Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule, 738-751 [2019-28537]

Download as PDF 738 Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices ATTACHMENT 1—GENERAL TARGET SCHEDULE FOR PROCESSING AND RESOLVING REQUESTS FOR ACCESS TO SENSITIVE UNCLASSIFIED NON-SAFEGUARDS INFORMATION AND SAFEGUARDS INFORMATION IN THIS PROCEEDING—Continued Day Event/activity A + 28 ............... Deadline for submission of contentions whose development depends upon access to SUNSI and/or SGI. However, if more than 25 days remain between the petitioner’s receipt of (or access to) the information and the deadline for filing all other contentions (as established in the notice of opportunity to request a hearing and petition for leave to intervene), the petitioner may file its SUNSI or SGI contentions by that later deadline. (Contention receipt +25) Answers to contentions whose development depends upon access to SUNSI and/or SGI. (Answer receipt +7) Petitioner/Intervenor reply to answers. Decision on contention admission. A + 53 ............... A + 60 ............... >A + 60 ............. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2019–26931 Filed 1–6–20; 8:45 am] BILLING CODE 7590–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87877; File No. SR– EMERALD–2019–39] Self-Regulatory Organizations; MIAX Emerald, 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, MIAX Emerald, LLC (‘‘MIAX Emerald’’ 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. khammond on DSKJM1Z7X2PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend the MIAX Emerald Fee Schedule (the ‘‘Fee Schedule’’) to adopt the Exchange’s system connectivity fees. The Exchange previously filed the proposal on October 22, 2019 (SR– EMERALD–2019–35). That filing has been withdrawn and replaced with the current filing (SR–EMERALD–2019–39). The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings/emerald, at MIAX’s principal office, and at the Commission’s Public Reference Room. 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 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 PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 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 Statement, the relevant section of which is attached hereto [sic] as Exhibit 3, which is 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 fees 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 3 See Letter from John Ramsay, Chief Market Policy Officer, Investors Exchange LLC (‘‘IEX’’), to Vanessa Countryman, Secretary, Commission, dated October 9, 2019 (the ‘‘Third IEX Letter,’’ as further described below). 4 See the complete Audited Unconsolidated Financial Statement of MIAX Emerald, LLC, as of December 31, 2018, which is listed under Exhibit D of MIAX Form 1 Amendment 2019–7 Annual Filing at https://www.sec.gov/Archives/edgar/vprr/ 1900/19003680.pdf. E:\FR\FM\07JAN1.SGM 07JAN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices 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 adopt the network connectivity fees for the 1 Gigabit (‘‘Gb’’) 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 adopt network connectivity fees for the 1Gb and 10Gb fiber connections for connectivity to the Exchange’s disaster recovery facility. Each of these connections (with the exception of the 10Gb ULL) are shared connections (collectively, the ‘‘Shared Connections’’), and thus can be utilized to access the Exchange and both of the Exchange’s affiliates, Miami International Securities Exchange, LLC (‘‘MIAX’’) and MIAX PEARL, LLC (‘‘MIAX PEARL’’). The 10Gb ULL connection is a dedicated connection (‘‘Dedicated Connection’’), which provides network connectivity solely to the trading platforms, market data systems, and test system facilities of MIAX Emerald. These proposed fees are collectively referred to herein as the ‘‘Proposed Fees.’’ The amounts of the Proposed Fees for the Shared Connections are the same amounts that are currently in place at MIAX and MIAX PEARL.6 While the Exchange is new and only launched trading on March 1, 2019, since: (i) All of the Proposed Fees (except for the fee relating to the 10Gb ULL connection) relate to Shared Connections, and thus are the same amounts as are currently in place at MIAX and MIAX PEARL; (ii) all of the Members of MIAX Emerald are also members of either MIAX and/or MIAX PEARL, and most of those Members already have connectivity to the Exchange via existing Shared Connections (without paying any new incremental connectivity fees), the Exchange is providing similar information to that which was provided in the MIAX and PEARL Fee Filings, including providing detail about the market participants impacted by the Proposed Fees, as well as the costs incurred by the Exchange associated 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. 6 See SR–MIAX–2019–46 and SR–PEARL–2019– 33 (the ‘‘MIAX and PEARL Fee Filings’’). VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 with providing the connectivity alternatives, in order to provide transparency and support relating to the Exchange’s belief that the Proposed Fees are reasonable, equitable, and nondiscriminatory, and to provide sufficient information for the Commission to determine that the Proposed Fees are consistent with the Act. The Exchange initially filed the Proposed Fees on March 1, 2019, designating the Proposed Fees immediately effective.7 The First Proposed Rule Change was published for comment in the Federal Register on March 20, 2019.8 The First Proposed Rule Change provided information about the market participants impacted by the Proposed Fees, as well as the additional costs incurred by the Exchange associated with providing the connectivity alternatives, in order to provide transparency and support relating to the Exchange’s belief that the Proposed Fees are reasonable, equitable, and non-discriminatory, and to provide sufficient information for the Commission to determine that the Proposed Fees 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 Options Facility to Establish BOX Connectivity Fees for Participants and Non-Participants Who Connect to the BOX Network (the ‘‘BOX Order’’).9 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 First Proposed Rule Change.10 7 See Securities Exchange Act Release No. 85316 (March 14, 2019), 84 FR 10350 (March 20, 2019) (SR–EMERALD–2019–11) (the ‘‘First Proposed Rule Change’’). 8 Id. 9 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). 10 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 PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 739 The Second SIFMA Letter argued that the Exchange did not provide sufficient information in its First Proposed Rule Change to support a finding that the proposal should be approved by the Commission after further review of the Proposed Fees. 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 First 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 First Proposed Rule Change. Despite the objection to the Proposed Fees, 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.’’ 11 The IEX Letter specifically argued that the Proposed Fees 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 Emerald and its affiliates considered changes to transaction fees as an alternative to offsetting exchange costs. The Second Healthy Markets Letter did not object to the First Proposed Rule Change and the information provided by the Exchange in support of the Proposed Fees. Specifically, the Second Healthy Markets Letter stated that the First 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 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’’). 11 See IEX Letter, pg. 1. E:\FR\FM\07JAN1.SGM 07JAN1 740 Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices provide what the Commission and staff seek.12 On April 29, 2019, the Exchange withdrew the First Proposed Rule Change.13 The Exchange refiled the Proposed Fees on April 30, 2019, designating the Proposed Fees immediately effective.14 The Second Proposed Rule Change was published for comment in the Federal Register on May 16, 2019.15 The Second 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 Fees are reasonable, equitable, and non-discriminatory, and that the Commission should find that the Proposed Fees are consistent with the Act. On May 21, 2019, the Commission issued the Staff Guidance on SRO Rule Filings Relating to Fees.16 The Commission received two comment letters on the Second Proposed Rule Change, after the Guidance was released.17 The Second IEX Letter and the Third SIFMA Letter argued that the Exchange did not provide sufficient information in its Second Proposed Rule Change to justify the Proposed Fees 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 Second Proposed Rule Change. Also, Healthy Markets did not comment on the Second Proposed Rule Change. On June 26, 2019, the Exchange withdrew the Second Proposed Rule Change.18 The Exchange refiled the Proposed Fees on June 26, 2019, designating the khammond on DSKJM1Z7X2PROD with NOTICES 12 See Second Healthy Markets Letter, pg. 2. 13 See SR–EMERALD–2019–11. 14 See Securities Exchange Act Release No. 85839 (May 10, 2019), 84 FR 22192 (May 16, 2019) (SR– EMERALD–2019–20) (the ‘‘Second Proposed Rule Change’’) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt System Connectivity Fees). 15 Id. 16 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’’). 17 See Letter from John Ramsay, Chief Market Policy Officer, IEX, 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’’). 18 See SR–EMERALD–2019–20. VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 Proposed Fees immediately effective.19 The Third Proposed Rule Change was published for comment in the Federal Register on July 16, 2019.20 The Third Proposed Rule Change bolstered the Exchange’s previous cost-based discussion to support its claim that the Proposed Fees 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 Second Proposed Rule Change. The Commission received three comment letters on the Third Proposed Rule Change.21 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 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 Third Proposed Rule Change.22 The Exchange refiled the Proposed Fee Increases on August 23, 2019, designating the Proposed Fee Increases immediately effective.23 The Fourth Proposed Rule Change was published for comment in the Federal Register on July 16, 2019.24 The Fourth Proposed Rule Change provided greater detail and 19 See Securities Exchange Act Release No. 86344 (July 10, 2019), 84 FR 34030 (July 16, 2019) (SR– EMERALD–2019–24) (the ‘‘Third Proposed Rule Change’’). 20 Id. 21 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’’). 22 See SR–EMERALD–2019–24. 23 See Securities Exchange Act Release No. 86839 (August 30, 2019), 84 FR 47009 (September 6, 2019) (SR–EMERALD–2019–31) (the ‘‘Fourth Proposed Rule Change’’). 24 Id. PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 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 Fourth Proposed Rule Change, twelve days after the comment period deadline ended.25 Of note, no member of the Exchange commented on the Fourth Proposed Rule Change. Also, no issuer or other person using the facilities of the Exchange commented on the Fourth Proposed Rule Change. Also, no industry group that represents members, issuers, or other persons using the facilities of the Exchange commented on the Fourth Proposed Rule Change. Also, no operator of an options market commented on the Fourth 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 Fourth Proposed Rule Change. Rather, the only comment letter came from an operator of a single equities market (equities market structure and resulting network demands are fundamentally different from those in the options markets),26 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 Fourth Proposed Rule Change.27 The Exchange refiled the Proposed Fees on October 22, 2019, designating the Proposed Fees immediately effective.28 The Fifth Proposed Rule Change was published for comment in 25 See supra note 3. infra pages 17 to 19 (describing the differences in equity market structure and options market structure). 27 See SR–EMERALD–2019–31. 28 See Securities Exchange Act Release No. 87433 (October 31, 2019), 84 FR 59878 (November 6, 2019) (SR–EMERALD–2019–35) (the ‘‘Fifth Proposed Rule Change’’). 