Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Adopt Monthly Trading Permit Fees, 8455-8464 [2021-02405]
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Federal Register / Vol. 86, No. 23 / Friday, February 5, 2021 / Notices
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 15 and Rule 19b–
4(f)(6) thereunder.16
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.
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:
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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–
MEMX–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–MEMX–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 such
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–MEMX–2021–01, and
should be submitted on or before
February 26, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–02395 Filed 2–4–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91033; File No. SR–
EMERALD–2021–03]
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Its Fee
Schedule To Adopt Monthly Trading
Permit Fees
February 1, 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
22, 2021, MIAX Emerald, LLC (‘‘MIAX
Emerald’’ or ‘‘Exchange’’), filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
15 15
U.S.C. 78s(b)(3)(A).
16 17 CFR 240.19b–4(f)(6).
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8455
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Emerald Fee Schedule
(the ‘‘Fee Schedule’’) to establish
monthly Trading Permit 3 fees for
Exchange Members.4
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/emerald, at MIAX’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to adopt monthly Trading
Permit fees (the ‘‘Proposed Access
Fees’’) depending on the Member’s
status as either an Electronic Exchange
Member (‘‘EEM’’) 5 or as a Market
Maker.6 MIAX Emerald commenced
3 The term ‘‘Trading Permit’’ means a permit
issued by the Exchange that confers the ability to
transact on the Exchange. See Exchange Rule 100.
4 The term ‘‘Member’’ means an individual or
organization approved to exercise the trading rights
associated with a Trading Permit. Members are
deemed ‘‘members’’ under the Exchange Act. See
Exchange Rule 100 and the Definitions Section of
the Fee Schedule.
5 ‘‘Electronic Exchange Member’’ or ‘‘EEM’’
means the holder of a Trading Permit who is not
a Market Maker. Electronic Exchange Members are
deemed ‘‘members’’ under the Exchange Act. See
Exchange Rule 100 and the Definitions Section of
the Fee Schedule.
6 The term ‘‘Market Makers’’ refers to ‘‘Lead
Market Makers’’, ‘‘Primary Lead Market Makers’’
and ‘‘Registered Market Makers’’ collectively. See
Exchange Rule 100 and the Definitions Section of
the Fee Schedule.
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Federal Register / Vol. 86, No. 23 / Friday, February 5, 2021 / Notices
operations as a national securities
exchange registered under Section 6 of
the Act 7 on March 1, 2019.8 The
Exchange adopted its transaction fees
and certain of its non-transaction fees in
its filing SR–EMERALD–2019–15.9 In
that filing, the Exchange expressly
waived, among other fees, the Proposed
Access Fees for the Waiver Period,10 to
provide an incentive to prospective
EEMs and Market Makers to become
Members of the Exchange. When the
Exchange adopted the framework for its
fees, it stated that it would provide
notice to market participants when the
Exchange intended to terminate the
Waiver Period for the Proposed Access
Fees. Accordingly, on September 15,
2020, the Exchange issued a Regulatory
Circular which announced that the
Exchange would be ending the Waiver
Period for the Proposed Access Fees,
among other non-transaction fees,
beginning October 1, 2020.11
The Exchange initially filed its
proposal to establish the Proposed
Access Fees on October 1, 2020.12 The
First Proposed Rule Change was
published for comment in the Federal
Register on October 21, 2020.13 On
November 25, 2020, the Exchange
withdrew the First Proposed Rule
Change 14 and refiled its proposal to
7 15
U.S.C. 78f.
Securities Exchange Act Release No. 84891
(December 20, 2018), 83 FR 67421 (December 28,
2018) (File No. 10–233) (order approving
application of MIAX Emerald, LLC for registration
as a national securities exchange).
9 See Securities Exchange Act Release No. 85393
(March 21, 2019), 84 FR 11599 (March 27, 2019)
(SR–EMERALD–2019–15) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Establish the MIAX Emerald Fee Schedule).
10 ‘‘Waiver Period’’ means, for each applicable
fee, the period of time from the initial effective date
of the MIAX Emerald Fee Schedule until such time
that the Exchange has an effective fee filing
establishing the applicable fee. The Exchange will
issue a Regulatory Circular announcing the
establishment of an applicable fee that was subject
to a Waiver Period at least fifteen (15) days prior
to the termination of the Waiver Period and
effective date of any such applicable fee. See the
Definitions Section of the Fee Schedule.
11 See MIAX Emerald Regulatory Circular 2020–
41 available at https://www.miaxoptions.com/sites/
default/files/circular-files/MIAX_Emerald_RC_
2020_41.pdf.
12 See Securities Exchange Act Release Nos.
90196 (October 15, 2020), 85 FR 67064 (October 21,
2020) (SR–EMERALD–2020–11) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule
Change To Amend Its Fee Schedule To Adopt OneTime Membership Application Fees and Monthly
Trading Permit Fees) (the ‘‘First Proposed Rule
Change’’). The Exchange notes that it refiled its
proposal to establish the one-time membership
application fee in a separate filing. See SR–
EMERALD–2021–01.
13 See id.
14 See Comment Letter from Joseph W. Ferraro III,
SVP, Deputy General Counsel, the Exchange, dated
November 20, 2020, notifying the Commission that
the Exchange will withdraw the First Proposed Rule
Change.
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8 See
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establish monthly Trading Permit fees.15
The Second Proposed Rule Change was
published for comment in the Federal
Register on December 14, 2020.16 The
Exchange notes that the Second
Proposed Rule Change did not receive
any comment letters. Nonetheless, on
January 22, 2021, the Exchange
withdrew the Second Proposed Rule
Change and resubmitted this proposal.17
Trading Permits are issued to
Members who are either EEMs or
Market Makers. Trading Permits grant
access to the Exchange, thus providing
the ability to quote and trade on the
Exchange, in the manner defined in the
relevant Trading Permit. Without a
Trading Permit, a Member cannot
directly trade on the Exchange.
Therefore, a Trading Permit is a means
to directly access the Exchange (which
offers meaningful value), and the
Exchange now proposes to adopt a
monthly fee designed to recover a
portion of the costs associated with
directly accessing the Exchange. The
Exchange proposes to assess the
Proposed Access Fees depending upon
the category of Member that is issued a
Trading Permit. Members issued
Trading Permits during a calendar
month will be assessed monthly Trading
Permit Fees. The Exchange notes that
the Exchange’s affiliate, Miami
International Securities Exchange, LLC
(‘‘MIAX’’), charges a similar, fixed
trading permit fee to its EEMs, and a
similar, varying trading permit fee to its
Market Makers, based upon the number
of assignments of option classes or the
percentage of volume in option
classes.18
The Exchange proposes that monthly
Trading Permit fees will be assessed,
with respect to the calculation of such
fee to EEMs (other than clearing firms),
in any month the EEM is certified in the
membership system and is credentialed
to use one or more Financial
Information Exchange (‘‘FIX’’) 19 ports
in the production environment. Further,
the Exchange proposes that monthly
Trading Permit fees will be assessed
with respect to EEM clearing firms in
15 See Securities Exchange Act Release Nos.
90601 (December 8, 2020), 85 FR 80864 (December
14, 2020) (SR–EMERALD–2020–18) (the ‘‘Second
Proposed Rule Change’’).
