Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX PEARL Options Fee Schedule for Member and Non-Member Monthly Network Connectivity Fees, 7582-7590 [2021-01940]
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Federal Register / Vol. 86, No. 18 / Friday, January 29, 2021 / Notices
the Exchange’s trading floor continues
to be inoperable.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 13 and Rule 19b–
4(f)(6) thereunder.14
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 15 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 16
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposed
rule change may become operative
immediately. The Exchange believes
extension of the temporary rules put in
place due to the ongoing COVID–19
pandemic will permit the Exchange to
minimize disruptions in the market
during a transition back to an allelectronic trading environment if the
Exchange believes it is necessary and
appropriate to help protect the safety
and welfare of the trading community
and did not make a virtual trading floor
available. The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest as it
will allow the temporary rules to
continue with minimal interruption,
thereby avoiding investor confusion that
could result from an interruption in the
effectiveness of the rules. Accordingly,
the Commission hereby waives the
13 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
15 17 CFR 240.19b–4(f)(6).
16 17 CFR 240.19b–4(f)(6)(iii).
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14 17
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operative delay and designates the
proposed rule change operative upon
filing.17
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
change should be approved or
disapproved.
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–CBOE–2021–004 and
should be submitted on or before
February 19, 2021.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
J. Matthew DeLesDernier,
Assistant Secretary.
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–
CBOE–2021–004 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–CBOE–2021–004. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
[FR Doc. 2021–01942 Filed 1–28–21; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–90981; File No. SR–
PEARL–2021–01]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the MIAX
PEARL Options Fee Schedule for
Member and Non-Member Monthly
Network Connectivity Fees
January 25, 2021.
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 January
13, 2021, MIAX PEARL, LLC (‘‘MIAX
PEARL’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX PEARL Fee Schedule
(the ‘‘Fee Schedule’’) for the Exchange’s
options market.3
18 17
17 For
purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Commission notes that the Exchange
initially filed the proposed Fee Schedule
amendment on December 31, 2020 (SR–PEARL–
1 15
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The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX PEARL’s principal
office, and at the Commission’s Public
Reference Room.
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
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1. Purpose
The Exchange proposes to amend the
Fee Schedule to increase the Exchange’s
network connectivity fees for its 10
gigabit (‘‘Gb’’) ultra-low latency (‘‘ULL’’)
fiber connection for Members 4 and nonMembers (the ‘‘Proposed Access Fees’’).
The Exchange currently offers various
bandwidth alternatives for connectivity
to the Exchange, to its primary and
secondary facilities, consisting of a 1Gb
fiber connection, a 10Gb fiber
connection, and a 10Gb ULL fiber
connection. The 10Gb ULL offering uses
an ultra-low latency switch, which
provides faster processing of messages
sent to it in comparison to the switch
used for the other types of connectivity.
The Exchange currently assesses the
following monthly network connectivity
fees to both Members and non-Members
for connectivity to the Exchange’s
primary/secondary facility: (a) $1,400
for the 1Gb connection; (b) $6,100 for
the 10Gb connection; and (c) $9,300 for
the 10Gb ULL connection.
The Exchange’s MIAX Express
Network Interconnect (‘‘MENI’’) can be
configured to provide Members and
non-Members of the Exchange network
connectivity to the trading platforms,
market data systems, test systems, and
2020–39). On January 13, 2021, the Exchange
withdrew that filing and submitted this filing.
4 The term ‘‘Member’’ means an individual or
organization that is registered with the Exchange
pursuant to Chapter II of these Rules for purposes
of trading on the Exchange as an ‘‘Electronic
Exchange Member’’ or ‘‘Market Maker.’’ Members
are deemed ‘‘members’’ under the Exchange Act.
See Exchange Rule 100.
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disaster recovery facilities of both the
Exchange and its affiliate, Miami
International Securities Exchange, LLC
(‘‘MIAX’’), via a single, shared
connection. Members and non-Members
utilizing the MENI to connect to the
trading platforms, market data systems,
test systems and disaster recovery
facilities of the Exchange and MIAX via
a single, shared connection are assessed
only one monthly network connectivity
fee per connection, regardless of the
trading platforms, market data systems,
test systems, and disaster recovery
facilities accessed via such connection.
The Exchange now proposes to increase
the monthly network connectivity fees
for its 10Gb ULL connections for both
Members and non-Members from $9,300
to $10,000 per connection.
*
*
*
*
*
The Exchange 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. The Exchange
believes this high standard is especially
important when an exchange imposes
various access fees for market
participants to access an exchange’s
marketplace. The Exchange deems
connectivity 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 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
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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 and non-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 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 11
months and projected for the final 1
month) 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
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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’’).5 On
May 21, 2019, the Commission issued
the Staff Guidance on SRO Rule Filings
Relating to Fees.6
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 data and analysis),
constrained by significant competitive
forces; and (iv) are supported by specific
information (including quantitative
information), fair and reasonable
because they will permit recovery of the
Exchange’s costs (less than all) and will
not result in excessive pricing or supracompetitive profit. Accordingly, the
Exchange believes that the Commission
should find that the Proposed Access
Fees are consistent with the Act.
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2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 7
in general, and furthers the objectives of
Section 6(b)(4) of the Act 8 in particular,
in that it provides for the equitable
allocation of reasonable dues, fees and
other charges among Exchange Members
and issuers and other persons using any
facility or system which the Exchange
operates or controls. The Exchange also
believes the proposal furthers the
objectives of Section 6(b)(5) of the Act 9
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.
For November 2020, the Exchange
had only a 3.39% market share of the
U.S. options industry.10 The Exchange
5 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).
6 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’’).
7 15 U.S.C. 78f(b).
8 15 U.S.C. 78f(b)(4).
9 15 U.S.C. 78f(b)(5).
10 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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is not aware of any evidence that a
market share of approximately 3–4%
provides the Exchange with anticompetitive pricing power. If the
Exchange were to attempt to establish
unreasonable pricing, then no market
participant would join or connect, and
existing market participants would
disconnect.
Separately, the Exchange is not aware
of any reason why market participants
could not simply drop their connections
and cease being Members of the
Exchange if the Exchange were to
establish unreasonable and
uncompetitive price increases for its
connectivity alternatives. Market
participants choose to connect to a
particular exchange and because it is a
choice, the Exchange must set
reasonable connectivity pricing,
otherwise prospective members would
not connect and existing members
would disconnect or connect through a
third-party reseller of connectivity. No
options market participant is required
by rule, regulation, or competitive forces
to be a Member of the Exchange. As
evidence of the fact that market
participants can and do disconnect from
exchanges based on connectivity
pricing, R2G Services LLC (‘‘R2G’’) filed
a comment letter after BOX’s proposed
rule changes to increase its connectivity
fees (SR–BOX–2018–24, SR–BOX–
2018–37, and SR–BOX–2019–04).11 The
R2G Letter stated, ‘‘[w]hen BOX
instituted a $10,000/month price
increase for connectivity; we had no
choice but to terminate connectivity
into them as well as terminate our
market data relationship. The cost
benefit analysis just didn’t make any
sense for us at those new levels.’’
Accordingly, this example shows that if
an exchange sets too high of a fee for
connectivity and/or market data services
for its relevant marketplace, market
participants can choose to disconnect
from the exchange.
The Exchange believes that its
proposal is consistent with Section
6(b)(4) of the Act because the Proposed
Access Fees will not result in excessive
or supra-competitive profit. The costs
associated with providing access to
Exchange Members and non-Members,
as well as the general expansion of a
state-of-the-art infrastructure, are
extensive, have increased year-overyear, and are projected to increase yearover-year in the future.
The Exchange believes the proposed
increase to the 10Gb ULL connection is
11 See Letter from Stefano Durdic, R2G, to
Vanessa Countryman, Acting Secretary,
Commission, dated March 27, 2019 (the ‘‘R2G
Letter’’).