26 See E:\FR\FM\07JAN1.SGM 07JAN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices the Federal Register on November 6, 2019.29 The Fifth 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 Fifth Proposed Rule Change also addressed certain points raised in the Third IEX Letter. On December 20, 2019, the Exchange withdrew the Fifth Proposed Rule Change.30 The Exchange notes that the Fifth Proposed Rule Change did not receive any comment letters, however the Exchange has determined to refile the Proposed Fees 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 Fees 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 Fees 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 offers to both Members and non-Members various bandwidth alternatives for connectivity to the Exchange, to its primary and secondary facilities, consisting of a 1Gb fiber connection and a 10Gb ULL fiber connection. The 10Gb ULL offering uses an ultra-low latency switch, which 29 Id. 30 See SR–EMERALD–2019–35. VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 provides faster processing of messages sent to it in comparison to the switch used for the other types of connectivity. The Exchange also offers to both Members and non-Members various bandwidth alternatives for connectivity to the Exchange, to its disaster recovery facility, consisting of a 1Gb fiber connection and a 10Gb connection. For the Shared Connections, 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 the Exchange and its affiliates, MIAX and MIAX PEARL, via a single, shared connection. Any Member or nonMember can purchase a Shared Connection. For the Dedicated Connection, the Exchange’s MENI is 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 the Exchange. Any Member or non-Member can purchase a Dedicated Connection. The Exchange determined to design its network architecture in a manner that offered 10Gb ULL connections as dedicated connections (as opposed to shared connections) in order to provide cost saving opportunities for itself and for its Members, by reducing the amount of equipment that the Exchange would have to purchase and to which the Members would have to connect. Accordingly, the Exchange is able to offer to its Members 10Gb ULL connectivity at a lower price point than is offered on MIAX and MIAX PEARL, the price difference being reflective of the lower cost to the Exchange. For the Shared Connections, 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, MIAX, and MIAX PEARL via a single, shared connection are assessed only one monthly network connectivity fee per connection, regardless of the trading platforms, market data systems, test systems, and disaster recovery facilities accessed via such connection. Thus, since all of the Members of MIAX Emerald are also members of either MIAX and/or MIAX PEARL, and most of those Members already have connectivity to the Exchange via existing Shared Connections, most Members of MIAX Emerald have instant connectivity to the Exchange without paying any new incremental PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 741 connectivity fees, as more fully-detailed below. The Exchange proposes to establish the monthly network connectivity fees for such connections for both Members and non-Members. As discussed above, the amounts of the Proposed Fees for the Shared Connections are the same amounts that are currently in place at MIAX and MIAX PEARL. The amount of the Proposed Fee for the Dedicated Connection is offered at a substantial discount to the amount currently in place at MIAX and MIAX PEARL. The reasons for the substantial discount are that the Dedicated Connection offers access to only a single market (the Exchange), whereas the 10Gb ULL connection offered by MIAX and MIAX PEARL offers access to two markets (MIAX and MIAX PEARL), as well as cost savings the Exchange was able to achieve (and thus pass through to its Members) as a result of a dedicated architecture. The network connectivity fees for connectivity to the Exchange’s primary/secondary facility will be as follows: (a) 1,400 for the 1Gb connection; and (b) $6,000 for the 10Gb ULL connection. The network connectivity fees for connectivity to the Exchange’s disaster recovery facility will be as follows: (a) $550 for the 1Gb connection; and (b) $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 31 in general, and furthers the objectives of Section 6(b)(4) of the Act 32 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 33 in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest and is not designed to permit unfair discrimination between customer, issuers, brokers and dealers. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In 31 15 U.S.C. 78f(b). U.S.C. 78f(b)(4). 33 15 U.S.C. 78f(b)(5). 32 15 E:\FR\FM\07JAN1.SGM 07JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 742 Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices 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.’’ 34 The Exchange believes that its proposal is consistent with Section 6(b)(4) of the Act, in that the Proposed Fees are fair, equitable and not unreasonably discriminatory, because the fees for the connectivity alternatives available on the Exchange, as proposed, 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 Emerald as compared to the much greater number of members at other options exchanges (as further detailed below). MIAX Emerald is a brand new exchange, having only commenced operations in March 2019. Not only does MIAX Emerald 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 Emerald. Further, of the number of Members that connect directly to MIAX Emerald, many such Members do not purchase market data from MIAX Emerald. There are a number of large market makers and broker-dealers that are members of other options exchanges but not Members of MIAX Emerald. For example, the following are not Members of MIAX Emerald: 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 Emerald, it is the individual needs of the market maker that require whether they need one connection or multiple connections to 34 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 the Exchange. The Exchange has market maker Members that only purchase one connection 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 nonMembers purchase and resell 10Gb ULL connections to both Members and nonMembers, 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 Emerald or its affiliates, MIAX and MIAX PEARL, they do not purchase connectivity to MIAX Emerald, and they do not purchase market data from MIAX Emerald. 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 Emerald, the Exchange provides information about the Exchange’s available connectivity alternatives in a PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 Connectivity Guide, which contains detailed specifications regarding, among other things, throughput and latency for each available connection.35 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 a 10Gb ULL connection. The 1Gb connection is too small to support those data feed products. MIAX Emerald 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 Emerald and its affiliates. MIAX Emerald competes with eight (8) non-Members, who resell MIAX Emerald connectivity. These are resellers of MIAX Emerald 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 Emerald (typically extranets and service bureaus). When connectivity is re-sold by a third-party, MIAX Emerald 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 Emerald to set its connectivity pricing as indirect connectivity is a substitute for direct connectivity. In fact, there are currently seven (7) non-Members that purchase 1Gb direct connectivity that are able to access MIAX Emerald, MIAX and MIAX PEARL. Those non-Members resell that connectivity to eight (8) customers, some of whom are agency broker-dealers that have tens of customers of their own. Some of those eight (8) customers also purchase connectivity directly from MIAX 35 See the MIAX Connectivity Guide at https:// www.miaxoptions.com/sites/default/files/pagefiles/MIAX_Connectivity_Guide_v3.6_ 01142019.pdf. E:\FR\FM\07JAN1.SGM 07JAN1 Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Emerald and/or its affiliates, MIAX and MIAX PEARL. Accordingly, indirect connectivity is a viable alternative used by non-Members of MIAX Emerald, constraining the price that MIAX Emerald is able to charge for connectivity to its Exchange. The Exchange,36 MIAX,37 and MIAX PEARL 38 are comprised of 41 distinct members amongst all three exchanges, excluding any additional affiliates of such members that are also members of the Exchange, MIAX, MIAX PEARL, or any combination thereof. Of those 41 distinct members, 28 of those distinct members are Members of MIAX Emerald. (Currently, there are no Members of MIAX Emerald that are not also members of MIAX or MIAX PEARL, or both.) Of those 28 distinct Members of MIAX Emerald, there are 6 Members that have no connectivity to the Exchange. Members are not forced to purchase connectivity to the Exchange, and these Members have elected not to purchase such connectivity. Of note, these same 6 Members also do not have connectivity to either MIAX or MIAX PEARL. These Members either trade indirectly through other Members or non-Members that have connectivity to the Exchange, or do not trade and conduct another type of business on the Exchange. Of the remaining 22 distinct Members of MIAX Emerald, all 22 of those distinct Members already had connectivity to the Exchange via existing Shared Connections, thus providing all such 22 MIAX Emerald Members with instant connectivity to the Exchange without paying any new incremental connectivity fees. Further, of those 22 Members, 14 of such Members elected to purchase additional connectivity to the Exchange, including additional Shared Connections and additional Dedicated Connections. The Exchange made available in advance to all of its prospective Members its proposed connectivity pricing (subject to regulatory clearance), in order for those prospective Members to make an informed decision about whether to become a Member of the Exchange and whether to purchase connectivity to the Exchange. Accordingly, each such Member made the decision to become a 36 The Exchange has 28 distinct Members, excluding affiliated entities. See MIAX Emerald Exchange Member Directory, available at https:// www.miaxoptions.com. 37 MIAX has 38 distinct Members, excluding affiliated entities. See MIAX Exchange Member Directory, available at https:// www.miaxoptions.com. 38 MIAX PEARL has 36 distinct Members, excluding affiliated entities. See MIAX PEARL Exchange Member Directory, available at https:// www.miaxoptions.com. VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 Member of the Exchange and to purchase connectivity to the Exchange, knowing in advance the connectivity pricing. And the vast majority of the additional connectivity purchased by those Members were for Dedicated Connections, the most expensive connectivity option. As a result, of those 22 Members, through existing Shared Connections, newly purchased Shared Connections, and newly purchased Dedicated Connections: 14 Members have 1Gb (primary/secondary) connections; 13 Members have 10Gb ULL (primary/ secondary) connections; 3 Members have 10Gb (disaster recovery) connections; and 10 Members have 1Gb (disaster recovery) connections, or some combination of multiple various connections. All such Members with those Shared Connections and Dedicated Connections trade on MIAX Emerald. The 6 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 6 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. In addition, there are 5 non-Member service bureaus that already have connectivity to the Exchange via existing Shared Connections, thus providing all 5 of those non-Member service bureaus with instant connectivity to the Exchange without paying any new incremental connectivity fees. These non-Members freely purchased their connectivity from one of the Exchange’s affiliates, either MIAX or MIAX PEARL, 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. The Exchange believes that the Proposed Fees 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 two direct connectivity alternatives and various indirect connectivity (via thirdparty) alternatives, as described above. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 743 MIAX Emerald 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 ULL 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 Emerald, MIAX and MIAX PEARL Members that connect (15 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 Fees ($6,000 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 pay 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. 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. 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 1Gb connection. This lower latency is achieved through more advanced network equipment, such as advanced hardware and switching components, which translates E:\FR\FM\07JAN1.SGM 07JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 744 Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices to increased costs to the Exchange. The Exchange made a decision to not offer 10Gb connections, like its affiliates MIAX and MIAX PEARL, offer for business reasons. The Exchange launched trading on March 1, 2019. Thus, at the time that the 14 Members who elected to purchase connectivity to the Exchange, the Exchange was untested and unproven, and had 0% market share of the U.S. options industry. With respect to options trading, the Exchange had only a 0.92% market share of the U.S. options industry in November 2019 in Equity/Exchange Traded Fund (‘‘ETF’’) classes according to the OCC.39 For November 2019, the Exchange’s affiliate, MIAX, had only 4.32% market share of the U.S. options industry in Equity/ETF classes according to the OCC.40 For November 2019, the Exchange’s affiliate, MIAX PEARL, had only 4.78% market share of the U.S. options industry in Equity/ETF classes according to the OCC.41 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. Certainly, an untested and unproven exchange, with less than 1% market share in any month, and no rule or requirement that a market participant must join or connect to it, does not have anticompetitive pricing power, with respect to setting the pricing for the Dedicated Connections or the Shared Connections. If the Exchange were to attempt to establish unreasonable connectivity pricing, then no market participant would join or connect. Therefore, since 28 distinct Members joined MIAX Emerald and 14 of those distinct Members purchased additional connectivity to the Exchange, all knowing, in advance, the connectivity fees, the Exchange believes the Proposed Fees are reasonable, equitable, and not unfairly discriminatory. 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 39 See Exchange Market Share of Equity Products—2019, The Options Clearing Corporation, available at https://www.theocc.com/webapps/ exchange-volume. 