Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend Its Fee Schedule To Adopt a Monthly Trading Permit Fees, 80864-80871 [2020-27393]
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Federal Register / Vol. 85, No. 240 / Monday, December 14, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27387 Filed 12–11–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90601; File No. SR–
EMERALD–2020–18]
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change to Amend Its Fee
Schedule To Adopt a Monthly Trading
Permit Fees
December 8, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b-4 thereunder,2
notice is hereby given that on November
27, 2020, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Emerald Fee Schedule
(the ‘‘Fee Schedule’’) to establish
monthly Trading Permit 3 fees for
Exchange Members.4
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.
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
11 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
3 The term ‘‘Trading Permit’’ means a permit
issued by the Exchange that confers the ability to
transact on the Exchange. See Exchange Rule 100.
4 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 and the Definitions Section of
the Fee Schedule.
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concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to adopt monthly Trading
Permit fees (the ‘‘Proposed Access
Fees’’) depending on the Member’s
status as either an Electronic Exchange
Member (‘‘EEM’’) 5 or as a Market
Maker.6 MIAX Emerald commenced
operations as a national securities
exchange registered under Section 6 of
the Act 7 on March 1, 2019.8 The
Exchange adopted its transaction fees
and certain of its non-transaction fees in
its filing SR–EMERALD–2019–15.9 In
that filing, the Exchange expressly
waived, among other fees, the Proposed
Access Fees, to provide an incentive to
prospective EEMs and Market Makers to
become Members of the Exchange.
Accordingly, since the launch of the
Exchange, all such membership fees
have been waived for the Waiver
Period.10 When the Exchange adopted
the framework for its fees, it stated that
it would provide notice to market
5 ‘‘Electronic Exchange Member’’ or ‘‘EEM’’
means the holder of a Trading Permit who is not
a Market Maker. Electronic Exchange Members are
deemed ‘‘members’’ under the Exchange Act. See
Exchange Rule 100 and the Definitions Section of
the Fee Schedule.
6 The term ‘‘Market Makers’’ refers to ‘‘Lead
Market Makers’’, ‘‘Primary Lead Market Makers’’
and ‘‘Registered Market Makers’’ collectively. See
Exchange Rule 100 and the Definitions Section of
the Fee Schedule.
7 15 U.S.C. 78f.
8 See Securities Exchange Act Release No. 84891
(December 20, 2018), 83 FR 67421 (December 28,
2018) (File No. 10–233) (order approving
application of MIAX Emerald, LLC for registration
as a national securities exchange).
9 See Securities Exchange Act Release No. 85393
(March 21, 2019), 84 FR 11599 (March 27, 2019)
(SR–EMERALD–2019–15) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Establish the MIAX Emerald Fee Schedule).
10 ‘‘Waiver Period’’ means, for each applicable
fee, the period of time from the initial effective date
of the MIAX Emerald Fee Schedule until such time
that the Exchange has an effective fee filing
establishing the applicable fee. The Exchange will
issue a Regulatory Circular announcing the
establishment of an applicable fee that was subject
to a Waiver Period at least fifteen (15) days prior
to the termination of the Waiver Period and
effective date of any such applicable fee. See the
Definitions Section of the Fee Schedule.
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participants when the Exchange
intended to terminate the Waiver Period
for the Proposed Access Fees.
Accordingly, on September 15, 2020,
the Exchange issued a Regulatory
Circular which announced that the
Exchange would be ending the Waiver
Period for the Proposed Access Fees,
among other non-transaction fees,
beginning October 1, 2020.11
The Exchange initially filed its
proposal to establish the Proposed
Access Fees on October 1, 2020.12 The
First Proposed Rule Change was
published for comment in the Federal
Register on October 21, 2020.13 On
November 25, 2020, the Exchange
withdrew the First Proposed Rule
Change and refiled its proposal to
establish monthly Trading Permit fees.14
Trading Permits are issued to
Members who are either EEMs or
Market Makers. The Exchange proposes
to assess the Proposed Access Fees
depending upon the category of Member
that is issued a Trading Permit.
Members issued Trading Permits during
a calendar month will be assessed
monthly Trading Permit Fees. The
Exchange notes that the Exchange’s
affiliate, Miami International Securities
Exchange, LLC (‘‘MIAX’’), charges a
similar, fixed trading permit fee to its
EEMs, and a similar, varying trading
permit fee to its Market Makers, based
upon the number of assignments of
option classes or the percentage of
volume in option classes.15
The Exchange proposes that monthly
Trading Permit fees will be assessed,
with respect to the calculation of such
fee to EEMs (other than clearing firms),
in any month the EEM is certified in the
membership system and is credentialed
to use one or more Financial
Information Exchange (‘‘FIX’’) 16 ports
11 See MIAX Emerald Regulatory Circular 2020–
41 available at https://www.miaxoptions.com/sites/
default/files/circular-files/MIAX_Emerald_RC_
2020_41.pdf.
12 See Securities Exchange Act Release Nos.
90196 (October 15, 2020), 85 FR 67064 (October 21,
2020) (SR–EMERALD–2020–11) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule
Change To Amend Its Fee Schedule To Adopt OneTime Membership Application Fees and Monthly
Trading Permit Fees) (the ‘‘First Proposed Rule
Change’’). The Exchange notes that it will refile its
proposal to establish the one-time membership
application fee in a separate filing.
13 See id.
14 See Comment Letter from Joseph W. Ferraro III,
SVP, Deputy General Counsel, the Exchange, dated
November 20, 2020, notifying the Commission that
the Exchange will withdraw the First Proposed Rule
Change.
15 See the MIAX Fee Schedule, Section 3)b).
16 ‘‘FIX Port’’ means an interface with MIAX
Emerald systems that enables the Port user to
submit simple and complex orders electronically to
MIAX Emerald. See the Definitions Section of the
Fee Schedule.
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in the production environment. Further,
the Exchange proposes that monthly
Trading Permit fees will be assessed
with respect to EEM clearing firms in
any month the clearing firm is certified
in the membership system to clear
transactions on the Exchange.
The Exchange proposes to assess
EEMs a monthly fee of $1,000 for each
Trading Permit. Below is the proposed
table showing the Trading Permit fees
for EEMs:
Type of trading permit
Monthly MIAX
Emerald trading
permit fee
Electronic Exchange Member .................................
$1,000.00
The Exchange proposes to assess
monthly Trading Permit fees for Market
Makers in any month the Market Maker
(including a Registered Market Maker,
Lead Market Maker, and Primary Lead
Market Maker) is certified in the
membership system, is credentialed to
use one or more MIAX Emerald Express
Interface (‘‘MEI’’) 17 ports in the
production environment and is assigned
to quote in one or more classes.
Specifically, the Exchange proposes to
adopt the following Trading Permit fees
for Market Makers: (i) $7,000 for Market
Maker Assignments in up to 10 option
classes or up to 20% of option classes
by national average daily volume
(‘‘ADV’’); (ii) $12,000 for Market Maker
Assignments in up to 40 option classes
or up to 35% of option classes by ADV;
(iii) $17,000 for Market Maker
Assignments in up to 100 option classes
or up to 50% of option classes by ADV;
and (iv) $22,000 for Market Maker
Assignments in over 100 option classes
or over 50% of option classes by ADV
up to all option classes listed on MIAX
Emerald.
The Exchange also proposes to adopt
an alternative lower Trading Permit fee
for Market Makers who fall within the
following Trading Permit fee levels,
Monthly MIAX
Emerald trading
permit fee
Type of trading permit
Market Maker (includes RMM, LMM, PLMM) .....
$7,000.00
12,000.00
D 17,000.00
D 22,000.00
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which represent the 3rd and 4th levels
of the Market Maker Trading Permit fee
table: (i) Market Maker Assignments in
up to 100 option classes or up to 50%
of option classes by volume; and (ii)
Market Maker Assignments in over 100
option classes or over 50% of option
classes by volume up to all option
classes listed on MIAX Emerald.
Specifically, the Exchange proposes to
adopt footnote ‘‘D’’ following the Market
Maker Trading Permit fee table for these
Monthly Trading Permit tier levels, if
the Market Maker’s total monthly
executed volume during the relevant
month is less than 0.025% of the total
monthly executed volume reported by
OCC in the customer account type for
MIAX Emerald—listed option classes
for that month, then the fee will be
$15,500 instead of the fee otherwise
applicable to such level.
Below is the proposed table showing
the Trading Permit fees for Market
Makers:
Market maker assignments (the lesser of the applicable measurements
below)
Per class
Percent of national average daily volume
Up to 10 Classes .........
Up to 40 Classes .........
Up to 100 Classes .......
Over 100 Classes ........
Up to 20% of Classes by volume.
Up to 35% of Classes by volume.
Up to 50% of Classes by volume.
Over 50% of Classes by volume up to all
Classes listed on MIAX Emerald.
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D For these Monthly MIAX Emerald Trading Permit tier levels, if the Market Maker’s total monthly executed volume during the relevant month is
less than 0.025% of the total monthly executed volume reported by OCC in the customer account type for MIAX Emerald-listed option classes for
that month, then the fee will be $15,500 instead of the fee otherwise applicable to such level.