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an equitable allocation of reasonable
fees because 10Gb ULL purchasers: (1)
Consume the most bandwidth and
resources of the network; (2) transact the
vast majority of the volume on the
Exchange; and (3) require the high touch
network support services provided by
the Exchange and its staff, including
more costly network monitoring,
reporting and support services, resulting
in a much higher cost to the Exchange.
The Exchange believes that the
proposed increase to the 10Gb ULL fees
are equitably allocated among users of
the network connectivity alternatives, as
the users of the 10Gb ULL connections
consume the most bandwidth and
resources of the network. Specifically,
the Exchange notes that these users
account for approximately greater than
99% of message traffic over the network,
while the users of the 1Gb connections
account for approximately less than 1%
of message traffic over the network. In
the Exchange’s experience, users of the
1Gb connections do not have a business
need for the high performance network
solutions required by 10Gb ULL users.
The Exchange’s high performance
network solutions and supporting
infrastructure (including employee
support), provides unparalleled system
throughput with the network ability to
support access to several distinct
options markets and the capacity to
handle approximately 38 million quote
messages per second. On an average
day, the Exchange and MIAX handle
over approximately 8,304,500,000
billion total messages. Of that total,
users of the 10Gb ULL connections
generate approximately 8.3 billion
messages, and users of the 1Gb
connections generate approximately 4.5
million messages. However, in order to
achieve a consistent, premium network
performance, the Exchange must build
out and maintain a network that has the
capacity to handle the message rate
requirements of its most heavy network
consumers. These billions of messages
per day consume the Exchange’s
resources and significantly contribute to
the overall network connectivity
expense for storage and network
transport capabilities. Given this
difference in network utilization rate,
the Exchange believes that it is
reasonable, equitable, and not unfairly
discriminatory that the 10Gb ULL users
pay for the vast majority of the shared
network resources from which all
Member and non-Member users benefit,
but is designed and maintained from a
capacity standpoint to specifically
handle the message rate and
performance requirements of 10Gb and
10Gb ULL users.
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The Exchange also believes that the
connectivity fees are equitably allocated
amongst users of the network
connectivity alternatives, when these
fees are viewed in the context of the
overall trading volume on the Exchange.
To illustrate, the purchasers of the 10Gb
ULL connectivity account for
approximately 94% of the volume on
the Exchange for the month of
November 2020. This overall volume
percentage (94% of total Exchange
volume) is in line with the amount of
network connectivity revenue collected
from 10Gb ULL purchasers (98% of total
Exchange connectivity revenue). For
example, utilizing the same recently
completed billing cycle described
above, Exchange Members and nonMembers that purchased 10Gb ULL
connections accounted for
approximately 87% of the total network
connectivity revenue collected by the
Exchange from all connectivity
alternatives; and Members and nonMembers that purchased 1Gb and 10Gb
connections accounted for
approximately 13% of the revenue
collected by the Exchange from all
connectivity alternatives.
The Exchange further believes that the
fees are equitably allocated, as the
amount of the fees for the various
connectivity alternatives are directly
related to the actual costs associated
with providing the respective
connectivity alternatives. That is, the
cost to the Exchange of providing a 1Gb
network connection is significantly
lower than the cost to the Exchange of
providing a 10Gb or 10Gb ULL network
connection. Pursuant to its extensive
cost review described above, the
Exchange believes that the average cost
to provide a 10Gb ULL network
connection is approximately 8 times
more than the average cost to provide a
1Gb connection. The simple hardware
and software component costs alone of
a 10Gb ULL connection is not 8 times
more than the 1Gb connection. Rather,
it is the associated premium-product
level network monitoring, reporting,
and support services costs that
accompany a 10Gb ULL connection
which causes it to be 8 times more
costly to provide than the 1Gb
connection. Accordingly, the Exchange
believes it is equitable to allocate those
network infrastructure costs that
accompany a 10Gb ULL connection to
the purchasers of those connections,
and not to purchasers of 1Gb
connections.
As discussed above, the Exchange
differentiates itself by offering a
‘‘premium-product’’ network
experience, as an operator of a high
performance, ultra-low latency network
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with unparalleled system throughput,
which network can support access to
three distinct options markets and
multiple competing market-makers
having affirmative obligations to
continuously quote over 750,000
distinct trading products (per exchange),
and the capacity to handle
approximately 10.7 million quote
messages per second. The ‘‘premiumproduct’’ network experience enables
users of 10Gb and 10Gb ULL
connections to receive the network
monitoring and reporting services for
those approximately 750,000 distinct
trading products. There is a significant,
quantifiable amount of research and
development (‘‘R&D’’) effort, employee
compensation and benefits expense, and
other expense associated with providing
the high touch network monitoring and
reporting services that are utilized by
the 10Gb and 10Gb ULL connections
offered by the Exchange. These value
add services are fully-discussed herein,
and the actual costs associated with
providing these services are the basis for
the differentiated amount of the fees for
the various connectivity alternatives.
In order to provide more detail and to
quantify the Exchange’s costs associated
with providing access to the Exchange
in general, the Exchange notes that there
are material costs associated with
providing the infrastructure and
headcount to fully-support access to the
Exchange. The Exchange incurs
technology expense related to
establishing and maintaining
Information Security services, enhanced
network monitoring and customer
reporting, as well as Regulation SCI
mandated processes, associated with its
network technology. While some of the
expense is fixed, much of the expense
is not fixed, and thus increases as the
services associated with the Proposed
Access Fees increase. For example, new
10Gb ULL connections require the
purchase of additional hardware to
support those connections as well as
enhanced monitoring and reporting of
customer performance that MIAX
PEARL and its affiliates provide.
Further, as the total number of all
connections increase, MIAX PEARL and
its affiliates need to increase their data
center footprint and consume more
power, resulting in increased costs
charged by their third-party data center
provider. Accordingly, the cost to MIAX
PEARL and its affiliates is not fixed. The
Exchange believes the Proposed Access
Fees are reasonable in order to offset the
costs to the Exchange associated with
providing access to its network
infrastructure.
Further, because the costs of operating
its own data center are significant and
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7585
not economically feasible for the
Exchange at this time, the Exchange
does not operate its own data centers,
and instead contracts with a third-party
data center provider. The Exchange
notes that other competing exchange
operators own/operate their data
centers, which offers them greater
control over their data center costs.
Because those exchanges own and
operate their data centers as profit
centers, the Exchange is subject to
additional costs. The Proposed Access
Fees, which are charged for accessing
the Exchange’s data center network
infrastructure, are directly related to the
network and offset such costs.
The Exchange invests significant
resources in network R&D to improve
the overall performance and stability of
its network. For example, the Exchange
has a number of network monitoring
tools (some of which were developed inhouse, and some of which are licensed
from third-parties), that continually
monitor, detect, and report network
performance, many of which serve as
significant value-adds to the Exchange’s
Members and enable the Exchange to
provide a high level of customer service.
These tools detect and report
performance issues, and thus enable the
Exchange to proactively notify a
Member (and the SIPs) when the
Exchange detects a problem with a
Member’s connectivity. In fact, the
Exchange often receives inquiries from
other industry participants regarding the
status of networking issues outside of
the Exchange’s own network
environment that are impacting the
industry as a whole via the SIPs,
including inquiries from regulators,
because the Exchange has a superior,
state-of the-art network that, through its
enhanced monitoring and reporting
solutions, often detects and identifies
industry-wide networking issues ahead
of the SIPs. The Exchange also incurs
costs associated with the maintenance
and improvement of existing tools and
the development of new tools.
