, 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 via a single, shared connection
are assessed only one monthly network
connectivity fee per connection,
regardless of the trading platforms,
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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 42
in general, and furthers the objectives of
Section 6(b)(4) of the Act 43 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 44 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.
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.’’ 45
The Exchange believes that its
proposal is consistent with Section
6(b)(4) of the Act, in that the Proposed
Fee Increases are fair, equitable and not
42 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
44 15 U.S.C. 78f(b)(5).
45 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
43 15
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unreasonably discriminatory, because
the fees for the connectivity alternatives
available on the Exchange, as proposed
to be increased, are constrained by
significant competitive forces. The U.S.
options markets are highly competitive
(there are currently 16 options markets)
and a reliance on competitive markets is
an 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. In particular, options market
participants are not forced to connect to
(and purchase market data from) all
options exchanges, as shown by the
number of Members of MIAX PEARL as
compared to the much greater number
of members at other options exchanges
(as further detailed below). Not only
does MIAX PEARL have less than half
the number of members as certain other
options exchanges, but there are also a
number of the Exchange’s Members that
do not connect directly to MIAX
PEARL. Further, of the number of
Members that connect directly to MIAX
PEARL, many such Members do not
purchase market data from MIAX
PEARL. There are a number of large
market makers and broker-dealers that
are members of other options exchange
but not Members of MIAX PEARL. For
example, the following are not Members
of MIAX PEARL: The D. E. Shaw Group,
CTC, XR Trading LLC, Hardcastle
Trading AG, Ronin Capital LLC,
Belvedere Trading, LLC, Bluefin
Trading, and HAP Capital LLC. In
addition, of the market makers that are
connected to MIAX PEARL, it is the
individual needs of the market maker
that require whether they need one
connection or multiple connections to
the Exchange. The Exchange has market
maker Members that only purchase one
connection (10Gb or 10Gb ULL) and the
Exchange has market maker Members
that purchase multiple connections. It is
all driven by the business needs of the
market maker. Market makers that are
consolidators that target resting order
flow tend to purchase more connectivity
than Market Makers that simply quote
all symbols on the Exchange. Even
though non-Members purchase and
resell 10Gb and 10Gb ULL connections
to both Members and non-Members, no
market makers currently connect to the
Exchange indirectly through such
resellers.
The argument that all broker-dealers
are required to connect to all exchanges
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is not true in the options markets. The
options markets have evolved
differently than the equities markets
both in terms of market structure and
functionality. For example, there are
many order types that are available in
the equities markets that are not utilized
in the options markets, which relate to
mid-point pricing and pegged pricing
which require connection to the SIPs
and each of the equities exchanges in
order to properly execute those orders
in compliance with best execution
obligations. In addition, in the options
markets there is a single SIP (OPRA)
versus two SIPs in the equities markets,
resulting in fewer hops and thus
alleviating the need to connect directly
to all the options exchanges.
Additionally, in the options markets,
the linkage routing and trade through
protection are handled by the
exchanges, not by the individual
members. Thus not connecting to an
options exchange or disconnecting from
an options exchange does not
potentially subject a broker-dealer to
violate order protection requirements.
Gone are the days when the retail
brokerage firms (the Fidelity’s, the
Schwab’s, the eTrade’s) were members
of the options exchanges—they are not
members of MIAX PEARL or its
affiliates, MIAX and MIAX Emerald,
they do not purchase connectivity to
MIAX PEARL, and they do not purchase
market data from MIAX PEARL. 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, based on their
particular business needs.
To assist prospective Members or
firms considering connecting to MIAX
PEARL, the Exchange provides
information about the Exchange’s
available connectivity alternatives in a
Connectivity Guide, which contains
detailed specifications regarding, among
other things, throughput and latency for
each available connection.46 The
decision of which type of connectivity
to purchase, or whether to purchase
connectivity at all for a particular
exchange, is based on the business
needs of the firm. For example, if the
firm wants to receive the top-of-market
data feed product or depth data feed
product, due to the amount/size of data
contained in those feeds, such firm
46 See the MIAX Connectivity Guide at https://
www.miaxoptions.com/sites/default/files/pagefiles/MIAX_Connectivity_Guide_v3.6_
01142019.pdf.
PO 00000
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761
would need to purchase either the 10Gb
or 10Gb ULL connection. The 1Gb
connection is too small to support those
data feed products. MIAX PEARL notes
that there are twelve (12) Members that
only purchase the 1Gb connectivity
alternative. Thus, while there is a
meaningful percentage of purchasers of
only 1Gb connections (12 of 33), by
definition, those twelve (12) members
purchase connectivity that cannot
support the top-of-market data feed
product or depth data feed product and
thus they do not purchase such data
feed products. Accordingly, purchasing
market data is a business decision/
choice, and thus the pricing for it is
constrained by competition.
There is competition for connectivity
to MIAX PEARL and its affiliates. MIAX
PEARL competes with nine (9) nonMembers who resell MIAX PEARL
connectivity. These are resellers of
MIAX PEARL connectivity—they are
not arrangements between brokerdealers to share connectivity costs.
Those non-Members resell that
connectivity to multiple market
participants over that same connection,
including both Members and nonMembers of MIAX PEARL (typically
extranets and service bureaus). When
connectivity is re-sold by a third-party,
MIAX PEARL does not receive any
connectivity revenue from that sale. It is
entirely between the third-party and the
purchaser, thus constraining the ability
of MIAX PEARL to set its connectivity
pricing as indirect connectivity is a
substitute for direct connectivity. There
are currently nine (9) non-Members that
purchase connectivity to MIAX PEARL
and/or MIAX. Those non-Members
resell that connectivity to eleven (11)
customers, some of whom are agency
broker-dealers that have tens of
customers of their own. Some of those
eleven (11) customers also purchase
connectivity directly from MIAX PEARL
and/or MIAX. Accordingly, indirect
connectivity is a viable alternative that
is already being used by non-Members
of MIAX PEARL, constraining the price
that MIAX PEARL is able to charge for
connectivity to its Exchange.
The Exchange 47 and MIAX 48 are
comprised of 41 distinct Members
between the two exchanges, excluding
any additional affiliates of such
Members that are also Members of
MIAX PEARL, MIAX, or both. Of those
47 MIAX PEARL has 36 distinct Members,
excluding affiliated entities. See MIAX PEARL
Exchange Member Directory, available at https://
www.miaxoptions.com/exchange-members/pearl.
48 MIAX has 38 distinct Members, excluding
affiliated entities. See MIAX Exchange Member
Directory, available at https://
www.miaxoptions.com/exchange-members.
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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, or both.
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.
The Exchange believes that the
Proposed Fee Increases are reasonable,
equitable and not unfairly
discriminatory because the connectivity
pricing is directly related to the relative
costs to the Exchange to provide those
respective services, and does not impose
a barrier to entry to smaller participants.
Accordingly, the Exchange offers three
direct connectivity alternatives and
various indirect connectivity (via thirdparty) alternatives, as described above.
MIAX PEARL recognizes that there are
various business models and varying
sizes of market participants conducting
business on the Exchange. The 1Gb
direct connectivity alternative is 1/10th
the size of the 10Gb direct connectivity
alternative. Because it is 1/10th of the
size, it does not offer access to many of
the products and services offered by the
Exchange, such as the ability to quote or
receive certain market data products.
Approximately just less than half of
MIAX PEARL and MIAX Members that
connect (14 out of 33) purchase 1Gb
connections. The 1Gb direct connection
can support the sending of orders and
the consumption of all market data feed
products, other than the top-of-market
data feed product or depth data feed
product (which require a 10Gb
connection). The 1Gb direct connection
is generally purchased by market
participants that utilize less bandwidth
and also generally do not require the
high touch network support services
provided by the Exchange. Accordingly,
these connections consume the least
resources of the Exchange and are the
least costly to the Exchange to provide.
The market participants that purchase
10Gb ULL direct connections utilize the
most bandwidth and also generally do
require the high touch network support
services provided by the Exchange.
Accordingly, these connections
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consume the most resources of the
Exchange and are the most costly to the
Exchange to provide. Accordingly, the
Exchange believes the allocation of the
Proposed Fee Increases ($9,300 for a
10Gb ULL connection versus $1,400 for
a 1Gb connection) are reasonable based
on the resources consumed by the
respective type of connection—lowest
resource consuming members pay the
least, and highest resource consuming
members pays the most, particularly
since higher resource consumption
translates directly to higher costs to the
Exchange. The 10Gb ULL connection
offers optimized connectivity for latency
sensitive participants and is
approximately single digit microseconds
faster in round trip time for connection
oriented traffic to the Exchange than the
10Gb connection. This lower latency is
achieved through more advanced
network equipment, such as advanced
hardware and switching components,
which translates to increased costs to
the Exchange. Market participants that
are less latency sensitive can purchase
10Gb direct connections and quote in all
products on the Exchange and consume
all market data feeds, and such 10Gb
direct connections are priced lower than
the 10Gb ULL direct connections,
offering smaller sized market makers a
lower cost alternative. 10Gb connections
are less costly to provide than 10Gb ULL
connections, which require greater
network support services.
With respect to options trading, the
Exchange had only a 4.78% market
share of the U.S. options industry in
November 2019 in Equity/Exchange
Traded Fund (‘‘ETF’’) classes according
to the OCC.49 For November 2019, the
Exchange’s affiliate, MIAX, had only a
4.32% market share of the U.S. options
industry in Equity/ETF classes
according to the OCC.50 For November
2019, the Exchange’s affiliate, MIAX
Emerald, had only a 0.92% market share
of the U.S. options industry in Equity/
ETF classes according to the OCC.51 The
Exchange is not aware of any evidence
that a combined market share of
approximately 10% provides the
Exchange with anti-competitive pricing
power. This, in addition to the fact that
not all broker-dealers are required to
connect to all options exchanges,
supports the Exchange’s conclusion that
its pricing is constrained by
competition.
Separately, the Exchange is not aware
of any reason why market participants
49 See Exchange Market Share of Equity
Products—2019, The Options Clearing Corporation,
available at https://www.theocc.com/webapps/
exchange-volume.
50 Id.
51 Id.
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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. Market
participants choose to connect to a
particular exchange and because it is a
choice, MIAX PEARL must set
reasonable connectivity pricing,
otherwise prospective members would
not connect and existing members
would disconnect or connect through a
third-party reseller of connectivity. No
options market participant is required
by rule, regulation, or competitive forces
to be a Member of the Exchange. As
evidence of the fact that market
participants can and do disconnect from
exchanges based on connectivity
pricing, R2G Services LLC (‘‘R2G’’) filed
a comment letter after BOX’s proposed
rule changes to increase its connectivity
fees (SR–BOX–2018–24, SR–BOX–
2018–37, and SR–BOX–2019–04).52 The
R2G Letter stated, ‘‘[w]hen BOX
instituted a $10,000/month price
increase for connectivity; we had no
choice but to terminate connectivity
into them as well as terminate our
market data relationship. The cost
benefit analysis just didn’t make any
sense for us at those new levels.’’
Accordingly, this example shows that if
an exchange sets too high of a fee for
connectivity and/or market data services
for its relevant marketplace, market
participants can choose to disconnect
from 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 41 Members
(including all such Members’ affiliate
Members). However, Cboe Exchange,
Inc. (‘‘Cboe’’) has over 200 members,53
Nasdaq ISE, LLC has approximately 100
members,54 and NYSE American LLC
has over 80 members.55 If all market
52 See Letter from Stefano Durdic, R2G, to
Vanessa Countryman, Acting Secretary,
Commission, dated March 27, 2019 (the ‘‘R2G
Letter’’).
53 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).
54 See Form 1/A, filed July 1, 2016 (https://
www.sec.gov/Archives/edgar/vprr/1601/
16019243.pdf).
55 See https://www.nyse.com/markets/americanoptions/membership#directory.
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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 41
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, particularly
in light of the R2G disconnection
example cited above.56 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 PEARL
and MIAX; 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 and market data
needs associated with their business
model. After the fee increase, beginning
August 1, 2018, the same number of
Members purchased the same number of
connections.57 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,
56 See
supra note 52.
Exchange notes that one Member
downgraded one connection in July of 2018,
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.
57 The
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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.
MIAX PEARL did not experience any
noticeable change (increase or decrease)
in order flow sent by its market
participants as a result of the fee
increase.
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
amongst other market participants.
These facts, coupled with the discussion
above, showing that it is not necessary
to join and/or connect to all options
exchanges and market participants can
disconnect if pricing is set too high (the
R2G example),58 demonstrate that the
Exchange’s fees are constrained by
competition and are reasonable and not
contrary to the Law of Demand.
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 according to
the Exchange’s costs to provide such
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
58 See
PO 00000
supra note 52.
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763
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 actual costs to
the Exchange to provide network
connectivity and the respective
connection options, including the costs
associated with providing the different
levels of service associated with the
respective connections.
The Exchange further believes that the
Proposed Fee Increases, as they pertain
to purchasers of each type of
connectivity alternative, constitute an
equitable allocation of reasonable fees
charged to the Exchange’s Members and
non-Members and are allocated fairly
amongst the types of market participants
using the facilities of the Exchange. For
example, for November 2019, between
the Exchange and MIAX: (i) Members
and non-Members that purchased 10Gb
ULL connections accounted for
approximately 80% of the total network
connectivity revenue collected by the
Exchange and MIAX from all
connectivity alternatives; (ii) Members
and non-Members that purchased 10Gb
connections accounted for
approximately 15% of the total network
connectivity revenue collected by the
Exchange and MIAX from all
connectivity alternatives; and (iii)
Members and non-Members that
purchased 1Gb connections accounted
for approximately 5% of the revenue
collected by the Exchange and MIAX
from all connectivity alternatives. As
described above, the Exchange believes
the Proposed Fee Increases are equitably
allocated because 10Gb and 10Gb ULL
purchasers (while they account for the
vast majority of the Exchange’s total
connectivity revenue—approximately
95%): (1) Consume the most bandwidth
and resources of the network; (2)
transact the vast majority of the volume
on the Exchange; and (3) require the
high touch network support services
provided by the Exchange and its staff,
including more costly network
monitoring, reporting and support
services, resulting in a much higher cost
to the Exchange to provide such
connectivity alternatives, compared to
the cost to provide a 1Gb connectivity
alternative (as further described in the
Exchange’s cost discussion, below).