For the calculation of the monthly
Market Maker Trading Permit fees, the
number of classes is defined as the
greatest number of classes the Market
Maker was assigned to quote in on any
given day within the calendar month
and the class volume percentage is
based on the total national ADV in
classes listed on MIAX Emerald in the
prior calendar quarter. Newly listed
option classes are excluded from the
calculation of the monthly Market
Maker Trading Permit fee until the
calendar quarter following their listing,
at which time the newly listed option
classes will be included in both the per
class count and the percentage of total
national average daily volume. The
Exchange proposes to assess MIAX
Emerald Market Makers the monthly
Market Maker Trading Permit fee based
on the greatest number of classes listed
on MIAX Emerald that the Market
Maker was assigned to quote in on any
given day within a calendar month and
the applicable fee rate that is the lesser
of either the per class basis or
percentage of total national ADV
measurement.
The purpose of the alternative lower
fee designated in proposed footnote ‘‘D’’
is to provide a lower fixed cost to those
Market Makers who are willing to quote
the entire Exchange market (or
substantial amount of the Exchange
market), as objectively measured by
either number of classes assigned or
national ADV, but who do not otherwise
execute a significant amount of volume
on the Exchange. The Exchange believes
that, by offering lower fixed costs to
Market Makers that execute less volume,
the Exchange will retain and attract
smaller-scale Market Makers, which are
an integral component of the option
marketplace, but have been decreasing
in number in recent years, due to
industry consolidation and lower
market maker profitability. Since these
smaller-scale Market Makers utilize less
Exchange capacity due to lower overall
volume executed, the Exchange believes
it is reasonable and equitable to offer
such Market Makers a lower fixed cost.
The Exchange notes that the Exchange’s
affiliate, MIAX, provides a similar
alternative lower Trading Permit fee for
Market Makers who quote the entire
MIAX market (or substantial amount of
the MIAX market), as objectively
measured by either number of classes
assigned or national ADV, but who do
not otherwise execute a significant
17 The MEI is a connection to the MIAX Emerald
System that enables Market Makers to submit
simple and complex electronic quotes to MIAX
Emerald. The Exchange offers Full Service MEI
Ports, which provide Market Makers with the
ability to send Market Maker simple and complex
quotes, eQuotes, and quote purge messages to the
MIAX Emerald System. Full Service MEI Ports are
also capable of receiving administrative
information. Market Makers are limited to two Full
Service MEI Ports per Matching Engine. The
Exchange also offers Limited Service MEI Ports,
which provide Market Makers with the ability to
send simple and complex eQuotes and quote purge
messages only, but not Market Maker Quotes, to the
MIAX Emerald System. Limited Service MEI Ports
are also capable of receiving administrative
information. Market Makers initially receive two
Limited Service MEI Ports per Matching Engine.
See the Definitions Section of the Fee Schedule.
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amount of volume on MIAX.18 The
Exchange also notes that other options
exchanges assess certain of their
membership fees at different rates,
based upon a member’s participation on
that exchange,19 and, as such, this
concept is not new or novel. The
proposed changes to the Trading Permit
fees for Market Makers who fall within
the 3rd and 4th levels of the fee table
are based upon a business
determination of current Market Maker
assignments and trading volume.
MIAX Emerald believes that
exchanges, in setting fees of all types,
should meet very high standards of
transparency to demonstrate why each
new fee or fee increase meets the
requirements of the Act that fees be
reasonable, equitably allocated, not
unfairly discriminatory, and not create
an undue burden on competition among
members and markets. MIAX Emerald
believes this high standard is especially
important when an exchange imposes
various access fees for market
participants to access an exchange’s
marketplace. MIAX Emerald deems
Trading Permit fees to be access fees.
The Exchange believes that it is
important to demonstrate that these fees
are based on its costs and reasonable
business needs. Accordingly, the
Exchange believes the Proposed Access
Fees will allow the Exchange to offset
expense the Exchange has and will
incur, and that the Exchange is
providing sufficient transparency (as
described below) into how the Exchange
determined to charge such fees.
Accordingly, the Exchange is providing
an analysis of its revenues, costs, and
profitability (before the proposed
changes), and the Exchange’s revenues,
costs, and profitability (following the
proposed changes) for the Proposed
Access Fees. This analysis includes
18 See
supra note 15.
e.g., NYSE Arca Options Fees and Charges,
p.1 (assessing market makers $6,000 for up to 175
option issues, an additional $5,000 for up to 350
option issues, an additional $4,000 for up to 1,000
option issues, an additional $3,000 for all option
issues on the exchange, and an additional $1,000
for the fifth trading permit and for each trading
permit thereafter); NYSE American Options Fee
Schedule, p. 23 (assessing market makers $8,000 for
up to 60 plus the bottom 45% of option issues, an
additional $6,000 for up to 150 plus the bottom
45% of option issues, an additional $5,000 for up
to 500 plus the bottom 45% of option issues, and
additional $4,000 for up to 1,100 plus the bottom
45% of option issues, an additional $3,000 for all
issues traded on the exchange, and an additional
$2,000 for 6th to 9th ATPs; plus an addition fee for
premium products). See also Cboe BZX Options
Exchange (‘‘BZX Options’’) assesses the Participant
Fee, which is a membership fee, according to a
member’s ADV. See Cboe BZX Options Exchange
Fee Schedule under ‘‘Membership Fees’’. The
Participant Fee is $500 if the member ADV is less
than 5000 contracts and $1,000 if the member ADV
is equal to or greater than 5000 contracts. Id.
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19 See
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information regarding its methodology
for determining the costs and revenues
associated with the Proposed Access
Fees.
In order to determine the Exchange’s
costs associated with providing the
Proposed Access Fees, 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
Proposed Access Fees, and, if such
expense did so relate, what portion (or
percentage) of such expense actually
supports the services included in the
Proposed Access Fees. The sum of all
such portions of expenses represents the
total cost of the Exchange to provide the
Proposed Access Fees. For the
avoidance of doubt, no expense amount
was allocated twice. The Exchange is
also providing detailed information
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 the Proposed
Access Fees.
In order to determine the Exchange’s
projected revenues associated with
providing the Proposed Access Fees, the
Exchange analyzed the number of
Members currently utilizing the
Exchange’s services associated with the
Proposed Access Fees during 2020, and,
utilizing a recently completed monthly
billing cycle, extrapolated annualized
revenue on a going-forward basis.
The Exchange is presenting its
revenue and expense associated with
the Proposed Access Fees in this filing
in a manner that is consistent with how
the Exchange presents its revenue and
expense in its Audited Unconsolidated
Financial Statements. The Exchange’s
most recent Audited Unconsolidated
Financial Statement is for 2019.
However, since the revenue and
expense associated with the Proposed
Access Fees were not in place in 2019
or for the first three quarters of 2020, the
Exchange believes its 2019 Audited
Unconsolidated Financial Statement is
not useful for analyzing the
reasonableness of the total annual
revenue and costs associated with the
Proposed Access Fees. Accordingly, the
Exchange believes it is more appropriate
to analyze the Proposed Access Fees
utilizing its 2020 actual (for the first 9
months) and projected (for the final 3
months) revenue and costs, as described
herein, which utilize the same
presentation methodology as set forth in
the Exchange’s previously-issued
Audited Unconsolidated Financial
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Statements. Based on this analysis, the
Exchange believes that the Proposed
Access Fees are fair and reasonable
because they will not result in excessive
pricing or supra-competitive profit
when comparing the Exchange’s total
annual expense associated with
providing the services associated with
the Proposed Access Fees versus the
total projected annual revenue the
Exchange will collect for providing
those services.
*
*
*
*
*
On March 29, 2019, the Commission
issued its Order Disapproving Proposed
Rule Changes to Amend the Fee
Schedule on the BOX Market LLC
Options Facility to Establish BOX
Connectivity Fees for Participants and
Non-Participants Who Connect to the
BOX Network (the ‘‘BOX Order’’).20 On
May 21, 2019, the Commission issued
the Staff Guidance on SRO Rule Filings
Relating to Fees.21 Accordingly, the
Exchange believes that the Proposed
Access 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
comprehensive revenue and cost data
and analysis) that they are fair and
reasonable because they not result in
excessive pricing or supra-competitive
profit; and (iv) utilize a cost-based
justification framework that is
substantially similar to a framework
previously used by the Exchange to
establish other non-transaction fees.
Accordingly, the Exchange believes that
the Commission should find that the
Proposed Access 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.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 22
in general, and furthers the objectives of
Section 6(b)(4) of the Act 23 in
particular, in that it is an equitable
allocation of reasonable dues, fees and
other charges among its members and
20 See Securities Exchange Act Release No. 85459
(March 29, 2019), 84 FR 13363 (April 4, 2019) (SR–
BOX–2018–24, SR–BOX–2018–37, and SR–BOX–
2019–04).
21 See 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’’).
22 15 U.S.C. 78f(b).