Additionally, certain Exchangedeveloped network aggregation and
monitoring tools provide the Exchange
with the ability to measure network
traffic with a much more granular level
of variability. This is important as
Exchange Members demand a higher
level of network determinism and the
ability to measure variability in terms of
single digit nanoseconds. Also, routine
R&D projects to improve the
performance of the network’s hardware
infrastructure result in additional cost.
In sum, the costs associated with
maintaining and enhancing a state-ofthe-art exchange network in the U.S.
options industry is a significant expense
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for the Exchange that also increases
year-over-year, and thus the Exchange
believes that it is reasonable to offset
those costs through the Proposed Access
Fees. The Exchange invests in and offers
a superior network infrastructure as part
of its overall options exchange services
offering, resulting in significant costs
associated with maintaining this
network infrastructure, which are
directly tied to the amount of the
Proposed Access Fees that must be
charged to access it, in order to recover
those costs.
For the avoidance of doubt, none of
the expenses included herein relating to
the services associated with the
Proposed Access Fees also relate to the
provision of any other services offered
by the Exchange. Stated differently, no
expense amount of the Exchange is
allocated twice. The Exchange notes
that it made certain representations in a
previous filing 12 regarding its expense
allocation for the provision of additional
limited service ports. The Exchange
represents that none of the expenses
allocated to the provision of additional
limited service ports are also allocated
to the services associated with the
Proposed Access Fees—that is, there is
no overlap of any such expenses that are
included in the costs associated with
services the Exchange provides for the
Proposed Access Fees and for the
services the Exchange provides for
ports. Lastly, the Exchange notes that,
with respect to the MIAX PEARL
expenses included herein, those
expenses only cover the MIAX PEARL
options market; expenses associated
with the MIAX PEARL equities market
are accounted for separately and are not
included within the scope of this filing.
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 PEARL
and MIAX associated with providing
these services versus the total projected
annual revenue for both exchanges from
these services. For 2020, the total
annual expense for providing network
connectivity services (that is, the shared
network connectivity of MIAX PEARL
and MIAX, but excluding MIAX
12 See Securities Exchange Act Release No. 90812
(December 29, 2020) (SR–PEARL–2020–35).
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Emerald) is projected to be
approximately $17.9 million. The $17.9
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 for MIAX PEARL and
MIAX: (1) Third-party expense, relating
to fees paid by MIAX PEARL and MIAX
to third-parties for certain products and
services; and (2) internal expense,
relating to the internal costs of MIAX
PEARL and MIAX to provide the
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 11
months and projected for the final 1
month) revenue and costs, which utilize
the same presentation methodology as
set forth in the Exchange’s previouslyissued Audited Unconsolidated
Financial Statements.13 The $17.9
million in projected total annual
expense is directly related to the
services associated with providing
network connectivity services, 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 to
the Exchange to provide the services
associated with the Proposed Access
Fees.
For 2020, total third-party expense,
relating to fees paid by MIAX PEARL
and MIAX to third-parties for certain
products and services for the Exchange
13 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. 87876 (December 31,
2019), 85 FR 757 (January 7, 2020) (SR–PEARL–
2019–36). Accordingly, the third-party 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.
PO 00000
Frm 00061
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to be able to provide network
connectivity services, is projected to be
$4,079,910. This includes, but is not
limited to, a portion of the fees paid to:
(1) Equinix, for data center services, for
the primary, secondary, and disaster
recovery locations of the MIAX PEARL
and MIAX trading system infrastructure;
(2) Zayo Group Holdings, Inc. (‘‘Zayo’’)
for connectivity services (fiber and
bandwidth connectivity) linking MIAX
PEARL and MIAX office locations in
Princeton, NJ and Miami, FL to all data
center locations; (3) Secure Financial
Transaction Infrastructure (‘‘SFTI’’),14
which supports connectivity and feeds
for the entire U.S. options industry; (4)
various other services providers
(including Thompson Reuters, NYSE,
Nasdaq, and Internap), which provide
content, connectivity services, and
infrastructure services for critical
components of options connectivity;
and (5) various other hardware and
software providers (including Dell and
Cisco, which support the production
environment in which Members and
non-Members connect to the network to
trade, receive market data, etc.).
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 PEARL and MIAX
do not allocate their 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.
14 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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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 non-Members and their customers.
The Exchange did not allocate all of the
Equinix expense toward the cost of
providing network connectivity
services, only that portion which the
Exchange identified as being
specifically mapped to providing
network connectivity services,
approximately 68% 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 PEARL with its
affiliates, MIAX and MIAX Emerald, as
well as the data center and disaster
recovery locations. As such, all of the
trade data, including the billions of
messages each day per exchange, flow
through Zayo’s infrastructure over the
Exchange’s network. Without these
services from Zayo, the Exchange would
not be able to operate and support the
network and provide the services
associated with the Proposed Access
Fees to its Members and non-Members
and their customers. The Exchange did
not allocate all of the Zayo expense
toward the cost of providing network
connectivity services, only that portion
which the Exchange identified as being
specifically mapped to providing
network connectivity services,
approximately 62% 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 portion of the
SFTI expense and various other service
providers’ (including Thompson
Reuters, NYSE, Nasdaq, and Internap)
expense because those entities provide
connectivity and feeds for the entire
U.S. options industry as well as the
content, connectivity services, and
infrastructure services for critical
components of the network. Without
these services from SFTI and various
other service providers, the Exchange
would not be able to operate and
support the network and provide the
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services associated with the Proposed
Access Fees to its Members and nonMembers and their customers. The
Exchange did not allocate all of the SFTI
and other service providers’ expense
toward the cost of providing network
connectivity services, only that portion
which the Exchange identified as being
specifically mapped to providing
network connectivity services,
approximately 89% of the total SFTI
and other service providers’ expense.
The Exchange believes this allocation is
reasonable because it represents the
Exchange’s actual cost to 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
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 the services associated with
the Proposed Access Fees to its
Members and non-Members and their
customers. The Exchange did not
allocate all of the hardware and software
provider expense toward the cost of
providing network connectivity
services, only that portion which the
Exchange identified as being
specifically mapped to providing
network connectivity services,
approximately 54% of the total
hardware and software provider
expense. The Exchange believes this
allocation is reasonable because it
represents the Exchange’s actual cost to
provide the services associated with the
Proposed Access Fees, and not any
other service, as supported by its cost
review.
For 2020, total projected internal
expense, relating to the internal costs of
MIAX PEARL and MIAX to provide
network connectivity services, is
projected to be $13,831,434. 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; (2)
depreciation and amortization of
hardware and software used to provide
the services associated with the
PO 00000
Frm 00062
Fmt 4703
Sfmt 4703
7587
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, the Exchange and MIAX
do not allocate their 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
Fee. In particular, MIAX PEARL’s and
MIAX’s combined employee
compensation and benefits expense
relating to providing network
connectivity services is projected to be
approximately $6,892,689, which is
only a portion of the $9,727,857 (for
MIAX PEARL) and $11,811,796 (for
MIAX) 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 operate and support the network
and provide network and provide the
services associated with the Proposed
Access Fees to its Members and nonMembers and their customers. The
Exchange did not allocate all of the
employee compensation and benefits
expense toward the cost of providing
network connectivity services, only the
portions which the Exchange identified
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as being specifically mapped to
providing network connectivity
services, approximately 32% of the total
employee compensation and benefits
expense. The Exchange believes this
allocation is reasonable because it
represents the Exchange’s actual cost to
provide the services associated with the
Proposed Access Fees, and not any
other service, as supported by its cost
review.
MIAX PEARL’s and MIAX’s combined
depreciation and amortization expense
relating to providing network
connectivity services is projected to be
$6,378,337, which is only a portion of
the $3,342,621 (for MIAX PEARL) and
$5,276,753 (for MIAX) 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 non-Members and their customers.