The Exchange believes that the
connectivity fees are equitably allocated
among users of the three network
connectivity alternatives, as the users of
the 10Gb and 10Gb ULL connections
consume the most bandwidth and
resources of the network. Specifically,
the Exchange notes that these users
account for approximately greater than
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99% of message traffic over the network,
while the users of the 1Gb connections
account for approximately less than 1%
of message traffic over the network. In
the Exchange’s experience, users of the
1Gb connections do not have a business
need for the high performance network
solutions required by 10Gb and 10Gb
ULL users. The Exchange’s high
performance network solutions and
supporting infrastructure (including
employee support), provides
unparalleled system throughput with
the network ability to support access to
three distinct options markets and the
capacity to handle approximately 10.7
million quote messages per second. On
an average day, the Exchange and MIAX
handle approximately 8,304,500,000
total messages. Of those, users of the
10Gb and 10Gb ULL connections
generate approximately 8,300,000,000
messages, and users of the 1Gb
connections generate 4,500,000
messages. However, in order to achieve
a consistent, premium network
performance, the Exchange must build
out and maintain a network that has the
capacity to handle the message rate
requirements of its most heavy network
consumers. These billions of messages
per day consume the Exchange’s
resources and significantly contribute to
the overall network connectivity
expense for storage and network
transport capabilities. Given this
difference in network utilization rate,
the Exchange believes that it is
reasonable, equitable, and not unfairly
discriminatory that the 10Gb and 10Gb
ULL users pay for the vast majority of
the shared network resources from
which all Member and non-Member
users benefit, but is designed and
maintained from a capacity standpoint
to specifically handle the message rate
and performance requirements of 10Gb
and 10Gb ULL users.
The Exchange also believes that the
connectivity fees are equitably allocated
amongst users of the three network
connectivity alternatives, when these
fees are viewed in the context of the
overall trading volume on the Exchange.
To illustrate, the purchasers of 10Gb
ULL connectivity account for
approximately 78% of the volume on
the Exchange. For example, for all of
November 2019, approximately 13.4
million contracts of the 17.1 million
contracts executed were done by the top
market making firms on the Exchange in
simple (non-complex) volume. This
overall volume percentage (78% of total
Exchange volume) is in line with the
amount of network connectivity revenue
collected from 10Gb ULL purchasers
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(80% of total Exchange connectivity
revenue).
The Exchange further believes that the
fees are equitably allocated, as the
amount of the fees for the various
connectivity alternatives are directly
related to the actual costs associated
with providing the respective
connectivity alternatives. That is, the
cost to the Exchange of providing a 1Gb
network connection is significantly
lower than the cost to the Exchange of
providing a 10Gb or 10Gb ULL network
connection. Pursuant to its extensive
cost review described above, the
Exchange believes that the average cost
to provide a 10Gb/10Gb ULL network
connection is approximately 4 to 6
times more than the average cost to
provide a 1Gb connection. The simple
hardware and software component costs
alone of a 10Gb/10Gb ULL connection
are not 4 to 6 times more than the 1Gb
connection. Rather, it is the associated
premium-product level network
monitoring, reporting, and support
services costs that accompany a 10Gb/
10Gb ULL connection which cause it to
be 4 to 6 times more costly to provide
than the 1Gb connection. Accordingly,
the Exchange believes it is equitable to
allocate those network infrastructure
costs that accompany a 10Gb/10Gb ULL
connection to the purchasers of those
connections, and not to purchasers of
1Gb connections.
As discussed above, the Exchange
differentiates itself by offering a
‘‘premium-product’’ network
experience, as an operator of a high
performance, ultra-low latency network
with unparalleled system throughput,
which network can support access to
three distinct options markets and
multiple competing market-makers
having affirmative obligations to
continuously quote over 750,000
distinct trading products (per exchange),
and the capacity to handle
approximately 10.7 million quote
messages per second. The ‘‘premiumproduct’’ network experience enables
users of 10Gb and 10Gb ULL
connections to receive the network
monitoring and reporting services for
those approximately 750,000 distinct
trading products. There is a significant,
quantifiable amount of research and
development (‘‘R&D’’) effort, employee
compensation and benefits expense, and
other expense associated with providing
the high touch network monitoring and
reporting services that are utilized by
the 10Gb and 10Gb ULL connections
offered by the Exchange. These value
add services are fully-discussed herein,
and the actual costs associated with
providing these services are the basis for
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the differentiated amount of the fees for
the various connectivity alternatives.
The Exchange believes that its
proposal is consistent with Section
6(b)(4) of the Act because the Proposed
Fee Increases will permit recovery of the
Exchange’s costs and will not result in
excessive pricing or supra-competitive
profit. The Proposed Fee Increases will
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 network
infrastructure as well as network
monitoring and support services in
order to provide the network
connectivity services, since the
Exchange launched operations in
February 2017. 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 stateof-the-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
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
expanding its Information Security
services, enhanced network monitoring
and customer reporting, as well as
Regulation SCI mandated processes
associated with network technology. All
of these additional expenses have been
incurred by the Exchange since it
became operational in February 2017.
Additionally, while some of the
expense is fixed, much of the expense
is not fixed, and thus increases as the
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number of connections increase. For
example, new 1Gb, 10Gb, and 10Gb ULL
connections require the purchase of
additional hardware to support those
connections as well as enhanced
monitoring and reporting of customer
performance that MIAX PEARL and its
affiliates provide. And 10Gb ULL
connections require the purchase of
specialized, more costly hardware.
Further, as the total number of all
connections increase, MIAX PEARL and
its affiliates need to increase their data
center footprint and consume more
power, resulting in increased costs
charged by their third-party data center
provider. Accordingly, the cost to MIAX
PEARL and its affiliates is not entirely
fixed. Just the initial fixed cost buildout
of the network infrastructure of MIAX
PEARL and its affiliates, including both
primary/secondary sites and disaster
recovery, was over $30 million. These
costs have increased over 10% since the
Exchange became operational in
February 2017. As these network
connectivity-related expenses increase,
MIAX PEARL and its affiliates look to
offset those costs through increased
connectivity fees.
A more detailed breakdown of the
expense increases since February 2017
include an approximate 70% increase in
technology-related personnel costs in
infrastructure, due to expansion of
services/support (increase of
approximately $800,000); an
approximate 10% increase in data
center costs due to price increases and
footprint expansion (increase of
approximately $500,000); an
approximate 5% increase in vendorsupplied dark fiber due to price
increases and expanded capabilities
(increase of approximately $25,000);
and a 30% increase in market data
connectivity fees (increase of
approximately $200,000). Of note,
regarding market data connectivity fee
increased cost, this is the cost associated
with MIAX PEARL consuming
connectivity/content from the equities
markets in order to operate the
Exchange, causing MIAX PEARL to
effectively pay its competitors for this
connectivity. While the Exchange and
MIAX have incurred a total increase in
connectivity expenses since January
2017 (the last time connectivity fees
were raised) of approximately $1.5
million per year (as described above),
the total increase in connectivity
revenue amount as a result of the
Proposed Fee Increases is projected to
be approximately $1.2 million per year
for MIAX PEARL and MIAX.
Accordingly, the total projected MIAX
PEARL and MIAX connectivity revenue
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as a result of the proposed increase, on
an annualized basis, is less than the
total annual actual MIAX PEARL and
MIAX connectivity expense.
Accordingly, the Proposed Fee Increases
are fair and reasonable because they will
not result in excessive pricing or supracompetitive profit, when comparing the
increase in actual costs to the Exchange
(since February 2017) versus the
projected increase in annual revenue.
The Exchange also incurred additional
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 and 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.
Connectivity fees, which are charged for
accessing the Exchange’s data center
network infrastructure, are directly
related to the network and offset such
costs.
Further, the Exchange invests
significant resources in network R&D,
which are not included in direct
expenses 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 inhouse, 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. In fact, the
Exchange often receives calls from other
industry participants regarding the
status of networking issues outside of
the Exchange’s own network
environment that are impacting the
industry as a whole via the SIPs,
including calls from regulators, because
the Exchange has a superior, state-of
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765
the-art network that, through its
enhanced monitoring and reporting
solutions, often detects and identifies
industry-wide networking issues ahead
of the SIPs. 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
February 2017 and are loss leaders for
the Exchange to provide these added
benefits for Members and non-Members.
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 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,
which are designed to recover those
costs, as proposed herein. The Exchange
invests in and offers a superior network
infrastructure as part of its overall
options exchange services offering,
resulting in significant costs associated
with maintaining this network
infrastructure, which are directly tied to
the amount of the connectivity fees that
must be charged to access it, in order to
recover those costs. As detailed in the
Exchange’s 2018 Audited
Unconsolidated Financial Statements,
the Exchange only has four primary
sources of revenue: Transaction fees,
access fees (of which network
connectivity constitutes the majority),
regulatory fees, and market data fees.
Accordingly, the Exchange must cover
all of its expenses from these four
primary sources of revenue.
The Proposed Fee Increases are fair
and reasonable because they will not
result in excessive pricing or supracompetitive profit, when comparing the
total annual expense of MIAX PEARL
and MIAX associated with providing
network connectivity services versus the
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total projected annual revenue of both
exchanges associated with providing
network connectivity services. For 2018,
the total annual expense associated with
providing network connectivity services
(that is, the shared network connectivity
of MIAX PEARL and MIAX, but
excluding MIAX Emerald) was
approximately $19.3 million. The $19.3
million in total annual expense is
comprised of the following, all of which
is directly related to the provision of
network connectivity services by MIAX
PEARL and MIAX to their respective
Members and non-Members: (1) Thirdparty expense, relating to fees paid by
MIAX PEARL and MIAX to third-parties
for certain products and services; and
(2) internal expense, relating to the
internal costs of MIAX PEARL and
MIAX to provide the network
connectivity services. All such expenses
are more fully-described below, and are
mapped to the MIAX PEARL and MIAX
2018 Statements of Operations and
Member’s Deficit (the ‘‘2018 Financial
Statements’’). The $19.3 million in total
annual expense is directly related to the
provision of network connectivity
services and not any other product or
service offered by the Exchange. It does
not, as the Third IEX Letter baselessly
claims, include general costs of
operating matching systems and other
trading technology. (And as stated
previously, no expense amount was
allocated twice.) As discussed, the
Exchange conducted an extensive cost
review in which the Exchange analyzed
every expense item in the Exchange’s
general expense ledger (this includes
over 150 separate and distinct expense
items) to determine whether each such
expense relates to the provision of
network connectivity services, and, if
such expense did so relate, what portion
(or percentage) of such expense actually
supports the provision of network
connectivity services, and thus bears a
relationship that is, ‘‘in nature and
closeness,’’ directly related to network
connectivity services. The sum of all
such portions of expenses represents the
total actual baseline cost of the
Exchange to provide network
connectivity services.
As discussed above, the Exchange
differentiates itself by offering a
‘‘premium-product’’ network
experience, as an operator of a high
performance, ultra-low latency network
with unparalleled system throughput,
which network can support access to
three distinct options markets and
multiple competing market-makers
having affirmative obligations to
continuously quote over 750,000
distinct trading products (per exchange),
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and the capacity to handle
approximately 38 million quote
messages per second. The ‘‘premiumproduct’’ network experience enables
users of 10Gb and 10Gb ULL
connections to receive the network
monitoring and reporting services for
those approximately 750,000 distinct
trading products. Thus, the Exchange is
acutely aware of and can isolate the
actual costs associated with providing
such a service to its customers, a
significant portion of which relates to
the premium, value-add customer
network monitoring and support
services that accompany the service, as
fully-described above. IEX, on the other
hand, does not offer such a network,
and thus has no legal basis to offer a
qualified opinion on the Exchange’s
costs associated with operating such a
network. In fact, IEX differentiates itself
as a provider of low cost connectivity
solutions to an intentionally delayed
trading platform—quite the opposite
from the Exchange. Thus, there is no
relevant comparison between IEX
network connectivity costs and the
Exchange’s network connectivity costs,
and IEX’s attempt to do so in the Third
IEX Letter is ill-informed and selfserving.59
For 2018, total third-party expense,
relating to fees paid by MIAX PEARL
and MIAX to third-parties for certain
products and services for the Exchange
to be able to provide network
connectivity services, was $5,052,346.
This includes, but is not limited to, a
portion of the fees paid to: (1) Equinix,
for data center services, for the primary,
secondary, and disaster recovery
locations of the MIAX PEARL and
MIAX trading system infrastructure; (2)
Zayo Group Holdings, Inc. (‘‘Zayo’’) for
connectivity services (fiber and
bandwidth connectivity) linking MIAX
PEARL and MIAX office locations in
Princeton, NJ and Miami, FL to all data
center locations; (3) Secure Financial
Transaction Infrastructure (‘‘SFTI’’),60
which supports connectivity and feeds
for the entire U.S. options industry; (4)
various other services providers
(including Thompson Reuters, NYSE,
Nasdaq, and Internap), which provide
59 See
Third IEX Letter, pg. 5.
fact, on October 22, 2019, the Exchange was
notified by SFTI that it is again raising its fees
charged to the Exchange by approximately 11%,
without having to show that such fee change
complies with the Act by being reasonable,
equitably allocated, and not unfairly
discriminatory. It is unfathomable to the Exchange
that, given the critical nature of the infrastructure
services provided by SFTI, that its fees are not
required to be rule-filed with the Commission
pursuant to Section 19(b)(1) of the Act and Rule
19b–4 thereunder. See 15 U.S.C. 78s(b)(1) and 17
CFR 240.19b–4, respectively.