23 15 U.S.C. 78f(b)(4) and (5).
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issuers and other persons using its
facilities. The Exchange also believes
the proposal furthers the objectives of
Section 6(b)(5) of the Act in that it is
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest and is not designed to
permit unfair discrimination between
customers, issuers, brokers and dealers.
The Exchange only has four primary
sources of revenue: transaction fees,
access fees (which includes the
Proposed Access Fees), regulatory fees,
and market data fees. Accordingly, the
Exchange must cover all of its expenses
from these four primary sources of
revenue.
The Exchange believes that the
Proposed Access Fees are fair and
reasonable because they will not result
in excessive pricing or supracompetitive profit, when comparing the
total annual expense of MIAX Emerald
associated with providing these services
versus the total projected annual
revenue that the Exchange projects to
collect. For 2020, the total annual
expense for providing the services
associated with the Proposed Access
Fees for MIAX Emerald is projected to
be approximately $2.5 million. The $2.5
million in projected total annual
expense is comprised of the following,
all of which are directly related to the
services associated with the Proposed
Access Fees: (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 services
associated with the Proposed Access
Fees. As noted above, the Exchange
believes it is more appropriate to
analyze the Proposed Access Fees
utilizing its 2020 actual (for the first 9
months) and projected (for the final 3
months) revenue and costs, which
utilize the same presentation
methodology as set forth in the
Exchange’s previously-issued Audited
Unconsolidated Financial Statements.24
24 For example, the Exchange previously noted
that all third-party expense described in its prior fee
filing was contained in the information technology
and communication costs line item under the
section titled ‘‘Operating Expenses Incurred
Directly or Allocated From Parent,’’ in the
Exchange’s 2019 Form 1 Amendment containing its
financial statements for 2018. See Securities
Exchange Act Release No. 87877 (December 31,
2019), 85 FR 738 (January 7, 2020) (SR–EMERALD–
2019–39). Accordingly, the third-part expense
described in this filing is attributed to the same line
item for the Exchange’s 2020 Form 1 Amendment,
which will be filed in 2021.
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The $2.5 million in projected total
annual expense is directly related to the
services associated with the Proposed
Access Fees, and not any other product
or service offered by the Exchange. It
does not include general costs of
operating matching systems and other
trading technology, and 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 services associated with
the Proposed Access Fees, and, if such
expense did so relate, what portion (or
percentage) of such expense actually
supports those services, and thus bears
a relationship that is, ‘‘in nature and
closeness,’’ directly related to those
services. The sum of all such portions
of expenses represents the total cost of
the Exchange to provide services
associated with the Proposed Access
Fees.
For 2020, 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 the services associated with the
Proposed Access Fees, is projected to be
$190,621. 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
network services (fiber and bandwidth
products and services) linking MIAX
Emerald’s office locations in Princeton,
NJ and Miami, FL to all data center
locations; (3) Secure Financial
Transaction Infrastructure (‘‘SFTI’’) 25,
which supports connectivity and feeds
for the entire U.S. options industry; (4)
various other services providers
(including Thompson Reuters, NYSE,
Nasdaq, and Internap), which provide
content, connectivity services, and
infrastructure services for critical
components of options connectivity and
network services; and (5) various other
hardware and software providers
25 In fact, on October 22, 2019, the Exchange was
notified by SFTI that it is again raising its fees
charged to the Exchange by approximately 11%,
without having to show that such fee change
complies with the Act by being reasonable,
equitably allocated, and not unfairly
discriminatory. It is unfathomable to the Exchange
that, given the critical nature of the infrastructure
services provided by SFTI, that its fees are not
required to be rule-filed with the Commission
pursuant to Section 19(b)(1) of the Act and Rule
19b–4 thereunder. See 15 U.S.C. 78s(b)(1) and 17
CFR 240.19b–4, respectively.
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(including Dell and Cisco, which
support the production environment in
which Members connect to the network
to trade, receive market data, etc.).
For clarity, only a portion of all fees
paid to such third-parties is included in
the third-party expense herein, and no
expense amount is allocated twice.
Accordingly, MIAX Emerald does not
allocate its entire information
technology and communication costs to
the services associated with the
Proposed Access Fees.
The Exchange believes it is reasonable
to allocate such third-party expense
described above towards the total cost to
the Exchange to provide the services
associated with the Proposed Access
Fees. 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. 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 the services associated with the
Proposed Access Fees to its Members
and their customers. The Exchange did
not allocate all of the Equinix expense
toward the cost of providing the services
associated with the Proposed Access
Fees, only that portion which the
Exchange identified as being
specifically mapped to providing the
services associated with the Proposed
Access Fees, approximately 10% of the
total Equinix expense. The Exchange
believes this allocation is reasonable
because it represents the Exchange’s
actual cost to provide the services
associated with the Proposed Access
Fees, 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 and MIAX PEARL, 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 the services
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associated with the Proposed Access
Fees. The Exchange did not allocate all
of the Zayo expense toward the cost of
providing the services associated with
the Proposed Access Fees, only the
portion which the Exchange identified
as being specifically mapped to
providing the Proposed Access Fees,
approximately 1% of the total Zayo
expense. The Exchange believes this
allocation is reasonable because it
represents the Exchange’s actual cost to
provide the services associated with the
Proposed Access Fees, and not any
other service, as supported by its cost
review.
The Exchange believes it is reasonable
to allocate the identified portions 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 access
to its Members and their customers. The
Exchange did not allocate all of the SFTI
and other service providers’ expense
toward the cost of providing the services
associated with the Proposed Access
Fees, only the portions which the
Exchange identified as being
specifically mapped to providing the
services associated with the Proposed
Access Fees, approximately 1% 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
provide the services associated with the
Proposed Access Fees.
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 access to its Members and
their customers. The Exchange did not
allocate all of the hardware and software
provider expense toward the cost of
providing the services associated with
the Proposed Access Fees, only the
portions which the Exchange identified
as being specifically mapped to
providing the services associated with
the Proposed Access Fees,
approximately 10% of the total
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hardware and software provider
expense. The Exchange believes this
allocation is reasonable because it
represents the Exchange’s actual cost to
provide the services associated with the
Proposed Access Fees.
For 2020, total projected internal
expense, relating to the internal costs of
MIAX Emerald to provide the services
associated with the Proposed Access
Fees, is projected to be $2,046,137. This
includes, but is not limited to, costs
associated with: (1) Employee
compensation and benefits for full-time
employees that support the services
associated with the Proposed Access
Fees, including staff in network
operations, trading operations,
development, system operations,
business, as well as staff in general
corporate departments (such as legal,
regulatory, and finance) that support
those employees and functions
(including an increase as a result of the
higher determinism project); (2)
depreciation and amortization of
hardware and software used to provide
the services associated with the
Proposed Access Fees, including
equipment, servers, cabling, purchased
software and internally developed
software used in the production
environment to support the network for
trading; and (3) occupancy costs for
leased office space for staff that provide
the services associated with the
Proposed Access Fees. The breakdown
of these costs is more fully-described
below. For clarity, only a portion of all
such internal expenses are included in
the internal expense herein, and no
expense amount is allocated twice.
Accordingly, MIAX Emerald does not
allocate its entire costs contained in
those items to the services associated
with the Proposed Access Fees.
The Exchange believes it is reasonable
to allocate such internal expense
described above towards the total cost to
the Exchange to provide the services
associated with the Proposed Access
Fees. In particular, MIAX Emerald’s
employee compensation and benefits
expense relating to providing the
services associated with the Proposed
Access Fees is projected to be
$1,403,101, which is only a portion of
the $9,354,009 total projected expense
for employee compensation and
benefits. 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
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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
provision of services associated with the
Proposed Access Fees. Without these
employees, the Exchange would not be
able to provide the services associated
with the Proposed Access Fees to its
Members and their customers. The
Exchange did not allocate all of the
employee compensation and benefits
expense toward the cost of the services
associated with the Proposed Access
Fees, only the portions which the
Exchange identified as being
specifically mapped to providing the
services associated with the Proposed
Access Fees, approximately 15% of the
total employee compensation and
benefits expense. The Exchange believes
this allocation is reasonable because it
represents the Exchange’s actual cost to
provide the services associated with the
Proposed Access Fees, and not any
other service, as supported by its cost
review.
MIAX Emerald’s depreciation and
amortization expense relating to
providing the services associated with
the Proposed Access Fees is projected to
be $571,888, which is only a portion of
the $3,812,590 total projected expense
for depreciation and amortization. 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 and
provide the services associated with the
Proposed Access Fees. Without this
equipment, the Exchange would not be
able to operate the network and provide
the services associated with the
Proposed Access Fees to its Members
and their customers. The Exchange did
not allocate all of the depreciation and
amortization expense toward the cost of
providing the services associated with
the Proposed Access Fees, only the
portion which the Exchange identified
as being specifically mapped to
providing the services associated with
the Proposed Access Fees,
approximately 15% of the total
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depreciation and amortization expense,
as these services would not be possible
without relying on such. The Exchange
believes this allocation is reasonable
because it represents the Exchange’s
actual cost to provide the services
associated with the Proposed Access
Fees, and not any other service, as
supported by its cost review.