The Exchange did not allocate all of the
depreciation and amortization expense
toward the cost of providing network
connectivity services, only the portion
which the Exchange identified as being
specifically mapped to providing
network connectivity services,
approximately 74% of the total
depreciation and amortization expense,
as these services would not be possible
without relying on such equipment. The
Exchange believes this allocation is
reasonable because it represents the
Exchange’s actual cost to provide the
services associated with the Proposed
Access Fees, and not any other service,
as supported by its cost review.
MIAX PEARL’s and MIAX’s combined
occupancy expense relating to providing
network connectivity services is
projected to be $560,408, which is only
a portion of the $528,425 (for MIAX
PEARL) and $615,264 (for MIAX) 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
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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
Access 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 non-Members and their customers.
Accordingly, the Exchange believes it is
reasonable to allocate the identified
portion of its occupancy expense
because such amount represents the
Exchange’s actual cost to house the
equipment and personnel who operate
and support the Exchange’s network
infrastructure and the services
associated with the Proposed Access
Fees. The Exchange did not allocate all
of the occupancy expense toward the
cost of providing network connectivity
services, only that portion which the
Exchange identified as being
specifically mapped to providing the
services associated with the Proposed
Access Fees, approximately 49% of the
total occupancy 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’s monthly projected
revenue for the Proposed Access Fees is
based on MIAX PEARL and MIAX
Members and non-Members purchasing
140 10Gb ULL connections, based on a
recent billing cycle. Accordingly, based
on current assumptions and
approximations, the Exchange and
MIAX PEARL project total combined
monthly revenue from 10Gb ULL
connections of approximately
$1,400,000.15
On a going-forward, fully-annualized
basis, the Exchange and MIAX project
15 The Exchange also projects an additional
$215,000 in monthly revenue through non-10Gb
ULL connections, however the Exchange is not
proposing to adjust the fees for those connections
at this time.
PO 00000
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that their annualized revenue for
providing the services associated with
the Proposed Access Fees to be
approximately $16.8 million per annum,
based on a most recently completed
billing cycle. The Exchange and MIAX
project that their annualized revenue for
providing network connectivity services
(all connectivity alternatives) to be
approximately $19.4 million per
annum.16 The Exchange and MIAX
project that their annualized expense for
providing network connectivity services
(all connectivity alternatives) to be
approximately $17.9 million per annum.
Accordingly, on a fully-annualized
basis, the Exchange believes its total
projected revenue for the providing
network connectivity services (all
additional connectivity alternatives)
will not result in excessive pricing or
supra-competitive profit, as the
Exchange will make only an 8% profit
margin on network connectivity services
($19.4 million ¥ $17.9 million = $1.5
million per annum). Additionally, this
profit margin does not take into account
the cost of capital expenditures
(‘‘CapEX’’) the Exchange and MIAX are
projected to spend in each year on
CapEx going forward.
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 non-Members and their
customers. Each of these expense items,
including physical hardware, software,
employee compensation and benefits,
occupancy costs, and the depreciation
and amortization of equipment, have
been identified through a line-by-line
item analysis to be integral to the
operation and support of the network.
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 Fee increases are
fair and reasonable because they do not
16 See
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result in excessive pricing or supracompetitive profit, when comparing the
actual network operation and support
costs to the Exchange versus the
projected annual revenue from the
Proposed Access Fees, including the
increased amount.
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 does not believe that
the proposed rule change would place
certain market participants at the
Exchange at a relative disadvantage
compared to other market participants
or affect the ability of such market
participants to compete. In particular,
the Exchange has received no official
complaints from Members, nonMembers (extranets and service
bureaus), third-parties that purchase the
Exchange’s connectivity and resell it,
and customers of those resellers, that
the Exchange’s fees or the Proposed
Access Fees are negatively impacting or
would negatively impact their abilities
to compete with other market
participants or that they are placed at a
disadvantage.
The Exchange believes that the
Proposed Access Fees do not place
certain market participants at a relative
disadvantage to other market
participants because the connectivity
pricing is associated with relative usage
of the various market participants and
does not impose a barrier to entry to
smaller participants. As described
above, the less expensive 1Gb direct
connection is generally purchased by
market participants that utilize less
bandwidth. The market participants that
purchase 10Gb ULL direct connections
utilize the most bandwidth, and those
are the participants that consume the
most resources from the network.
Accordingly, the Proposed Access Fees
do not favor certain categories of market
participants in a manner that would
impose a burden on competition; rather,
the allocation of the Proposed Access
Fees reflects the network resources
consumed by the various size of market
participants—lowest bandwidth
consuming members pay the least, and
highest bandwidth consuming members
pays the most, particularly since higher
bandwidth consumption translates to
higher costs to the Exchange.
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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 connect to (and
purchase market data from) all options
exchanges. Not only does MIAX PEARL
have less than half the number of
members as certain other options
exchanges, but there are also a number
of the Exchange’s Members that do not
connect directly to MIAX PEARL or
MIAX. There are a number of large
market makers and broker-dealers that
are members of other options exchange
but not Members of MIAX PEARL or
MIAX. Additionally, other exchanges
have similar connectivity alternatives
for their participants, including similar
low-latency connectivity, but with
much higher rates to connect. 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 disconnect.
While the Exchange recognizes the
distinction between connecting to an
exchange and trading at the exchange,
the Exchange notes that it operates in a
highly competitive options market in
which market participants can readily
connect and trade with venues they
desire. In such an environment, the
Exchange must continually adjust its
fees to remain competitive with other
exchanges. The Exchange believes that
the proposed changes reflect this
competitive environment.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act,17 and Rule
19b–4(f)(2) 18 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,
17 15
18 17
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CFR 240.19b–4(f)(2).
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7589
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–
PEARL–2021–01 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–PEARL–2021–01. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2021–01 and
E:\FR\FM\29JAN1.SGM
29JAN1
7590
Federal Register / Vol. 86, No. 18 / Friday, January 29, 2021 / Notices
should be submitted on or before
February 19, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–01940 Filed 1–28–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90985; File No. 4–523]
Program for Allocation of Regulatory
Responsibilities Pursuant To Rule
17d–2; Notice of Filing and Order
Approving and Declaring Effective an
Amended Plan for the Allocation of
Regulatory Responsibilities Between
the Financial Industry Regulatory
Authority, Inc. and NYSE Arca, Inc.
January 25, 2021.
Notice is hereby given that the
Securities and Exchange Commission
(‘‘Commission’’) has issued an Order,
pursuant to Section 17(d) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 approving and declaring
effective an amendment to the plan for
allocating regulatory responsibility
(‘‘Plan’’) filed on December 18, 2020,
pursuant to Rule 17d–2 of the Act,2 by
the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) and NYSE
Arca, Inc. (‘‘NYSE Arca’’) (collectively,
‘‘Participating Organizations’’ or
‘‘parties’’). This agreement amends and
restates the agreement entered into
between the parties on February 9, 2007,
entitled ‘‘Agreement Between the
National Association of Securities
Dealers, Inc. and NYSE Arca, Inc.
Pursuant to SEA Rule 17d–2 Under the
Securities Exchange Act of 1934,’’ and
any subsequent amendments thereafter.
khammond on DSKJM1Z7X2PROD with NOTICES
I. Introduction
Section 19(g)(1) of the Act,3 among
other things, requires every selfregulatory organization (‘‘SRO’’)
registered as either a national securities
exchange or national securities
association to examine for, and enforce
compliance by, its members and persons
associated with its members with the
Act, the rules and regulations
thereunder, and the SRO’s own rules,
unless the SRO is relieved of this
responsibility pursuant to Section
19 17
CFR 200.30–3(a)(12).
U.S.C. 78q(d).
2 17 CFR 240.17d–2.
3 15 U.S.C. 78s(g)(1).
1 15
VerDate Sep<11>2014
17:43 Jan 28, 2021
Jkt 253001
17(d) 4 or Section 19(g)(2) 5 of the Act.