16 See id.
17 See Comment Letter from Joseph W. Ferraro III,
SVP, Deputy General Counsel, the Exchange, dated
January 15, 2021, notifying the Commission that the
Exchange will withdraw the Second Proposed Rule
Change.
18 See the MIAX Fee Schedule, Section 3)b).
19 ‘‘FIX Port’’ means an interface with MIAX
Emerald systems that enables the Port user to
submit simple and complex orders electronically to
MIAX Emerald. See the Definitions Section of the
Fee Schedule.
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any month the clearing firm is certified
in the membership system to clear
transactions on the Exchange.
The Exchange proposes to assess
EEMs a monthly fee of $1,000 for each
Trading Permit. Below is the proposed
table showing the Trading Permit fees
for EEMs:
Type of trading
permit
Electronic Exchange Member ..
Monthly
MIAX
Emerald
trading
permit fee
$1,000.00
The Exchange proposes to assess
monthly Trading Permit fees for Market
Makers in any month the Market Maker
(including a Registered Market Maker,
Lead Market Maker, and Primary Lead
Market Maker) is certified in the
membership system, is credentialed to
use one or more MIAX Emerald Express
Interface (‘‘MEI’’) 20 ports in the
production environment and is assigned
to quote in one or more classes.
Specifically, the Exchange proposes to
adopt the following Trading Permit fees
for Market Makers: (i) $7,000 for Market
Maker Assignments in up to 10 option
classes or up to 20% of option classes
by national average daily volume
(‘‘ADV’’); (ii) $12,000 for Market Maker
Assignments in up to 40 option classes
or up to 35% of option classes by ADV;
(iii) $17,000 for Market Maker
Assignments in up to 100 option classes
or up to 50% of option classes by ADV;
and (iv) $22,000 for Market Maker
Assignments in over 100 option classes
or over 50% of option classes by ADV
up to all option classes listed on MIAX
Emerald.
The Exchange also proposes to adopt
an alternative lower Trading Permit fee
for Market Makers who fall within the
following Trading Permit fee levels,
which represent the 3rd and 4th levels
of the Market Maker Trading Permit fee
20 The MEI is a connection to the MIAX Emerald
System that enables Market Makers to submit
simple and complex electronic quotes to MIAX
Emerald. The Exchange offers Full Service MEI
Ports, which provide Market Makers with the
ability to send Market Maker simple and complex
quotes, eQuotes, and quote purge messages to the
MIAX Emerald System. Full Service MEI Ports are
also capable of receiving administrative
information. Market Makers are limited to two Full
Service MEI Ports per Matching Engine. The
Exchange also offers Limited Service MEI Ports,
which provide Market Makers with the ability to
send simple and complex eQuotes and quote purge
messages only, but not Market Maker Quotes, to the
MIAX Emerald System. Limited Service MEI Ports
are also capable of receiving administrative
information. Market Makers initially receive two
Limited Service MEI Ports per Matching Engine.
See the Definitions Section of the Fee Schedule.
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table: (i) Market Maker Assignments in
up to 100 option classes or up to 50%
of option classes by volume; and (ii)
Market Maker Assignments in over 100
option classes or over 50% of option
classes by volume up to all option
classes listed on MIAX Emerald.
Specifically, the Exchange proposes to
adopt footnote ‘‘D’’ following the Market
Maker Trading Permit fee table for these
Monthly Trading Permit tier levels, if
the Market Maker’s total monthly
executed volume during the relevant
month is less than 0.025% of the total
monthly executed volume reported by
OCC in the customer account type for
Market Maker (includes RMM, LMM, PLMM) .......
$7,000.00
12,000.00
D 17,000.00
D 22,000.00
MIAX Emerald-listed option classes for
that month, then the fee will be $15,500
instead of the fee otherwise applicable
to such level.
Below is the proposed table showing
the Trading Permit fees for Market
Makers:
Market maker assignments
(the lesser of the applicable measurements below)
Monthly MIAX
Emerald
trading
permit fee
Type of trading permit
8457
Per class
% of National
average daily volume
Up to 10 Classes ..........
Up to 40 Classes ..........
Up to 100 Classes ........
Over 100 Classes .........
Up to 20% of Classes by volume.
Up to 35% of Classes by volume.
Up to 50% of Classes by volume
Over 50% of Classes by volume up to all Classes listed on MIAX Emerald.
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D For these Monthly MIAX Emerald Trading Permit tier levels, if the Market Maker’s total monthly executed volume during the relevant month is
less than 0.025% of the total monthly executed volume reported by OCC in the customer account type for MIAX Emerald-listed option classes for
that month, then the fee will be $15,500 instead of the fee otherwise applicable to such level.
For the calculation of the monthly
Market Maker Trading Permit fees, the
number of classes is defined as the
greatest number of classes the Market
Maker was assigned to quote in on any
given day within the calendar month
and the class volume percentage is
based on the total national ADV in
classes listed on MIAX Emerald in the
prior calendar quarter. Newly listed
option classes are excluded from the
calculation of the monthly Market
Maker Trading Permit fee until the
calendar quarter following their listing,
at which time the newly listed option
classes will be included in both the per
class count and the percentage of total
national average daily volume. The
Exchange proposes to assess MIAX
Emerald Market Makers the monthly
Market Maker Trading Permit fee based
on the greatest number of classes listed
on MIAX Emerald that the Market
Maker was assigned to quote in on any
given day within a calendar month and
the applicable fee rate that is the lesser
of either the per class basis or
percentage of total national ADV
measurement.
The purpose of the alternative lower
fee designated in proposed footnote ‘‘D’’
is to provide a lower fixed cost to those
Market Makers who are willing to quote
the entire Exchange market (or
substantial amount of the Exchange
market), as objectively measured by
either number of classes assigned or
national ADV, but who do not otherwise
execute a significant amount of volume
on the Exchange. The Exchange believes
that, by offering lower fixed costs to
Market Makers that execute less volume,
the Exchange will retain and attract
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smaller-scale Market Makers, which are
an integral component of the option
marketplace, but have been decreasing
in number in recent years, due to
industry consolidation and lower
market maker profitability. Since these
smaller-scale Market Makers utilize less
Exchange capacity due to lower overall
volume executed, the Exchange believes
it is reasonable and equitable to offer
such Market Makers a lower fixed cost.