40 Id. 41 Id. VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 participants choose to connect to a particular exchange and because it is a choice, MIAX Emerald 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).42 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 are proposing to access the Exchange indirectly through another market participant. To illustrate, the Exchange has only 34 total Members (including all such Members’ affiliate Members). However, Cboe Exchange, Inc. (‘‘Cboe’’) has over 200 members,43 Nasdaq ISE, LLC has approximately 100 members,44 and NYSE American LLC has over 80 members.45 If all market participants were required to be Members of the Exchange and connect directly to the Exchange, the Exchange would have over 200 Members, in line with Cboe’s 42 See Letter from Stefano Durdic, R2G, to Vanessa Countryman, Acting Secretary, Commission, dated March 27, 2019 (the ‘‘R2G Letter’’). 43 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). 44 See Form 1/A, filed July 1, 2016 (https:// www.sec.gov/Archives/edgar/vprr/1601/ 16019243.pdf). 45 See https://www.nyse.com/markets/americanoptions/membership#directory. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 total membership. But it does not. The Exchange only has 34 Members. Further, since there are 41 distinct members amongst all three exchanges, and only 28 of those distinct members decided to become Members of MIAX Emerald, there were 13 distinct members that decided not to become Members of MIAX Emerald. This further reinforces the fact that all market participants are not required to be Members of the Exchange and are not required to connect to the Exchange. It is a choice whether to join and it is a choice to connect. Therefore, the Exchange believes that the Proposed Fees are fair, equitable, and nondiscriminatory, as the fees are competitive. With respect to the now MIAX Emerald Members that had Shared Connections in place as of August 1, 2018 (via a previously purchased Shared Connection from MIAX or MIAX PEARL), the Exchange finds it compelling that all of those Members continued to purchase those Shared Connections after August 1, 2018, when MIAX and MIAX PEARL increased the connectivity fees for the Shared Connections to the current amounts proposed by the Exchange herein. In particular, the Exchange believes that the Proposed Fees for the Shared Connections are reasonable because MIAX and MIAX PEARL, which charge the same amount for the Shared Connections, did not lose any Members (or the number of Shared Connections each Member purchased) or nonMember Shared Connections when MIAX and MIAX PEARL proposed to increase the connectivity fees for the Shared Connections on August 1, 2018. For example, with respect to the Shared Connections maintained by now Members of MIAX Emerald who had Shared Connections in place as of July 2018, 12 Members purchased 1Gb connections. The vast majority of those Members purchased multiple such connections, the number of connections depending on their 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 12 Members purchased 1Gb connections. Furthermore, the total number of connections did not decrease from July to August. Further, with respect to the Shared Connections maintained by now Members of MIAX Emerald who had Shared Connections in place as of July 2018, of those Members and nonMembers that bought multiple connections, no firm dropped any E:\FR\FM\07JAN1.SGM 07JAN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices connections beginning August 1, 2018, when MIAX and MIAX PEARL increased its fees. Furthermore, the Exchange understands that MIAX and MIAX PEARL did not receive any official comment letters or complaints from any now Members of MIAX Emerald who had Shared Connections in place as of July 2018 regarding the increased fees regarding how the change 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),46 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 Fees are fair, equitable, and non-discriminatory, as the fees are competitive. The Exchange believes that the Proposed Fees are equitably allocated among Members and non-Members, as evidenced by the fact that the fees 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—14 Members have 1Gb (primary/secondary) connections; 14 Members have 10Gb ULL (primary/ secondary) connections; 3 Members have 10Gb (disaster recovery) connections; and 11 Members have 1Gb (disaster recovery) connections, or some combination of multiple various connections. The Exchange further believes that the Proposed Fees, 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 nonMembers and are allocated fairly amongst the types of market participants using the facilities of the Exchange. For example, for November 2019, Exchange: (i) Members and non-Members that purchased 10Gb ULL connections accounted for approximately 95% of the total network connectivity revenue collected by the Exchange from all connectivity alternatives; and (ii) Members and non-Members that purchased 1Gb connections accounted for approximately 5% of the revenue collected by the Exchange from all connectivity alternatives. (The Exchange notes that it does not offer a 10Gb connectivity alternative.) As described 46 See supra note 42. VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 above, the Exchange believes the Proposed Fees are equitably allocated because 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 network connectivity alternatives, as the users of the 10Gb ULL connections consume the most bandwidth and resources of the network. Specifically, the Exchange notes that these users account for approximately greater than 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 ULL users. The Exchange’s high performance network solutions and supporting infrastructure (including employee support), provides unparalleled system throughput and the capacity to handle approximately 18 million quote messages per second. On an average day, the Exchange handles approximately 3,000,000,500,000 total messages. Of those, users of the 10Gb ULL connections generate approximately 3 billion messages, and users of the 1Gb connections generate 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 ULL users pay for the vast majority of the shared network resources from which all Member and non-Member users benefit, PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 745 but is designed and maintained from a capacity standpoint to specifically handle the message rate and performance requirements of 10Gb ULL users. The Exchange also believes that the connectivity fees are equitably allocated amongst users of the network connectivity alternatives, when these fees are viewed in the context of the overall trading volume on the Exchange. To illustrate, the purchasers of the 10Gb ULL connectivity account for approximately 75% of the volume on the Exchange. For example, for all of November 2019, 2.5 million contracts of the 3.3 million contracts executed were done by the top market making firms on the Exchange in simple (non-complex) volume. This overall volume percentage (75% of total Exchange volume) is in line with the amount of network connectivity revenue collected from 10Gb ULL purchasers (95% 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 ULL network connection. Pursuant to its extensive cost review described above, the Exchange believes that the average cost to provide a 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 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 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 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 E:\FR\FM\07JAN1.SGM 07JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 746 Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices continuously quote over 750,000 distinct trading products (per exchange), and the capacity to handle approximately 18 million quote messages per second. The ‘‘premiumproduct’’ network experience enables users of 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 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 Fees will permit recovery of the Exchange’s costs and will not result in excessive or supra-competitive profit. The Proposed Fees will allow the Exchange to recover a portion (less than all) of the costs incurred by the Exchange associated with providing and maintaining the necessary hardware and other infrastructure as well as network monitoring and support services in order to provide the network connectivity services. The Exchange believes that it is reasonable and appropriate to establish its fees charged for use of its connectivity at a level that will partially offset the costs to the Exchange associated with maintaining and enhancing a state-of-the-art exchange network infrastructure in the U.S. options industry. The costs associated with making the network accessible to Exchange Members and non-Members, through the expansion associated with new Shared Connections and Dedicated Connections, as well as the general expansion of a state-of-the-art infrastructure, are extensive, have increased year-over-year in the past two years, and are projected to increase yearover-year in the future. This is due to several factors, including costs associated with maintaining and expanding a team of highly-skilled network engineers, 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. VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 In order to provide more detail and to quantify the Exchange’s costs, the Exchange notes that costs are associated with the infrastructure and headcount to fully-support the advances in infrastructure and expansion of network level services, including customer monitoring, alerting and reporting. The Exchange incurs technology expenses related to establishing and maintaining Information Security services, enhanced network monitoring and customer reporting, as well as Regulation SCI mandated processes, associated with its network technology. Additionally, the Exchange incurred costs in the expansion/buildout of the network leading up to the launch of operations, and the network maintenance costs continue to increase year-over-year. While some of the expense is fixed, much of the expense is not fixed, and thus increases as the number of connections increase. For example, new 1Gb 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 Emerald 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 Emerald and its affiliates need to increase their data center footprint and consume more power, resulting in increased costs charged by their thirdparty data center provider. Accordingly, the cost to MIAX Emerald and its affiliates is not entirely fixed. Just the initial fixed cost buildout of the network infrastructure of MIAX Emerald and its affiliates, including both primary/ secondary sites and disaster recovery, was over $30 million. A more detailed breakdown of the expense increases since the initial phases of the buildout of the Exchange over two years ago include the following: With respect to the network, there has been 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 datacenter 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 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 cost, this is the cost associated with MIAX Emerald consuming connectivity/ content from the equities markets in order to operate the Exchange, causing MIAX Emerald to effectively pay its competitors for this connectivity. There was also significant capital expenditures over this same period to upgrade and enhance the underlying technology components. The Exchange believes that it is reasonable and appropriate to establish its fees charged for use of its connectivity at a level that will partially offset the costs to the Exchange associated with the buildout, maintenance, and enhancement of its network infrastructure. Further, because the costs of operating a data center are significant and not economically feasible for the Exchange, the Exchange does not operate its own data centers, and instead contracts with a third-party data center provider. The Exchange notes that larger, dominant exchange operators own/operate their data centers, which offers them greater control over their data center costs. Because those exchanges own and operate their data centers as profit centers, the Exchange is subject to additional costs. Connectivity fees, which are charged for accessing the Exchange’s data center network infrastructure, are directly related to the network and offset costs such costs. Further, the Exchange invests significant resources in network R&D to improve the overall performance and stability of its network. For example, the Exchange has a number of network monitoring tools (some of which were developed in-house, and some of which are licensed from third-parties), that continually monitor, detect, and report network performance, many of which serve as significant value-adds to the Exchange’s Members and enable the Exchange to provide a high level of customer service. These tools detect and report performance issues, and thus enable the Exchange to proactively notify a Member (and the SIPs) when the Exchange detects a problem with a Member’s connectivity. In fact, the Exchange often receives inquiries 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 inquiries 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 Exchange also incurs costs associated with the maintenance E:\FR\FM\07JAN1.SGM 07JAN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices and improvement of existing tools and the development of new tools. 