MIAX Emerald’s occupancy expense
relating to providing the services
associated with the Proposed Access
Fees is projected to be $71,148, which
is only a portion of the $474,323 total
projected expense for occupancy. 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 the services
associated with the Proposed Access
Fees. 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 approximately
150 employees. Approximately twothirds 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
services associated with the proposed
Trading Permit fees. Without this office
space, the Exchange would not be able
to operate and support the network and
provide the services associated with the
Proposed Access Fees to its 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
the services associated with the
Proposed Access Fees. The Exchange
did not allocate all of the occupancy
expense toward the cost of providing
the services associated with the
Proposed Access Fees, only the portion
which the Exchange identified as being
specifically mapped to operating and
supporting the network, approximately
15% of the total occupancy expense.
The Exchange believes this allocation is
reasonable because it represents the
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Exchange’s cost to provide the services
associated with the Proposed Access
Fees, and not any other service, as
supported by its cost review [sic]
Accordingly, based on the facts and
circumstances presented, the Exchange
believes that its provision of the services
associated with the Proposed Access
Fees will not result in excessive pricing
or supra-competitive profit. To
illustrate, for 2020, the Exchange’s total
projected revenue associated with the
Proposed Access Fees for the remaining
three months of 2020 is approximately
$625,000. Total projected expense for
the Exchange for 2020 for the provision
of the Proposed Access Fees is
approximately $2,236,758. Accordingly,
the provision of the services associated
with the Proposed Access Fees will not
result in excessive pricing or supracompetitive profit (rather, it will result
in a loss of $1,611,758 for 2020).
On a going-forward, fully-annualized
basis, the Exchange projects that its
annualized revenue for providing the
services associated with the Proposed
Access Fees would be approximately
$2.5 million per annum, based on a
most recently completed billing cycle.
The Exchange projects that its
annualized expense for providing the
services associated with the Proposed
Access Fees would be approximately
$2,236,758 per annum. Accordingly, on
a fully-annualized basis, the Exchange
believes its total projected revenue for
the providing the services associated
with the Proposed Access Fees will not
result in excessive pricing or supracompetitive profit, as the Exchange will
make only a 10% profit margin on the
Proposed Access Fees ($2.5 million ¥
$2,236,758 = $263,242 per annum).
For the avoidance of doubt, none of
the expenses included herein relating to
the services associated with the
Proposed Access Fees relate to the
provision of any other services offered
by MIAX Emerald. Stated differently, no
expense amount of the Exchange is
allocated twice.
The Exchange believes it is
reasonable, equitable and not unfairly
discriminatory to allocate the respective
percentages of each expense category
described above towards the total cost to
the Exchange of operating and
supporting the network, including
providing the services associated with
the Proposed Access Fees 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.
Further, the Exchange notes that,
without the specific third-party and
internal items listed above, the
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80869
Exchange would not be able to operate
and support the network, including
providing the services associated with
the Proposed Access Fees to its
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. The
Proposed Access Fees are intended to
recover the Exchange’s costs of
operating and supporting the network.
Accordingly, the Exchange believes that
the Proposed Access Fees 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
annual revenue from the Proposed
Access Fees.
Further, the Exchange no longer
believes it is necessary to waive these
fees to attract market participants to the
MIAX Emerald market since this market
is now established and MIAX Emerald
no longer needs to rely on such waivers
to attract market participants. The
Exchange believes that the proposal is
equitable and not unfairly
discriminatory because the elimination
of the fee waiver for the Proposed
Access Fees will uniformly apply to all
EEMs and Market Makers seeking to
become Members of the Exchange. The
Exchange also notes that the Exchange’s
affiliate, MIAX, charges a similar, fixed
trading permit fee to its EEMs, and a
similar, varying trading permit fee to its
Market Makers, based upon the number
of assignments of option classes or the
percentage of volume in option
classes.26
The Exchange believes that the
Proposed Access Fees are reasonable,
equitable and not unfairly
discriminatory because they are within
the range of comparable fees at other
competing options exchanges.27 The
Proposed Access Fees are fair and
equitable and not unreasonably
discriminatory because they apply
equally to all Market Makers regardless
of type and access to the Exchange is
offered on terms that are not unfairly
discriminatory. The Exchange designed
the fee rates in order to provide
objective criteria for Market Makers of
different sizes and business models that
best matches their quoting activity on
the Exchange. The Exchange notes that
trading volume and quoting activity in
26 See
27 See
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supra note 15.
supra note 19.
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the options market tends to be
concentrated in the top ranked options
classes; with the vast majority of options
classes being thinly quoted and traded.
The Exchange believes that the
proposed fee rates and criteria provide
an objective and flexible framework that
will encourage Market Makers to be
assigned and quote in option classes
with lower total national average daily
volume while also equitably allocating
the fees in a reasonable manner amongst
Market Maker assignments to account
for quoting and trading activity.
Finally, the Exchange notes that it
operates in a highly competitive market
in which market participants can
readily favor competing venues if they
deem fee levels at a particular venue to
be excessive. In such an environment,
the Exchange must continually adjust its
fees for services and products, in
addition to order flow, to remain
competitive with other exchanges. The
Exchange believes that the proposed
changes reflect this competitive
environment.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
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Intra-Market Competition
The Exchange believes that the
Proposed Access Fees do not place
certain market participants at a relative
disadvantage to other market
participants because the Proposed
Access Fees do not favor certain
categories of market participants in a
manner that would impose a burden on
competition; rather, the fee rates are
designed in order to provide objective
criteria for Market Makers of different
sizes and business models that best
matches their quoting activity on the
Exchange. The Exchange notes that
trading volume and quoting activity in
the options market tends to be
concentrated in the top ranked options
classes; with the vast majority of options
classes being thinly quoted and traded.
The Exchange believes that the
proposed fee rates and criteria provide
an objective and flexible framework that
will encourage Market Makers to be
assigned and quote in option classes
with lower total national average daily
volume while also equitably allocating
the fees in a reasonable manner amongst
Market Maker assignments to account
for quoting and trading activity.
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Inter-Market Competition
The Exchange believes the Proposed
Access 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 forced to become members of all
options exchanges. The Exchange notes
that it has far less Members as compared
to the much greater number of members
at other options exchanges. There are a
number of large market makers and
broker-dealers that are members of other
options exchange but not Members of
MIAX Emerald. The Exchange is also
unaware of any assertion that its
existing fee levels or the Proposed
Access 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
discontinue their membership with the
Exchange.
The Exchange operates in a highly
competitive market in which market
participants can readily favor one of the
15 competing options venues if they
deem fee levels at a particular venue to
be excessive. Based on publiclyavailable information, and excluding
index-based options, no single exchange
has more than 16% market share.
Therefore, no exchange possesses
significant pricing power in the
execution of multiply-listed equity and
ETF options order flow. For the month
of October 2020, the Exchange had a
market share of approximately 3.60% of
executed multiply-listed equity
options 28 and the Exchange believes
that the ever-shifting market share
among exchanges from month to month
demonstrates that market participants
can discontinue or reduce use of certain
categories of products, or shift order
flow, in response to fee changes. In such
an environment, the Exchange must
continually adjust its fees and fee
waivers to remain competitive with
other exchanges and to attract order
flow to the Exchange.
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.
28 See The Options Clearing Corporation (‘‘OCC’’)
publishes options and futures volume in a variety
of formats, including daily and monthly volume by
exchange, available here: https://www.theocc.com/
market-data/volume/default.jsp.
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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,29 and Rule
19b–4(f)(2) 30 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
EMERALD–2020–18 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–EMERALD–2020–18. 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
29 15
30 17
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U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
14DEN1
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Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–EMERALD–2020–18 and
should be submitted on or before
January 4, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27393 Filed 12–11–20; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90604; File No. SR–
CboeEDGX–2020–060]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend its
Fees Schedule
December 8, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
3, 2020, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
jbell on DSKJLSW7X2PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) is filing with
the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change to amend the fee
schedule. The text of the proposed rule
change is provided in Exhibit 5.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
31 17
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
1. Purpose
The Exchange proposes to amend its
fee schedule applicable to its equities
trading platform (‘‘EDGX Equities’’) by
amending (1) Retail Volume Tiers, (2)
modifying Fee Codes EA and ER and (3)
eliminating unused fee codes.3
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
16 registered equities exchanges, as well
as a number of alternative trading
systems and other off-exchange venues
that do not have similar self-regulatory
responsibilities under the Exchange Act,
to which market participants may direct
their order flow. Based on publicly
available information,4 no single
registered equities exchange has more
than 16% of the market share. Thus, in
such a low-concentrated and highly
competitive market, no single equities
exchange possesses significant pricing
power in the execution of order flow.
The Exchange in particular operates a
‘‘Maker-Taker’’ model whereby it pays
credits to members that provide
3 The Exchange initially filed the proposed fee
changes on December 1, 2020 (SR–CboeEDGX–
2020–059). On December 3, 2020, the Exchange
withdrew that filing and submitted this proposal.