The Exchange notes that the Exchange’s
affiliate, MIAX, provides a similar
alternative lower Trading Permit fee for
Market Makers who quote the entire
MIAX market (or substantial amount of
the MIAX market), as objectively
measured by either number of classes
assigned or national ADV, but who do
not otherwise execute a significant
amount of volume on MIAX.21 The
Exchange also notes that other options
exchanges assess certain of their
membership fees at different rates,
based upon a member’s participation on
that exchange,22 and, as such, this
21 See
supra note 18.
e.g., NYSE Arca Options Fees and Charges,
p.1 (assessing market makers $6,000 for up to 175
option issues, an additional $5,000 for up to 350
option issues, an additional $4,000 for up to 1,000
option issues, an additional $3,000 for all option
issues on the exchange, and an additional $1,000
for the fifth trading permit and for each trading
permit thereafter); NYSE American Options Fee
Schedule, p. 23 (assessing market makers $8,000 for
up to 60 plus the bottom 45% of option issues, an
additional $6,000 for up to 150 plus the bottom
45% of option issues, an additional $5,000 for up
to 500 plus the bottom 45% of option issues, and
additional $4,000 for up to 1,100 plus the bottom
45% of option issues, an additional $3,000 for all
issues traded on the exchange, and an additional
$2,000 for 6th to 9th ATPs; plus an addition fee for
premium products). See also Cboe BZX Options
Exchange (‘‘BZX Options’’) assesses the Participant
22 See
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concept is not new or novel. The
proposed changes to the Trading Permit
fees for Market Makers who fall within
the 3rd and 4th levels of the fee table
are based upon a business
determination of current Market Maker
assignments and trading volume.
MIAX Emerald believes that
exchanges, in setting fees of all types,
should meet very high standards of
transparency to demonstrate why each
new fee or fee increase meets the
requirements of the Act that fees be
reasonable, equitably allocated, not
unfairly discriminatory, and not create
an undue burden on competition among
members and markets. MIAX Emerald
believes this high standard is especially
important when an exchange imposes
various access fees for market
participants to access an exchange’s
marketplace. MIAX Emerald deems
Trading Permit fees to be access fees. It
records these fees as part of its ‘‘Access
Fees’’ revenue in its financial
statements. The Exchange believes that
it is important to demonstrate that these
fees are based on its costs and
reasonable business needs. 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
Fee, which is a membership fee, according to a
member’s ADV. See Cboe BZX Options Exchange
Fee Schedule under ‘‘Membership Fees’’. The
Participant Fee is $500 if the member ADV is less
than 5000 contracts and $1,000 if the member ADV
is equal to or greater than 5000 contracts. Id.
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Federal Register / Vol. 86, No. 23 / Friday, February 5, 2021 / Notices
an analysis of its revenues, costs, and
profitability associated with 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 to provide the access services
associated with 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 access
services. The sum of all such portions
of expenses represents the total cost of
the Exchange to provide the access
services associated with 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 cost to the Exchange to
provide the access services associated
with the Proposed Access Fees.
In order to determine the Exchange’s
projected revenues associated with the
Proposed Access Fees, the Exchange
analyzed the number of Members
currently utilizing the Trading Permits,
and, utilizing a recent monthly billing
cycle representative of 2020 monthly
revenue, extrapolated annualized
revenue on a going-forward basis. The
Exchange does not believe it is
appropriate to factor into its analysis
future revenue growth or decline into its
projections for purposes of these
calculations, given the uncertainty of
such projections due to the continually
changing access needs of market
participants, discounts that can be
achieved due to lower trading volume
and vice versa, market participant
consolidation, etc. Additionally, the
Exchange similarly does not factor into
its analysis future cost growth or
decline. 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
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or for the first three quarters of 2020, the
Exchange believes its 2019 Audited
Unconsolidated Financial Statement is
not useful for analyzing the
reasonableness of the total annual
revenue and costs associated with the
Proposed Access Fees. Accordingly, the
Exchange believes it is more appropriate
to analyze the Proposed Access Fees
utilizing its 2020 revenue and costs, as
described herein, which utilize the same
presentation methodology as set forth in
the Exchange’s previously-issued
Audited Unconsolidated Financial
Statements. Based on this analysis, the
Exchange believes that the Proposed
Access Fees are fair and reasonable
because they will not result in excessive
pricing or supra-competitive profit
when comparing the Exchange’s total
annual expense associated with
providing the services associated with
the Proposed Access Fees versus the
total projected annual revenue the
Exchange will collect for providing
those services.
*
*
*
*
*
On March 29, 2019, the Commission
issued its Order Disapproving Proposed
Rule Changes to Amend the Fee
Schedule on the BOX Market LLC
Options Facility to Establish BOX
Connectivity Fees for Participants and
Non-Participants Who Connect to the
BOX Network (the ‘‘BOX Order’’).23 On
May 21, 2019, the Commission issued
the Staff Guidance on SRO Rule Filings
Relating to Fees.24 Accordingly, the
Exchange believes that the Proposed
Access Fees are consistent with the Act
because they (i) are reasonable,
equitably allocated, not unfairly
discriminatory, and not an undue
burden on competition; (ii) comply with
the BOX Order and the Guidance; (iii)
are supported by evidence (including
comprehensive revenue and cost data
and analysis) that they are fair and
reasonable because they not result in
excessive pricing or supra-competitive
profit; and (iv) utilize a cost-based
justification framework that is
substantially similar to a framework
previously used by the Exchange to
establish other non-transaction fees.
Accordingly, the Exchange believes that
the Commission should find that the
Proposed Access Fees are consistent
with the Act.
The proposed rule change is
immediately effective upon filing with
23 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).
24 See Staff Guidance on SRO Rule Filings
Relating to Fees (May 21, 2019), at https://
www.sec.gov/tm/staff-guidance-sro-rule-filings-fees
(the ‘‘Guidance’’).
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the Commission pursuant to Section
19(b)(3)(A) of the Act.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 25
in general, and furthers the objectives of
Section 6(b)(4) of the Act 26 in
particular, in that it is an equitable
allocation of reasonable dues, fees and
other charges among its members and
issuers and other persons using its
facilities. The Exchange also believes
the proposal furthers the objectives of
Section 6(b)(5) of the Act in that it is
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest and is not designed to
permit unfair discrimination between
customers, issuers, brokers and dealers.
The Exchange launched trading on
March 1, 2019. For the month of
December 2020, the Exchange had only
a 3.58% market share of the U.S.
options industry.27 The Exchange is not
aware of any evidence that a market
share of approximately 3.6% 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.
Separately, the Exchange is not aware
of any reason why market participants
could not simply drop their access to an
exchange (or not initially access an
exchange) if an exchange were to
establish prices for its non-transaction
fees that, in the determination of such
market participant, did not make
business or economic sense for such
market participant to access such
exchange. 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 drop
their access to exchanges based on nontransaction fee 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). The R2G Letter stated,
‘‘[w]hen BOX instituted a $10,000/
month price increase for connectivity;
25 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
27 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.