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, routine R&D projects to improve the performance of the network’s hardware infrastructure result in additional cost. As an example, in the last year, 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 also increases year-over-year, and thus the Exchange believes that it is reasonable to offset a portion of those costs through establishing network connectivity fees, which are designed to recover those costs, as proposed herein. Overall, the Proposed Fees are projected to offset only a portion of the Exchange’s network connectivity costs. 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. In fact, the Exchange often receives inquiries 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 inquiries 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. 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 constitute 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 Fees are fair and reasonable because they will not result VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 in excessive pricing or supracompetitive profit, when comparing the total annual expense of MIAX Emerald associated with providing network connectivity services versus the total projected annual revenue of the Exchange associated with providing network connectivity services. For 2018, the total annual expense associated with providing network connectivity services for MIAX Emerald was approximately $4.7 million. The $4.7 million in total annual expense is comprised of the following, all of which are directly related to the provision of network connectivity services by MIAX Emerald to its respective Members and nonMembers: (1) Third-party expense, relating to fees paid by MIAX Emerald to third-parties for certain products and services; and (2) internal expense, relating to the internal costs of MIAX Emerald to provide the network connectivity services. All such expenses are more fully-described below, and are mapped to MIAX Emerald’s 2018 Statements of Operations and Member’s Deficit (the ‘‘2018 Financial Statements’’). The $4.7 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 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 747 continuously quote over 750,000 distinct trading products (per exchange), and the capacity to handle approximately 18 million quote messages per second. The ‘‘premiumproduct’’ network experience enables users of 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 illinformed and self-serving.47 For 2018, total third-party expense, relating to fees paid by MIAX Emerald to third-parties for certain products and services for the Exchange to be able to provide network connectivity services, was $728,246. 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 Emerald trading system infrastructure; (2) Zayo Group Holdings, Inc. (‘‘Zayo’’) for connectivity services (fiber and bandwidth connectivity) linking MIAX Emerald’s office locations in Princeton, NJ and Miami, FL to all data center locations; (3) Secure Financial Transaction Infrastructure (‘‘SFTI’’),48 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 47 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. 48 In E:\FR\FM\07JAN1.SGM 07JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 748 Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices 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 Emerald does not allocate its 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 VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 the internet, fiber and bandwidth connections with respect to the network, linking MIAX Emerald with its affiliates, MIAX PEARL and MIAX, 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 17% 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 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 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 Emerald to provide the network connectivity services, was $4,031,491. 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 connectivity for trading; and (3) occupancy costs for leased office space for staff that support 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 Emerald does not allocate its 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 E:\FR\FM\07JAN1.SGM 07JAN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices described above towards the total cost to the Exchange to operate and support the network, including providing network connectivity services. In particular, MIAX Emerald’s employee compensation and benefits expense relating to providing network connectivity services was $3,262,226, which is only a portion of the $10,193,837 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 32% 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 Emerald’s depreciation and amortization expense relating to providing network connectivity services was $416,807, which is only a portion of the $616,785 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, computers, laptops, monitors, information security appliances and VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 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 68% 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 Emerald’s occupancy expense relating to providing network connectivity services was $352,458, which is only a portion of the $732,720 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 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 749 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. The total projected MIAX Emerald revenue for providing network connectivity services, on a full year run rate, is $3.0 million. However, since MIAX Emerald was launched on March 1, 2019, it did not start collecting revenue for network connectivity services until March 1, 2019. Thus, for 2018, MIAX Emerald’s expense for providing network connectivity services was approximately $4.7 million, while its revenue for providing network connectivity services was $0. For 2019, MIAX Emerald projects 10 full months of revenue for network connectivity services (March 1–December 31), of $2.5 million, however it also projects increased expense for providing network connectivity services for 2019, as compared to 2018. Nevertheless, utilizing 2018 expense figures, for 2019, MIAX Emerald’s expense for providing network connectivity services would be approximately $4.7 million, while its revenue for providing network connectivity services would be $2.5 million. On a fully annualized basis, utilizing 2018 expense figures and 2019 projected revenue extrapolated out to a full year run rate, MIAX Emerald’s expense for providing network connectivity services would be approximately $4.7 million, while its revenue for providing network connectivity services would be $3 million. Accordingly, for both 2018 and 2019, the total MIAX Emerald projected revenue for providing network connectivity services during 2018 ($0) and during 2019 ($2.5 million) is less than total actual and projected MIAX Emerald expense for providing network connectivity services for 2018 ($4.7 million) and 2019 (greater than $4.7 million). 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 Emerald. Stated differently, no expense amount of the Exchange is allocated twice. E:\FR\FM\07JAN1.SGM 07JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 750 Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices 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 also believes its proposal to offer 10Gb ULL connections as dedicated connections furthers the objectives of Section 6(b)(5) of the Act 49 in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest and is not designed to permit unfair discrimination between customer, issuers, brokers and dealers. In particular, for the Dedicated Connection, the Exchange’s MENI is 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 the 49 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 Exchange. Any Member or non-Member can purchase a Dedicated Connection. The Exchange determined to design its network architecture in a manner that offered 10Gb ULL connections as dedicated connections (as opposed to shared connections) in order to provide cost saving opportunities for itself and for its Members, by reducing the amount of equipment that the Exchange would have to purchase and to which the Members would have to connect. A dedicated 10Gb ULL connection does not offer any unfair advantage over a shared 10GB ULL connection, as is being offered solely as a cost-saving measure to the Exchange and its Members. 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.50 The Exchange further notes that Phlx, ISE, Arca and NYSE American each charge higher rates for such similar connectivity to primary and secondary facilities,51 however the Exchange also notes that the Exchange’s 10Gb ULL connection is dedicated solely to one market (the Exchange) whereas the Exchange believes that other exchanges offer a shared 10Gb ULL connection to multiple markets. While MIAX Emerald’s proposed connectivity fees are substantially lower than the fees charged by Phlx, ISE, Arca and NYSE American, MIAX Emerald believes that it offers significant value to Members over other exchanges in terms of network monitoring and reporting, which MIAX Emerald 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 50 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. 51 Id. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 charged by other exchanges for similar connectivity alternatives.52 B. Self-Regulatory Organization’s Statement on Burden on 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 Fees 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 Fees 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 Fees do not favor certain categories of market participants in a manner that would impose a burden on competition; rather, the allocation of the Proposed Fees 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 Fees do not place an undue burden on competition on other SROs that is not necessary or appropriate. In particular, options market participants are not 52 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). E:\FR\FM\07JAN1.SGM 07JAN1 Federal Register / Vol. 85, No. 4 / Tuesday, January 7, 2020 / Notices forced to connect to (and purchase market data from) all options exchanges, as shown by the number of Members of the Exchange as compared to the much greater number of members at other options exchanges (as described above). Not only does MIAX Emerald 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 Emerald. There are a number of large market makers and broker-dealers that are members of other options exchange but not Members of MIAX Emerald. Additionally, other exchanges have similar connectivity alternatives for their participants, including similar low-latency connectivity, but with much higher rates to connect.53 The Exchange is also unaware of any assertion that its existing fee levels or the Proposed Fees 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. khammond on DSKJM1Z7X2PROD with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. 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,54 and Rule 19b–4(f)(2) 55 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 53 See supra note 50. U.S.C. 78s(b)(3)(A)(ii). 55 17 CFR 240.19b–4(f)(2). 54 15 VerDate Sep<11>2014 16:15 Jan 06, 2020 Jkt 250001 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– EMERALD–2019–39 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–EMERALD–2019–39. 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–EMERALD–2019–39 and should be submitted on or before January 28, 2020. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 751 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.56 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2019–28537 Filed 1–6–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87879; File No. SR–DTC– 2019–009] Self-Regulatory Organizations; The Depository Trust Company; Order Approving a Proposed Rule Change To Amend the Redemptions Guide Relating to the Call Lottery Process for Partial Redemptions January 2, 2020. I. Introduction On October 31, 2019, The Depository Trust Company (‘‘DTC’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 proposed rule change SR– DTC–2019–009. The proposed rule change was published for comment in the Federal Register on November 19, 2019.3 The Commission did not receive any comment letters on the proposed rule change. For the reasons discussed below, the Commission is approving the proposed rule change. II. Description of the Proposed Rule Change DTC proposes to modify its Procedures 4 set forth in the DTC Corporate Actions Redemptions Service Guide (‘‘Redemptions Guide’’) 5 in order to amend its call lottery process relating to the processing of partial redemptions (‘‘Partial Calls’’) with respect to allocations made for odd lot positions in a called Security held by a Participant. 56 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Securities Exchange Act Release No. 87526 (November 13, 2019), 84 FR 63915 (November 19, 2019) (SR–DTC–2019–009) (‘‘Notice’’). 4 Capitalized terms not defined herein are defined in the Rules, By-Laws and Organization Certificate of DTC (the ‘‘Rules’’), available at https:// www.dtcc.com/∼/media/Files/Downloads/legal/ rules/dtc_rules.pdf. 5 Available at https://www.dtcc.com/∼/media/ Files/Downloads/legal/service-guides/ Redemptions.pdf. 1 15 E:\FR\FM\07JAN1.SGM 07JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 4 (Tuesday, January 7, 2020)]
[Notices]
[Pages 738-751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28537]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87877; File No. SR-EMERALD-2019-39]