Without this relief, the statutory
obligation of each individual SRO could
result in a pattern of multiple
examinations of broker-dealers that
maintain memberships in more than one
SRO (‘‘common members’’). Such
regulatory duplication would add
unnecessary expenses for common
members and their SROs.
Section 17(d)(1) of the Act 6 was
intended, in part, to eliminate
unnecessary multiple examinations and
regulatory duplication.7 With respect to
a common member, Section 17(d)(1)
authorizes the Commission, by rule or
order, to relieve an SRO of the
responsibility to receive regulatory
reports, to examine for and enforce
compliance with applicable statutes,
rules, and regulations, or to perform
other specified regulatory functions.
To implement Section 17(d)(1), the
Commission adopted two rules: Rule
17d–1 and Rule 17d–2 under the Act.8
Rule 17d–1 authorizes the Commission
to name a single SRO as the designated
examining authority (‘‘DEA’’) to
examine common members for
compliance with the financial
responsibility requirements imposed by
the Act, or by Commission or SRO
rules.9 When an SRO has been named as
a common member’s DEA, all other
SROs to which the common member
belongs are relieved of the responsibility
to examine the firm for compliance with
the applicable financial responsibility
rules. On its face, Rule 17d–1 deals only
with an SRO’s obligations to enforce
member compliance with financial
responsibility requirements. Rule 17d–1
does not relieve an SRO from its
obligation to examine a common
member for compliance with its own
rules and provisions of the federal
securities laws governing matters other
than financial responsibility, including
sales practices and trading activities and
practices.
To address regulatory duplication in
these and other areas, the Commission
adopted Rule 17d–2 under the Act.10
Rule 17d–2 permits SROs to propose
joint plans for the allocation of
regulatory responsibilities with respect
4 15
U.S.C. 78q(d).
U.S.C. 78s(g)(2).
6 15 U.S.C. 78q(d)(1).
7 See Securities Act Amendments of 1975, Report
of the Senate Committee on Banking, Housing, and
Urban Affairs to Accompany S. 249, S. Rep. No. 94–
75, 94th Cong., 1st Session 32 (1975).
8 17 CFR 240.17d–1 and 17 CFR 240.17d–2,
respectively.
9 See Securities Exchange Act Release No. 12352
(April 20, 1976), 41 FR 18808 (May 7, 1976).
10 See Securities Exchange Act Release No. 12935
(October 28, 1976), 41 FR 49091 (November 8,
1976).
5 15
PO 00000
Frm 00065
Fmt 4703
Sfmt 4703
to their common members. Under
paragraph (c) of Rule 17d–2, the
Commission may declare such a plan
effective if, after providing for
appropriate notice and opportunity for
comment, it determines that the plan is
necessary or appropriate in the public
interest and for the protection of
investors, to foster cooperation and
coordination among the SROs, to
remove impediments to, and foster the
development of, a national market
system and a national clearance and
settlement system, and is in conformity
with the factors set forth in Section
17(d) of the Act. Commission approval
of a plan filed pursuant to Rule 17d–2
relieves an SRO of those regulatory
responsibilities allocated by the plan to
another SRO.
II. The Plan
On August 31, 2006, the Commission
declared effective the Plan entered into
between FINRA and NYSE Arca for
allocating regulatory responsibility
pursuant to Rule 17d–2.11 On March 22,
2007, the Commission approved an
amendment to the Plan that (1)
eliminated paragraph 11 of the Plan that
allocated to FINRA the responsibility to
receive and act upon requests for
extension of time pursuant to Federal
Reserve Regulation T and Rule 15c3–3
under the Act, and (2) changed from
‘‘monthly’’ to ‘‘upon request’’ the
obligation of FINRA to share
information with NYSE Arca regarding
notice of changes in allied members,
partners, officers, registered personnel
and other persons, and the opening,
address change, and termination of
main and branch offices and the names
of branch office managers.12
The Plan is intended to reduce
regulatory duplication for firms that are
common members of FINRA and NYSE
Arca by allocating regulatory
responsibility with respect to certain
applicable laws, rules, and regulations
that are common among them. Included
in the Plan is an exhibit that lists every
NYSE Arca rule for which FINRA bears
responsibility under the Plan for
overseeing and enforcing with respect to
NYSE Arca members that are also
members of FINRA and the associated
persons therewith (‘‘Certification’’).
III. Proposed Amendment to the Plan
On December 18, 2020, the parties
submitted a proposed amendment to the
Plan (‘‘Amended Plan’’). The primary
purpose of the Amended Plan is to
11 See Securities Exchange Act Release No. 54394
(August 31, 2006), 71 FR 52827 (September 7,
2006).
12 See Securities Exchange Act Release No. 55505
(March 22, 2007), 72 FR 14628 (March 28, 2007).
E:\FR\FM\29JAN1.SGM
29JAN1
]]>Agencies
[Federal Register Volume 86, Number 18 (Friday, January 29, 2021)]
[Notices]
[Pages 7582-7590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01940]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90981; File No. SR-PEARL-2021-01]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
PEARL Options Fee Schedule for Member and Non-Member Monthly Network
Connectivity Fees
January 25, 2021.
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 January 13, 2021, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX PEARL Fee
Schedule (the ``Fee Schedule'') for the Exchange's options market.\3\
---------------------------------------------------------------------------
\3\ The Commission notes that the Exchange initially filed the
proposed Fee Schedule amendment on December 31, 2020 (SR-PEARL-2020-
39). On January 13, 2021, the Exchange withdrew that filing and
submitted this filing.
---------------------------------------------------------------------------
[[Page 7583]]
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/pearl at MIAX
PEARL's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to increase the
Exchange's network connectivity fees for its 10 gigabit (``Gb'') ultra-
low latency (``ULL'') fiber connection for Members \4\ and non-Members
(the ``Proposed Access Fees'').
---------------------------------------------------------------------------
\4\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of these
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See Exchange Rule 100.
---------------------------------------------------------------------------
The Exchange currently offers various bandwidth alternatives for
connectivity to the Exchange, to its primary and secondary facilities,
consisting of a 1Gb fiber connection, a 10Gb fiber connection, and a
10Gb ULL fiber connection. The 10Gb ULL offering uses an ultra-low
latency switch, which provides faster processing of messages sent to it
in comparison to the switch used for the other types of connectivity.
The Exchange currently assesses the following monthly network
connectivity fees to both Members and non-Members for connectivity to
the Exchange's primary/secondary facility: (a) $1,400 for the 1Gb
connection; (b) $6,100 for the 10Gb connection; and (c) $9,300 for the
10Gb ULL connection.
The Exchange's MIAX Express Network Interconnect (``MENI'') can be
configured to provide Members and non-Members of the Exchange network
connectivity to the trading platforms, market data systems, test
systems, and disaster recovery facilities of both the Exchange and its
affiliate, Miami International Securities Exchange, LLC (``MIAX''), via
a single, shared connection. Members and non-Members utilizing the MENI
to connect to the trading platforms, market data systems, test systems
and disaster recovery facilities of the Exchange and MIAX via a single,
shared connection are assessed only one monthly network connectivity
fee per connection, regardless of the trading platforms, market data
systems, test systems, and disaster recovery facilities accessed via
such connection. The Exchange now proposes to increase the monthly
network connectivity fees for its 10Gb ULL connections for both Members
and non-Members from $9,300 to $10,000 per connection.
* * * * *
The Exchange 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. The
Exchange believes this high standard is especially important when an
exchange imposes various access fees for market participants to access
an exchange's marketplace. The Exchange deems connectivity 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 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 and non-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
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 11
months and projected for the final 1 month) 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
[[Page 7584]]
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'').\5\ On May 21, 2019, the Commission
issued the Staff Guidance on SRO Rule Filings Relating to Fees.\6\
---------------------------------------------------------------------------
\5\ 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).