26 15
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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.’’ Since the Exchange issued its
notice instituting the Proposed Access
Fees, one Member dropped its access to
the Exchange as a result of the Proposed
Access Fees. Accordingly, these
examples show that if an exchange sets
too high of a fee for connectivity and/
or other non-transaction fees for its
relevant marketplace, market
participants can choose to drop their
access to such 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. In particular, the
Exchange has experienced a material
increase in its costs in 2020, in
connection with a project to make its
network environment more transparent
and deterministic, based on customer
demand. This project will allow the
Exchange to enhance its network
architecture with the intent of ensuring
a best-in-class, transparent and
deterministic trading system while
maintaining its industry leading latency
and throughput capabilities. In order to
provide this greater amount of
transparency and higher determinism,
MIAX Emerald has made significant
capital expenditures (‘‘CapEx’’),
incurred increased ongoing operational
expenditures (‘‘OpEx’’), and undertaken
additional engineering research and
development (‘‘R&D’’) in the following
areas: (i) Implementing an improved
network design to ensure the minimum
latency between multicast market data
signals disseminated by the Exchange
across the extranet switches, improving
the unicast jitter profile to reduce the
occurrence of message sequence
inversions from Members to the
Exchange quoting gateway processors,
and introducing a new optical fiber
network infrastructure that ensures the
optical fiber path for participants within
extremely tight tolerances; (ii)
introducing a re-architected and
engineered participant quoting gateway
that ensures the delivery of messages to
the match engine with absolute
determinism, eliminating the message
processing inversions that can occur
with messages received nanoseconds
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apart; and (iii) designing an improved
monitoring platform to better measure
the performance of the network and
systems at extremely tight tolerances
and to provide Members with reporting
on the performance of their systems.
The CapEx associated with only phase
1 of this project in 2020 was
approximately $1.85 million. This
expense does not include the significant
increase in employee time and other
resources necessary to maintain and
service this network, which expense is
captured in the operating expense
discussed below. This project, which
results in a material increase in expense
of the Exchange, is, among other things,
intended to enhance the overall trading
experience at the Exchange, making it a
venue that market participants want to
access.
The Exchange believes the proposed
Trading Permit fees are equitably
allocated between EEMs and Market
Makers, when these fees are viewed in
the context of the overall trading
volume on the Exchange, as Market
Makers: (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. Further, the Exchange
believes the Proposed Access Fees are
equitably allocated because of customer
demand for an even more transparent
and deterministic network, as described
above, which has resulted in higher
CapEx, increasingly higher OpEx, and
increased costs to engineering R&D. The
Proposed Access Fees are equitably
allocated in this regard because the
majority of customer demand is coming
from Market Makers, who transact the
vast majority of volume on the
Exchange. Accordingly, the Exchange
believes it is reasonable, equitably
allocated and not unfairly
discriminatory to recoup the majority of
its costs associated with providing
Trading Permits from Market Makers
quoting the most classes on the
Exchange.
The Exchange believes that the
proposed Trading Permit fees are
equitably allocated between EEMs and
Market Makers, as Market Makers
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 EEMs account for approximately
less than 1% of message traffic over the
network. In the Exchange’s experience,
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8459
most EEMs do not have a business need
for the high performance network
solutions required by Market Makers.
The Exchange’s high performance
network solutions and supporting
infrastructure (including employee
support), provides unparalleled system
throughput and the capacity to handle
approximately 18 million quote
messages per second. On an average
day, the Exchange handles over
approximately 3 billion total messages.
Of those, Market Makers generate
approximately 3 billion messages, and
EEMs generate 500,000 messages.
However, in order to achieve a
consistent, premium network
performance, the Exchange must build
out and maintain a network that has the
capacity to handle the message rate
requirements of its most heavy network
consumers. These billions of messages
per day consume the Exchange’s
resources and significantly contribute to
the overall 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 Market Makers pay
for the vast majority of the access costs
designed to be recovered via Trading
Permit fees.
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
Market Makers to the Exchange may
require the purchase of additional
hardware to support those Members as
well as enhanced monitoring and
reporting of customer performance that
MIAX Emerald and its affiliates provide.
Further, as the total number Market
Makers increase, MIAX Emerald and its
affiliates may need to increase their data
center footprint and consume more
power, resulting in increased costs
charged by their third-party data center
provider. Accordingly, the cost to MIAX
Emerald and its affiliates to provide
access to its Members is not fixed. The
Exchange believes the Proposed Access
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Fees are reasonable in order to offset a
portion of the costs to the Exchange
associated with providing access to its
network infrastructure.
Market Makers account for the vast
majority of network capacity utilization
and volume executed on the Exchange,
as discussed throughout. Accordingly,
the Exchange believes that it is
reasonable and appropriate to charge
Market Makers more than EEMs for
Trading Permits to access the Exchange.
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 that the Exchange
projects to incur in connection with
providing these access services versus
the total annual revenue that the
Exchange projects to collect in
connection with the associated Trading
Permit fees. For 2020,28 the total annual
expense for providing the access
services associated with the Proposed
Access Fees for MIAX Emerald is
projected to be approximately $2.5
million. The $2.5 million in projected
total annual expense is comprised of the
following, all of which are directly
related to the access services associated
with the Proposed Access Fees: (1)
Third-party expense, relating to fees
paid by MIAX Emerald to third-parties
for certain products and services; and
(2) internal expense, relating to the
internal costs of MIAX Emerald to
provide the services associated with the
Proposed Access Fees. As noted above,
the Exchange believes it is more
appropriate to analyze the Proposed
Access Fees utilizing its 2020 revenue
and costs, which utilize the same
presentation methodology as set forth in
the Exchange’s previously-issued
Audited Unconsolidated Financial
Statements.29 The $2.5 million in
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28 The
Exchange has not yet finalized its 2020
year end results.
29 For example, the Exchange previously noted
that all third-party expense described in its prior fee
filing was contained in the information technology
and communication costs line item under the
section titled ‘‘Operating Expenses Incurred
Directly or Allocated From Parent,’’ in the
Exchange’s 2019 Form 1 Amendment containing its
financial statements for 2018. See Securities
Exchange Act Release No. 87877 (December 31,
2019), 85 FR 738 (January 7, 2020) (SR–EMERALD–
2019–39). Accordingly, the third-part expense
described in this filing is attributed to the same line
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projected total annual expense is
directly related to the access services
associated with the Proposed Access
Fees, and not any other product or
service offered by the Exchange. It does
not include general costs of operating
matching systems and other trading
technology, and no expense amount was
allocated twice.
As discussed, the Exchange
conducted an extensive cost review in
which the Exchange analyzed every
expense item in the Exchange’s general
expense ledger (this includes over 150
separate and distinct expense items) to
determine whether each such expense
relates to the access services associated
with the Proposed Access Fees, and, if
such expense did so relate, what portion
(or percentage) of such expense actually
supports those services, and thus bears
a relationship that is, ‘‘in nature and
closeness,’’ directly related to those
services. The sum of all such portions
of expenses represents the total cost of
the Exchange to provide access services
associated with the Proposed Access
Fees.
For 2020, total third-party expense,
relating to fees paid by MIAX Emerald
to third-parties for certain products and
services for the Exchange to be able to
provide the access services associated
with the Proposed Access Fees, is
projected to be $190,621. This includes,
but is not limited to, a portion of the
fees paid to: (1) Equinix, for data center
services, for the primary, secondary, and
disaster recovery locations of the MIAX
Emerald trading system infrastructure;
(2) Zayo Group Holdings, Inc. (‘‘Zayo’’)
for network services (fiber and
bandwidth products and services)
linking MIAX Emerald’s office locations
in Princeton, NJ and Miami, FL to all
data center locations; (3) Secure
Financial Transaction Infrastructure
(‘‘SFTI’’),30, 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
item for the Exchange’s 2020 Form 1 Amendment,
which will be filed in 2021.