Self-Regulatory Organizations; MIAX Emerald, 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, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Emerald Fee 
Schedule (the ``Fee Schedule'') to adopt the Exchange's system 
connectivity fees.
    The Exchange previously filed the proposal on October 22, 2019 (SR-
EMERALD-2019-35). That filing has been withdrawn and replaced with the 
current filing (SR-EMERALD-2019-39).
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxoptions.com/rule-filings/emerald, at MIAX's 
principal office, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The 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\
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    \3\ See Letter from John Ramsay, Chief Market Policy Officer, 
Investors Exchange LLC (``IEX''), to Vanessa Countryman, Secretary, 
Commission, dated October 9, 2019 (the ``Third IEX Letter,'' as 
further described below).
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    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 Statement, the relevant section of which is 
attached hereto [sic] as Exhibit 3, which is 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 fees 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

[[Page 739]]

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 Statement 
of MIAX Emerald, LLC, as of December 31, 2018, which is 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 adopt the network connectivity fees for the 1 
Gigabit (``Gb'') 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 adopt network 
connectivity fees for the 1Gb and 10Gb fiber connections for 
connectivity to the Exchange's disaster recovery facility. Each of 
these connections (with the exception of the 10Gb ULL) are shared 
connections (collectively, the ``Shared Connections''), and thus can be 
utilized to access the Exchange and both of the Exchange's affiliates, 
Miami International Securities Exchange, LLC (``MIAX'') and MIAX PEARL, 
LLC (``MIAX PEARL''). The 10Gb ULL connection is a dedicated connection 
(``Dedicated Connection''), which provides network connectivity solely 
to the trading platforms, market data systems, and test system 
facilities of MIAX Emerald. These proposed fees are collectively 
referred to herein as the ``Proposed Fees.'' The amounts of the 
Proposed Fees for the Shared Connections are the same amounts that are 
currently in place at MIAX and MIAX PEARL.\6\ While the Exchange is new 
and only launched trading on March 1, 2019, since: (i) All of the 
Proposed Fees (except for the fee relating to the 10Gb ULL connection) 
relate to Shared Connections, and thus are the same amounts as are 
currently in place at MIAX and MIAX PEARL; (ii) all of the Members of 
MIAX Emerald are also members of either MIAX and/or MIAX PEARL, and 
most of those Members already have connectivity to the Exchange via 
existing Shared Connections (without paying any new incremental 
connectivity fees), the Exchange is providing similar information to 
that which was provided in the MIAX and PEARL Fee Filings, including 
providing detail about the market participants impacted by the Proposed 
Fees, as well as the costs incurred by the Exchange associated with 
providing the connectivity alternatives, in order to provide 
transparency and support relating to the Exchange's belief that the 
Proposed Fees are reasonable, equitable, and non-discriminatory, and to 
provide sufficient information for the Commission to determine that the 
Proposed Fees are consistent with the Act.
---------------------------------------------------------------------------

    \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.
    \6\ See SR-MIAX-2019-46 and SR-PEARL-2019-33 (the ``MIAX and 
PEARL Fee Filings'').
---------------------------------------------------------------------------

    The Exchange initially filed the Proposed Fees on March 1, 2019, 
designating the Proposed Fees immediately effective.\7\ The First 
Proposed Rule Change was published for comment in the Federal Register 
on March 20, 2019.\8\ The First Proposed Rule Change provided 
information about the market participants impacted by the Proposed 
Fees, as well as the additional costs incurred by the Exchange 
associated with providing the connectivity alternatives, in order to 
provide transparency and support relating to the Exchange's belief that 
the Proposed Fees are reasonable, equitable, and non-discriminatory, 
and to provide sufficient information for the Commission to determine 
that the Proposed Fees are consistent with the Act.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 85316 (March 14, 
2019), 84 FR 10350 (March 20, 2019) (SR-EMERALD-2019-11) (the 
``First Proposed Rule Change'').
    \8\ 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'').\9\ 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.
---------------------------------------------------------------------------

    \9\ 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 First Proposed Rule Change.\10\
---------------------------------------------------------------------------

    \10\ 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 First Proposed Rule Change to support a 
finding that the proposal should be approved by the Commission after 
further review of the Proposed Fees. 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 First 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 First 
Proposed Rule Change. Despite the objection to the Proposed Fees, 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.'' \11\ The IEX Letter specifically argued that 
the Proposed Fees 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 
Emerald and its affiliates considered changes to transaction fees as an 
alternative to offsetting exchange costs.
---------------------------------------------------------------------------

    \11\ See IEX Letter, pg. 1.
---------------------------------------------------------------------------

    The Second Healthy Markets Letter did not object to the First 
Proposed Rule Change and the information provided by the Exchange in 
support of the Proposed Fees. Specifically, the Second Healthy Markets 
Letter stated that the First 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

[[Page 740]]

provide what the Commission and staff seek.\12\
---------------------------------------------------------------------------

    \12\ See Second Healthy Markets Letter, pg. 2.

    On April 29, 2019, the Exchange withdrew the First Proposed Rule 
Change.\13\
---------------------------------------------------------------------------

    \13\ See SR-EMERALD-2019-11.
---------------------------------------------------------------------------

    The Exchange refiled the Proposed Fees on April 30, 2019, 
designating the Proposed Fees immediately effective.\14\ The Second 
Proposed Rule Change was published for comment in the Federal Register 
on May 16, 2019.\15\ The Second 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 Fees are 
reasonable, equitable, and non-discriminatory, and that the Commission 
should find that the Proposed Fees are consistent with the Act.
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 85839 (May 10, 
2019), 84 FR 22192 (May 16, 2019) (SR-EMERALD-2019-20) (the ``Second 
Proposed Rule Change'') (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Adopt System Connectivity 
Fees).
    \15\ Id.
---------------------------------------------------------------------------

    On May 21, 2019, the Commission issued the Staff Guidance on SRO 
Rule Filings Relating to Fees.\16\
---------------------------------------------------------------------------

    \16\ 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 Second Proposed 
Rule Change, after the Guidance was released.\17\ The Second IEX Letter 
and the Third SIFMA Letter argued that the Exchange did not provide 
sufficient information in its Second Proposed Rule Change to justify 
the Proposed Fees 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 Second Proposed 
Rule Change. Also, Healthy Markets did not comment on the Second 
Proposed Rule Change.
---------------------------------------------------------------------------

    \17\ See Letter from John Ramsay, Chief Market Policy Officer, 
IEX, 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 Second Proposed Rule 
Change.\18\
---------------------------------------------------------------------------

    \18\ See SR-EMERALD-2019-20.
---------------------------------------------------------------------------

    The Exchange refiled the Proposed Fees on June 26, 2019, 
designating the Proposed Fees immediately effective.\19\ The Third 
Proposed Rule Change was published for comment in the Federal Register 
on July 16, 2019.\20\ The Third Proposed Rule Change bolstered the 
Exchange's previous cost-based discussion to support its claim that the 
Proposed Fees 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 Second Proposed Rule Change.
---------------------------------------------------------------------------

    \19\ See Securities Exchange Act Release No. 86344 (July 10, 
2019), 84 FR 34030 (July 16, 2019) (SR-EMERALD-2019-24) (the ``Third 
Proposed Rule Change'').
    \20\ Id.
---------------------------------------------------------------------------

    The Commission received three comment letters on the Third Proposed 
Rule Change.\21\
---------------------------------------------------------------------------

    \21\ 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 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 Third Proposed Rule 
Change.\22\
---------------------------------------------------------------------------

    \22\ See SR-EMERALD-2019-24.
---------------------------------------------------------------------------

    The Exchange refiled the Proposed Fee Increases on August 23, 2019, 
designating the Proposed Fee Increases immediately effective.\23\ The 
Fourth Proposed Rule Change was published for comment in the Federal 
Register on July 16, 2019.\24\ The Fourth 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.
---------------------------------------------------------------------------

    \23\ See Securities Exchange Act Release No. 86839 (August 30, 
2019), 84 FR 47009 (September 6, 2019) (SR-EMERALD-2019-31) (the 
``Fourth Proposed Rule Change'').
    \24\ Id.
---------------------------------------------------------------------------

    The Commission received only one comment letter on the Fourth 
Proposed Rule Change, twelve days after the comment period deadline 
ended.\25\ Of note, no member of the Exchange commented on the Fourth 
Proposed Rule Change. Also, no issuer or other person using the 
facilities of the Exchange commented on the Fourth Proposed Rule 
Change. Also, no industry group that represents members, issuers, or 
other persons using the facilities of the Exchange commented on the 
Fourth Proposed Rule Change. Also, no operator of an options market 
commented on the Fourth 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 Fourth 
Proposed Rule Change. Rather, the only comment letter came from an 
operator of a single equities market (equities market structure and 
resulting network demands are fundamentally different from those in the 
options markets),\26\ 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.
---------------------------------------------------------------------------

    \25\ See supra note 3.
    \26\ See infra pages 17 to 19 (describing the differences in 
equity market structure and options market structure).
---------------------------------------------------------------------------

    On October 22, 2019, the Exchange withdrew the Fourth Proposed Rule 
Change.\27\
---------------------------------------------------------------------------