4 See Cboe Global Markets, U.S. Equities Market
Volume Summary, Month-to-Date (November 27,
2020), available at https://markets.cboe.com/us/
equities/market_statistics/.
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liquidity and assesses fees to those that
remove liquidity. The Exchange’s fee
schedule sets forth the standard rebates
and rates applied per share for orders
that provide and remove liquidity,
respectively. Currently, for orders
priced at or above $1.00, the Exchange
provides a standard rebate of $0.00160
per share for orders that add liquidity,
assesses a standard fee of $0.00270 per
share for orders that remove liquidity
and assesses a standard fee of $0.0030
for orders that are routed. For orders
priced below $1.00, the Exchange a
standard rebate of $0.00009 per share
for orders that add liquidity, assesses a
fee of 0.30% of Dollar Value for orders
that remove liquidity and for orders that
are routed. Additionally, in response to
the competitive environment, the
Exchange also offers tiered pricing
which provides Members opportunities
to qualify for higher rebates or reduced
fees where certain volume criteria and
thresholds are met. Tiered pricing
provides an incremental incentive for
Members to strive for higher tier levels,
which provides increasingly higher
benefits or discounts for satisfying
increasingly more stringent criteria.
Retail Volume Tiers
Pursuant to footnote 3 of the fee
schedule, the Exchange currently offers
Retail Volume Tiers which provide
Retail Member Organizations
(‘‘RMOs’’) 5 an opportunity to receive an
enhanced rebate from the standard
rebate for Retail Orders 6 that add
liquidity (i.e., yielding fee code ‘‘ZA’’ 7).
Currently, the Retail Volume Tiers offer
three levels of criteria difficulty and
incentive opportunities in which RMOs
may qualify for enhanced rebates for
Retail Orders. The tier structure is
designed to encourage RMOs to increase
their order flow in order to receive an
enhanced rebate on their liquidity
adding orders, and the Exchange now
proposes to amend existing Retail
Volume Tiers 1, 2 and 3. The current
Retail Volume Tiers are as follows:
• Tier 1 provides an enhanced rebate
of $0.0034 for a Member’s qualifying
orders (i.e., yielding fee code ZA) where
5 A ‘‘Retail Member Organization’’ or ‘‘RMO’’ is
a Member (or a division thereof) that has been
approved by the Exchange under this Rule to
submit Retail Orders. See EDGX Rule 11.21(a)(1).
6 A ‘‘Retail Order’’ is an agency or riskless
principal order that meets the criteria of FINRA
Rule 5320.03 that originates from a natural person
and is submitted to the Exchange by a Retail
Member Organization, provided that no change is
made to the terms of the order with respect to price
or side of market and the order does not originate
from a trading algorithm or any other computerized
methodology. See EDGX Rule 11.21(a)(2).
7 Appended to Retail Orders that add liquidity to
EDGX and offered a rebate of $0.0032 per share.
E:\FR\FM\14DEN1.SGM
14DEN1
]]>Agencies
[Federal Register Volume 85, Number 240 (Monday, December 14, 2020)]
[Notices]
[Pages 80864-80871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27393]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90601; File No. SR-EMERALD-2020-18]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to Amend
Its Fee Schedule To Adopt a Monthly Trading Permit Fees
December 8, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 27, 2020, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX Emerald Fee
Schedule (the ``Fee Schedule'') to establish monthly Trading Permit \3\
fees for Exchange Members.\4\
---------------------------------------------------------------------------
\3\ The term ``Trading Permit'' means a permit issued by the
Exchange that confers the ability to transact on the Exchange. See
Exchange Rule 100.
\4\ 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 and the Definitions Section of the Fee Schedule.
---------------------------------------------------------------------------
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 proposes to amend the Fee Schedule to adopt monthly
Trading Permit fees (the ``Proposed Access Fees'') depending on the
Member's status as either an Electronic Exchange Member (``EEM'') \5\
or as a Market Maker.\6\ MIAX Emerald commenced operations as a
national securities exchange registered under Section 6 of the Act \7\
on March 1, 2019.\8\ The Exchange adopted its transaction fees and
certain of its non-transaction fees in its filing SR-EMERALD-2019-
15.\9\ In that filing, the Exchange expressly waived, among other fees,
the Proposed Access Fees, to provide an incentive to prospective EEMs
and Market Makers to become Members of the Exchange. Accordingly, since
the launch of the Exchange, all such membership fees have been waived
for the Waiver Period.\10\ When the Exchange adopted the framework for
its fees, it stated that it would provide notice to market participants
when the Exchange intended to terminate the Waiver Period for the
Proposed Access Fees. Accordingly, on September 15, 2020, the Exchange
issued a Regulatory Circular which announced that the Exchange would be
ending the Waiver Period for the Proposed Access Fees, among other non-
transaction fees, beginning October 1, 2020.\11\
---------------------------------------------------------------------------
\5\ ``Electronic Exchange Member'' or ``EEM'' means the holder
of a Trading Permit who is not a Market Maker. Electronic Exchange
Members are deemed ``members'' under the Exchange Act. See Exchange
Rule 100 and the Definitions Section of the Fee Schedule.
\6\ The term ``Market Makers'' refers to ``Lead Market Makers'',
``Primary Lead Market Makers'' and ``Registered Market Makers''
collectively. See Exchange Rule 100 and the Definitions Section of
the Fee Schedule.
\7\ 15 U.S.C. 78f.
\8\ See Securities Exchange Act Release No. 84891 (December 20,
2018), 83 FR 67421 (December 28, 2018) (File No. 10-233) (order
approving application of MIAX Emerald, LLC for registration as a
national securities exchange).
\9\ See Securities Exchange Act Release No. 85393 (March 21,
2019), 84 FR 11599 (March 27, 2019) (SR-EMERALD-2019-15) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Establish the MIAX Emerald Fee Schedule).
\10\ ``Waiver Period'' means, for each applicable fee, the
period of time from the initial effective date of the MIAX Emerald
Fee Schedule until such time that the Exchange has an effective fee
filing establishing the applicable fee. The Exchange will issue a
Regulatory Circular announcing the establishment of an applicable
fee that was subject to a Waiver Period at least fifteen (15) days
prior to the termination of the Waiver Period and effective date of
any such applicable fee. See the Definitions Section of the Fee
Schedule.
\11\ See MIAX Emerald Regulatory Circular 2020-41 available at
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2020_41.pdf.
---------------------------------------------------------------------------
The Exchange initially filed its proposal to establish the Proposed
Access Fees on October 1, 2020.\12\ The First Proposed Rule Change was
published for comment in the Federal Register on October 21, 2020.\13\
On November 25, 2020, the Exchange withdrew the First Proposed Rule
Change and refiled its proposal to establish monthly Trading Permit
fees.\14\
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release Nos. 90196 (October 15,
2020), 85 FR 67064 (October 21, 2020) (SR-EMERALD-2020-11) (Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule To Adopt One-Time Membership Application Fees
and Monthly Trading Permit Fees) (the ``First Proposed Rule
Change''). The Exchange notes that it will refile its proposal to
establish the one-time membership application fee in a separate
filing.
\13\ See id.
\14\ See Comment Letter from Joseph W. Ferraro III, SVP, Deputy
General Counsel, the Exchange, dated November 20, 2020, notifying
the Commission that the Exchange will withdraw the First Proposed
Rule Change.
---------------------------------------------------------------------------
Trading Permits are issued to Members who are either EEMs or Market
Makers. The Exchange proposes to assess the Proposed Access Fees
depending upon the category of Member that is issued a Trading Permit.
Members issued Trading Permits during a calendar month will be assessed
monthly Trading Permit Fees. The Exchange notes that the Exchange's
affiliate, Miami International Securities Exchange, LLC (``MIAX''),
charges a similar, fixed trading permit fee to its EEMs, and a similar,
varying trading permit fee to its Market Makers, based upon the number
of assignments of option classes or the percentage of volume in option
classes.\15\
---------------------------------------------------------------------------
\15\ See the MIAX Fee Schedule, Section 3)b).
---------------------------------------------------------------------------
The Exchange proposes that monthly Trading Permit fees will be
assessed, with respect to the calculation of such fee to EEMs (other
than clearing firms), in any month the EEM is certified in the
membership system and is credentialed to use one or more Financial
Information Exchange (``FIX'') \16\ ports
[[Page 80865]]
in the production environment. Further, the Exchange proposes that
monthly Trading Permit fees will be assessed with respect to EEM
clearing firms in any month the clearing firm is certified in the
membership system to clear transactions on the Exchange.
---------------------------------------------------------------------------
\16\ ``FIX Port'' means an interface with MIAX Emerald systems
that enables the Port user to submit simple and complex orders
electronically to MIAX Emerald. See the Definitions Section of the
Fee Schedule.