60 In
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content, connectivity services, and
infrastructure services for critical
components of options connectivity;
and (5) various other hardware and
software providers (including Dell and
Cisco, which support the production
environment in which Members and
non-Members connect to the network to
trade, receive market data, etc.).
All of the third-party expense
described above is contained in the
information technology and
communication costs line item under
the section titled ‘‘Operating Expenses
Incurred Directly or Allocated From
Parent’’ of the 2018 Financial
Statements. For clarity, only a portion of
all fees paid to such third-parties is
included in the third-party expense
herein (only the portion that actually
supports the provision of network
connectivity services and no expense
amount is allocated twice). Accordingly,
MIAX PEARL and MIAX do not allocate
their entire information technology and
communication costs to the provision of
network connectivity services.
The Exchange believes it is reasonable
to allocate such third-party expense
described above towards the total cost to
the Exchange to operate and support the
network, including providing network
connectivity services. In particular, the
Exchange believes it is reasonable to
allocate the identified portion of the
Equinix expense because Equinix
operates the data centers (primary,
secondary, and disaster recovery) that
host the Exchange’s network
infrastructure, which enables the
provision of network connectivity
services. This includes, among other
things, the necessary storage space,
which continues to expand and increase
in cost, power to operate the network
infrastructure, and cooling apparatuses
to ensure the Exchange’s network
infrastructure maintains stability.
Without these services from Equinix,
the Exchange would not be able to
operate and support the network and
provide network connectivity services
to its Members and non-Members and
their customers. The Exchange did not
allocate all of the Equinix expense
toward the cost of providing network
connectivity services, only that portion
which the Exchange identified as being
specifically mapped to operating and
supporting the network, approximately
68% of the total Equinix expense. The
Exchange believes this allocation is
reasonable because it represents the
Exchange’s actual cost to operate and
support the network, and not any other
service, as supported by its cost review.
The Exchange believes it is reasonable
to allocate the identified portion of the
Zayo expense because Zayo provides
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the internet, fiber and bandwidth
connections with respect to the
network, linking MIAX PEARL with its
affiliates, MIAX and MIAX Emerald, as
well as the data center and disaster
recovery locations. As such, all of the
trade data, including the billions of
messages each day per exchange, flow
through Zayo’s infrastructure over the
Exchange’s network. Without these
services from Zayo, the Exchange would
not be able to operate and support the
network and provide network
connectivity services to its Members
and non-Members and their customers.
The Exchange did not allocate all of the
Zayo expense toward the cost of
providing network connectivity
services, only that portion which the
Exchange identified as being
specifically mapped to operating and
supporting the network, approximately
62% of the total Zayo expense. The
Exchange believes this allocation is
reasonable because it represents the
Exchange’s actual cost to operate and
support the network, and not any other
service, as supported by its cost review.
The Exchange believes it is reasonable
to allocate the identified portion of the
SFTI expense and various other service
providers’ (including Thompson
Reuters, NYSE, Nasdaq, and Internap)
expense because those entities provide
connectivity and feeds for the entire
U.S. options industry as well as the
content, connectivity services, and
infrastructure services for critical
components of the network. Without
these services from SFTI and various
other service providers, the Exchange
would not be able to operate and
support the network and provide
network connectivity services to its
Members and non-Members and their
customers. The Exchange did not
allocate all of the SFTI and other service
providers’ expense toward the cost of
providing network connectivity
services, only that portion which the
Exchange identified as being
specifically mapped to operating and
supporting the network, approximately
89% of the total SFTI and other service
providers’ expense. The Exchange
believes this allocation is reasonable
because it represents the Exchange’s
actual cost to operate and support the
network, and not any other service, as
supported by its cost review.
The Exchange believes it is reasonable
to allocate the identified portion of the
other hardware and software provider
expense because this includes costs for
dedicated hardware licenses for
switches and servers, as well as
dedicated software licenses for security
monitoring and reporting across the
network. Without this hardware and
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software, the Exchange would not be
able to operate and support the network
and provide network connectivity
services to its Members and nonMembers and their customers. The
Exchange did not allocate all of the
hardware and software provider
expense toward the cost of providing
network connectivity services, only that
portion which the Exchange identified
as being specifically mapped to
operating and supporting the network,
approximately 54% of the total
hardware and software provider
expense. The Exchange believes this
allocation is reasonable because it
represents the Exchange’s actual cost to
operate and support the network, and
not any other service, as supported by
its cost review. For 2018, total internal
expense, relating to the internal costs of
MIAX PEARL and MIAX to provide the
network connectivity services, was
$14,271,870. This includes, but is not
limited to, costs associated with: (1)
Employee compensation and benefits
for full-time employees that support
network connectivity services,
including staff in network operations,
trading operations, development, system
operations, business, etc., as well as
staff in general corporate departments
(such as legal, regulatory, and finance)
that support those employees and
functions; (2) depreciation and
amortization of hardware and software
used to provide network connectivity
services, including equipment, servers,
cabling, purchased software and
internally developed software used in
the production environment to support
the provision of network connectivity
for trading; and (3) occupancy costs for
leased office space for staff that support
the provision of network connectivity
services. The breakdown of these costs
is more fully-described below.
All of the internal expenses described
above are contained in the following
line items under the section titled
‘‘Operating Expenses Incurred Directly
or Allocated From Parent’’ in the 2018
Financial Statements: (1) Employee
compensation and benefits; (2)
Depreciation and amortization; and (3)
Occupancy costs. For clarity, only a
portion of all such internal expenses are
included in the internal expense herein
(only the portion that supports the
provision of network connectivity
services), and no expense amount is
allocated twice). Accordingly, MIAX
PEARL and MIAX do not allocate their
entire costs contained in those line
items to the provision of network
connectivity services.
The Exchange believes it is reasonable
to allocate such internal expense
described above towards the total cost to
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the Exchange to operate and support the
network, including providing network
connectivity services. In particular,
MIAX PEARL’s and MIAX’s combined
employee compensation and benefits
expense relating to providing network
connectivity services was $5,264,151,
which is only a portion of the
$11,997,098 (for MIAX) and $8,545,540
(for MIAX PEARL) total expense for
employee compensation and benefits
that is stated in the 2018 Financial
Statements. The Exchange believes it is
reasonable to allocate the identified
portion of such expense because this
includes the time spent by employees of
several departments, including
Technology, Back Office, Systems
Operations, Networking, Business
Strategy Development (who create the
business requirement documents that
the Technology staff use to develop
network features and enhancements),
Trade Operations, Finance (who provide
billing and accounting services relating
to the network), and Legal (who provide
legal services relating to the network,
such as rule filings and various license
agreements and other contracts). As part
of the extensive cost review conducted
by the Exchange, the Exchange reviewed
the amount of time spent by each
employee on matters relating to the
operation and support of the network.
Without these employees, the Exchange
would not be able to operate and
support the network and provide
network connectivity services to its
Members and non-Members and their
customers. The Exchange did not
allocate all of the employee
compensation and benefits expense
toward the cost of providing network
connectivity services, only that portion
which the Exchange identified as being
specifically mapped to operating and
supporting the network, approximately
26% of the total employee
compensation and benefits expense. The
Exchange believes this allocation is
reasonable because it represents the
Exchange’s actual cost to operate and
support the network, and not any other
service, as supported by its cost review.
MIAX’s and MIAX PEARL’s combined
depreciation and amortization expense
relating to providing network
connectivity services was $8,269,048,
which is only a portion of the
$6,179,506 (for MIAX) and $4,783,245
(for MIAX PEARL) total expense for
depreciation and amortization that is
stated in the 2018 Financial Statements.
The Exchange believes it is reasonable
to allocate the identified portion of such
expense because such expense includes
the actual cost of the computer
equipment, such as dedicated servers,
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computers, laptops, monitors,
information security appliances and
storage, and network switching
infrastructure equipment, including
switches and taps that were purchased
to operate and support the network.
Without this equipment, the Exchange
would not be able to operate the
network and provide network
connectivity services to its Members
and non-Members and their customers.
The Exchange did not allocate all of the
depreciation and amortization expense
toward the cost of providing network
connectivity services, only that portion
which the Exchange identified as being
specifically mapped to operating and
supporting the network, approximately
75% of the total depreciation and
amortization expense, as connectivity
services would not be possible without
relying on such equipment. The
Exchange believes this allocation is
reasonable because it represents the
Exchange’s actual cost to operate and
support the network, and not any other
service, as supported by its cost review.
MIAX’s and MIAX PEARL’s combined
occupancy expense relating to providing
network connectivity services was
$738,669, which is only a portion of the
$945,431 (for MIAX) and $581,783 (for
MIAX PEARL) total expense for
occupancy that is stated in the 2018
Financial Statements. The Exchange
believes it is reasonable to allocate the
identified portion of such expense
because such expense represents the
portion of the Exchange’s cost to rent
and maintain a physical location for the
Exchange’s staff who operate and
support the network, including
providing network connectivity
services. This amount consists primarily
of rent for the Exchange’s Princeton, NJ
office, as well as various related costs,
such as physical security, property
management fees, property taxes, and
utilities. The Exchange operates its
Network Operations Center (NOC) and
Security Operations Center (SOC) from
its Princeton, New Jersey office location.
A centralized office space is required to
house the staff that operates and
supports the network. The Exchange
currently has 130 employees.
Approximately two-thirds of the
Exchange’s staff are in the Technology
department, and the majority of those
staff have some role in the operation
and performance of the network.
Without this office space, the Exchange
would not be able to operate and
support the network and provide
network connectivity services to its
Members and non-Members and their
customers. Accordingly, the Exchange
believes it is reasonable to allocate the
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identified portion of its occupancy
expense because such amount
represents the Exchange’s actual cost to
house the equipment and personnel
who operate and support the Exchange’s
network infrastructure and connectivity
services. The Exchange did not allocate
all of the occupancy expense toward the
cost of providing network connectivity
services, only that portion which the
Exchange identified as being
specifically mapped to operating and
supporting network connectivity
services, approximately 48% of the total
occupancy expense. The Exchange
believes this allocation is reasonable
because it represents the Exchange’s
actual cost to operate and support the
network, and not any other service, as
supported by its cost review.
Accordingly, the total projected MIAX
and MIAX PEARL combined revenue for
providing network connectivity
services, reflective of the proposed
increase, on an annualized basis, of
$14.5 million, is less than total annual
actual MIAX PEARL and MIAX
combined expense for providing
network connectivity services during
2018 of approximately $19.3 million.
MIAX PEARL and MIAX project
comparable combined expenses for
providing network connectivity services
for 2019, as compared to 2018.
For the avoidance of doubt, none of
the expenses included herein relating to
the provision of network connectivity
services relate to the provision of any
other services offered by MIAX PEARL
and MIAX. Stated differently, no
expense amount of the Exchange is
allocated twice.
The Exchange believes it is
reasonable, equitable and not unfairly
discriminatory to allocate the respective
percentages of each expense category
described above towards the total cost to
the Exchange of operating and
supporting the network, including
providing network connectivity
services, because the Exchange
performed a line-by-line item analysis of
all the expenses of the Exchange, and
has determined the expenses that
directly relate to operation and support
of the network, including providing
network connectivity to the Exchange.
Further, the Exchange notes that,
without the specific third-party and
internal items listed above, the
Exchange would not be able to operate
and support the network, including
providing network connectivity services
to its Members and non-Members and
their customers. Each of these expense
items, including physical hardware,
software, employee compensation and
benefits, occupancy costs, and the
depreciation and amortization of
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
equipment, have been identified
through a line-by-line item analysis to
be integral to the operation and support
of the network. Network connectivity
fees are intended to recover the
Exchange’s costs of operating and
supporting the network.
Accordingly, the Proposed Fee
Increases are fair and reasonable
because they do not result in excessive
pricing or supra-competitive profit,
when comparing the actual network
operation and support costs to the
Exchange versus the projected network
connectivity annual revenue, including
the increased amount. Additional
information on overall revenue and
expense of the Exchange can be found
in the Exchange’s 2018 Financial
Statements.
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.61 The Exchange further
notes that Phlx, ISE, Arca and NYSE
American each charge higher rates for
such similar connectivity to primary
and secondary facilities.62 While MIAX
PEARL’s proposed connectivity fees are
substantially lower than the fees
charged by Phlx, ISE, Arca and NYSE
American, MIAX PEARL believes that it
offers significant value to Members over
other exchanges in terms of network
monitoring and reporting, which MIAX
PEARL believes is a competitive
advantage, and differentiates its
connectivity versus connectivity to
other exchanges. 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.63
61 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.
62 Id.
63 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
E:\FR\FM\07JAN1.SGM
07JAN1
Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
MIAX PEARL 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.
khammond on DSKJM1Z7X2PROD with NOTICES
Intra-Market Competition
The Exchange does not believe that
the proposed rule change would place
certain market participants at the
Exchange at a relative disadvantage
compared to other market participants
or affect the ability of such market
participants to compete. In particular,
the Exchange has received no official
complaints from Members, nonMembers (extranets and service
bureaus), third-parties that purchase the
Exchange’s connectivity and resell it,
and customers of those resellers, that
the Exchange’s fees or the Proposed Fee
Increases are negatively impacting or
would negatively impact their abilities
to compete with other market
participants or that they are placed at a
disadvantage. The Exchange believes
that the Proposed Fee Increases do not
place certain market participants at a
relative disadvantage to other market
participants because the connectivity
pricing is associated with relative usage
of the various market participants and
does not impose a barrier to entry to
smaller participants. As described
above, the less expensive 1Gb direct
connection is generally purchased by
market participants that utilize less
bandwidth. The market participants that
purchase 10Gb ULL direct connections
utilize the most bandwidth, and those
are the participants that consume the
most resources from the network.