30 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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connectivity and network services; and
(5) various other hardware and software
providers (including Dell and Cisco,
which support the production
environment in which Members connect
to the network to trade, receive market
data, etc.).
For clarity, only a portion of all fees
paid to such third-parties is included in
the third-party expense herein, and no
expense amount is allocated twice.
Accordingly, MIAX Emerald does not
allocate its entire information
technology and communication costs to
the access 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 access
services associated with the Proposed
Access Fees. In particular, the Exchange
believes it is reasonable to allocate the
identified portion of the Equinix
expense because Equinix operates the
data centers (primary, secondary, and
disaster recovery) that host the
Exchange’s network infrastructure. This
includes, among other things, the
necessary storage space, which
continues to expand and increase in
cost, power to operate the network
infrastructure, and cooling apparatuses
to ensure the Exchange’s network
infrastructure maintains stability.
Without these services from Equinix,
the Exchange would not be able to
operate and support the network and
provide the access services associated
with the Proposed Access Fees to its
Members and their customers. The
Exchange did not allocate all of the
Equinix expense toward the cost of
providing the access services associated
with the Proposed Access Fees, only
that portion which the Exchange
identified as being specifically mapped
to providing the access services
associated with the Proposed Access
Fees, approximately 10% of the total
Equinix expense. The Exchange believes
this allocation is reasonable because it
represents the Exchange’s actual cost to
provide the access services associated
with the Proposed Access Fees, and not
any other service, as supported by its
cost review.
The Exchange believes it is reasonable
to allocate the identified portion of the
Zayo expense because Zayo provides
the internet, fiber and bandwidth
connections with respect to the
network, linking MIAX Emerald with its
affiliates, MIAX and MIAX PEARL, LLC
(‘‘MIAX PEARL’’), as well as the data
center and disaster recovery locations.
As such, all of the trade data, including
the billions of messages each day per
exchange, flow through Zayo’s
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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 access services associated
with the Proposed Access Fees. The
Exchange did not allocate all of the
Zayo expense toward the cost of
providing the access services associated
with the Proposed Access Fees, only the
portion which the Exchange identified
as being specifically mapped to
providing the Proposed Access Fees,
approximately 1% of the total Zayo
expense. The Exchange believes this
allocation is reasonable because it
represents the Exchange’s actual cost to
provide the access services associated
with the Proposed Access Fees, and not
any other service, as supported by its
cost review.
The Exchange believes it is reasonable
to allocate the identified portions of the
SFTI expense and various other service
providers’ (including Thompson
Reuters, NYSE, Nasdaq, and Internap)
expense because those entities provide
connectivity and feeds for the entire
U.S. options industry, as well as the
content, connectivity services, and
infrastructure services for critical
components of the network. Without
these services from SFTI and various
other service providers, the Exchange
would not be able to operate and
support the network and provide access
to its Members and their customers. The
Exchange did not allocate all of the SFTI
and other service providers’ expense
toward the cost of providing the access
services associated with the Proposed
Access Fees, only the portions which
the Exchange identified as being
specifically mapped to providing the
access services associated with the
Proposed Access Fees, approximately
1% of the total SFTI and other service
providers’ expense. The Exchange
believes this allocation is reasonable
because it represents the Exchange’s
actual cost to provide the access
services associated with the Proposed
Access Fees.
The Exchange believes it is reasonable
to allocate the identified portion of the
other hardware and software provider
expense because this includes costs for
dedicated hardware licenses for
switches and servers, as well as
dedicated software licenses for security
monitoring and reporting across the
network. Without this hardware and
software, the Exchange would not be
able to operate and support the network
and provide access to its Members and
their customers. The Exchange did not
allocate all of the hardware and software
provider expense toward the cost of
providing the access services associated
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with the Proposed Access Fees, only the
portions which the Exchange identified
as being specifically mapped to
providing the access services associated
with the Proposed Access Fees,
approximately 10% of the total
hardware and software provider
expense. The Exchange believes this
allocation is reasonable because it
represents the Exchange’s actual cost to
provide the access services associated
with the Proposed Access Fees.
For 2020, total projected internal
expense, relating to the internal costs of
MIAX Emerald to provide the access
services associated with the Proposed
Access Fees, is projected to be
$2,046,137. This includes, but is not
limited to, costs associated with: (1)
employee compensation and benefits for
full-time employees that support the
access services associated with the
Proposed Access Fees, including staff in
network operations, trading operations,
development, system operations,
business, as well as staff in general
corporate departments (such as legal,
regulatory, and finance) that support
those employees and functions
(including an increase as a result of the
higher determinism project); (2)
depreciation and amortization of
hardware and software used to provide
the access 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 access services associated with the
Proposed Access Fees. The breakdown
of these costs is more fully-described
below. For clarity, only a portion of all
such internal expenses are included in
the internal expense herein, and no
expense amount is allocated twice.
Accordingly, MIAX Emerald does not
allocate its entire costs contained in
those items to the access 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 access
services associated with the Proposed
Access Fees. In particular, MIAX
Emerald’s employee compensation and
benefits expense relating to providing
the access services associated with the
Proposed Access Fees is projected to be
$1,403,101, which is only a portion of
the $9,354,009 total projected expense
for employee compensation and
benefits. The Exchange believes it is
reasonable to allocate the identified
portion of such expense because this
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8461
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 access services associated
with the Proposed Access Fees. Without
these employees, the Exchange would
not be able to provide the access
services associated with the Proposed
Access Fees to its Members and their
customers. The Exchange did not
allocate all of the employee
compensation and benefits expense
toward the cost of the access services
associated with the Proposed Access
Fees, only the portions which the
Exchange identified as being
specifically mapped to providing the
access services associated with the
Proposed Access Fees, approximately
15% of the total employee
compensation and benefits expense. The
Exchange believes this allocation is
reasonable because it represents the
Exchange’s actual cost to provide the
access services associated with the
Proposed Access Fees, and not any
other service, as supported by its cost
review.
MIAX Emerald’s depreciation and
amortization expense relating to
providing the access services associated
with the Proposed Access Fees is
projected to be $571,888, which is only
a portion of the $3,812,590 total
projected expense for depreciation and
amortization. The Exchange believes it
is reasonable to allocate the identified
portion of such expense because such
expense includes the actual cost of the
computer equipment, such as dedicated
servers, computers, laptops, monitors,
information security appliances and
storage, and network switching
infrastructure equipment, including
switches and taps that were purchased
to operate and support the network and
provide the access services associated
with the Proposed Access Fees. Without
this equipment, the Exchange would not
be able to operate the network and
provide the access services associated
with the Proposed Access Fees to its
Members and their customers. The
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Exchange did not allocate all of the
depreciation and amortization expense
toward the cost of providing the access
services associated with the Proposed
Access Fees, only the portion which the
Exchange identified as being
specifically mapped to providing the
access services associated with the
Proposed Access Fees, approximately
15% of the total depreciation and
amortization expense, as these access
services would not be possible without
relying on such. The Exchange believes
this allocation is reasonable because it
represents the Exchange’s actual cost to
provide the access services associated
with the Proposed Access Fees, and not
any other service, as supported by its
cost review.