---------------------------------------------------------------------------
The Exchange proposes to assess EEMs a monthly fee of $1,000 for
each Trading Permit. Below is the proposed table showing the Trading
Permit fees for EEMs:
------------------------------------------------------------------------
Monthly MIAX
Type of trading permit Emerald trading
permit fee
------------------------------------------------------------------------
Electronic Exchange Member........................... $1,000.00
------------------------------------------------------------------------
The Exchange proposes to assess monthly Trading Permit fees for
Market Makers in any month the Market Maker (including a Registered
Market Maker, Lead Market Maker, and Primary Lead Market Maker) is
certified in the membership system, is credentialed to use one or more
MIAX Emerald Express Interface (``MEI'') \17\ ports in the production
environment and is assigned to quote in one or more classes.
Specifically, the Exchange proposes to adopt the following Trading
Permit fees for Market Makers: (i) $7,000 for Market Maker Assignments
in up to 10 option classes or up to 20% of option classes by national
average daily volume (``ADV''); (ii) $12,000 for Market Maker
Assignments in up to 40 option classes or up to 35% of option classes
by ADV; (iii) $17,000 for Market Maker Assignments in up to 100 option
classes or up to 50% of option classes by ADV; and (iv) $22,000 for
Market Maker Assignments in over 100 option classes or over 50% of
option classes by ADV up to all option classes listed on MIAX Emerald.
---------------------------------------------------------------------------
\17\ The MEI is a connection to the MIAX Emerald System that
enables Market Makers to submit simple and complex electronic quotes
to MIAX Emerald. The Exchange offers Full Service MEI Ports, which
provide Market Makers with the ability to send Market Maker simple
and complex quotes, eQuotes, and quote purge messages to the MIAX
Emerald System. Full Service MEI Ports are also capable of receiving
administrative information. Market Makers are limited to two Full
Service MEI Ports per Matching Engine. The Exchange also offers
Limited Service MEI Ports, which provide Market Makers with the
ability to send simple and complex eQuotes and quote purge messages
only, but not Market Maker Quotes, to the MIAX Emerald System.
Limited Service MEI Ports are also capable of receiving
administrative information. Market Makers initially receive two
Limited Service MEI Ports per Matching Engine. See the Definitions
Section of the Fee Schedule.
---------------------------------------------------------------------------
The Exchange also proposes to adopt an alternative lower Trading
Permit fee for Market Makers who fall within the following Trading
Permit fee levels, which represent the 3rd and 4th levels of the Market
Maker Trading Permit fee table: (i) Market Maker Assignments in up to
100 option classes or up to 50% of option classes by volume; and (ii)
Market Maker Assignments in over 100 option classes or over 50% of
option classes by volume up to all option classes listed on MIAX
Emerald. Specifically, the Exchange proposes to adopt footnote
``[ssquf]'' following the Market Maker Trading Permit fee table for
these Monthly Trading Permit tier levels, if the Market Maker's total
monthly executed volume during the relevant month is less than 0.025%
of the total monthly executed volume reported by OCC in the customer
account type for MIAX Emerald--listed option classes for that month,
then the fee will be $15,500 instead of the fee otherwise applicable to
such level.
Below is the proposed table showing the Trading Permit fees for
Market Makers:
----------------------------------------------------------------------------------------------------------------
Market maker assignments (the lesser of the applicable
Monthly MIAX measurements below)
Type of trading permit Emerald trading --------------------------------------------------------
permit fee Percent of national average
Per class daily volume
----------------------------------------------------------------------------------------------------------------
Market Maker (includes RMM, LMM, $7,000.00 Up to 10 Classes........ Up to 20% of Classes by
PLMM). volume.
12,000.00 Up to 40 Classes........ Up to 35% of Classes by
volume.
[ssquf] Up to 100 Classes....... Up to 50% of Classes by
17,000.00 volume.
22,000.00 Over 100 Classes........ Over 50% of Classes by volume
up to all Classes listed on
MIAX Emerald.
----------------------------------------------------------------------------------------------------------------
For these Monthly MIAX Emerald Trading Permit tier levels, if the Market Maker's total monthly executed volume
during the relevant month is less than 0.025% of the total monthly executed volume reported by OCC in the
customer account type for MIAX Emerald-listed option classes for that month, then the fee will be $15,500
instead of the fee otherwise applicable to such level.
For the calculation of the monthly Market Maker Trading Permit
fees, the number of classes is defined as the greatest number of
classes the Market Maker was assigned to quote in on any given day
within the calendar month and the class volume percentage is based on
the total national ADV in classes listed on MIAX Emerald in the prior
calendar quarter. Newly listed option classes are excluded from the
calculation of the monthly Market Maker Trading Permit fee until the
calendar quarter following their listing, at which time the newly
listed option classes will be included in both the per class count and
the percentage of total national average daily volume. The Exchange
proposes to assess MIAX Emerald Market Makers the monthly Market Maker
Trading Permit fee based on the greatest number of classes listed on
MIAX Emerald that the Market Maker was assigned to quote in on any
given day within a calendar month and the applicable fee rate that is
the lesser of either the per class basis or percentage of total
national ADV measurement.
The purpose of the alternative lower fee designated in proposed
footnote ``[ssquf]'' is to provide a lower fixed cost to those Market
Makers who are willing to quote the entire Exchange market (or
substantial amount of the Exchange market), as objectively measured by
either number of classes assigned or national ADV, but who do not
otherwise execute a significant amount of volume on the Exchange. The
Exchange believes that, by offering lower fixed costs to Market Makers
that execute less volume, the Exchange will retain and attract smaller-
scale Market Makers, which are an integral component of the option
marketplace, but have been decreasing in number in recent years, due to
industry consolidation and lower market maker profitability. Since
these smaller-scale Market Makers utilize less Exchange capacity due to
lower overall volume executed, the Exchange believes it is reasonable
and equitable to offer such Market Makers a lower fixed cost. The
Exchange notes that the Exchange's affiliate, MIAX, provides a similar
alternative lower Trading Permit fee for Market Makers who quote the
entire MIAX market (or substantial amount of the MIAX market), as
objectively measured by either number of classes assigned or national
ADV, but who do not otherwise execute a significant
[[Page 80866]]
amount of volume on MIAX.\18\ The Exchange also notes that other
options exchanges assess certain of their membership fees at different
rates, based upon a member's participation on that exchange,\19\ and,
as such, this concept is not new or novel. The proposed changes to the
Trading Permit fees for Market Makers who fall within the 3rd and 4th
levels of the fee table are based upon a business determination of
current Market Maker assignments and trading volume.
---------------------------------------------------------------------------
\18\ See supra note 15.
\19\ See e.g., NYSE Arca Options Fees and Charges, p.1
(assessing market makers $6,000 for up to 175 option issues, an
additional $5,000 for up to 350 option issues, an additional $4,000
for up to 1,000 option issues, an additional $3,000 for all option
issues on the exchange, and an additional $1,000 for the fifth
trading permit and for each trading permit thereafter); NYSE
American Options Fee Schedule, p. 23 (assessing market makers $8,000
for up to 60 plus the bottom 45% of option issues, an additional
$6,000 for up to 150 plus the bottom 45% of option issues, an
additional $5,000 for up to 500 plus the bottom 45% of option
issues, and additional $4,000 for up to 1,100 plus the bottom 45% of
option issues, an additional $3,000 for all issues traded on the
exchange, and an additional $2,000 for 6th to 9th ATPs; plus an
addition fee for premium products). See also Cboe BZX Options
Exchange (``BZX Options'') assesses the Participant Fee, which is a
membership fee, according to a member's ADV. See Cboe BZX Options
Exchange Fee Schedule under ``Membership Fees''. The Participant Fee
is $500 if the member ADV is less than 5000 contracts and $1,000 if
the member ADV is equal to or greater than 5000 contracts. Id.
---------------------------------------------------------------------------
MIAX Emerald believes that exchanges, in setting fees of all types,
should meet very high standards of transparency to demonstrate why each
new fee or fee increase meets the requirements of the Act that fees be
reasonable, equitably allocated, not unfairly discriminatory, and not
create an undue burden on competition among members and markets. MIAX
Emerald believes this high standard is especially important when an
exchange imposes various access fees for market participants to access
an exchange's marketplace. MIAX Emerald deems Trading Permit fees to be
access fees. The Exchange believes that it is important to demonstrate
that these fees are based on its costs and reasonable business needs.
Accordingly, the Exchange believes the Proposed Access Fees will allow
the Exchange to offset expense the Exchange has and will incur, and
that the Exchange is providing sufficient transparency (as described
below) into how the Exchange determined to charge such fees.
Accordingly, the Exchange is providing an analysis of its revenues,
costs, and profitability (before the proposed changes), and the
Exchange's revenues, costs, and profitability (following the proposed
changes) for the Proposed Access Fees. This analysis includes
information regarding its methodology for determining the costs and
revenues associated with the Proposed Access Fees.
In order to determine the Exchange's costs associated with
providing the Proposed Access Fees, 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 Proposed Access Fees, and, if such expense did
so relate, what portion (or percentage) of such expense actually
supports the services included in the Proposed Access Fees. The sum of
all such portions of expenses represents the total cost of the Exchange
to provide the Proposed Access Fees. For the avoidance of doubt, no
expense amount was allocated twice. The Exchange is also providing
detailed information 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 the Proposed Access Fees.