Accordingly, the Proposed Fee Increases
do not favor certain categories of market
participants in a manner that would
impose a burden on competition; rather,
the allocation of the Proposed Fee
Increases reflects the network resources
consumed by the various size of market
participants—lowest bandwidth
consuming members pay the least, and
highest bandwidth consuming members
pays the most, particularly since higher
bandwidth consumption translates to
higher costs to the Exchange.
Inter-Market Competition
The Exchange believes the Proposed
Fee Increases do not place an undue
burden on competition on other SROs
that is not necessary or appropriate. In
particular, options market participants
(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).
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16:15 Jan 06, 2020
Jkt 250001
are not forced to connect to (and
purchase market data from) all options
exchanges, as shown by the number of
Members of MIAX PEARL as compared
to the much greater number of members
at other options exchanges (as described
above). Not only does MIAX PEARL
have less than half the number of
members as certain other options
exchanges, but there are also a number
of the Exchange’s Members that do not
connect directly to MIAX PEARL. There
are a number of large market makers and
broker-dealers that are members of other
options exchange but not Members of
MIAX PEARL. Additionally, other
exchanges have similar connectivity
alternatives for their participants,
including similar low-latency
connectivity, but with much higher
rates to connect.64 The Exchange is also
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,65 and Rule
19b–4(f)(2) 66 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
64 See
supra note 61.
U.S.C. 78s(b)(3)(A)(ii).
66 17 CFR 240.19b–4(f)(2).
65 15
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
769
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–
PEARL–2019–36 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–PEARL–2019–36. 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–PEARL–2019–36 and
should be submitted on or before
January 28, 2020.
E:\FR\FM\07JAN1.SGM
07JAN1
770
Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.67
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–28536 Filed 1–6–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87875; File No. SR–MIAX–
2019–51]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Its Fee Schedule
December 31, 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 December
20, 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 Exchange previously filed the
proposal on October 22, 2019 (SR–
MIAX–2019–46). That filing has been
withdrawn and replaced with the
current filing (SR–MIAX–2019–51).
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.
khammond on DSKJM1Z7X2PROD with NOTICES
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
67 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
16:15 Jan 06, 2020
Jkt 250001
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 is refiling its proposal
to amend the Fee Schedule to increase
the Exchange’s network connectivity
fees, in order to provide further
clarification regarding the Exchange’s
cost allocation methodology—namely,
information that explains the
Exchange’s rationale for determining
that it was reasonable to allocate certain
expenses described in this filing
towards the total cost to the Exchange
to provide network connectivity
services. The Exchange is also bolstering
its equitable allocation of fees
discussion.
The Exchange had previously
supplemented its connectivity fee
filings in order to provide additional
analysis of its baseline revenues, costs,
and profitability (before the proposed
fee change) and the Exchange’s expected
revenues, costs, and profitability
(following the proposed fee change) for
its network connectivity services. This
additional analysis includes information
regarding its methodology for
determining the baseline costs and
revenues, as well as expected costs and
revenues, for its network connectivity
services. The Exchange previously
refiled its proposal in order to address
certain points raised in the only
comment letter received by the
Commission on the Exchange’s prior
proposal to increase connectivity fees.3
In order to determine the Exchange’s
baseline costs associated with providing
network connectivity services, the
Exchange conducted an extensive cost
review in which the Exchange analyzed
every expense item in the Exchange’s
general expense ledger to determine
whether each such expense relates to
the provision of network connectivity
services, and, if such expense did so
relate, what portion (or percentage) of
such expense actually supports the
provision of network connectivity
services. The sum of all such portions
3 See Letter from John Ramsay, Chief Market
Policy Officer, Investors Exchange LLC (‘‘IEX’’), to
Vanessa Countryman, Secretary, Commission, dated
October 9, 2019 (‘‘Third IEX Letter,’’ as further
described below).
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
of expenses represents the total actual
baseline cost of the Exchange to provide
network connectivity services. (For the
avoidance of doubt, no expense amount
was allocated twice.) The Exchange is
presenting the results of its cost review
in a way that corresponds directly with
the Exchange’s 2018 Audited
Unconsolidated Financial Statements,
the relevant sections of which are
attached hereto [sic] as Exhibit 3, which
are publicly available as part of the
Exchange’s Form 1 Amendment.4 The
purpose of presenting it in this manner
is to provide greater transparency into
the Exchange’s actual and expected
revenues, costs, and profitability
associated with providing network
connectivity services. Based on this
analysis, the Exchange believes that its
proposed fee increases are fair and
reasonable because they will permit
recovery of less than all of the
Exchange’s costs for providing the
network connectivity services and will
not result in excessive pricing or supracompetitive profit, when comparing the
Exchange’s total annual expense
associated with providing the network
connectivity services versus the total
projected annual revenue the Exchange
projects to collect for providing the
network connectivity services.
Specifically, the Exchange proposes to
amend Sections 5(a) 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 5 and nonMembers 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.’’
4 See the complete Audited Unconsolidated
Financial Statements of Miami International
Securities Exchange, LLC as of December 31, 2018,
and the Audited Unconsolidated Financial
Statements of MIAX PEARL, LLC as of December
31, 2018, which are listed under Exhibit D of MIAX
Form 1 Amendment 2019–7 Annual Filing at
https://www.sec.gov/Archives/edgar/vprr/1900/
19003680.pdf.
5 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.
E:\FR\FM\07JAN1.SGM
07JAN1
]]>Agencies
[Federal Register Volume 85, Number 4 (Tuesday, January 7, 2020)]
[Notices]
[Pages 757-770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28536]
[[Page 757]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87876; File No. SR-PEARL-2019-36]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
PEARL Fee Schedule
December 31, 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 December 20, 2019, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\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 PEARL Fee
Schedule (the ``Fee Schedule'') to modify certain of the Exchange's
system connectivity fees.
The Exchange previously filed the proposal on October 22, 2019 (SR-
PEARL-2019-33). That filing has been withdrawn and replaced with the
current filing (SR-PEARL-2019-36).
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/pearl at MIAX
PEARL's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV 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 is refiling its proposal to amend the Fee Schedule to
increase the Exchange's network connectivity fees, in order to provide
further clarification regarding the Exchange's cost allocation
methodology--namely, information that explains the Exchange's rationale
for determining that it was reasonable to allocate certain expenses
described in this filing towards the total cost to the Exchange to
provide network connectivity services. The Exchange is also bolstering
its equitable allocation of fees discussion.
The Exchange had previously supplemented its connectivity fee
filings in order to provide additional analysis of its baseline
revenues, costs, and profitability (before the proposed fee change) and
the Exchange's expected revenues, costs, and profitability (following
the proposed fee change) for its network connectivity services. This
additional analysis includes information regarding its methodology for
determining the baseline costs and revenues, as well as expected costs
and revenues, for its network connectivity services. The Exchange
previously refiled its proposal in order to address certain points
raised in the only comment letter received by the Commission on the
Exchange's prior proposal to increase connectivity fees.\3\
---------------------------------------------------------------------------
\3\ See Letter from John Ramsay, Chief Market Policy Officer,
Investors Exchange LLC (``IEX''), to Vanessa Countryman, Secretary,
Commission, dated October 9, 2019 (``Third IEX Letter,'' as further
described below).
---------------------------------------------------------------------------
In order to determine the Exchange's baseline costs associated with
providing network connectivity services, the Exchange conducted an
extensive cost review in which the Exchange analyzed every expense item
in the Exchange's general expense ledger to determine whether each such
expense relates to the provision of network connectivity services, and,
if such expense did so relate, what portion (or percentage) of such
expense actually supports the provision of network connectivity
services. The sum of all such portions of expenses represents the total
actual baseline cost of the Exchange to provide network connectivity
services. (For the avoidance of doubt, no expense amount was allocated
twice.) The Exchange is presenting the results of its cost review in a
way that corresponds directly with the Exchange's 2018 Audited
Unconsolidated Financial Statements, the relevant sections of which are
attached hereto [sic] as Exhibit 3, which are publicly available as
part of the Exchange's Form 1 Amendment.\4\ The purpose of presenting
it in this manner is to provide greater transparency into the
Exchange's actual and expected revenues, costs, and profitability
associated with providing network connectivity services. Based on this
analysis, the Exchange believes that its proposed fee increases are
fair and reasonable because they will permit recovery of less than all
of the Exchange's costs for providing the network connectivity services
and will not result in excessive pricing or supra-competitive profit,
when comparing the Exchange's total annual expense associated with
providing the network connectivity services versus the total projected
annual revenue the Exchange projects to collect for providing the
network connectivity services.
---------------------------------------------------------------------------
\4\ See the complete Audited Unconsolidated Financial Statements
of MIAX PEARL, LLC, LLC as of December 31, 2018, and the Audited
Unconsolidated Financial Statements of Miami International
Securities Exchange, LLC as of December 31, 2018, which are listed
under Exhibit D of MIAX Form 1 Amendment 2019-7 Annual Filing at
https://www.sec.gov/Archives/edgar/vprr/1900/19003680.pdf.
---------------------------------------------------------------------------
Specifically, the Exchange proposes to amend Sections 5(a) 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 \5\ 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, Miami International Securities Exchange, LLC (``MIAX'').
These proposed fee increases are collectively referred to herein as the
``Proposed Fee Increases.''
---------------------------------------------------------------------------
\5\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of the
Exchange's Rules for purposes of trading on the Exchange as an
``Electronic Exchange Member'' or ``Market Maker.'' Members are
deemed ``members'' under the Exchange Act. See Exchange Rule 100.
---------------------------------------------------------------------------
The Exchange initially filed the Proposed Fee Increases on July 31,
2018, designating the Proposed Fee Increases effective August 1,
2018.\6\ The First
[[Page 758]]
Proposed Rule Change was published for comment in the Federal Register
on August 13, 2018.\7\ The Commission received one comment letter on
the proposal.\8\ 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.\9\ The Suspension Order also instituted proceedings to determine
whether to approve or disapprove the First Proposed Rule Change.\10\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 83785 (August 7,
2018), 83 FR 40101 (August 13, 2018)(SR-PEARL-2018-16) (the ``First
Proposed Rule Change'').
\7\ Id.
\8\ See Letter from Tyler Gellasch, Executive Director, The
Healthy Markets Association (``Healthy Markets''), to Brent J.
Fields, Secretary, Commission, dated September 4, 2018 (``Healthy
Markets Letter'').
\9\ See Securities Exchange Act Release No. 84177 (September 17,
2018), 83 FR 47953 (September 21, 2018)(SR-PEARL-2018-16)
(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).
\10\ 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.
The Exchange refiled the Proposed Fee Increases on September 18,
2018, designating the Proposed Fee Increases immediately effective.\11\
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.\12\ On
October 5, 2018, the Exchange withdrew the First Proposed Rule
Change.\13\ The Second Proposed Rule Change was published for comment
in the Federal Register on October 10, 2018.\14\ The Commission
received one comment letter on the proposal.\15\ The Second Suspension
Order also instituted proceedings to determine whether to approve or
disapprove the Second Proposed Rule Change.\16\
---------------------------------------------------------------------------
\11\ See Securities Exchange Act Release No. 84358 (October 3,
2018), 83 FR 51022 (October 10, 2018)(SR-PEARL-2018-19) (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) (the ``Second Proposed Rule
Change'').
\12\ Id.
\13\ See Securities Exchange Act Release No. 84397 (October 10,
2018), 83 FR 52272 (October 16, 2018)(SR-PEARL-2018-16) (Notice of
Withdrawal of a Proposed Rule Change to Amend the Fee Schedule
Regarding Connectivity Fees for Members and Non-Members).
\14\ See supra note 11.
\15\ 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 (the ``SIFMA Letter'').
\16\ See supra note 11.
---------------------------------------------------------------------------
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.\17\
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 84651 (November 26,
2018), 83 FR 61687 (November 30, 2018)(SR-PEARL-2018-19) (Notice of
Withdrawal of a Proposed Rule Change to Amend the Fee Schedule
Regarding Connectivity Fees for Members and Non-Members).
---------------------------------------------------------------------------
The Exchange refiled the Proposed Fee Increases on March 1, 2019,
designating the Proposed Fee Increases immediately effective.\18\ The
Third Proposed Rule Change was published for comment in the Federal
Register on March 20, 2019.\19\ The Third Proposed Rule Change provided
new information, including 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.
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 85317 (March 14,
2019), 84 FR 10380 (March 20, 2019)(SR-PEARL-2019-08) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the MIAX PEARL Fee Schedule) (the ``Third Proposed Rule
Change'').
\19\ Id.
---------------------------------------------------------------------------
On March 29, 2019, the Commission issued its Order Disapproving
Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC
Options Facility to Establish BOX Connectivity Fees for Participants
and Non-Participants Who Connect to the BOX Network (the ``BOX
Order'').\20\ In the BOX Order, the Commission highlighted a number of
deficiencies it found in three separate rule filings by BOX Exchange
LLC (``BOX'') to increase BOX's connectivity fees that prevented the
Commission from finding that BOX's proposed connectivity fees were
consistent with the Act. These deficiencies relate to topics that the
Commission believes should be discussed in a connectivity fee filing.