\6\ 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 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 data and analysis), constrained by significant
competitive forces; and (iv) are supported by specific information
(including quantitative information), fair and reasonable because they
will permit recovery of the Exchange's costs (less than all) and will
not result in excessive pricing or supra-competitive profit.
Accordingly, the Exchange believes that the Commission should find that
the Proposed Access Fees are consistent with 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 \7\ in general, and furthers
the objectives of Section 6(b)(4) of the Act \8\ in particular, in that
it provides for the equitable allocation of reasonable dues, fees and
other charges among Exchange Members and issuers and other persons
using any facility or system which the Exchange operates or controls.
The Exchange also believes the proposal furthers the objectives of
Section 6(b)(5) of the Act \9\ 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.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
For November 2020, the Exchange had only a 3.39% market share of
the U.S. options industry.\10\ The Exchange is not aware of any
evidence that a market share of approximately 3-4% provides the
Exchange with anti-competitive pricing power. If the Exchange were to
attempt to establish unreasonable pricing, then no market participant
would join or connect, and existing market participants would
disconnect.
---------------------------------------------------------------------------
\10\ 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.
---------------------------------------------------------------------------
Separately, the Exchange is not aware of any reason why market
participants could not simply drop their connections and cease being
Members of the Exchange if the Exchange were to establish unreasonable
and uncompetitive price increases for its connectivity alternatives.
Market participants choose to connect to a particular exchange and
because it is a choice, the Exchange must set reasonable connectivity
pricing, otherwise prospective members would not connect and existing
members would disconnect or connect through a third-party reseller of
connectivity. No options market participant is required by rule,
regulation, or competitive forces to be a Member of the Exchange. As
evidence of the fact that market participants can and do disconnect
from exchanges based on connectivity pricing, R2G Services LLC
(``R2G'') filed a comment letter after BOX's proposed rule changes to
increase its connectivity fees (SR-BOX-2018-24, SR-BOX-2018-37, and SR-
BOX-2019-04).\11\ The R2G Letter stated, ``[w]hen BOX instituted a
$10,000/month price increase for connectivity; we had no choice but to
terminate connectivity into them as well as terminate our market data
relationship. The cost benefit analysis just didn't make any sense for
us at those new levels.'' Accordingly, this example shows that if an
exchange sets too high of a fee for connectivity and/or market data
services for its relevant marketplace, market participants can choose
to disconnect from the exchange.
---------------------------------------------------------------------------
\11\ See Letter from Stefano Durdic, R2G, to Vanessa Countryman,
Acting Secretary, Commission, dated March 27, 2019 (the ``R2G
Letter'').
---------------------------------------------------------------------------
The Exchange believes that its proposal is consistent with Section
6(b)(4) of the Act because the Proposed Access Fees will not result in
excessive or supra-competitive profit. The costs associated with
providing access to Exchange Members and non-Members, as well as the
general expansion of a state-of-the-art infrastructure, are extensive,
have increased year-over-year, and are projected to increase year-over-
year in the future.
The Exchange believes the proposed increase to the 10Gb ULL
connection is an equitable allocation of reasonable fees because 10Gb
ULL purchasers: (1) Consume the most bandwidth and resources of the
network; (2) transact the vast majority of the volume on the Exchange;
and (3) require the high touch network support services provided by the
Exchange and its staff, including more costly network monitoring,
reporting and support services, resulting in a much higher cost to the
Exchange.
The Exchange believes that the proposed increase to the 10Gb ULL
fees are equitably allocated among users of the network connectivity
alternatives, as the users of the 10Gb ULL connections consume the most
bandwidth and resources of the network. Specifically, the Exchange
notes that these users account for approximately greater than 99% of
message traffic over the network, while the users of the 1Gb
connections account for approximately less than 1% of message traffic
over the network. In the Exchange's experience, users of the 1Gb
connections do not have a business need for the high performance
network solutions required by 10Gb ULL users. The Exchange's high
performance network solutions and supporting infrastructure (including
employee support), provides unparalleled system throughput with the
network ability to support access to several distinct options markets
and the capacity to handle approximately 38 million quote messages per
second. On an average day, the Exchange and MIAX handle over
approximately 8,304,500,000 billion total messages. Of that total,
users of the 10Gb ULL connections generate approximately 8.3 billion
messages, and users of the 1Gb connections generate approximately 4.5
million messages. However, in order to achieve a consistent, premium
network performance, the Exchange must build out and maintain a network
that has the capacity to handle the message rate requirements of its
most heavy network consumers. These billions of messages per day
consume the Exchange's resources and significantly contribute to the
overall network connectivity expense for storage and network transport
capabilities. Given this difference in network utilization rate, the
Exchange believes that it is reasonable, equitable, and not unfairly
discriminatory that the 10Gb ULL users pay for the vast majority of the
shared network resources from which all Member and non-Member users
benefit, but is designed and maintained from a capacity standpoint to
specifically handle the message rate and performance requirements of
10Gb and 10Gb ULL users.
[[Page 7585]]
The Exchange also believes that the connectivity fees are equitably
allocated amongst users of the network connectivity alternatives, when
these fees are viewed in the context of the overall trading volume on
the Exchange. To illustrate, the purchasers of the 10Gb ULL
connectivity account for approximately 94% of the volume on the
Exchange for the month of November 2020. This overall volume percentage
(94% of total Exchange volume) is in line with the amount of network
connectivity revenue collected from 10Gb ULL purchasers (98% of total
Exchange connectivity revenue). For example, utilizing the same
recently completed billing cycle described above, Exchange Members and
non-Members that purchased 10Gb ULL connections accounted for
approximately 87% of the total network connectivity revenue collected
by the Exchange from all connectivity alternatives; and Members and
non-Members that purchased 1Gb and 10Gb connections accounted for
approximately 13% of the revenue collected by the Exchange from all
connectivity alternatives.
The Exchange further believes that the fees are equitably
allocated, as the amount of the fees for the various connectivity
alternatives are directly related to the actual costs associated with
providing the respective connectivity alternatives. That is, the cost
to the Exchange of providing a 1Gb network connection is significantly
lower than the cost to the Exchange of providing a 10Gb or 10Gb ULL
network connection. Pursuant to its extensive cost review described
above, the Exchange believes that the average cost to provide a 10Gb
ULL network connection is approximately 8 times more than the average
cost to provide a 1Gb connection. The simple hardware and software
component costs alone of a 10Gb ULL connection is not 8 times more than
the 1Gb connection. Rather, it is the associated premium-product level
network monitoring, reporting, and support services costs that
accompany a 10Gb ULL connection which causes it to be 8 times more
costly to provide than the 1Gb connection. Accordingly, the Exchange
believes it is equitable to allocate those network infrastructure costs
that accompany a 10Gb ULL connection to the purchasers of those
connections, and not to purchasers of 1Gb connections.
As discussed above, the Exchange differentiates itself by offering
a ``premium-product'' network experience, as an operator of a high
performance, ultra-low latency network with unparalleled system
throughput, which network can support access to three distinct options
markets and multiple competing market-makers having affirmative
obligations to continuously quote over 750,000 distinct trading
products (per exchange), and the capacity to handle approximately 10.7
million quote messages per second. The ``premium-product'' network
experience enables users of 10Gb and 10Gb ULL connections to receive
the network monitoring and reporting services for those approximately
750,000 distinct trading products. There is a significant, quantifiable
amount of research and development (``R&D'') effort, employee
compensation and benefits expense, and other expense associated with
providing the high touch network monitoring and reporting services that
are utilized by the 10Gb and 10Gb ULL connections offered by the
Exchange. These value add services are fully-discussed herein, and the
actual costs associated with providing these services are the basis for
the differentiated amount of the fees for the various connectivity
alternatives.