    \27\ See SR-EMERALD-2019-31.
---------------------------------------------------------------------------

    The Exchange refiled the Proposed Fees on October 22, 2019, 
designating the Proposed Fees immediately effective.\28\ The Fifth 
Proposed Rule Change was published for comment in

[[Page 741]]

the Federal Register on November 6, 2019.\29\ The Fifth 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 Fifth Proposed 
Rule Change also addressed certain points raised in the Third IEX 
Letter.
---------------------------------------------------------------------------

    \28\ See Securities Exchange Act Release No. 87433 (October 31, 
2019), 84 FR 59878 (November 6, 2019) (SR-EMERALD-2019-35) (the 
``Fifth Proposed Rule Change'').
    \29\ Id.
---------------------------------------------------------------------------

    On December 20, 2019, the Exchange withdrew the Fifth Proposed Rule 
Change.\30\ The Exchange notes that the Fifth Proposed Rule Change did 
not receive any comment letters, however the Exchange has determined to 
refile the Proposed Fees 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 
Fees 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 Fees 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.
---------------------------------------------------------------------------

    \30\ See SR-EMERALD-2019-35.
---------------------------------------------------------------------------

    The Exchange offers to both Members and non-Members various 
bandwidth alternatives for connectivity to the Exchange, to its primary 
and secondary facilities, consisting of a 1Gb 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 also offers to both Members and non-Members various 
bandwidth alternatives for connectivity to the Exchange, to its 
disaster recovery facility, consisting of a 1Gb fiber connection and a 
10Gb connection.
    For the Shared Connections, 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 
the Exchange and its affiliates, MIAX and MIAX PEARL, via a single, 
shared connection. Any Member or non-Member can purchase a Shared 
Connection.
    For the Dedicated Connection, the Exchange's MENI is 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 the Exchange. Any Member or non-Member can 
purchase a Dedicated Connection. The Exchange determined to design its 
network architecture in a manner that offered 10Gb ULL connections as 
dedicated connections (as opposed to shared connections) in order to 
provide cost saving opportunities for itself and for its Members, by 
reducing the amount of equipment that the Exchange would have to 
purchase and to which the Members would have to connect. Accordingly, 
the Exchange is able to offer to its Members 10Gb ULL connectivity at a 
lower price point than is offered on MIAX and MIAX PEARL, the price 
difference being reflective of the lower cost to the Exchange.
    For the Shared Connections, 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, MIAX, and 
MIAX PEARL via a single, shared connection are assessed only one 
monthly network connectivity fee per connection, regardless of the 
trading platforms, market data systems, test systems, and disaster 
recovery facilities accessed via such connection. Thus, since all of 
the Members of MIAX Emerald are also members of either MIAX and/or MIAX 
PEARL, and most of those Members already have connectivity to the 
Exchange via existing Shared Connections, most Members of MIAX Emerald 
have instant connectivity to the Exchange without paying any new 
incremental connectivity fees, as more fully-detailed below.
    The Exchange proposes to establish the monthly network connectivity 
fees for such connections for both Members and non-Members. As 
discussed above, the amounts of the Proposed Fees for the Shared 
Connections are the same amounts that are currently in place at MIAX 
and MIAX PEARL. The amount of the Proposed Fee for the Dedicated 
Connection is offered at a substantial discount to the amount currently 
in place at MIAX and MIAX PEARL. The reasons for the substantial 
discount are that the Dedicated Connection offers access to only a 
single market (the Exchange), whereas the 10Gb ULL connection offered 
by MIAX and MIAX PEARL offers access to two markets (MIAX and MIAX 
PEARL), as well as cost savings the Exchange was able to achieve (and 
thus pass through to its Members) as a result of a dedicated 
architecture. The network connectivity fees for connectivity to the 
Exchange's primary/secondary facility will be as follows: (a) 1,400 for 
the 1Gb connection; and (b) $6,000 for the 10Gb ULL connection. The 
network connectivity fees for connectivity to the Exchange's disaster 
recovery facility will be as follows: (a) $550 for the 1Gb connection; 
and (b) $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 \31\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \32\ 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 \33\ in that it 
is designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general to protect 
investors and the public interest and is not designed to permit unfair 
discrimination between customer, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(4).
    \33\ 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

[[Page 742]]

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.'' \34\
---------------------------------------------------------------------------

    \34\ 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 Fees are fair, equitable and 
not unreasonably discriminatory, because the fees for the connectivity 
alternatives available on the Exchange, as proposed, 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 
Emerald as compared to the much greater number of members at other 
options exchanges (as further detailed below). MIAX Emerald is a brand 
new exchange, having only commenced operations in March 2019. Not only 
does MIAX Emerald 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 Emerald. Further, of the 
number of Members that connect directly to MIAX Emerald, many such 
Members do not purchase market data from MIAX Emerald. There are a 
number of large market makers and broker-dealers that are members of 
other options exchanges but not Members of MIAX Emerald. For example, 
the following are not Members of MIAX Emerald: 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 Emerald, 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 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 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 Emerald or its affiliates, MIAX and MIAX PEARL, they do not 
purchase connectivity to MIAX Emerald, and they do not purchase market 
data from MIAX Emerald. 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 Emerald, 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.\35\ 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 a 10Gb ULL connection. The 1Gb connection is too small to 
support those data feed products. MIAX Emerald 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.
---------------------------------------------------------------------------

    \35\ 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 Emerald and its 
affiliates. MIAX Emerald competes with eight (8) non-Members, who 
resell MIAX Emerald connectivity. These are resellers of MIAX Emerald 
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 Emerald (typically extranets and 
service bureaus). When connectivity is re-sold by a third-party, MIAX 
Emerald 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 Emerald to set its connectivity pricing as indirect 
connectivity is a substitute for direct connectivity. In fact, there 
are currently seven (7) non-Members that purchase 1Gb direct 
connectivity that are able to access MIAX Emerald, MIAX and MIAX PEARL. 
Those non-Members resell that connectivity to eight (8) customers, some 
of whom are agency broker-dealers that have tens of customers of their 
own. Some of those eight (8) customers also purchase connectivity 
directly from MIAX

[[Page 743]]

Emerald and/or its affiliates, MIAX and MIAX PEARL. Accordingly, 
indirect connectivity is a viable alternative used by non-Members of 
MIAX Emerald, constraining the price that MIAX Emerald is able to 
charge for connectivity to its Exchange.
    The Exchange,\36\ MIAX,\37\ and MIAX PEARL \38\ are comprised of 41 
distinct members amongst all three exchanges, excluding any additional 
affiliates of such members that are also members of the Exchange, MIAX, 
MIAX PEARL, or any combination thereof. Of those 41 distinct members, 
28 of those distinct members are Members of MIAX Emerald. (Currently, 
there are no Members of MIAX Emerald that are not also members of MIAX 
or MIAX PEARL, or both.) Of those 28 distinct Members of MIAX Emerald, 
there are 6 Members that have no connectivity to the Exchange. Members 
are not forced to purchase connectivity to the Exchange, and these 
Members have elected not to purchase such connectivity. Of note, these 
same 6 Members also do not have connectivity to either MIAX or MIAX 
PEARL. These Members either trade indirectly through other Members or 
non-Members that have connectivity to the Exchange, or do not trade and 
conduct another type of business on the Exchange. Of the remaining 22 
distinct Members of MIAX Emerald, all 22 of those distinct Members 
already had connectivity to the Exchange via existing Shared 
Connections, thus providing all such 22 MIAX Emerald Members with 
instant connectivity to the Exchange without paying any new incremental 
connectivity fees.
---------------------------------------------------------------------------

    \36\ The Exchange has 28 distinct Members, excluding affiliated 
entities. See MIAX Emerald Exchange Member Directory, available at 
https://www.miaxoptions.com.
    \37\ MIAX has 38 distinct Members, excluding affiliated 
entities. See MIAX Exchange Member Directory, available at https://www.miaxoptions.com.
    \38\ MIAX PEARL has 36 distinct Members, excluding affiliated 
entities. See MIAX PEARL Exchange Member Directory, available at 
https://www.miaxoptions.com.
---------------------------------------------------------------------------

    Further, of those 22 Members, 14 of such Members elected to 
purchase additional connectivity to the Exchange, including additional 
Shared Connections and additional Dedicated Connections. The Exchange 
made available in advance to all of its prospective Members its 
proposed connectivity pricing (subject to regulatory clearance), in 
order for those prospective Members to make an informed decision about 
whether to become a Member of the Exchange and whether to purchase 
connectivity to the Exchange. Accordingly, each such Member made the 
decision to become a Member of the Exchange and to purchase 
connectivity to the Exchange, knowing in advance the connectivity 
pricing. And the vast majority of the additional connectivity purchased 
by those Members were for Dedicated Connections, the most expensive 
connectivity option.
    As a result, of those 22 Members, through existing Shared 
Connections, newly purchased Shared Connections, and newly purchased 
Dedicated Connections: 14 Members have 1Gb (primary/secondary) 
connections; 13 Members have 10Gb ULL (primary/secondary) connections; 
3 Members have 10Gb (disaster recovery) connections; and 10 Members 
have 1Gb (disaster recovery) connections, or some combination of 
multiple various connections. All such Members with those Shared 
Connections and Dedicated Connections trade on MIAX Emerald.
    The 6 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 6 
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.
    In addition, there are 5 non-Member service bureaus that already 
have connectivity to the Exchange via existing Shared Connections, thus 
providing all 5 of those non-Member service bureaus with instant 
connectivity to the Exchange without paying any new incremental 
connectivity fees. These non-Members freely purchased their 
connectivity from one of the Exchange's affiliates, either MIAX or MIAX 
PEARL, 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.
    The Exchange believes that the Proposed Fees 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 two 
direct connectivity alternatives and various indirect connectivity (via 
third-party) alternatives, as described above. MIAX Emerald 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 ULL 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 Emerald, MIAX and 
MIAX PEARL Members that connect (15 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 Fees 
($6,000 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 pay 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. 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. 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 1Gb connection. This lower latency is achieved 
through more advanced network equipment, such as advanced hardware and 
switching components, which translates