---------------------------------------------------------------------------
\20\ See Securities Exchange Act Release No. 85459 (March 29,
2019), 84 FR 13363 (April 4, 2019)(SR-BOX-2018-24, SR-BOX-2018-37,
and SR-BOX-2019-04).
---------------------------------------------------------------------------
After the BOX Order was issued, the Commission received four
comment letters on the Third Proposed Rule Change.\21\
---------------------------------------------------------------------------
\21\ See Letter from Joseph W. Ferraro III, SVP & Deputy General
Counsel, MIAX, to Vanessa Countryman, Acting Secretary, Commission,
dated April 5, 2019 (the ``MIAX Letter''); Letter from Theodore R.
Lazo, Managing Director and Associate General Counsel, SIFMA, to
Vanessa Countryman, Acting Secretary, Commission, dated April 10,
2019 (the ``Second SIFMA Letter''); Letter from John Ramsay, Chief
Market Policy Officer, IEX, to Vanessa Countryman, Acting Secretary,
Commission, dated April 10, 2019 (the ``IEX Letter''); and Letter
from Tyler Gellasch, Executive Director, Healthy Markets, to Brent
J. Fields, Secretary, Commission, dated April 18, 2019 (the ``Second
Healthy Markets Letter'').
---------------------------------------------------------------------------
The Second SIFMA Letter argued that the Exchange did not provide
sufficient information in its Third Proposed Rule Change to support a
finding that the proposal should be approved by the Commission after
further review of the proposed fee increases. Specifically, the Second
SIFMA Letter argued that the Exchange's market data fees and
connectivity fees were not constrained by competitive forces, the
Exchange's filing lacked sufficient information regarding cost and
competition, and that the Commission should establish a framework for
determining whether fees for exchange products and services are
reasonable when those products and services are not constrained by
significant competitive forces.
The IEX Letter argued that the Exchange did not provide sufficient
information in its Third Proposed Rule Change to support a finding that
the proposal should be approved by the Commission and that the
Commission should extend the time for public comment on the Third
Proposed Rule Change. Despite the objection to the Proposed Fee
Increases, the IEX Letter did find that ``MIAX has provided more
transparency and analysis in these filings than other exchanges have
sought to do for their own fee increases.'' \22\ The
[[Page 759]]
IEX Letter specifically argued that the Proposed Fee Increases were not
constrained by competition, the Exchange should provide data on the
Exchange's actual costs and how those costs relate to the product or
service in question, and whether and how MIAX considered changes to
transaction fees as an alternative to offsetting exchange costs.
---------------------------------------------------------------------------
\22\ See IEX Letter, pg. 1.
---------------------------------------------------------------------------
The Second Healthy Markets Letter did not object to the Third
Proposed Rule Change and the information provided by the Exchange in
support of the Proposed Fee Increases. Specifically, the Second Healthy
Markets Letter stated that the Third Proposed Rule Change was
``remarkably different,'' and went on to further state as follows:
The instant MIAX filings--along with their April 5th supplement--
provide much greater detail regarding users of connectivity, the market
for connectivity, and costs than the Initial MIAX Filings. They also
appear to address many of the issues raised by the Commission staff's
BOX disapproval order. This third round of MIAX filings suggests that
MIAX is operating in good faith to provide what the Commission and
staff seek.\23\
---------------------------------------------------------------------------
\23\ See Second Healthy Markets Letter, pg. 2.
---------------------------------------------------------------------------
On April 29, 2019, the Exchange withdrew the Third Proposed Rule
Change.\24\
---------------------------------------------------------------------------
\24\ See SR-PEARL-2019-08.
---------------------------------------------------------------------------
The Exchange refiled the Proposed Fee Increases on April 30, 2019,
designating the Proposed Fee Increases immediately effective.\25\ The
Fourth Proposed Rule Change was published for comment in the Federal
Register on May 16, 2019.\26\ The Fourth Proposed Rule Change provided
further cost analysis information to squarely and comprehensively
address each and every topic raised for discussion in the BOX Order,
the IEX Letter and the Second SIFMA Letter to ensure that the Proposed
Fee Increases are reasonable, equitable, and non-discriminatory, and
that the Commission should find that the Proposed Fee Increases are
consistent with the Act.
---------------------------------------------------------------------------
\25\ See Securities Exchange Act Release No. 85837 (May 10,
2019), 84 FR 22214 (May 16, 2019)(SR-PEARL-2019-17) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the MIAX PEARL Fee Schedule) (the ``Fourth Proposed Rule
Change'').
\26\ Id.
---------------------------------------------------------------------------
On May 21, 2019, the Commission issued the Staff Guidance on SRO
Rule Filings Relating to Fees.\27\
---------------------------------------------------------------------------
\27\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
---------------------------------------------------------------------------
The Commission received two comment letters on the Fourth Proposed
Rule Change, after the Guidance was released.\28\ The Second IEX Letter
and the Third SIFMA Letter argued that the Exchange did not provide
sufficient information in its Fourth Proposed Rule Change to justify
the Proposed Fee Increases based on the Guidance and the BOX Order. Of
note, however, is that unlike their previous comment letter, the Third
SIFMA Letter did not call for the Commission to suspend the Fourth
Proposed Rule Change. Also, Healthy Markets did not comment on the
Fourth Proposed Rule Change.
---------------------------------------------------------------------------
\28\ See Letter from John Ramsay, Chief Market Policy Officer,
Investors Exchange LLC, to Vanessa Countryman, Acting Secretary,
Commission, dated June 5, 2019 (the ``Second IEX Letter'') and
Letter from Theodore R. Lazo, Managing Director and Associate
General Counsel, and Ellen Greene, Managing Director, SIFMA, to
Vanessa Countryman, Acting Secretary, Commission, dated June 6, 2019
(the ``Third SIFMA Letter'').
---------------------------------------------------------------------------
On June 26, 2019, the Exchange withdrew the Fourth Proposed Rule
Change.\29\
---------------------------------------------------------------------------
\29\ See SR-PEARL-2019-17.
---------------------------------------------------------------------------
The Exchange refiled the Proposed Fee Increases on June 26, 2019,
designating the Proposed Fee Increases immediately effective.\30\ The
Fifth Proposed Rule Change was published for comment in the Federal
Register on July 16, 2019.\31\ The Fifth Proposed Rule Change bolstered
the Exchange's previous cost-based discussion to support its claim that
the Proposed Fee Increases are fair and reasonable because they will
permit recovery of the Exchange's costs and will not result in
excessive pricing or supra-competitive profit, in light of the Guidance
issued by Commission staff subsequent to the Fourth Proposed Rule
Change, and primarily through the inclusion of anticipated revenue
figures associated with the provision of network connectivity services.
---------------------------------------------------------------------------
\30\ See Securities Exchange Act Release No. 86343 (July 10,
2019), 84 FR 34003 (July 16, 2019)(SR-PEARL-2019-21) (the ``Fifth
Proposed Rule Change'').
\31\ Id.
---------------------------------------------------------------------------
The Commission received three comment letters on the Fifth Proposed
Rule Change.\32\
---------------------------------------------------------------------------
\32\ See Letter from John Ramsay, Chief Market Policy Officer,
IEX, to Vanessa Countryman, Acting Secretary, Commission, dated
August 8, 2019 (the ``Third IEX Letter''); Letter from Tyler
Gellasch, Executive Director, Healthy Markets, to Vanessa
Countryman, Acting Secretary, Commission, dated August 5, 2019 (the
``Third Healthy Markets Letter''); and Letter from Theodore R. Lazo,
Managing Director and Associate General Counsel and Ellen Greene,
Managing Director Financial Services Operations, SIFMA, to Vanessa
Countryman, Acting Secretary, Commission, dated August 5, 2019 (the
``Fourth SIFMA Letter'').
---------------------------------------------------------------------------
Neither the Third Healthy Markets Letter nor the Fourth SIFMA
Letter called for the Commission to suspend or disapprove the Proposed
Fee Increases. In fact, the Third Healthy Markets Letter acknowledged
that ``it appears as though MIAX [PEARL] is operating in good faith to
provide what the Commission, its staff, and market participants the
information needed to appropriately assess the filings.'' The Third IEX
Letter only reiterated points from the Second IEX Letter and failed to
address any of the new information in the Fifth Proposed Rule Change
concerning the Exchange's revenue figures, cost allocation or that the
Proposed Fee Increases did not result in excessive pricing or a supra-
competitive profit for the Exchange.
On August 23, 2019, the Exchange withdrew the Fifth Proposed Rule
Change.\33\
---------------------------------------------------------------------------
\33\ See SR-PEARL-2019-21.
---------------------------------------------------------------------------
The Exchange refiled the Proposed Fee Increases on August 23, 2019,
designating the Proposed Fee Increases immediately effective.\34\ The
Sixth Proposed Rule Change was published for comment in the Federal
Register on July 16, 2019.\35\ The Sixth Proposed Rule Change provided
greater detail and clarity concerning the Exchange's cost methodology
as it pertains to the Exchange's expenses for network connectivity
services, using a line-by-line analysis of the Exchange's general
expense ledger to determine what, if any, portion of those expenses
supports the provision of network connectivity services.
---------------------------------------------------------------------------
\34\ See Securities Exchange Act Release No. 86837 (August 30,
2019), 84 FR 46988 (September 6, 2019)(SR-PEARL-2019-25) (the
``Sixth Proposed Rule Change'').
\35\ Id.
---------------------------------------------------------------------------
The Commission received only one comment letter on the Sixth
Proposed Rule Change, twelve days after the comment period deadline
ended.\36\ Of note, no member of the Exchange commented on the Sixth
Proposed Rule Change. Also, no issuer or other person using the
facilities of the Exchange commented on the Sixth Proposed Rule Change.
Also, no industry group that represents members, issuers, or other
persons using the facilities of the Exchange commented on the Sixth
Proposed Rule Change. Also, no operator of an options market commented
on the Sixth Proposed Rule Change. Also, no operator of a high
performance, ultra-low latency network, which network can support
access to three distinct exchanges and provides premium network
monitoring and reporting services to customers, commented on the Sixth
Proposed Rule Change. Rather, the only comment letter came from an
operator of a single equities market (equities market
[[Page 760]]
structure and resulting network demands are fundamentally different
from those in the options markets),\37\ which operator also has a
fundamentally different business model (and agenda) than does the
Exchange. That letter--the Third IEX Letter--called for, among other
things, the Exchange to explain its basis for concluding that it
incurred substantially higher costs to provide lower-latency
connections and further describe the nature and closeness of the
relationship between the identified costs and connectivity products and
services as stated in the Exchange's cost allocation analysis.
---------------------------------------------------------------------------
\36\ See supra note 3.
\37\ See infra pages 19 to 20 (describing the differences in
equity market structure and options market structure).
---------------------------------------------------------------------------
On October 22, 2019, the Exchange withdrew the Sixth Proposed Rule
Change.\38\
---------------------------------------------------------------------------
\38\ See SR-PEARL-2019-25.
---------------------------------------------------------------------------
The Exchange refiled the Proposed Fee Increases on October 22,
2019, designating the Proposed Fee Increases immediately effective.\39\
The Seventh Proposed Rule Change was published for comment in the
Federal Register on November 6, 2019.\40\ The Seventh Proposed Rule
Change provided additional analysis of the Exchange's baseline
revenues, costs, and profitability (before the proposed fee change) and
the Exchange's expected revenues, costs, and profitability (following
the proposed fee change) for its network connectivity services. This
additional analysis includes information regarding its methodology for
determining the baseline costs and revenues, as well as expected costs
and revenues, for its network connectivity services. The Seventh
Proposed Rule Change also addressed certain points raised in the Third
IEX Letter.
---------------------------------------------------------------------------
\39\ See Securities Exchange Act Release No. 87432 (October 31,
2019), 84 FR 59889 (November 6, 2019)(SR-PEARL-2019-33) (the
``Seventh Proposed Rule Change'').
\40\ Id.
---------------------------------------------------------------------------
On December 20, 2019, the Exchange withdrew the Seventh Proposed
Rule Change.\41\ The Exchange notes that the Seventh Proposed Rule
Change did not receive any comment letters, however the Exchange has
determined to refile the Proposed Fee Increases to provide further
clarification regarding the Exchange's cost allocation methodology--
namely, information that explains the Exchange's rationale for
determining that it was reasonable to allocate certain expenses
described in this filing towards the total cost to the Exchange of
providing network connectivity services. The Exchange is also
bolstering its equitable allocation of fees discussion. The Exchange
believes that the Proposed Fee Increases are consistent with the Act
because they (i) are reasonable, equitably allocated, not unfairly
discriminatory, and not an undue burden on competition; (ii) comply
with the BOX Order and the Guidance; (iii) are supported by evidence
(including data and analysis), constrained by significant competitive
forces; and (iv) are supported by specific information (including
quantitative information), fair and reasonable because they will permit
recovery of the Exchange's costs (less than all) and will not result in
excessive pricing or supra-competitive profit. Accordingly, the
Exchange believes that the Commission should find 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.
---------------------------------------------------------------------------
\41\ See SR-PEARL-2019-33.
---------------------------------------------------------------------------
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, 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 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 \42\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \43\ 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 \44\ 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.
---------------------------------------------------------------------------
\42\ 15 U.S.C. 78f(b).
\43\ 15 U.S.C. 78f(b)(4).