MIAX Emerald’s occupancy expense
relating to providing the access services
associated with the Proposed Access
Fees is projected to be $71,148, which
is only a portion of the $474,323 total
projected expense for occupancy. The
Exchange believes it is reasonable to
allocate the identified portion of such
expense because such expense
represents the portion of the Exchange’s
cost to rent and maintain a physical
location for the Exchange’s staff who
operate and support the network,
including providing the access services
associated with the Proposed Access
Fees. This amount consists primarily of
rent for the Exchange’s Princeton, NJ
office, as well as various related costs,
such as physical security, property
management fees, property taxes, and
utilities. The Exchange operates its
Network Operations Center (‘‘NOC’’)
and Security Operations Center (‘‘SOC’’)
from its Princeton, New Jersey office
location. A centralized office space is
required to house the staff that operates
and supports the network. The
Exchange currently has approximately
150 employees. Approximately twothirds of the Exchange’s staff are in the
Technology department, and the
majority of those staff have some role in
the operation and performance of the
access services associated with the
proposed Trading Permit fees. Without
this office space, the Exchange would
not be able to operate and support the
network and provide the access services
associated with the Proposed Access
Fees to its Members and their
customers. Accordingly, the Exchange
believes it is reasonable to allocate the
identified portion of its occupancy
expense because such amount
represents the Exchange’s actual cost to
house the equipment and personnel
who operate and support the Exchange’s
network infrastructure and the access
services associated with the Proposed
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Access Fees. The Exchange did not
allocate all of the occupancy expense
toward the cost of providing the access
services associated with the Proposed
Access Fees, only the portion which the
Exchange identified as being
specifically mapped to operating and
supporting the network, approximately
15% of the total occupancy expense.
The Exchange believes this allocation is
reasonable because it represents the
Exchange’s cost to provide the access
services associated with the Proposed
Access Fees, and not any other service,
as supported by its cost review.
The Exchange notes that a material
portion of its total overall expense is
allocated to the provision of access
services (including connectivity, ports,
and trading permits). The Exchange
believes this is reasonable and in line,
as the Exchange operates a technologybased business that differentiates itself
from its competitors based on its trading
systems that rely on access to a high
performance network, resulting in
significant technology expense. Over
two-thirds of Exchange staff are
technology-related employees. The
majority of the Exchange’s expense is
technology-based. As described above,
the Exchange has only four primary
sources of fees in to recover its costs,
thus the Exchange believes it is
reasonable to allocate a material portion
of its total overall expense towards
access fees.
Accordingly, based on the facts and
circumstances presented, the Exchange
believes that its provision of the access
services associated with the Proposed
Access Fees will not result in excessive
pricing or supra-competitive profit. To
illustrate, on a going-forward, fullyannualized basis, the Exchange projects
that its annualized revenue for
providing the access services associated
with the Proposed Access Fees would
be approximately $2.5 million per
annum, based on a recent billing cycle.
The Exchange projects that its
annualized expense for providing the
access services associated with the
Proposed Access Fees would be
approximately $2,236,758 per annum.
Accordingly, on a fully-annualized
basis, the Exchange believes its total
projected revenue for the providing the
access services associated with the
Proposed Access Fees will not result in
excessive pricing or supra-competitive
profit, as the Exchange will make only
a 10% profit margin on the Proposed
Access Fees ($2.5 million¥$2,236,758 =
$263,242 per annum). The Exchange
notes that the fee charged to each
Market Maker for Trading Permits can
vary from month to month depending
on the number of classes in which the
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Market Maker was assigned to quote on
any given day within the calendar
month, and upon certain class volume
percentages. The Exchange also
provides a further discount for a Market
Maker’s Trading Permit fees if the
Market Maker’s total monthly executed
volume during the relevant month is
less than 0.025% of the total monthly
executed volume reported by OCC in
the customer account type for MIAX
Emerald-listed option classes for that
month. As such, the revenue projection
is not a static number, with monthly
Trading Permit fees likely to fluctuate
month to month.
For the avoidance of doubt, none of
the expenses included herein relating to
the access services associated with the
Proposed Access Fees relate to the
provision of any other services offered
by MIAX Emerald. Stated differently, no
expense amount of the Exchange is
allocated twice. The Exchange notes
that, with respect to the MIAX Emerald
expenses included herein, those
expenses only cover the MIAX Emerald
market; expenses associated with the
Exchange’s affiliate exchanges, MIAX
and MIAX PEARL, are accounted for
separately and are not included within
the scope of this filing. Stated
differently, no expense amount of the
Exchange is also allocated to MIAX or
MIAX PEARL.
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 access 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
providing access to the Exchange.
Further, the Exchange notes that,
without the specific third-party and
internal items listed above, the
Exchange would not be able to provide
the access services associated with the
Proposed Access Fees to its Members
and their customers. Each of these
expense items, including physical
hardware, software, employee
compensation and benefits, occupancy
costs, and the depreciation and
amortization of equipment, have been
identified through a line-by-line item
analysis to be integral to providing
access services. The Proposed Access
Fees are intended to recover the
Exchange’s costs of providing access to
Exchange Systems. Accordingly, the
Exchange believes that the Proposed
Access Fees are fair and reasonable
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because they do not result in excessive
pricing or supra-competitive profit,
when comparing the actual costs to the
Exchange versus the projected annual
revenue from the Proposed Access Fees.
Further, the Exchange no longer
believes it is necessary to waive these
fees to attract market participants to
MIAX Emerald since this market is now
established and MIAX Emerald no
longer needs to rely on such waivers to
attract market participants. The
Exchange believes that the proposal is
equitable and not unfairly
discriminatory because the elimination
of the fee waiver for the Proposed
Access Fees will uniformly apply to all
EEMs and Market Makers of the
Exchange. The Exchange also notes that
the Exchange’s affiliate, MIAX, charges
a similar, fixed trading permit fee to its
EEMs, and a similar, varying trading
permit fee to its Market Makers, based
upon the number of assignments of
option classes or the percentage of
volume in option classes.31
The Exchange believes that the
Proposed Access Fees are reasonable,
equitable and not unfairly
discriminatory because they are within
the range of comparable fees at other
competing options exchanges.32 The
Proposed Access Fees are fair and
equitable and not unreasonably
discriminatory because they apply
equally to all Market Makers regardless
of type and access to the Exchange is
offered on terms that are not unfairly
discriminatory. The Exchange designed
the fee rates in order to provide
objective criteria for Market Makers of
different sizes and business models that
best matches their quoting activity on
the Exchange. The Exchange notes that
trading volume and quoting activity in
the options market tends to be
concentrated in the top ranked options
classes; with the vast majority of options
classes being thinly quoted and traded.
The Exchange believes that the
proposed fee rates and criteria provide
an objective and flexible framework that
will encourage Market Makers to be
assigned and quote in option classes
with lower total national average daily
volume while also equitably allocating
the fees in a reasonable manner amongst
Market Maker assignments to account
for quoting and trading activity.