[[Page 744]]

to increased costs to the Exchange. The Exchange made a decision to not 
offer 10Gb connections, like its affiliates MIAX and MIAX PEARL, offer 
for business reasons.
    The Exchange launched trading on March 1, 2019. Thus, at the time 
that the 14 Members who elected to purchase connectivity to the 
Exchange, the Exchange was untested and unproven, and had 0% market 
share of the U.S. options industry. With respect to options trading, 
the Exchange had only a 0.92% market share of the U.S. options industry 
in November 2019 in Equity/Exchange Traded Fund (``ETF'') classes 
according to the OCC.\39\ For November 2019, the Exchange's affiliate, 
MIAX, had only 4.32% market share of the U.S. options industry in 
Equity/ETF classes according to the OCC.\40\ For November 2019, the 
Exchange's affiliate, MIAX PEARL, had only 4.78% market share of the 
U.S. options industry in Equity/ETF classes according to the OCC.\41\ 
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. 
Certainly, an untested and unproven exchange, with less than 1% market 
share in any month, and no rule or requirement that a market 
participant must join or connect to it, does not have anti-competitive 
pricing power, with respect to setting the pricing for the Dedicated 
Connections or the Shared Connections. If the Exchange were to attempt 
to establish unreasonable connectivity pricing, then no market 
participant would join or connect. Therefore, since 28 distinct Members 
joined MIAX Emerald and 14 of those distinct Members purchased 
additional connectivity to the Exchange, all knowing, in advance, the 
connectivity fees, the Exchange believes the Proposed Fees are 
reasonable, equitable, and not unfairly discriminatory.
---------------------------------------------------------------------------

    \39\ See Exchange Market Share of Equity Products--2019, The 
Options Clearing Corporation, available at https://www.theocc.com/webapps/exchange-volume.
    \40\ Id.
    \41\ 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 Emerald 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).\42\ 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.
---------------------------------------------------------------------------

    \42\ 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 are proposing to access the Exchange indirectly through 
another market participant. To illustrate, the Exchange has only 34 
total Members (including all such Members' affiliate Members). However, 
Cboe Exchange, Inc. (``Cboe'') has over 200 members,\43\ Nasdaq ISE, 
LLC has approximately 100 members,\44\ and NYSE American LLC has over 
80 members.\45\ If all market participants were required to be Members 
of the Exchange and connect directly to the Exchange, the Exchange 
would have over 200 Members, in line with Cboe's total membership. But 
it does not. The Exchange only has 34 Members.
---------------------------------------------------------------------------

    \43\ 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).
    \44\ See Form 1/A, filed July 1, 2016 (https://www.sec.gov/Archives/edgar/vprr/1601/16019243.pdf).
    \45\ See https://www.nyse.com/markets/american-options/membership#directory.
---------------------------------------------------------------------------

    Further, since there are 41 distinct members amongst all three 
exchanges, and only 28 of those distinct members decided to become 
Members of MIAX Emerald, there were 13 distinct members that decided 
not to become Members of MIAX Emerald. This further reinforces the fact 
that all market participants are not required to be Members of the 
Exchange and are not required to connect to the Exchange. It is a 
choice whether to join and it is a choice to connect. Therefore, the 
Exchange believes that the Proposed Fees are fair, equitable, and non-
discriminatory, as the fees are competitive.
    With respect to the now MIAX Emerald Members that had Shared 
Connections in place as of August 1, 2018 (via a previously purchased 
Shared Connection from MIAX or MIAX PEARL), the Exchange finds it 
compelling that all of those Members continued to purchase those Shared 
Connections after August 1, 2018, when MIAX and MIAX PEARL increased 
the connectivity fees for the Shared Connections to the current amounts 
proposed by the Exchange herein. In particular, the Exchange believes 
that the Proposed Fees for the Shared Connections are reasonable 
because MIAX and MIAX PEARL, which charge the same amount for the 
Shared Connections, did not lose any Members (or the number of Shared 
Connections each Member purchased) or non-Member Shared Connections 
when MIAX and MIAX PEARL proposed to increase the connectivity fees for 
the Shared Connections on August 1, 2018. For example, with respect to 
the Shared Connections maintained by now Members of MIAX Emerald who 
had Shared Connections in place as of July 2018, 12 Members purchased 
1Gb connections. The vast majority of those Members purchased multiple 
such connections, the number of connections depending on their 
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 12 Members 
purchased 1Gb connections. Furthermore, the total number of connections 
did not decrease from July to August.
    Further, with respect to the Shared Connections maintained by now 
Members of MIAX Emerald who had Shared Connections in place as of July 
2018, of those Members and non-Members that bought multiple 
connections, no firm dropped any

[[Page 745]]

connections beginning August 1, 2018, when MIAX and MIAX PEARL 
increased its fees. Furthermore, the Exchange understands that MIAX and 
MIAX PEARL did not receive any official comment letters or complaints 
from any now Members of MIAX Emerald who had Shared Connections in 
place as of July 2018 regarding the increased fees regarding how the 
change 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),\46\ 
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 Fees are fair, equitable, and non-
discriminatory, as the fees are competitive.
---------------------------------------------------------------------------

    \46\ See supra note 42.
---------------------------------------------------------------------------

    The Exchange believes that the Proposed Fees are equitably 
allocated among Members and non-Members, as evidenced by the fact that 
the fees 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--14 
Members have 1Gb (primary/secondary) connections; 14 Members have 10Gb 
ULL (primary/secondary) connections; 3 Members have 10Gb (disaster 
recovery) connections; and 11 Members have 1Gb (disaster recovery) 
connections, or some combination of multiple various connections.
    The Exchange further believes that the Proposed Fees, 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, Exchange: (i) Members and non-Members that 
purchased 10Gb ULL connections accounted for approximately 95% of the 
total network connectivity revenue collected by the Exchange from all 
connectivity alternatives; and (ii) Members and non-Members that 
purchased 1Gb connections accounted for approximately 5% of the revenue 
collected by the Exchange from all connectivity alternatives. (The 
Exchange notes that it does not offer a 10Gb connectivity alternative.) 
As described above, the Exchange believes the Proposed Fees are 
equitably allocated because 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 network connectivity alternatives, as the 
users of the 10Gb ULL connections consume the most bandwidth and 
resources of the network. Specifically, the Exchange notes that these 
users account for approximately greater than 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 ULL users. The Exchange's high performance network solutions and 
supporting infrastructure (including employee support), provides 
unparalleled system throughput and the capacity to handle approximately 
18 million quote messages per second. On an average day, the Exchange 
handles approximately 3,000,000,500,000 total messages. Of those, users 
of the 10Gb ULL connections generate approximately 3 billion messages, 
and users of the 1Gb connections generate 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 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 ULL users.
    The Exchange also believes that the connectivity fees are equitably 
allocated amongst users of the network connectivity alternatives, when 
these fees are viewed in the context of the overall trading volume on 
the Exchange. To illustrate, the purchasers of the 10Gb ULL 
connectivity account for approximately 75% of the volume on the 
Exchange. For example, for all of November 2019, 2.5 million contracts 
of the 3.3 million contracts executed were done by the top market 
making firms on the Exchange in simple (non-complex) volume. This 
overall volume percentage (75% of total Exchange volume) is in line 
with the amount of network connectivity revenue collected from 10Gb ULL 
purchasers (95% 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 ULL network 
connection. Pursuant to its extensive cost review described above, the 
Exchange believes that the average cost to provide a 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 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 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 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

[[Page 746]]

continuously quote over 750,000 distinct trading products (per 
exchange), and the capacity to handle approximately 18 million quote 
messages per second. The ``premium-product'' network experience enables 
users of 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 
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 Fees will permit recovery of 
the Exchange's costs and will not result in excessive or supra-
competitive profit. The Proposed Fees will allow the Exchange to 
recover a portion (less than all) of the costs incurred by the Exchange 
associated with providing and maintaining the necessary hardware and 
other infrastructure as well as network monitoring and support services 
in order to provide the network connectivity services. The Exchange 
believes that it is reasonable and appropriate to establish its fees 
charged for use of its connectivity at a level that will partially 
offset the costs to the Exchange associated with maintaining and 
enhancing a state-of-the-art exchange network infrastructure in the 
U.S. options industry.
    The costs associated with making the network accessible to Exchange 
Members and non-Members, through the expansion associated with new 
Shared Connections and Dedicated Connections, as well as the general 
expansion of a state-of-the-art infrastructure, are extensive, have 
increased year-over-year in the past two years, and are projected to 
increase year-over-year in the future. This is due to several factors, 
including costs associated with maintaining and expanding a team of 
highly-skilled network engineers, 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 
costs, the Exchange notes that costs are associated with the 
infrastructure and headcount to fully-support the advances in 
infrastructure and expansion of network level services, including 
customer monitoring, alerting and reporting. The Exchange incurs 
technology expenses related to establishing and maintaining Information 
Security services, enhanced network monitoring and customer reporting, 
as well as Regulation SCI mandated processes, associated with its 
network technology. Additionally, the Exchange incurred costs in the 
expansion/buildout of the network leading up to the launch of 
operations, and the network maintenance costs continue to increase 
year-over-year. While some of the expense is fixed, much of the expense 
is not fixed, and thus increases as the number of connections increase. 
For example, new 1Gb 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 Emerald 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 Emerald 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 Emerald and its affiliates is not 
entirely fixed. Just the initial fixed cost buildout of the network 
infrastructure of MIAX Emerald and its affiliates, including both 
primary/secondary sites and disaster recovery, was over $30 million.
    A more detailed breakdown of the expense increases since the 
initial phases of the buildout of the Exchange over two years ago 
include the following: With respect to the network, there has been 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 datacenter 
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 cost, this is the cost 
associated with MIAX Emerald consuming connectivity/content from the 
equities markets in order to operate the Exchange, causing MIAX Emerald 
to effectively pay its competitors for this connectivity.
    There was also significant capital expenditures over this same 
period to upgrade and enhance the underlying technology components. The 
Exchange believes that it is reasonable and appropriate to establish 
its fees charged for use of its connectivity at a level that will 
partially offset the costs to the Exchange associated with the 
buildout, maintenance, and enhancement of its network infrastructure.
    Further, because the costs of operating a data center are 
significant and not economically feasible for the Exchange, the 
Exchange does not operate its own data centers, and instead contracts 
with a third-party data center provider. The Exchange notes that 
larger, dominant exchange operators own/operate their data centers, 
which offers them greater control over their data center costs. Because 
those exchanges own and operate their data centers as profit centers, 
the Exchange is subject to additional costs. Connectivity fees, which 
are charged for accessing the Exchange's data center network 
infrastructure, are directly related to the network and offset costs 
such costs.
    Further, the Exchange invests significant resources in network R&D 
to improve the overall performance and stability of its network. For 
example, the Exchange has a number of network monitoring tools (some of 
which were developed in-house, and some of which are licensed from 
third-parties), that continually monitor, detect, and report network 
performance, many of which serve as significant value-adds to the 
Exchange's Members and enable the Exchange to provide a high level of 
customer service. These tools detect and report performance issues, and 
thus enable the Exchange to proactively notify a Member (and the SIPs) 
when the Exchange detects a problem with a Member's connectivity. In 
fact, the Exchange often receives inquiries 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 inquiries 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 
Exchange also incurs costs associated with the maintenance