\44\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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.'' \45\
---------------------------------------------------------------------------
\45\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
---------------------------------------------------------------------------
The Exchange believes that its proposal is consistent with Section
6(b)(4) of the Act, in that the Proposed Fee Increases are fair,
equitable and not
[[Page 761]]
unreasonably discriminatory, because the fees for the connectivity
alternatives available on the Exchange, as proposed to be increased,
are constrained by significant competitive forces. The U.S. options
markets are highly competitive (there are currently 16 options markets)
and a reliance on competitive markets is an 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. In particular, options market
participants are not forced to connect to (and purchase market data
from) all options exchanges, as shown by the number of Members of MIAX
PEARL as compared to the much greater number of members at other
options exchanges (as further detailed below). Not only does MIAX PEARL
have less than half the number of members as certain other options
exchanges, but there are also a number of the Exchange's Members that
do not connect directly to MIAX PEARL. Further, of the number of
Members that connect directly to MIAX PEARL, many such Members do not
purchase market data from MIAX PEARL. There are a number of large
market makers and broker-dealers that are members of other options
exchange but not Members of MIAX PEARL. For example, the following are
not Members of MIAX PEARL: The D. E. Shaw Group, CTC, XR Trading LLC,
Hardcastle Trading AG, Ronin Capital LLC, Belvedere Trading, LLC,
Bluefin Trading, and HAP Capital LLC. In addition, of the market makers
that are connected to MIAX PEARL, it is the individual needs of the
market maker that require whether they need one connection or multiple
connections to the Exchange. The Exchange has market maker Members that
only purchase one connection (10Gb or 10Gb ULL) and the Exchange has
market maker Members that purchase multiple connections. It is all
driven by the business needs of the market maker. Market makers that
are consolidators that target resting order flow tend to purchase more
connectivity than Market Makers that simply quote all symbols on the
Exchange. Even though non-Members purchase and resell 10Gb and 10Gb ULL
connections to both Members and non-Members, no market makers currently
connect to the Exchange indirectly through such resellers.
The argument that all broker-dealers are required to connect to all
exchanges is not true in the options markets. The options markets have
evolved differently than the equities markets both in terms of market
structure and functionality. For example, there are many order types
that are available in the equities markets that are not utilized in the
options markets, which relate to mid-point pricing and pegged pricing
which require connection to the SIPs and each of the equities exchanges
in order to properly execute those orders in compliance with best
execution obligations. In addition, in the options markets there is a
single SIP (OPRA) versus two SIPs in the equities markets, resulting in
fewer hops and thus alleviating the need to connect directly to all the
options exchanges. Additionally, in the options markets, the linkage
routing and trade through protection are handled by the exchanges, not
by the individual members. Thus not connecting to an options exchange
or disconnecting from an options exchange does not potentially subject
a broker-dealer to violate order protection requirements. Gone are the
days when the retail brokerage firms (the Fidelity's, the Schwab's, the
eTrade's) were members of the options exchanges--they are not members
of MIAX PEARL or its affiliates, MIAX and MIAX Emerald, they do not
purchase connectivity to MIAX PEARL, and they do not purchase market
data from MIAX PEARL. 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, based on their particular business needs.
To assist prospective Members or firms considering connecting to
MIAX PEARL, the Exchange provides information about the Exchange's
available connectivity alternatives in a Connectivity Guide, which
contains detailed specifications regarding, among other things,
throughput and latency for each available connection.\46\ The decision
of which type of connectivity to purchase, or whether to purchase
connectivity at all for a particular exchange, is based on the business
needs of the firm. For example, if the firm wants to receive the top-
of-market data feed product or depth data feed product, due to the
amount/size of data contained in those feeds, such firm would need to
purchase either the 10Gb or 10Gb ULL connection. The 1Gb connection is
too small to support those data feed products. MIAX PEARL notes that
there are twelve (12) Members that only purchase the 1Gb connectivity
alternative. Thus, while there is a meaningful percentage of purchasers
of only 1Gb connections (12 of 33), by definition, those twelve (12)
members purchase connectivity that cannot support the top-of-market
data feed product or depth data feed product and thus they do not
purchase such data feed products. Accordingly, purchasing market data
is a business decision/choice, and thus the pricing for it is
constrained by competition.
---------------------------------------------------------------------------
\46\ See the MIAX Connectivity Guide at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Connectivity_Guide_v3.6_01142019.pdf.
---------------------------------------------------------------------------
There is competition for connectivity to MIAX PEARL and its
affiliates. MIAX PEARL competes with nine (9) non-Members who resell
MIAX PEARL connectivity. These are resellers of MIAX PEARL
connectivity--they are not arrangements between broker-dealers to share
connectivity costs. Those non-Members resell that connectivity to
multiple market participants over that same connection, including both
Members and non-Members of MIAX PEARL (typically extranets and service
bureaus). When connectivity is re-sold by a third-party, MIAX PEARL
does not receive any connectivity revenue from that sale. It is
entirely between the third-party and the purchaser, thus constraining
the ability of MIAX PEARL to set its connectivity pricing as indirect
connectivity is a substitute for direct connectivity. There are
currently nine (9) non-Members that purchase connectivity to MIAX PEARL
and/or MIAX. Those non-Members resell that connectivity to eleven (11)
customers, some of whom are agency broker-dealers that have tens of
customers of their own. Some of those eleven (11) customers also
purchase connectivity directly from MIAX PEARL and/or MIAX.
Accordingly, indirect connectivity is a viable alternative that is
already being used by non-Members of MIAX PEARL, constraining the price
that MIAX PEARL is able to charge for connectivity to its Exchange.
The Exchange \47\ and MIAX \48\ are comprised of 41 distinct
Members between the two exchanges, excluding any additional affiliates
of such Members that are also Members of MIAX PEARL, MIAX, or both. Of
those
[[Page 762]]
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, or both. 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.
---------------------------------------------------------------------------
\47\ MIAX PEARL has 36 distinct Members, excluding affiliated
entities. See MIAX PEARL Exchange Member Directory, available at
https://www.miaxoptions.com/exchange-members/pearl.
\48\ MIAX has 38 distinct Members, excluding affiliated
entities. See MIAX Exchange Member Directory, available at https://www.miaxoptions.com/exchange-members.
---------------------------------------------------------------------------
The Exchange believes that the Proposed Fee Increases are
reasonable, equitable and not unfairly discriminatory because the
connectivity pricing is directly related to the relative costs to the
Exchange to provide those respective services, and does not impose a
barrier to entry to smaller participants. Accordingly, the Exchange
offers three direct connectivity alternatives and various indirect
connectivity (via third-party) alternatives, as described above. MIAX
PEARL recognizes that there are various business models and varying
sizes of market participants conducting business on the Exchange. The
1Gb direct connectivity alternative is 1/10th the size of the 10Gb
direct connectivity alternative. Because it is 1/10th of the size, it
does not offer access to many of the products and services offered by
the Exchange, such as the ability to quote or receive certain market
data products. Approximately just less than half of MIAX PEARL and MIAX
Members that connect (14 out of 33) purchase 1Gb connections. The 1Gb
direct connection can support the sending of orders and the consumption
of all market data feed products, other than the top-of-market data
feed product or depth data feed product (which require a 10Gb
connection). The 1Gb direct connection is generally purchased by market
participants that utilize less bandwidth and also generally do not
require the high touch network support services provided by the
Exchange. Accordingly, these connections consume the least resources of
the Exchange and are the least costly to the Exchange to provide. The
market participants that purchase 10Gb ULL direct connections utilize
the most bandwidth and also generally do require the high touch network
support services provided by the Exchange. Accordingly, these
connections consume the most resources of the Exchange and are the most
costly to the Exchange to provide. Accordingly, the Exchange believes
the allocation of the Proposed Fee Increases ($9,300 for a 10Gb ULL
connection versus $1,400 for a 1Gb connection) are reasonable based on
the resources consumed by the respective type of connection--lowest
resource consuming members pay the least, and highest resource
consuming members pays the most, particularly since higher resource
consumption translates directly to higher costs to the Exchange. The
10Gb ULL connection offers optimized connectivity for latency sensitive
participants and is approximately single digit microseconds faster in
round trip time for connection oriented traffic to the Exchange than
the 10Gb connection. This lower latency is achieved through more
advanced network equipment, such as advanced hardware and switching
components, which translates to increased costs to the Exchange. Market
participants that are less latency sensitive can purchase 10Gb direct
connections and quote in all products on the Exchange and consume all
market data feeds, and such 10Gb direct connections are priced lower
than the 10Gb ULL direct connections, offering smaller sized market
makers a lower cost alternative. 10Gb connections are less costly to
provide than 10Gb ULL connections, which require greater network
support services.
With respect to options trading, the Exchange had only a 4.78%
market share of the U.S. options industry in November 2019 in Equity/
Exchange Traded Fund (``ETF'') classes according to the OCC.\49\ For
November 2019, the Exchange's affiliate, MIAX, had only a 4.32% market
share of the U.S. options industry in Equity/ETF classes according to
the OCC.\50\ For November 2019, the Exchange's affiliate, MIAX Emerald,
had only a 0.92% market share of the U.S. options industry in Equity/
ETF classes according to the OCC.\51\ The Exchange is not aware of any
evidence that a combined market share of approximately 10% provides the
Exchange with anti-competitive pricing power. This, in addition to the
fact that not all broker-dealers are required to connect to all options
exchanges, supports the Exchange's conclusion that its pricing is
constrained by competition.
---------------------------------------------------------------------------
\49\ See Exchange Market Share of Equity Products--2019, The
Options Clearing Corporation, available at https://www.theocc.com/webapps/exchange-volume.
\50\ Id.
\51\ 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.
Market participants choose to connect to a particular exchange and
because it is a choice, MIAX PEARL must set reasonable connectivity
pricing, otherwise prospective members would not connect and existing
members would disconnect or connect through a third-party reseller of
connectivity. No options market participant is required by rule,
regulation, or competitive forces to be a Member of the Exchange. As
evidence of the fact that market participants can and do disconnect
from exchanges based on connectivity pricing, R2G Services LLC
(``R2G'') filed a comment letter after BOX's proposed rule changes to
increase its connectivity fees (SR-BOX-2018-24, SR-BOX-2018-37, and SR-
BOX-2019-04).\52\ The R2G Letter stated, ``[w]hen BOX instituted a
$10,000/month price increase for connectivity; we had no choice but to
terminate connectivity into them as well as terminate our market data
relationship. The cost benefit analysis just didn't make any sense for
us at those new levels.'' Accordingly, this example shows that if an
exchange sets too high of a fee for connectivity and/or market data
services for its relevant marketplace, market participants can choose
to disconnect from the exchange.
---------------------------------------------------------------------------
\52\ See Letter from Stefano Durdic, R2G, to Vanessa Countryman,
Acting Secretary, Commission, dated March 27, 2019 (the ``R2G
Letter'').
---------------------------------------------------------------------------
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 41 Members (including
all such Members' affiliate Members). However, Cboe Exchange, Inc.
(``Cboe'') has over 200 members,\53\ Nasdaq ISE, LLC has approximately
100 members,\54\ and NYSE American LLC has over 80 members.\55\ If all
market
[[Page 763]]
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 41 Members (inclusive of Members' affiliates).
---------------------------------------------------------------------------
\53\ 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).
\54\ See Form 1/A, filed July 1, 2016 (https://www.sec.gov/Archives/edgar/vprr/1601/16019243.pdf).
\55\ See https://www.nyse.com/markets/american-options/membership#directory.
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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, particularly in light of the R2G disconnection
example cited above.\56\ 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 PEARL and MIAX; 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 and market data needs associated with their business
model. After the fee increase, beginning August 1, 2018, the same
number of Members purchased the same number of connections.\57\
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.
---------------------------------------------------------------------------
\56\ See supra note 52.
\57\ The Exchange notes that one Member downgraded one
connection in July of 2018, 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. MIAX
PEARL did not experience any noticeable change (increase or decrease)
in order flow sent by its market participants as a result of the fee
increase.
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 amongst other market participants. These
facts, coupled with the discussion above, showing that it is not
necessary to join and/or connect to all options exchanges and market
participants can disconnect if pricing is set too high (the R2G
example),\58\ demonstrate that the Exchange's fees are constrained by
competition and are reasonable and not contrary to the Law of Demand.
Therefore, the Exchange believes that the Proposed Fee Increases are
fair, equitable, and non-discriminatory, as the fees are competitive.
---------------------------------------------------------------------------
\58\ See supra note 52.
---------------------------------------------------------------------------
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
according to the Exchange's costs to provide such 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 actual costs to the Exchange to provide network connectivity and
the respective connection options, including the costs associated with
providing the different levels of service associated with the
respective connections.
The Exchange further believes that the Proposed Fee Increases, as
they pertain to purchasers of each type of connectivity alternative,
constitute an equitable allocation of reasonable fees charged to the
Exchange's Members and non-Members and are allocated fairly amongst the
types of market participants using the facilities of the Exchange. For
example, for November 2019, between the Exchange and MIAX: (i) Members
and non-Members that purchased 10Gb ULL connections accounted for
approximately 80% of the total network connectivity revenue collected
by the Exchange and MIAX from all connectivity alternatives; (ii)
Members and non-Members that purchased 10Gb connections accounted for
approximately 15% of the total network connectivity revenue collected
by the Exchange and MIAX from all connectivity alternatives; and (iii)
Members and non-Members that purchased 1Gb connections accounted for
approximately 5% of the revenue collected by the Exchange and MIAX from
all connectivity alternatives. As described above, the Exchange
believes the Proposed Fee Increases are equitably allocated because
10Gb and 10Gb ULL purchasers (while they account for the vast majority
of the Exchange's total connectivity revenue--approximately 95%): (1)
Consume the most bandwidth and resources of the network; (2) transact
the vast majority of the volume on the Exchange; and (3) require the
high touch network support services provided by the Exchange and its
staff, including more costly network monitoring, reporting and support
services, resulting in a much higher cost to the Exchange to provide
such connectivity alternatives, compared to the cost to provide a 1Gb
connectivity alternative (as further described in the Exchange's cost
discussion, below).