In order to provide more detail and to quantify the Exchange's
costs associated with providing access to the Exchange in general, the
Exchange notes that there are material costs associated with providing
the infrastructure and headcount to fully-support access to the
Exchange. The Exchange incurs technology expense related to
establishing and maintaining Information Security services, enhanced
network monitoring and customer reporting, as well as Regulation SCI
mandated processes, associated with its network technology. While some
of the expense is fixed, much of the expense is not fixed, and thus
increases as the services associated with the Proposed Access Fees
increase. For example, new 10Gb ULL connections require the purchase of
additional hardware to support those connections as well as enhanced
monitoring and reporting of customer performance that MIAX PEARL and
its affiliates provide. Further, as the total number of all connections
increase, MIAX PEARL and its affiliates need to increase their data
center footprint and consume more power, resulting in increased costs
charged by their third-party data center provider. Accordingly, the
cost to MIAX PEARL and its affiliates is not fixed. The Exchange
believes the Proposed Access Fees are reasonable in order to offset the
costs to the Exchange associated with providing access to its network
infrastructure.
Further, because the costs of operating its own data center are
significant and not economically feasible for the Exchange at this
time, the Exchange does not operate its own data centers, and instead
contracts with a third-party data center provider. The Exchange notes
that other competing exchange operators own/operate their data centers,
which offers them greater control over their data center costs. Because
those exchanges own and operate their data centers as profit centers,
the Exchange is subject to additional costs. The Proposed Access Fees,
which are charged for accessing the Exchange's data center network
infrastructure, are directly related to the network and offset such
costs.
The Exchange invests significant resources in network R&D to
improve the overall performance and stability of its network. For
example, the Exchange has a number of network monitoring tools (some of
which were developed in-house, and some of which are licensed from
third-parties), that continually monitor, detect, and report network
performance, many of which serve as significant value-adds to the
Exchange's Members and enable the Exchange to provide a high level of
customer service. These tools detect and report performance issues, and
thus enable the Exchange to proactively notify a Member (and the SIPs)
when the Exchange detects a problem with a Member's connectivity. In
fact, the Exchange often receives inquiries from other industry
participants regarding the status of networking issues outside of the
Exchange's own network environment that are impacting the industry as a
whole via the SIPs, including inquiries from regulators, because the
Exchange has a superior, state-of the-art network that, through its
enhanced monitoring and reporting solutions, often detects and
identifies industry-wide networking issues ahead of the SIPs. The
Exchange also incurs costs associated with the maintenance and
improvement of existing tools and the development of new tools.
Additionally, certain Exchange-developed network aggregation and
monitoring tools provide the Exchange with the ability to measure
network traffic with a much more granular level of variability. This is
important as Exchange Members demand a higher level of network
determinism and the ability to measure variability in terms of single
digit nanoseconds. Also, routine R&D projects to improve the
performance of the network's hardware infrastructure result in
additional cost. In sum, the costs associated with maintaining and
enhancing a state-of-the-art exchange network in the U.S. options
industry is a significant expense
[[Page 7586]]
for the Exchange that also increases year-over-year, and thus the
Exchange believes that it is reasonable to offset those costs through
the Proposed Access Fees. The Exchange invests in and offers a superior
network infrastructure as part of its overall options exchange services
offering, resulting in significant costs associated with maintaining
this network infrastructure, which are directly tied to the amount of
the Proposed Access Fees that must be charged to access it, in order to
recover those costs.
For the avoidance of doubt, none of the expenses included herein
relating to the services associated with the Proposed Access Fees also
relate to the provision of any other services offered by the Exchange.
Stated differently, no expense amount of the Exchange is allocated
twice. The Exchange notes that it made certain representations in a
previous filing \12\ regarding its expense allocation for the provision
of additional limited service ports. The Exchange represents that none
of the expenses allocated to the provision of additional limited
service ports are also allocated to the services associated with the
Proposed Access Fees--that is, there is no overlap of any such expenses
that are included in the costs associated with services the Exchange
provides for the Proposed Access Fees and for the services the Exchange
provides for ports. Lastly, the Exchange notes that, with respect to
the MIAX PEARL expenses included herein, those expenses only cover the
MIAX PEARL options market; expenses associated with the MIAX PEARL
equities market are accounted for separately and are not included
within the scope of this filing.
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\12\ See Securities Exchange Act Release No. 90812 (December 29,
2020) (SR-PEARL-2020-35).
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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
PEARL and MIAX associated with providing these services versus the
total projected annual revenue for both exchanges from these services.
For 2020, the total annual expense for providing network connectivity
services (that is, the shared network connectivity of MIAX PEARL and
MIAX, but excluding MIAX Emerald) is projected to be approximately
$17.9 million. The $17.9 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 for MIAX PEARL and
MIAX: (1) Third-party expense, relating to fees paid by MIAX PEARL and
MIAX to third-parties for certain products and services; and (2)
internal expense, relating to the internal costs of MIAX PEARL and MIAX
to provide the 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 11
months and projected for the final 1 month) revenue and costs, which
utilize the same presentation methodology as set forth in the
Exchange's previously-issued Audited Unconsolidated Financial
Statements.\13\ The $17.9 million in projected total annual expense is
directly related to the services associated with providing network
connectivity services, 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 to
the Exchange to provide the services associated with the Proposed
Access Fees.
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\13\ 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. 87876 (December 31, 2019), 85 FR 757 (January 7, 2020)
(SR-PEARL-2019-36). Accordingly, the third-party 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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For 2020, total third-party expense, relating to fees paid by MIAX
PEARL and MIAX to third-parties for certain products and services for
the Exchange to be able to provide network connectivity services, is
projected to be $4,079,910. This includes, but is not limited to, a
portion of the fees paid to: (1) Equinix, for data center services, for
the primary, secondary, and disaster recovery locations of the MIAX
PEARL and MIAX trading system infrastructure; (2) Zayo Group Holdings,
Inc. (``Zayo'') for connectivity services (fiber and bandwidth
connectivity) linking MIAX PEARL and MIAX office locations in
Princeton, NJ and Miami, FL to all data center locations; (3) Secure
Financial Transaction Infrastructure (``SFTI''),\14\ which supports
connectivity and feeds for the entire U.S. options industry; (4)
various other services providers (including Thompson Reuters, NYSE,
Nasdaq, and Internap), which provide content, connectivity services,
and infrastructure services for critical components of options
connectivity; and (5) various other hardware and software providers
(including Dell and Cisco, which support the production environment in
which Members and non-Members connect to the network to trade, receive
market data, etc.).
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\14\ 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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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 PEARL and MIAX do not allocate their
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.
[[Page 7587]]
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 non-Members and their
customers. The Exchange did not allocate all of the Equinix expense
toward the cost of providing network connectivity services, only that
portion which the Exchange identified as being specifically mapped to
providing network connectivity services, approximately 68% 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
PEARL with its affiliates, MIAX and MIAX Emerald, as well as the data
center and disaster recovery locations. As such, all of the trade data,
including the billions of messages each day per exchange, flow through
Zayo's infrastructure over the Exchange's network. Without these
services from Zayo, the Exchange would not be able to operate and
support the network and provide the services associated with the
Proposed Access Fees to its Members and non-Members and their
customers. The Exchange did not allocate all of the Zayo expense toward
the cost of providing network connectivity services, only that portion
which the Exchange identified as being specifically mapped to providing
network connectivity services, approximately 62% 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
portion of the SFTI expense and various other service providers'
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense
because those entities provide connectivity and feeds for the entire
U.S. options industry as well as the content, connectivity services,
and infrastructure services for critical components of the network.