Finally, the Exchange notes that it
operates in a highly competitive market
in which market participants can
readily favor competing venues if they
deem fee levels at a particular venue to
be excessive. In such an environment,
the Exchange must continually adjust its
31 See
32 See
supra note 18.
supra note 22.
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fees for services and products, in
addition to order flow, to remain
competitive with other exchanges. The
Exchange believes that the proposed
changes reflect this competitive
environment.
The Exchange also points out that it
is not seeking to recoup any of its past
costs associated with the provision of
any Trading Permits during the Waiver
Period. The Exchange currently has 35
Members,33 all of whom did not pay
Trading Permit fees during the Waiver
Period from the time these firms all
became Members of the Exchange.
Further, the majority of firms that are
Members of the Exchange’s affiliate
options exchanges, MIAX and MIAX
PEARL, also became Members of those
exchanges during similar Waiver
Periods for the MIAX and MIAX PEARL
Trading Permit fees. Accordingly, the
Exchange (and MIAX and MIAX
PEARL) have assumed approximately
100% of the costs associated with
providing Trading Permits for the
majority of Member firms of the
Exchange, MIAX, and MIAX PEARL
during their respective Waiver Periods.
Accordingly, the Exchange believes that
it is reasonable, equitable, and not
unfairly discriminatory to now adopt
Trading Permit fees that are reasonably
related to (and designed to recover) the
Exchange’s cost associated with the
provision of such Trading Permits.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
Intra-Market Competition
The Exchange believes that the
Proposed Access Fees do not place
certain market participants at a relative
disadvantage to other market
participants because the Proposed
Access Fees do not favor certain
categories of market participants in a
manner that would impose a burden on
competition; rather, the fee rates are
designed in order to provide objective
criteria for Market Makers of different
sizes and business models that best
matches their quoting activity on the
Exchange. The Exchange notes that
trading volume and quoting activity in
the options market tends to be
concentrated in the top ranked options
classes; with the vast majority of options
classes being thinly quoted and traded.
The Exchange believes that the
33 See https://www.miaxoptions.com/exchangemembers/emerald.
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8463
proposed fee rates and criteria provide
an objective and flexible framework that
will encourage Market Makers to be
assigned and quote in option classes
with lower total national average daily
volume while also equitably allocating
the fees in a reasonable manner amongst
Market Maker assignments to account
for quoting and trading activity.
Inter-Market Competition
The Exchange believes the Proposed
Access Fees do not place an undue
burden on competition on other SROs
that is not necessary or appropriate. In
particular, options market participants
are not forced to become members of all
options exchanges. The Exchange notes
that it has far less Members as compared
to the much greater number of members
at other options exchanges. There are a
number of large market makers and
broker-dealers that are members of other
options exchange but not Members of
MIAX Emerald. The Exchange is also
unaware of any assertion that its
existing fee levels or the Proposed
Access Fees would somehow unduly
impair its competition with other
options exchanges. To the contrary, if
the fees charged are deemed too high by
market participants, they can simply
discontinue their membership with the
Exchange.
The Exchange operates in a highly
competitive market in which market
participants can readily favor one of the
15 competing options venues if they
deem fee levels at a particular venue to
be excessive. Based on publiclyavailable information, and excluding
index-based options, no single exchange
has more than 16% market share.
Therefore, no exchange possesses
significant pricing power in the
execution of multiply-listed equity and
ETF options order flow. For the month
of December 2020, the Exchange had a
market share of approximately 3.6% of
executed multiply-listed equity
options 34 and the Exchange believes
that the ever-shifting market share
among exchanges from month to month
demonstrates that market participants
can discontinue or reduce use of certain
categories of products, or shift order
flow, in response to fee changes. In such
an environment, the Exchange must
continually adjust its fees and fee
waivers to remain competitive with
other exchanges and to attract order
flow to the Exchange.
34 See
E:\FR\FM\05FEN1.SGM
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Federal Register / Vol. 86, No. 23 / Friday, February 5, 2021 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act,35 and Rule
19b–4(f)(2) 36 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
jbell on DSKJLSW7X2PROD with NOTICES
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
EMERALD–2021–03 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–EMERALD–2021–03. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–EMERALD–2021–03 and
should be submitted on or before
February 26, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–02405 Filed 2–4–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91031; File No. SR–
NYSEArca–2020–98]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Approving a
Proposed Rule Change, as Modified by
Amendment No. 1, Regarding the
Availability of Information for the
iShares Gold Trust, the iShares Silver
Trust, and the iShares S&P GSCI
Commodity-Indexed Trust
February 1, 2021.
I. Introduction
On November 12, 2020, NYSE Arca,
Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change regarding the availability of
information for the iShares Gold Trust,
the iShares Silver Trust, and the iShares
S&P GSCI Commodity-Indexed Trust
(each, ‘‘Trust’’ and collectively,
‘‘Trusts’’). The proposed rule change
was published for comment in the
37 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
35 15
U.S.C. 78s(b)(3)(A)(ii).
36 17 CFR 240.19b–4(f)(2).
VerDate Sep<11>2014
18:53 Feb 04, 2021
1 15
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Federal Register on November 23,
2020.3 On January 8, 2021, NYSE Arca
filed Amendment No. 1 to the proposed
rule change, which replaced the
proposed rule change in its entirety.4
On December 29, 2020, pursuant to
Section 19(b)(2) of the Exchange Act,5
the Commission designated a longer
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.6
The Commission has received no
comments on the proposal. This order
approves the proposed rule change, as
modified by Amendment No. 1.
II. The Exchange’s Description of the
Proposal, as Modified by Amendment
No. 1
The Exchange lists shares
(collectively, ‘‘Shares’’) of the iShares
Gold Trust (formerly the iShares
COMEX Gold Trust), the iShares Silver
Trust, and the iShares S&P GSCI
Commodity-Indexed Trust. The listing
and trading of shares of the iShares Gold
Trust and the iShares Silver Trust are
subject to NYSE Arca Rule 8.201–E,
which governs the listing and trading of
Commodity-Based Trust Shares on the
Exchange; the listing and trading of
shares of the iShares S&P GSCI
Commodity-Indexed Trust are subject to
NYSE Arca Rule 8.203–E, which
governs the listing and trading of
Commodity Index Trust Shares on the
Exchange. The listing and trading of the
Shares by the Exchange also are subject
to Exchange representations referenced
in various Commission releases.7 As
3 See Securities Exchange Act Release No. 90443
(November 17, 2020), 85 FR 74778.
4 In Amendment No. 1, the Exchange clarified
certain of the website disclosure requirements and
their origins, provided additional support for
certain arguments supporting its proposal, and
made technical changes. Because Amendment No.
1 clarified and neither materially altered the
substance of the proposed rule change nor raised
any unique or novel regulatory issue, Amendment
No. 1 is not subject to notice and comment.
Amendment No. 1 to the proposed rule change is
available at: https://www.sec.gov/comments/srnysearca-2020-98/srnysearca202098-8218328227679.pdf.
5 15 U.S.C. 78s(b)(2).
6 See Securities Exchange Act Release No. 90816,
86 FR 0353 (January 5, 2021) (designating February
21, 2021 as the date by which the Commission shall
approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule
change).