The Exchange believes that the connectivity fees are equitably
allocated among users of the three network connectivity alternatives,
as the users of the 10Gb and 10Gb ULL connections consume the most
bandwidth and resources of the network. Specifically, the Exchange
notes that these users account for approximately greater than
[[Page 764]]
99% of message traffic over the network, while the users of the 1Gb
connections account for approximately less than 1% of message traffic
over the network. In the Exchange's experience, users of the 1Gb
connections do not have a business need for the high performance
network solutions required by 10Gb and 10Gb ULL users. The Exchange's
high performance network solutions and supporting infrastructure
(including employee support), provides unparalleled system throughput
with the network ability to support access to three distinct options
markets and the capacity to handle approximately 10.7 million quote
messages per second. On an average day, the Exchange and MIAX handle
approximately 8,304,500,000 total messages. Of those, users of the 10Gb
and 10Gb ULL connections generate approximately 8,300,000,000 messages,
and users of the 1Gb connections generate 4,500,000 messages. However,
in order to achieve a consistent, premium network performance, the
Exchange must build out and maintain a network that has the capacity to
handle the message rate requirements of its most heavy network
consumers. These billions of messages per day consume the Exchange's
resources and significantly contribute to the overall network
connectivity expense for storage and network transport capabilities.
Given this difference in network utilization rate, the Exchange
believes that it is reasonable, equitable, and not unfairly
discriminatory that the 10Gb and 10Gb ULL users pay for the vast
majority of the shared network resources from which all Member and non-
Member users benefit, but is designed and maintained from a capacity
standpoint to specifically handle the message rate and performance
requirements of 10Gb and 10Gb ULL users.
The Exchange also believes that the connectivity fees are equitably
allocated amongst users of the three network connectivity alternatives,
when these fees are viewed in the context of the overall trading volume
on the Exchange. To illustrate, the purchasers of 10Gb ULL connectivity
account for approximately 78% of the volume on the Exchange. For
example, for all of November 2019, approximately 13.4 million contracts
of the 17.1 million contracts executed were done by the top market
making firms on the Exchange in simple (non-complex) volume. This
overall volume percentage (78% of total Exchange volume) is in line
with the amount of network connectivity revenue collected from 10Gb ULL
purchasers (80% of total Exchange connectivity revenue).
The Exchange further believes that the fees are equitably
allocated, as the amount of the fees for the various connectivity
alternatives are directly related to the actual costs associated with
providing the respective connectivity alternatives. That is, the cost
to the Exchange of providing a 1Gb network connection is significantly
lower than the cost to the Exchange of providing a 10Gb or 10Gb ULL
network connection. Pursuant to its extensive cost review described
above, the Exchange believes that the average cost to provide a 10Gb/
10Gb ULL network connection is approximately 4 to 6 times more than the
average cost to provide a 1Gb connection. The simple hardware and
software component costs alone of a 10Gb/10Gb ULL connection are not 4
to 6 times more than the 1Gb connection. Rather, it is the associated
premium-product level network monitoring, reporting, and support
services costs that accompany a 10Gb/10Gb ULL connection which cause it
to be 4 to 6 times more costly to provide than the 1Gb connection.
Accordingly, the Exchange believes it is equitable to allocate those
network infrastructure costs that accompany a 10Gb/10Gb ULL connection
to the purchasers of those connections, and not to purchasers of 1Gb
connections.
As discussed above, the Exchange differentiates itself by offering
a ``premium-product'' network experience, as an operator of a high
performance, ultra-low latency network with unparalleled system
throughput, which network can support access to three distinct options
markets and multiple competing market-makers having affirmative
obligations to continuously quote over 750,000 distinct trading
products (per exchange), and the capacity to handle approximately 10.7
million quote messages per second. The ``premium-product'' network
experience enables users of 10Gb and 10Gb ULL connections to receive
the network monitoring and reporting services for those approximately
750,000 distinct trading products. There is a significant, quantifiable
amount of research and development (``R&D'') effort, employee
compensation and benefits expense, and other expense associated with
providing the high touch network monitoring and reporting services that
are utilized by the 10Gb and 10Gb ULL connections offered by the
Exchange. These value add services are fully-discussed herein, and the
actual costs associated with providing these services are the basis for
the differentiated amount of the fees for the various connectivity
alternatives.
The Exchange believes that its proposal is consistent with Section
6(b)(4) of the Act because the Proposed Fee Increases will permit
recovery of the Exchange's costs and will not result in excessive
pricing or supra-competitive profit. The Proposed Fee Increases will
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 network infrastructure as
well as network monitoring and support services in order to provide the
network connectivity services, since the Exchange launched operations
in February 2017. 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.
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 expanding its Information
Security services, enhanced network monitoring and customer reporting,
as well as Regulation SCI mandated processes associated with network
technology. All of these additional expenses have been incurred by the
Exchange since it became operational in February 2017.
Additionally, while some of the expense is fixed, much of the
expense is not fixed, and thus increases as the
[[Page 765]]
number of connections increase. For example, new 1Gb, 10Gb, and 10Gb
ULL connections require the purchase of additional hardware to support
those connections as well as enhanced monitoring and reporting of
customer performance that MIAX PEARL and its affiliates provide. And
10Gb ULL connections require the purchase of specialized, more costly
hardware. Further, as the total number of all connections increase,
MIAX PEARL and its affiliates need to increase their data center
footprint and consume more power, resulting in increased costs charged
by their third-party data center provider. Accordingly, the cost to
MIAX PEARL and its affiliates is not entirely fixed. Just the initial
fixed cost buildout of the network infrastructure of MIAX PEARL and its
affiliates, including both primary/secondary sites and disaster
recovery, was over $30 million. These costs have increased over 10%
since the Exchange became operational in February 2017. As these
network connectivity-related expenses increase, MIAX PEARL and its
affiliates look to offset those costs through increased connectivity
fees.
A more detailed breakdown of the expense increases since February
2017 include an approximate 70% increase in technology-related
personnel costs in infrastructure, due to expansion of services/support
(increase of approximately $800,000); an approximate 10% increase in
data center costs due to price increases and footprint expansion
(increase of approximately $500,000); an approximate 5% increase in
vendor-supplied dark fiber due to price increases and expanded
capabilities (increase of approximately $25,000); and a 30% increase in
market data connectivity fees (increase of approximately $200,000). Of
note, regarding market data connectivity fee increased cost, this is
the cost associated with MIAX PEARL consuming connectivity/content from
the equities markets in order to operate the Exchange, causing MIAX
PEARL to effectively pay its competitors for this connectivity. While
the Exchange and MIAX have incurred a total increase in connectivity
expenses since January 2017 (the last time connectivity fees were
raised) of approximately $1.5 million per year (as described above),
the total increase in connectivity revenue amount as a result of the
Proposed Fee Increases is projected to be approximately $1.2 million
per year for MIAX PEARL and MIAX. Accordingly, the total projected MIAX
PEARL and MIAX connectivity revenue as a result of the proposed
increase, on an annualized basis, is less than the total annual actual
MIAX PEARL and MIAX connectivity expense. Accordingly, the Proposed Fee
Increases are fair and reasonable because they will not result in
excessive pricing or supra-competitive profit, when comparing the
increase in actual costs to the Exchange (since February 2017) versus
the projected increase in annual revenue. The Exchange also incurred
additional 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 and 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. Connectivity fees, which are charged for accessing the
Exchange's data center network infrastructure, are directly related to
the network and offset such costs.
Further, the Exchange invests significant resources in network R&D,
which are not included in direct expenses 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. In fact, the
Exchange often receives calls from other industry participants
regarding the status of networking issues outside of the Exchange's own
network environment that are impacting the industry as a whole via the
SIPs, including calls from regulators, because the Exchange has a
superior, state-of the-art network that, through its enhanced
monitoring and reporting solutions, often detects and identifies
industry-wide networking issues ahead of the SIPs. 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 February 2017 and are loss leaders for the Exchange to
provide these added benefits for Members and non-Members.
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 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, which are designed to recover those costs, as
proposed herein. The Exchange invests in and offers a superior network
infrastructure as part of its overall options exchange services
offering, resulting in significant costs associated with maintaining
this network infrastructure, which are directly tied to the amount of
the connectivity fees that must be charged to access it, in order to
recover those costs. As detailed in the Exchange's 2018 Audited
Unconsolidated Financial Statements, the Exchange only has four primary
sources of revenue: Transaction fees, access fees (of which network
connectivity constitutes the majority), regulatory fees, and market
data fees. Accordingly, the Exchange must cover all of its expenses
from these four primary sources of revenue.
The Proposed Fee Increases are fair and reasonable because they
will not result in excessive pricing or supra-competitive profit, when
comparing the total annual expense of MIAX PEARL and MIAX associated
with providing network connectivity services versus the
[[Page 766]]
total projected annual revenue of both exchanges associated with
providing network connectivity services. For 2018, the total annual
expense associated with providing network connectivity services (that
is, the shared network connectivity of MIAX PEARL and MIAX, but
excluding MIAX Emerald) was approximately $19.3 million. The $19.3
million in total annual expense is comprised of the following, all of
which is directly related to the provision of network connectivity
services by MIAX PEARL and MIAX to their respective Members and non-
Members: (1) Third-party expense, relating to fees paid by MIAX PEARL
and MIAX to third-parties for certain products and services; and (2)
internal expense, relating to the internal costs of MIAX PEARL and MIAX
to provide the network connectivity services. All such expenses are
more fully-described below, and are mapped to the MIAX PEARL and MIAX
2018 Statements of Operations and Member's Deficit (the ``2018
Financial Statements''). The $19.3 million in total annual expense is
directly related to the provision of network connectivity services and
not any other product or service offered by the Exchange. It does not,
as the Third IEX Letter baselessly claims, include general costs of
operating matching systems and other trading technology. (And as stated
previously, no expense amount was allocated twice.) As discussed, the
Exchange conducted an extensive cost review in which the Exchange
analyzed every expense item in the Exchange's general expense ledger
(this includes over 150 separate and distinct expense items) to
determine whether each such expense relates to the provision of network
connectivity services, and, if such expense did so relate, what portion
(or percentage) of such expense actually supports the provision of
network connectivity services, and thus bears a relationship that is,
``in nature and closeness,'' directly related to network connectivity
services. The sum of all such portions of expenses represents the total
actual baseline cost of the Exchange to provide network connectivity
services.
As discussed above, the Exchange differentiates itself by offering
a ``premium-product'' network experience, as an operator of a high
performance, ultra-low latency network with unparalleled system
throughput, which network can support access to three distinct options
markets and multiple competing market-makers having affirmative
obligations to continuously quote over 750,000 distinct trading
products (per exchange), and the capacity to handle approximately 38
million quote messages per second. The ``premium-product'' network
experience enables users of 10Gb and 10Gb ULL connections to receive
the network monitoring and reporting services for those approximately
750,000 distinct trading products. Thus, the Exchange is acutely aware
of and can isolate the actual costs associated with providing such a
service to its customers, a significant portion of which relates to the
premium, value-add customer network monitoring and support services
that accompany the service, as fully-described above. IEX, on the other
hand, does not offer such a network, and thus has no legal basis to
offer a qualified opinion on the Exchange's costs associated with
operating such a network. In fact, IEX differentiates itself as a
provider of low cost connectivity solutions to an intentionally delayed
trading platform--quite the opposite from the Exchange. Thus, there is
no relevant comparison between IEX network connectivity costs and the
Exchange's network connectivity costs, and IEX's attempt to do so in
the Third IEX Letter is ill-informed and self-serving.\59\
---------------------------------------------------------------------------
\59\ See Third IEX Letter, pg. 5.
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For 2018, total third-party expense, relating to fees paid by MIAX
PEARL and MIAX to third-parties for certain products and services for
the Exchange to be able to provide network connectivity services, was
$5,052,346. This includes, but is not limited to, a portion of the fees
paid to: (1) Equinix, for data center services, for the primary,
secondary, and disaster recovery locations of the MIAX PEARL and MIAX
trading system infrastructure; (2) Zayo Group Holdings, Inc. (``Zayo'')
for connectivity services (fiber and bandwidth connectivity) linking
MIAX PEARL and MIAX office locations in Princeton, NJ and Miami, FL to
all data center locations; (3) Secure Financial Transaction
Infrastructure (``SFTI''),\60\ which supports connectivity and feeds
for the entire U.S. options industry; (4) various other services
providers (including Thompson Reuters, NYSE, Nasdaq, and Internap),
which provide content, connectivity services, and infrastructure
services for critical components of options connectivity; and (5)
various other hardware and software providers (including Dell and
Cisco, which support the production environment in which Members and
non-Members connect to the network to trade, receive market data,
etc.).
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\60\ In fact, on October 22, 2019, the Exchange was notified by
SFTI that it is again raising its fees charged to the Exchange by
approximately 11%, without having to show that such fee change
complies with the Act by being reasonable, equitably allocated, and
not unfairly discriminatory. It is unfathomable to the Exchange
that, given the critical nature of the infrastructure services
provided by SFTI, that its fees are not required to be rule-filed
with the Commission pursuant to Section 19(b)(1) of the Act and Rule
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4,
respectively.
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All of the third-party expense described above is contained in the
information technology and communication costs line item under the
section titled ``Operating Expenses Incurred Directly or Allocated From
Parent'' of the 2018 Financial Statements. For clarity, only a portion
of all fees paid to such third-parties is included in the third-party
expense herein (only the portion that actually supports the provision
of network connectivity services and no expense amount is allocated
twice). Accordingly, MIAX PEARL and MIAX do not allocate their entire
information technology and communication costs to the provision of
network connectivity services.