[[Page 747]]

and improvement of existing tools and the development of new tools.
    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, routine 
R&D projects to improve the performance of the network's hardware 
infrastructure result in additional cost. As an example, in the last 
year, 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 also increases year-over-
year, and thus the Exchange believes that it is reasonable to offset a 
portion of those costs through establishing network connectivity fees, 
which are designed to recover those costs, as proposed herein. Overall, 
the Proposed Fees are projected to offset only a portion of the 
Exchange's network connectivity costs. 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. In fact, the Exchange often 
receives inquiries 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 inquiries 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. 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 constitute 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 Fees are fair and reasonable because they will not 
result in excessive pricing or supra-competitive profit, when comparing 
the total annual expense of MIAX Emerald associated with providing 
network connectivity services versus the total projected annual revenue 
of the Exchange associated with providing network connectivity 
services. For 2018, the total annual expense associated with providing 
network connectivity services for MIAX Emerald was approximately $4.7 
million. The $4.7 million in total annual expense is comprised of the 
following, all of which are directly related to the provision of 
network connectivity services by MIAX Emerald to its respective Members 
and non-Members: (1) Third-party expense, relating to fees paid by MIAX 
Emerald to third-parties for certain products and services; and (2) 
internal expense, relating to the internal costs of MIAX Emerald to 
provide the network connectivity services. All such expenses are more 
fully-described below, and are mapped to MIAX Emerald's 2018 Statements 
of Operations and Member's Deficit (the ``2018 Financial Statements''). 
The $4.7 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 18 
million quote messages per second. The ``premium-product'' network 
experience enables users of 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.\47\
---------------------------------------------------------------------------

    \47\ See Third IEX Letter, pg. 5.
---------------------------------------------------------------------------

    For 2018, total third-party expense, relating to fees paid by MIAX 
Emerald to third-parties for certain products and services for the 
Exchange to be able to provide network connectivity services, was 
$728,246. 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 Emerald trading 
system infrastructure; (2) Zayo Group Holdings, Inc. (``Zayo'') for 
connectivity services (fiber and bandwidth connectivity) linking MIAX 
Emerald's office locations in Princeton, NJ and Miami, FL to all data 
center locations; (3) Secure Financial Transaction Infrastructure 
(``SFTI''),\48\ 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

[[Page 748]]

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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    \48\ 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.
---------------------------------------------------------------------------

    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 Emerald does not allocate its 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 the internet, fiber 
and bandwidth connections with respect to the network, linking MIAX 
Emerald with its affiliates, MIAX PEARL and MIAX, 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 17% 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 Emerald to provide the network connectivity services, was 
$4,031,491. 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 connectivity for trading; 
and (3) occupancy costs for leased office space for staff that support 
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 Emerald does not allocate its 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

[[Page 749]]

described above towards the total cost to the Exchange to operate and 
support the network, including providing network connectivity services. 
In particular, MIAX Emerald's employee compensation and benefits 
expense relating to providing network connectivity services was 
$3,262,226, which is only a portion of the $10,193,837 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 32% 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 Emerald's depreciation and amortization expense relating to 
providing network connectivity services was $416,807, which is only a 
portion of the $616,785 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, 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 68% 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 Emerald's occupancy expense relating to providing network 
connectivity services was $352,458, which is only a portion of the 
$732,720 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.
    The total projected MIAX Emerald revenue for providing network 
connectivity services, on a full year run rate, is $3.0 million. 
However, since MIAX Emerald was launched on March 1, 2019, it did not 
start collecting revenue for network connectivity services until March 
1, 2019. Thus, for 2018, MIAX Emerald's expense for providing network 
connectivity services was approximately $4.7 million, while its revenue 
for providing network connectivity services was $0. For 2019, MIAX 
Emerald projects 10 full months of revenue for network connectivity 
services (March 1-December 31), of $2.5 million, however it also 
projects increased expense for providing network connectivity services 
for 2019, as compared to 2018. Nevertheless, utilizing 2018 expense 
figures, for 2019, MIAX Emerald's expense for providing network 
connectivity services would be approximately $4.7 million, while its 
revenue for providing network connectivity services would be $2.5 
million. On a fully annualized basis, utilizing 2018 expense figures 
and 2019 projected revenue extrapolated out to a full year run rate, 
MIAX Emerald's expense for providing network connectivity services 
would be approximately $4.7 million, while its revenue for providing 
network connectivity services would be $3 million. Accordingly, for 
both 2018 and 2019, the total MIAX Emerald projected revenue for 
providing network connectivity services during 2018 ($0) and during 
2019 ($2.5 million) is less than total actual and projected MIAX 
Emerald expense for providing network connectivity services for 2018 
($4.7 million) and 2019 (greater than $4.7 million).
    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 Emerald. Stated 
differently, no expense amount of the Exchange is allocated twice.

[[Page 750]]

    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 also believes its proposal to offer 10Gb ULL 
connections as dedicated connections furthers the objectives of Section 
6(b)(5) of the Act \49\ in that it is designed to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general to protect investors and the public interest and is not 
designed to permit unfair discrimination between customer, issuers, 
brokers and dealers. In particular, for the Dedicated Connection, the 
Exchange's MENI is 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 the 
Exchange. Any Member or non-Member can purchase a Dedicated Connection. 
The Exchange determined to design its network architecture in a manner 
that offered 10Gb ULL connections as dedicated connections (as opposed 
to shared connections) in order to provide cost saving opportunities 
for itself and for its Members, by reducing the amount of equipment 
that the Exchange would have to purchase and to which the Members would 
have to connect. A dedicated 10Gb ULL connection does not offer any 
unfair advantage over a shared 10GB ULL connection, as is being offered 
solely as a cost-saving measure to the Exchange and its Members.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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.\50\ The 
Exchange further notes that Phlx, ISE, Arca and NYSE American each 
charge higher rates for such similar connectivity to primary and 
secondary facilities,\51\ however the Exchange also notes that the 
Exchange's 10Gb ULL connection is dedicated solely to one market (the 
Exchange) whereas the Exchange believes that other exchanges offer a 
shared 10Gb ULL connection to multiple markets. While MIAX Emerald's 
proposed connectivity fees are substantially lower than the fees 
charged by Phlx, ISE, Arca and NYSE American, MIAX Emerald believes 
that it offers significant value to Members over other exchanges in 
terms of network monitoring and reporting, which MIAX Emerald 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.\52\
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    \50\ 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.
    \51\ Id.
    \52\ See Nasdaq ISE, Options Rules, Options 7, Pricing Schedule, 
Section 11.D. (charging $3,000 for disaster recovery testing & 
relocation services); see also Cboe Exchange, Inc. (``Cboe'') Fees 
Schedule, p. 14, Cboe Command Connectivity Charges (charging a 
monthly fee of $2,000 for a 1Gb disaster recovery network access 
port and a monthly fee of $6,000 for a 10Gb disaster recovery 
network access port).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule 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 Fees 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 Fees 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 Fees do not favor certain categories 
of market participants in a manner that would impose a burden on 
competition; rather, the allocation of the Proposed Fees 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 Fees do not place an undue 
burden on competition on other SROs that is not necessary or 
appropriate. In particular, options market participants are not

[[Page 751]]

forced to connect to (and purchase market data from) all options 
exchanges, as shown by the number of Members of the Exchange as 
compared to the much greater number of members at other options 
exchanges (as described above). Not only does MIAX Emerald 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 Emerald. There are a number of large market makers and 
broker-dealers that are members of other options exchange but not 
Members of MIAX Emerald. Additionally, other exchanges have similar 
connectivity alternatives for their participants, including similar 
low-latency connectivity, but with much higher rates to connect.\53\ 
The Exchange is also unaware of any assertion that its existing fee 
levels or the Proposed Fees 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.
---------------------------------------------------------------------------

    \53\ See supra note 50.
---------------------------------------------------------------------------

    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,\54\ and Rule 19b-4(f)(2) \55\ 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.
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \55\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-EMERALD-2019-39 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EMERALD-2019-39. 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-EMERALD-2019-39 and should be submitted 
on or before January 28, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\56\
---------------------------------------------------------------------------

    \56\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------


J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28537 Filed 1-6-20; 8:45 am]
 BILLING CODE 8011-01-P

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