Without these services from SFTI and various other service providers,
the Exchange would not be able to operate and support the network and
provide the services associated with the Proposed Access Fees to its
Members and non-Members and their customers. The Exchange did not
allocate all of the SFTI and other service providers' expense toward
the cost of providing network connectivity services, only that portion
which the Exchange identified as being specifically mapped to providing
network connectivity services, approximately 89% of the total SFTI and
other service providers' expense. The Exchange believes this allocation
is reasonable because it represents the Exchange's actual cost to
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 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 the services associated with the Proposed Access Fees to its
Members and non-Members and their customers. The Exchange did not
allocate all of the hardware and software provider expense toward the
cost of providing network connectivity services, only that portion
which the Exchange identified as being specifically mapped to providing
network connectivity services, approximately 54% of the total hardware
and software provider expense. The Exchange believes this allocation is
reasonable because it represents the Exchange's actual cost to provide
the services associated with the Proposed Access Fees, and not any
other service, as supported by its cost review.
For 2020, total projected internal expense, relating to the
internal costs of MIAX PEARL and MIAX to provide network connectivity
services, is projected to be $13,831,434. 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; (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, the Exchange and MIAX do not allocate their 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 Fee. In
particular, MIAX PEARL's and MIAX's combined employee compensation and
benefits expense relating to providing network connectivity services is
projected to be approximately $6,892,689, which is only a portion of
the $9,727,857 (for MIAX PEARL) and $11,811,796 (for MIAX) 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 operate and
support the network and provide network and provide the services
associated with the Proposed Access Fees to its Members and non-Members
and their customers. The Exchange did not allocate all of the employee
compensation and benefits expense toward the cost of providing network
connectivity services, only the portions which the Exchange identified
[[Page 7588]]
as being specifically mapped to providing network connectivity
services, approximately 32% of the total employee compensation and
benefits expense. The Exchange believes this allocation is reasonable
because it represents the Exchange's actual cost to provide the
services associated with the Proposed Access Fees, and not any other
service, as supported by its cost review.
MIAX PEARL's and MIAX's combined depreciation and amortization
expense relating to providing network connectivity services is
projected to be $6,378,337, which is only a portion of the $3,342,621
(for MIAX PEARL) and $5,276,753 (for MIAX) 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 non-Members and their customers. The
Exchange did not allocate all of the depreciation and amortization
expense toward the cost of providing network connectivity services,
only the portion which the Exchange identified as being specifically
mapped to providing network connectivity services, approximately 74% of
the total depreciation and amortization expense, as these services
would not be possible without relying on such equipment. The Exchange
believes this allocation is reasonable because it represents the
Exchange's actual cost to provide the services associated with the
Proposed Access Fees, and not any other service, as supported by its
cost review.
MIAX PEARL's and MIAX's combined occupancy expense relating to
providing network connectivity services is projected to be $560,408,
which is only a portion of the $528,425 (for MIAX PEARL) and $615,264
(for MIAX) 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
Access 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 non-Members and their
customers. Accordingly, the Exchange believes it is reasonable to
allocate the identified portion of its occupancy expense because such
amount represents the Exchange's actual cost to house the equipment and
personnel who operate and support the Exchange's network infrastructure
and the services associated with the Proposed Access Fees. The Exchange
did not allocate all of the occupancy expense toward the cost of
providing network connectivity services, only that portion which the
Exchange identified as being specifically mapped to providing the
services associated with the Proposed Access Fees, approximately 49% of
the total occupancy 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's monthly projected revenue for the Proposed Access
Fees is based on MIAX PEARL and MIAX Members and non-Members purchasing
140 10Gb ULL connections, based on a recent billing cycle. Accordingly,
based on current assumptions and approximations, the Exchange and MIAX
PEARL project total combined monthly revenue from 10Gb ULL connections
of approximately $1,400,000.\15\
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\15\ The Exchange also projects an additional $215,000 in
monthly revenue through non-10Gb ULL connections, however the
Exchange is not proposing to adjust the fees for those connections
at this time.
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On a going-forward, fully-annualized basis, the Exchange and MIAX
project that their annualized revenue for providing the services
associated with the Proposed Access Fees to be approximately $16.8
million per annum, based on a most recently completed billing cycle.
The Exchange and MIAX project that their annualized revenue for
providing network connectivity services (all connectivity alternatives)
to be approximately $19.4 million per annum.\16\ The Exchange and MIAX
project that their annualized expense for providing network
connectivity services (all connectivity alternatives) to be
approximately $17.9 million per annum. Accordingly, on a fully-
annualized basis, the Exchange believes its total projected revenue for
the providing network connectivity services (all additional
connectivity alternatives) will not result in excessive pricing or
supra-competitive profit, as the Exchange will make only an 8% profit
margin on network connectivity services ($19.4 million - $17.9 million
= $1.5 million per annum). Additionally, this profit margin does not
take into account the cost of capital expenditures (``CapEX'') the
Exchange and MIAX are projected to spend in each year on CapEx going
forward.
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\16\ See id.
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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 non-Members and their customers. Each of these expense
items, including physical hardware, software, employee compensation and
benefits, occupancy costs, and the depreciation and amortization of
equipment, have been identified through a line-by-line item analysis to
be integral to the operation and support of the network. 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 Fee increases are fair and reasonable because they do
not
[[Page 7589]]
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, including
the increased amount.
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 does not believe that the proposed rule change would
place certain market participants at the Exchange at a relative
disadvantage compared to other market participants or affect the
ability of such market participants to compete. In particular, the
Exchange has received no official complaints from Members, non-Members
(extranets and service bureaus), third-parties that purchase the
Exchange's connectivity and resell it, and customers of those
resellers, that the Exchange's fees or the Proposed Access Fees are
negatively impacting or would negatively impact their abilities to
compete with other market participants or that they are placed at a
disadvantage.
The Exchange believes that the Proposed Access Fees do not place
certain market participants at a relative disadvantage to other market
participants because the connectivity pricing is associated with
relative usage of the various market participants and does not impose a
barrier to entry to smaller participants. As described above, the less
expensive 1Gb direct connection is generally purchased by market
participants that utilize less bandwidth. The market participants that
purchase 10Gb ULL direct connections utilize the most bandwidth, and
those are the participants that consume the most resources from the
network. Accordingly, the Proposed Access Fees do not favor certain
categories of market participants in a manner that would impose a
burden on competition; rather, the allocation of the Proposed Access
Fees reflects the network resources consumed by the various size of
market participants--lowest bandwidth consuming members pay the least,
and highest bandwidth consuming members pays the most, particularly
since higher bandwidth consumption translates to higher costs to the
Exchange.
Inter-Market Competition
The Exchange believes the Proposed 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 connect to (and purchase market data from) all options exchanges.
Not only does MIAX PEARL have less than half the number of members as
certain other options exchanges, but there are also a number of the
Exchange's Members that do not connect directly to MIAX PEARL or MIAX.
There are a number of large market makers and broker-dealers that are
members of other options exchange but not Members of MIAX PEARL or
MIAX. Additionally, other exchanges have similar connectivity
alternatives for their participants, including similar low-latency
connectivity, but with much higher rates to connect. 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 disconnect.
While the Exchange recognizes the distinction between connecting to
an exchange and trading at the exchange, the Exchange notes that it
operates in a highly competitive options market in which market
participants can readily connect and trade with venues they desire. In
such an environment, the Exchange must continually adjust its fees to
remain competitive with other exchanges. The Exchange believes that the
proposed changes reflect this competitive environment.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\17\ and Rule 19b-4(f)(2) \18\ 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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\17\ 15 U.S.C. 78s(b)(3)(A)(ii).
\18\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-PEARL-2021-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-PEARL-2021-01. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-PEARL-2021-01 and
[[Page 7590]]
should be submitted on or before February 19, 2021.
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\19\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-01940 Filed 1-28-21; 8:45 am]
BILLING CODE 8011-01-P