In order to determine the Exchange's projected revenues associated
with providing the Proposed Access Fees, the Exchange analyzed the
number of Members currently utilizing the Exchange's services
associated with the Proposed Access Fees during 2020, and, utilizing a
recently completed monthly billing cycle, extrapolated annualized
revenue on a going-forward basis.
The Exchange is presenting its revenue and expense associated with
the Proposed Access Fees in this filing in a manner that is consistent
with how the Exchange presents its revenue and expense in its Audited
Unconsolidated Financial Statements. The Exchange's most recent Audited
Unconsolidated Financial Statement is for 2019. However, since the
revenue and expense associated with the Proposed Access Fees were not
in place in 2019 or for the first three quarters of 2020, the Exchange
believes its 2019 Audited Unconsolidated Financial Statement is not
useful for analyzing the reasonableness of the total annual revenue and
costs associated with the Proposed Access Fees. Accordingly, the
Exchange believes it is more appropriate to analyze the Proposed Access
Fees utilizing its 2020 actual (for the first 9 months) and projected
(for the final 3 months) revenue and costs, as described herein, which
utilize the same presentation methodology as set forth in the
Exchange's previously-issued Audited Unconsolidated Financial
Statements. Based on this analysis, the Exchange believes that the
Proposed Access Fees are fair and reasonable because they will not
result in excessive pricing or supra-competitive profit when comparing
the Exchange's total annual expense associated with providing the
services associated with the Proposed Access Fees versus the total
projected annual revenue the Exchange will collect for providing those
services.
* * * * *
On March 29, 2019, the Commission issued its Order Disapproving
Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC
Options Facility to Establish BOX Connectivity Fees for Participants
and Non-Participants Who Connect to the BOX Network (the ``BOX
Order'').\20\ On May 21, 2019, the Commission issued the Staff Guidance
on SRO Rule Filings Relating to Fees.\21\ Accordingly, the Exchange
believes that the Proposed Access 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 comprehensive revenue and cost data and analysis) that they
are fair and reasonable because they not result in excessive pricing or
supra-competitive profit; and (iv) utilize a cost-based justification
framework that is substantially similar to a framework previously used
by the Exchange to establish other non-transaction fees. Accordingly,
the Exchange believes that the Commission should find that the Proposed
Access Fees are consistent with the Act.
---------------------------------------------------------------------------
\20\ See Securities Exchange Act Release No. 85459 (March 29,
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37,
and SR-BOX-2019-04).
\21\ See 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 proposed rule change is immediately effective upon filing with
the Commission pursuant to Section 19(b)(3)(A) of the Act.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \22\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \23\ in
particular, in that it is an equitable allocation of reasonable dues,
fees and other charges among its members and
[[Page 80867]]
issuers and other persons using its facilities. The Exchange also
believes the proposal furthers the objectives of Section 6(b)(5) of the
Act in that it is designed to promote just and equitable principles of
trade, to remove impediments to and perfect the mechanism of a free and
open market and a national market system, and, in general to protect
investors and the public interest and is not designed to permit unfair
discrimination between customers, issuers, brokers and dealers.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange only has four primary sources of revenue: transaction
fees, access fees (which includes the Proposed Access Fees), regulatory
fees, and market data fees. Accordingly, the Exchange must cover all of
its expenses from these four primary sources of revenue.
The Exchange believes that the Proposed Access 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 these services versus the total
projected annual revenue that the Exchange projects to collect. For
2020, the total annual expense for providing the services associated
with the Proposed Access Fees for MIAX Emerald is projected to be
approximately $2.5 million. The $2.5 million in projected total annual
expense is comprised of the following, all of which are directly
related to the services associated with the Proposed Access Fees: (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 services
associated with the Proposed Access Fees. As noted above, the Exchange
believes it is more appropriate to analyze the Proposed Access Fees
utilizing its 2020 actual (for the first 9 months) and projected (for
the final 3 months) revenue and costs, which utilize the same
presentation methodology as set forth in the Exchange's previously-
issued Audited Unconsolidated Financial Statements.\24\ The $2.5
million in projected total annual expense is directly related to the
services associated with the Proposed Access Fees, and not any other
product or service offered by the Exchange. It does not include general
costs of operating matching systems and other trading technology, and
no expense amount was allocated twice.
---------------------------------------------------------------------------
\24\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the
information technology and communication costs line item under the
section titled ``Operating Expenses Incurred Directly or Allocated
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing
its financial statements for 2018. See Securities Exchange Act
Release No. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020)
(SR-EMERALD-2019-39). Accordingly, the third-part expense described
in this filing is attributed to the same line item for the
Exchange's 2020 Form 1 Amendment, which will be filed in 2021.
---------------------------------------------------------------------------
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
services associated with the Proposed Access Fees, and, if such expense
did so relate, what portion (or percentage) of such expense actually
supports those services, and thus bears a relationship that is, ``in
nature and closeness,'' directly related to those services. The sum of
all such portions of expenses represents the total cost of the Exchange
to provide services associated with the Proposed Access Fees.
For 2020, 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 the services associated with the
Proposed Access Fees, is projected to be $190,621. 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 network services (fiber and
bandwidth products and services) linking MIAX Emerald's office
locations in Princeton, NJ and Miami, FL to all data center locations;
(3) Secure Financial Transaction Infrastructure (``SFTI'') \25\, which
supports connectivity and feeds for the entire U.S. options industry;
(4) various other services providers (including Thompson Reuters, NYSE,
Nasdaq, and Internap), which provide content, connectivity services,
and infrastructure services for critical components of options
connectivity and network services; and (5) various other hardware and
software providers (including Dell and Cisco, which support the
production environment in which Members connect to the network to
trade, receive market data, etc.).
---------------------------------------------------------------------------
\25\ 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.
---------------------------------------------------------------------------
For clarity, only a portion of all fees paid to such third-parties
is included in the third-party expense herein, and no expense amount is
allocated twice. Accordingly, MIAX Emerald does not allocate its entire
information technology and communication costs to the services
associated with the Proposed Access Fees.
The Exchange believes it is reasonable to allocate such third-party
expense described above towards the total cost to the Exchange to
provide the services associated with the Proposed Access Fees. 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. 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 the services
associated with the Proposed Access Fees to its Members and their
customers. The Exchange did not allocate all of the Equinix expense
toward the cost of providing the services associated with the Proposed
Access Fees, only that portion which the Exchange identified as being
specifically mapped to providing the services associated with the
Proposed Access Fees, approximately 10% of the total Equinix expense.
The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to provide the services
associated with the Proposed Access Fees, 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 and MIAX PEARL, 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 the services
[[Page 80868]]
associated with the Proposed Access Fees. The Exchange did not allocate
all of the Zayo expense toward the cost of providing the services
associated with the Proposed Access Fees, only the portion which the
Exchange identified as being specifically mapped to providing the
Proposed Access Fees, approximately 1% of the total Zayo expense. The
Exchange believes this allocation is reasonable because it represents
the Exchange's actual cost to provide the services associated with the
Proposed Access Fees, and not any other service, as supported by its
cost review.
The Exchange believes it is reasonable to allocate the identified
portions 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 access to its Members and their customers. The Exchange did not
allocate all of the SFTI and other service providers' expense toward
the cost of providing the services associated with the Proposed Access
Fees, only the portions which the Exchange identified as being
specifically mapped to providing the services associated with the
Proposed Access Fees, approximately 1% 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 provide
the services associated with the Proposed Access Fees.
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 access to its Members and their customers. The Exchange did not
allocate all of the hardware and software provider expense toward the
cost of providing the services associated with the Proposed Access
Fees, only the portions which the Exchange identified as being
specifically mapped to providing the services associated with the
Proposed Access Fees, approximately 10% of the total hardware and
software provider expense. The Exchange believes this allocation is
reasonable because it represents the Exchange's actual cost to provide
the services associated with the Proposed Access Fees.
For 2020, total projected internal expense, relating to the
internal costs of MIAX Emerald to provide the services associated with
the Proposed Access Fees, is projected to be $2,046,137. This includes,
but is not limited to, costs associated with: (1) Employee compensation
and benefits for full-time employees that support the services
associated with the Proposed Access Fees, including staff in network
operations, trading operations, development, system operations,
business, as well as staff in general corporate departments (such as
legal, regulatory, and finance) that support those employees and
functions (including an increase as a result of the higher determinism
project); (2) depreciation and amortization of hardware and software
used to provide the services associated with the Proposed Access Fees,
including equipment, servers, cabling, purchased software and
internally developed software used in the production environment to
support the network for trading; and (3) occupancy costs for leased
office space for staff that provide the services associated with the
Proposed Access Fees. The breakdown of these costs is more fully-
described below. For clarity, only a portion of all such internal
expenses are included in the internal expense herein, and no expense
amount is allocated twice. Accordingly, MIAX Emerald does not allocate
its entire costs contained in those items to the services associated
with the Proposed Access Fees.