The Exchange believes it is reasonable to allocate such third-party
expense described above towards the total cost to the Exchange to
operate and support the network, including providing network
connectivity services. In particular, the Exchange believes it is
reasonable to allocate the identified portion of the Equinix expense
because Equinix operates the data centers (primary, secondary, and
disaster recovery) that host the Exchange's network infrastructure,
which enables the provision of network connectivity services. This
includes, among other things, the necessary storage space, which
continues to expand and increase in cost, power to operate the network
infrastructure, and cooling apparatuses to ensure the Exchange's
network infrastructure maintains stability. Without these services from
Equinix, the Exchange would not be able to operate and support the
network and provide network connectivity services to its Members and
non-Members and their customers. The Exchange did not allocate all of
the Equinix expense toward the cost of providing network connectivity
services, only that portion which the Exchange identified as being
specifically mapped to operating and supporting the network,
approximately 68% of the total Equinix expense. The Exchange believes
this allocation is reasonable because it represents the Exchange's
actual cost to operate and support the network, and not any other
service, as supported by its cost review.
The Exchange believes it is reasonable to allocate the identified
portion of the Zayo expense because Zayo provides
[[Page 767]]
the internet, fiber and bandwidth connections with respect to the
network, linking MIAX PEARL with its affiliates, MIAX and MIAX Emerald,
as well as the data center and disaster recovery locations. As such,
all of the trade data, including the billions of messages each day per
exchange, flow through Zayo's infrastructure over the Exchange's
network. Without these services from Zayo, the Exchange would not be
able to operate and support the network and provide network
connectivity services to its Members and non-Members and their
customers. The Exchange did not allocate all of the Zayo expense toward
the cost of providing network connectivity services, only that portion
which the Exchange identified as being specifically mapped to operating
and supporting the network, approximately 62% of the total Zayo
expense. The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to operate and support the
network, and not any other service, as supported by its cost review.
The Exchange believes it is reasonable to allocate the identified
portion of the SFTI expense and various other service providers'
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense
because those entities provide connectivity and feeds for the entire
U.S. options industry as well as the content, connectivity services,
and infrastructure services for critical components of the network.
Without these services from SFTI and various other service providers,
the Exchange would not be able to operate and support the network and
provide network connectivity services to its Members and non-Members
and their customers. The Exchange did not allocate all of the SFTI and
other service providers' expense toward the cost of providing network
connectivity services, only that portion which the Exchange identified
as being specifically mapped to operating and supporting the network,
approximately 89% of the total SFTI and other service providers'
expense. The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to operate and support the
network, and not any other service, as supported by its cost review.
The Exchange believes it is reasonable to allocate the identified
portion of the other hardware and software provider expense because
this includes costs for dedicated hardware licenses for switches and
servers, as well as dedicated software licenses for security monitoring
and reporting across the network. Without this hardware and software,
the Exchange would not be able to operate and support the network and
provide network connectivity services to its Members and non-Members
and their customers. The Exchange did not allocate all of the hardware
and software provider expense toward the cost of providing network
connectivity services, only that portion which the Exchange identified
as being specifically mapped to operating and supporting the network,
approximately 54% of the total hardware and software provider expense.
The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to operate and support the
network, and not any other service, as supported by its cost review.
For 2018, total internal expense, relating to the internal costs of
MIAX PEARL and MIAX to provide the network connectivity services, was
$14,271,870. This includes, but is not limited to, costs associated
with: (1) Employee compensation and benefits for full-time employees
that support network connectivity services, including staff in network
operations, trading operations, development, system operations,
business, etc., as well as staff in general corporate departments (such
as legal, regulatory, and finance) that support those employees and
functions; (2) depreciation and amortization of hardware and software
used to provide network connectivity services, including equipment,
servers, cabling, purchased software and internally developed software
used in the production environment to support the provision of network
connectivity for trading; and (3) occupancy costs for leased office
space for staff that support the provision of network connectivity
services. The breakdown of these costs is more fully-described below.
All of the internal expenses described above are contained in the
following line items under the section titled ``Operating Expenses
Incurred Directly or Allocated From Parent'' in the 2018 Financial
Statements: (1) Employee compensation and benefits; (2) Depreciation
and amortization; and (3) Occupancy costs. For clarity, only a portion
of all such internal expenses are included in the internal expense
herein (only the portion that supports the provision of network
connectivity services), and no expense amount is allocated twice).
Accordingly, MIAX PEARL and MIAX do not allocate their entire costs
contained in those line items to the provision of network connectivity
services.
The Exchange believes it is reasonable to allocate such internal
expense described above towards the total cost to the Exchange to
operate and support the network, including providing network
connectivity services. In particular, MIAX PEARL's and MIAX's combined
employee compensation and benefits expense relating to providing
network connectivity services was $5,264,151, which is only a portion
of the $11,997,098 (for MIAX) and $8,545,540 (for MIAX PEARL) total
expense for employee compensation and benefits that is stated in the
2018 Financial Statements. The Exchange believes it is reasonable to
allocate the identified portion of such expense because this includes
the time spent by employees of several departments, including
Technology, Back Office, Systems Operations, Networking, Business
Strategy Development (who create the business requirement documents
that the Technology staff use to develop network features and
enhancements), Trade Operations, Finance (who provide billing and
accounting services relating to the network), and Legal (who provide
legal services relating to the network, such as rule filings and
various license agreements and other contracts). As part of the
extensive cost review conducted by the Exchange, the Exchange reviewed
the amount of time spent by each employee on matters relating to the
operation and support of the network. Without these employees, the
Exchange would not be able to operate and support the network and
provide network connectivity services to its Members and non-Members
and their customers. The Exchange did not allocate all of the employee
compensation and benefits expense toward the cost of providing network
connectivity services, only that portion which the Exchange identified
as being specifically mapped to operating and supporting the network,
approximately 26% of the total employee compensation and benefits
expense. The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to operate and support the
network, and not any other service, as supported by its cost review.
MIAX's and MIAX PEARL's combined depreciation and amortization
expense relating to providing network connectivity services was
$8,269,048, which is only a portion of the $6,179,506 (for MIAX) and
$4,783,245 (for MIAX PEARL) total expense for depreciation and
amortization that is stated in the 2018 Financial Statements. The
Exchange believes it is reasonable to allocate the identified portion
of such expense because such expense includes the actual cost of the
computer equipment, such as dedicated servers,
[[Page 768]]
computers, laptops, monitors, information security appliances and
storage, and network switching infrastructure equipment, including
switches and taps that were purchased to operate and support the
network. Without this equipment, the Exchange would not be able to
operate the network and provide network connectivity services to its
Members and non-Members and their customers. The Exchange did not
allocate all of the depreciation and amortization expense toward the
cost of providing network connectivity services, only that portion
which the Exchange identified as being specifically mapped to operating
and supporting the network, approximately 75% of the total depreciation
and amortization expense, as connectivity services would not be
possible without relying on such equipment. The Exchange believes this
allocation is reasonable because it represents the Exchange's actual
cost to operate and support the network, and not any other service, as
supported by its cost review.
MIAX's and MIAX PEARL's combined occupancy expense relating to
providing network connectivity services was $738,669, which is only a
portion of the $945,431 (for MIAX) and $581,783 (for MIAX PEARL) total
expense for occupancy that is stated in the 2018 Financial Statements.
The Exchange believes it is reasonable to allocate the identified
portion of such expense because such expense represents the portion of
the Exchange's cost to rent and maintain a physical location for the
Exchange's staff who operate and support the network, including
providing network connectivity services. This amount consists primarily
of rent for the Exchange's Princeton, NJ office, as well as various
related costs, such as physical security, property management fees,
property taxes, and utilities. The Exchange operates its Network
Operations Center (NOC) and Security Operations Center (SOC) from its
Princeton, New Jersey office location. A centralized office space is
required to house the staff that operates and supports the network. The
Exchange currently has 130 employees. Approximately two-thirds of the
Exchange's staff are in the Technology department, and the majority of
those staff have some role in the operation and performance of the
network. Without this office space, the Exchange would not be able to
operate and support the network and provide network connectivity
services to its Members and non-Members and their customers.
Accordingly, the Exchange believes it is reasonable to allocate the
identified portion of its occupancy expense because such amount
represents the Exchange's actual cost to house the equipment and
personnel who operate and support the Exchange's network infrastructure
and connectivity services. The Exchange did not allocate all of the
occupancy expense toward the cost of providing network connectivity
services, only that portion which the Exchange identified as being
specifically mapped to operating and supporting network connectivity
services, approximately 48% of the total occupancy expense. The
Exchange believes this allocation is reasonable because it represents
the Exchange's actual cost to operate and support the network, and not
any other service, as supported by its cost review. Accordingly, the
total projected MIAX and MIAX PEARL combined revenue for providing
network connectivity services, reflective of the proposed increase, on
an annualized basis, of $14.5 million, is less than total annual actual
MIAX PEARL and MIAX combined expense for providing network connectivity
services during 2018 of approximately $19.3 million. MIAX PEARL and
MIAX project comparable combined expenses for providing network
connectivity services for 2019, as compared to 2018.
For the avoidance of doubt, none of the expenses included herein
relating to the provision of network connectivity services relate to
the provision of any other services offered by MIAX PEARL and MIAX.
Stated differently, no expense amount of the Exchange is allocated
twice.
The Exchange believes it is reasonable, equitable and not unfairly
discriminatory to allocate the respective percentages of each expense
category described above towards the total cost to the Exchange of
operating and supporting the network, including providing network
connectivity services, because the Exchange performed a line-by-line
item analysis of all the expenses of the Exchange, and has determined
the expenses that directly relate to operation and support of the
network, including providing network connectivity to the Exchange.
Further, the Exchange notes that, without the specific third-party and
internal items listed above, the Exchange would not be able to operate
and support the network, including providing network connectivity
services to its Members and non-Members and their customers. Each of
these expense items, including physical hardware, software, employee
compensation and benefits, occupancy costs, and the depreciation and
amortization of equipment, have been identified through a line-by-line
item analysis to be integral to the operation and support of the
network. Network connectivity fees are intended to recover the
Exchange's costs of operating and supporting the network.
Accordingly, the Proposed Fee Increases are fair and reasonable
because they do not result in excessive pricing or supra-competitive
profit, when comparing the actual network operation and support costs
to the Exchange versus the projected network connectivity annual
revenue, including the increased amount. Additional information on
overall revenue and expense of the Exchange can be found in the
Exchange's 2018 Financial Statements.
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.\61\ The
Exchange further notes that Phlx, ISE, Arca and NYSE American each
charge higher rates for such similar connectivity to primary and
secondary facilities.\62\ While MIAX PEARL's proposed connectivity fees
are substantially lower than the fees charged by Phlx, ISE, Arca and
NYSE American, MIAX PEARL believes that it offers significant value to
Members over other exchanges in terms of network monitoring and
reporting, which MIAX PEARL believes is a competitive advantage, and
differentiates its connectivity versus connectivity to other exchanges.
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.\63\
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\61\ 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.
\62\ Id.
\63\ 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).
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[[Page 769]]
B. Self-Regulatory Organization's Statement on Burden on Competition
MIAX PEARL 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 does not believe that the proposed rule change would
place certain market participants at the Exchange at a relative
disadvantage compared to other market participants or affect the
ability of such market participants to compete. In particular, the
Exchange has received no official complaints from Members, non-Members
(extranets and service bureaus), third-parties that purchase the
Exchange's connectivity and resell it, and customers of those
resellers, that the Exchange's fees or the Proposed Fee Increases are
negatively impacting or would negatively impact their abilities to
compete with other market participants or that they are placed at a
disadvantage. The Exchange believes that the Proposed Fee Increases do
not place certain market participants at a relative disadvantage to
other market participants because the connectivity pricing is
associated with relative usage of the various market participants and
does not impose a barrier to entry to smaller participants. As
described above, the less expensive 1Gb direct connection is generally
purchased by market participants that utilize less bandwidth. The
market participants that purchase 10Gb ULL direct connections utilize
the most bandwidth, and those are the participants that consume the
most resources from the network. Accordingly, the Proposed Fee
Increases do not favor certain categories of market participants in a
manner that would impose a burden on competition; rather, the
allocation of the Proposed Fee Increases reflects the network resources
consumed by the various size of market participants--lowest bandwidth
consuming members pay the least, and highest bandwidth consuming
members pays the most, particularly since higher bandwidth consumption
translates to higher costs to the Exchange.
Inter-Market Competition
The Exchange believes the Proposed Fee Increases do not place an
undue burden on competition on other SROs that is not necessary or
appropriate. In particular, options market participants are not forced
to connect to (and purchase market data from) all options exchanges, as
shown by the number of Members of MIAX PEARL as compared to the much
greater number of members at other options exchanges (as described
above). Not only does MIAX PEARL have less than half the number of
members as certain other options exchanges, but there are also a number
of the Exchange's Members that do not connect directly to MIAX PEARL.
There are a number of large market makers and broker-dealers that are
members of other options exchange but not Members of MIAX PEARL.
Additionally, other exchanges have similar connectivity alternatives
for their participants, including similar low-latency connectivity, but
with much higher rates to connect.\64\ The Exchange is also 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.
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\64\ See supra note 61.
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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,\65\ and Rule 19b-4(f)(2) \66\ 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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\65\ 15 U.S.C. 78s(b)(3)(A)(ii).
\66\ 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 [email protected]. Please include
File Number SR-PEARL-2019-36 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-PEARL-2019-36. 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-PEARL-2019-36 and should be submitted on
or before January 28, 2020.
[[Page 770]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\67\
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\67\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28536 Filed 1-6-20; 8:45 am]
BILLING CODE 8011-01-P