The Exchange believes it is reasonable to allocate such internal
expense described above towards the total cost to the Exchange to
provide the services associated with the Proposed Access Fees. In
particular, MIAX Emerald's employee compensation and benefits expense
relating to providing the services associated with the Proposed Access
Fees is projected to be $1,403,101, which is only a portion of the
$9,354,009 total projected expense for employee compensation and
benefits. 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 provision of services associated
with the Proposed Access Fees. Without these employees, the Exchange
would not be able to provide the services associated with the Proposed
Access Fees to its Members and their customers. The Exchange did not
allocate all of the employee compensation and benefits expense toward
the cost of the services associated with the Proposed Access Fees, only
the portions which the Exchange identified as being specifically mapped
to providing the services associated with the Proposed Access Fees,
approximately 15% of the total employee compensation and benefits
expense. The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to provide the services
associated with the Proposed Access Fees, and not any other service, as
supported by its cost review.
MIAX Emerald's depreciation and amortization expense relating to
providing the services associated with the Proposed Access Fees is
projected to be $571,888, which is only a portion of the $3,812,590
total projected expense for depreciation and amortization. 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 and provide the services
associated with the Proposed Access Fees. Without this equipment, the
Exchange would not be able to operate the network and provide the
services associated with the Proposed Access Fees to its Members and
their customers. The Exchange did not allocate all of the depreciation
and amortization expense toward the cost of providing the services
associated with the Proposed Access Fees, only the portion which the
Exchange identified as being specifically mapped to providing the
services associated with the Proposed Access Fees, approximately 15% of
the total
[[Page 80869]]
depreciation and amortization expense, as these services would not be
possible without relying on such. The Exchange believes this allocation
is reasonable because it represents the Exchange's actual cost to
provide the services associated with the Proposed Access Fees, and not
any other service, as supported by its cost review.
MIAX Emerald's occupancy expense relating to providing the services
associated with the Proposed Access Fees is projected to be $71,148,
which is only a portion of the $474,323 total projected expense for
occupancy. 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 the services associated with the Proposed Access Fees. 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
approximately 150 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 services
associated with the proposed Trading Permit fees. Without this office
space, the Exchange would not be able to operate and support the
network and provide the services associated with the Proposed Access
Fees to its 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 the services associated with the
Proposed Access Fees. The Exchange did not allocate all of the
occupancy expense toward the cost of providing the services associated
with the Proposed Access Fees, only the portion which the Exchange
identified as being specifically mapped to operating and supporting the
network, approximately 15% of the total occupancy expense. The Exchange
believes this allocation is reasonable because it represents the
Exchange's cost to provide the services associated with the Proposed
Access Fees, and not any other service, as supported by its cost review
[sic]
Accordingly, based on the facts and circumstances presented, the
Exchange believes that its provision of the services associated with
the Proposed Access Fees will not result in excessive pricing or supra-
competitive profit. To illustrate, for 2020, the Exchange's total
projected revenue associated with the Proposed Access Fees for the
remaining three months of 2020 is approximately $625,000. Total
projected expense for the Exchange for 2020 for the provision of the
Proposed Access Fees is approximately $2,236,758. Accordingly, the
provision of the services associated with the Proposed Access Fees will
not result in excessive pricing or supra-competitive profit (rather, it
will result in a loss of $1,611,758 for 2020).
On a going-forward, fully-annualized basis, the Exchange projects
that its annualized revenue for providing the services associated with
the Proposed Access Fees would be approximately $2.5 million per annum,
based on a most recently completed billing cycle. The Exchange projects
that its annualized expense for providing the services associated with
the Proposed Access Fees would be approximately $2,236,758 per annum.
Accordingly, on a fully-annualized basis, the Exchange believes its
total projected revenue for the providing the services associated with
the Proposed Access Fees will not result in excessive pricing or supra-
competitive profit, as the Exchange will make only a 10% profit margin
on the Proposed Access Fees ($2.5 million - $2,236,758 = $263,242 per
annum).
For the avoidance of doubt, none of the expenses included herein
relating to the services associated with the Proposed Access Fees
relate to the provision of any other services offered by MIAX Emerald.
Stated differently, no expense amount of the Exchange is allocated
twice.
The Exchange believes it is reasonable, equitable and not unfairly
discriminatory to allocate the respective percentages of each expense
category described above towards the total cost to the Exchange of
operating and supporting the network, including providing the services
associated with the Proposed Access Fees 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. 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 the services associated with the Proposed Access Fees to its
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. The Proposed
Access Fees are intended to recover the Exchange's costs of operating
and supporting the network. Accordingly, the Exchange believes that the
Proposed Access Fees 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 annual revenue from the Proposed Access Fees.
Further, the Exchange no longer believes it is necessary to waive
these fees to attract market participants to the MIAX Emerald market
since this market is now established and MIAX Emerald no longer needs
to rely on such waivers to attract market participants. The Exchange
believes that the proposal is equitable and not unfairly discriminatory
because the elimination of the fee waiver for the Proposed Access Fees
will uniformly apply to all EEMs and Market Makers seeking to become
Members of the Exchange. The Exchange also notes that the Exchange's
affiliate, MIAX, charges a similar, fixed trading permit fee to its
EEMs, and a similar, varying trading permit fee to its Market Makers,
based upon the number of assignments of option classes or the
percentage of volume in option classes.\26\
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\26\ See supra note 15.
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The Exchange believes that the Proposed Access Fees are reasonable,
equitable and not unfairly discriminatory because they are within the
range of comparable fees at other competing options exchanges.\27\ The
Proposed Access Fees are fair and equitable and not unreasonably
discriminatory because they apply equally to all Market Makers
regardless of type and access to the Exchange is offered on terms that
are not unfairly discriminatory. The Exchange designed the fee rates in
order to provide objective criteria for Market Makers of different
sizes and business models that best matches their quoting activity on
the Exchange. The Exchange notes that trading volume and quoting
activity in
[[Page 80870]]
the options market tends to be concentrated in the top ranked options
classes; with the vast majority of options classes being thinly quoted
and traded. The Exchange believes that the proposed fee rates and
criteria provide an objective and flexible framework that will
encourage Market Makers to be assigned and quote in option classes with
lower total national average daily volume while also equitably
allocating the fees in a reasonable manner amongst Market Maker
assignments to account for quoting and trading activity.
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\27\ See supra note 19.
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Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive. In such an environment, the Exchange must continually adjust
its fees for services and products, in addition to order flow, to
remain competitive with other exchanges. The Exchange believes that the
proposed changes reflect this competitive environment.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange believes that the Proposed Access Fees do not place
certain market participants at a relative disadvantage to other market
participants because the Proposed Access Fees do not favor certain
categories of market participants in a manner that would impose a
burden on competition; rather, the fee rates are designed in order to
provide objective criteria for Market Makers of different sizes and
business models that best matches their quoting activity on the
Exchange. The Exchange notes that trading volume and quoting activity
in the options market tends to be concentrated in the top ranked
options classes; with the vast majority of options classes being thinly
quoted and traded. The Exchange believes that the proposed fee rates
and criteria provide an objective and flexible framework that will
encourage Market Makers to be assigned and quote in option classes with
lower total national average daily volume while also equitably
allocating the fees in a reasonable manner amongst Market Maker
assignments to account for quoting and trading activity.
Inter-Market Competition
The Exchange believes the Proposed Access 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 forced
to become members of all options exchanges. The Exchange notes that it
has far less Members as compared to the much greater number of members
at other options exchanges. There are a number of large market makers
and broker-dealers that are members of other options exchange but not
Members of MIAX Emerald. The Exchange is also unaware of any assertion
that its existing fee levels or the Proposed Access 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 discontinue their membership with the
Exchange.
The Exchange operates in a highly competitive market in which
market participants can readily favor one of the 15 competing options
venues if they deem fee levels at a particular venue to be excessive.
Based on publicly-available information, and excluding index-based
options, no single exchange has more than 16% market share. Therefore,
no exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. For the month of
October 2020, the Exchange had a market share of approximately 3.60% of
executed multiply-listed equity options \28\ and the Exchange believes
that the ever-shifting market share among exchanges from month to month
demonstrates that market participants can discontinue or reduce use of
certain categories of products, or shift order flow, in response to fee
changes. In such an environment, the Exchange must continually adjust
its fees and fee waivers to remain competitive with other exchanges and
to attract order flow to the Exchange.
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\28\ See The Options Clearing Corporation (``OCC'') publishes
options and futures volume in a variety of formats, including daily
and monthly volume by exchange, available here: https://www.theocc.com/market-data/volume/default.jsp.
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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,\29\ and Rule 19b-4(f)(2) \30\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
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\29\ 15 U.S.C. 78s(b)(3)(A)(ii).
\30\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-EMERALD-2020-18 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-EMERALD-2020-18. 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
[[Page 80871]]
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
EMERALD-2020-18 and should be submitted on or before January 4, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27393 Filed 12-11-20; 8:45 am]
BILLING CODE 8011-01-P