7 See, e.g., Securities Exchange Act Release No.
56041 (July 11, 2007), 72 FR 39114 (July 17, 2007)
(SR–NYSEArca–2007–43) (approving the listing and
trading of shares of the iShares COMEX Gold Trust)
(‘‘NYSE Arca Gold Order’’); Securities Exchange
Act Release No. 90547 (December 2, 2020), 85 FR
79060 (December 8, 2020) (SR–NYSEArca–2020–99)
(notice of certain changes regarding the availability
E:\FR\FM\05FEN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 23 (Friday, February 5, 2021)]
[Notices]
[Pages 8455-8464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02405]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91033; File No. SR-EMERALD-2021-03]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule To Adopt Monthly Trading Permit Fees
February 1, 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 22, 2021, MIAX Emerald, LLC (``MIAX Emerald'' or
``Exchange''), filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX Emerald Fee
Schedule (the ``Fee Schedule'') to establish monthly Trading Permit \3\
fees for Exchange Members.\4\
---------------------------------------------------------------------------
\3\ The term ``Trading Permit'' means a permit issued by the
Exchange that confers the ability to transact on the Exchange. See
Exchange Rule 100.
\4\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100 and the Definitions Section of the Fee Schedule.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/emerald, at MIAX's
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to adopt monthly
Trading Permit fees (the ``Proposed Access Fees'') depending on the
Member's status as either an Electronic Exchange Member (``EEM'') \5\
or as a Market Maker.\6\ MIAX Emerald commenced
[[Page 8456]]
operations as a national securities exchange registered under Section 6
of the Act \7\ on March 1, 2019.\8\ The Exchange adopted its
transaction fees and certain of its non-transaction fees in its filing
SR-EMERALD-2019-15.\9\ In that filing, the Exchange expressly waived,
among other fees, the Proposed Access Fees for the Waiver Period,\10\
to provide an incentive to prospective EEMs and Market Makers to become
Members of the Exchange. When the Exchange adopted the framework for
its fees, it stated that it would provide notice to market participants
when the Exchange intended to terminate the Waiver Period for the
Proposed Access Fees. Accordingly, on September 15, 2020, the Exchange
issued a Regulatory Circular which announced that the Exchange would be
ending the Waiver Period for the Proposed Access Fees, among other non-
transaction fees, beginning October 1, 2020.\11\
---------------------------------------------------------------------------
\5\ ``Electronic Exchange Member'' or ``EEM'' means the holder
of a Trading Permit who is not a Market Maker. Electronic Exchange
Members are deemed ``members'' under the Exchange Act. See Exchange
Rule 100 and the Definitions Section of the Fee Schedule.
\6\ The term ``Market Makers'' refers to ``Lead Market Makers'',
``Primary Lead Market Makers'' and ``Registered Market Makers''
collectively. See Exchange Rule 100 and the Definitions Section of
the Fee Schedule.
\7\ 15 U.S.C. 78f.
\8\ See Securities Exchange Act Release No. 84891 (December 20,
2018), 83 FR 67421 (December 28, 2018) (File No. 10-233) (order
approving application of MIAX Emerald, LLC for registration as a
national securities exchange).
\9\ See Securities Exchange Act Release No. 85393 (March 21,
2019), 84 FR 11599 (March 27, 2019) (SR-EMERALD-2019-15) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Establish the MIAX Emerald Fee Schedule).
\10\ ``Waiver Period'' means, for each applicable fee, the
period of time from the initial effective date of the MIAX Emerald
Fee Schedule until such time that the Exchange has an effective fee
filing establishing the applicable fee. The Exchange will issue a
Regulatory Circular announcing the establishment of an applicable
fee that was subject to a Waiver Period at least fifteen (15) days
prior to the termination of the Waiver Period and effective date of
any such applicable fee. See the Definitions Section of the Fee
Schedule.
\11\ See MIAX Emerald Regulatory Circular 2020-41 available at
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2020_41.pdf.
---------------------------------------------------------------------------
The Exchange initially filed its proposal to establish the Proposed
Access Fees on October 1, 2020.\12\ The First Proposed Rule Change was
published for comment in the Federal Register on October 21, 2020.\13\
On November 25, 2020, the Exchange withdrew the First Proposed Rule
Change \14\ and refiled its proposal to establish monthly Trading
Permit fees.\15\ The Second Proposed Rule Change was published for
comment in the Federal Register on December 14, 2020.\16\ The Exchange
notes that the Second Proposed Rule Change did not receive any comment
letters. Nonetheless, on January 22, 2021, the Exchange withdrew the
Second Proposed Rule Change and resubmitted this proposal.\17\
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release Nos. 90196 (October 15,
2020), 85 FR 67064 (October 21, 2020) (SR-EMERALD-2020-11) (Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule To Adopt One-Time Membership Application Fees
and Monthly Trading Permit Fees) (the ``First Proposed Rule
Change''). The Exchange notes that it refiled its proposal to
establish the one-time membership application fee in a separate
filing. See SR-EMERALD-2021-01.
\13\ See id.
\14\ See Comment Letter from Joseph W. Ferraro III, SVP, Deputy
General Counsel, the Exchange, dated November 20, 2020, notifying
the Commission that the Exchange will withdraw the First Proposed
Rule Change.
\15\ See Securities Exchange Act Release Nos. 90601 (December 8,
2020), 85 FR 80864 (December 14, 2020) (SR-EMERALD-2020-18) (the
``Second Proposed Rule Change'').
\16\ See id.
\17\ See Comment Letter from Joseph W. Ferraro III, SVP, Deputy
General Counsel, the Exchange, dated January 15, 2021, notifying the
Commission that the Exchange will withdraw the Second Proposed Rule
Change.
---------------------------------------------------------------------------
Trading Permits are issued to Members who are either EEMs or Market
Makers. Trading Permits grant access to the Exchange, thus providing
the ability to quote and trade on the Exchange, in the manner defined
in the relevant Trading Permit. Without a Trading Permit, a Member
cannot directly trade on the Exchange. Therefore, a Trading Permit is a
means to directly access the Exchange (which offers meaningful value),
and the Exchange now proposes to adopt a monthly fee designed to
recover a portion of the costs associated with directly accessing the
Exchange. The Exchange proposes to assess the Proposed Access Fees
depending upon the category of Member that is issued a Trading Permit.
Members issued Trading Permits during a calendar month will be assessed
monthly Trading Permit Fees. The Exchange notes that the Exchange's
affiliate, Miami International Securities Exchange, LLC (``MIAX''),
charges a similar, fixed trading permit fee to its EEMs, and a similar,
varying trading permit fee to its Market Makers, based upon the number
of assignments of option classes or the percentage of volume in option
classes.\18\
---------------------------------------------------------------------------
\18\ See the MIAX Fee Schedule, Section 3)b).
---------------------------------------------------------------------------
The Exchange proposes that monthly Trading Permit fees will be
assessed, with respect to the calculation of such fee to EEMs (other
than clearing firms), in any month the EEM is certified in the
membership system and is credentialed to use one or more Financial
Information Exchange (``FIX'') \19\ ports in the production
environment. Further, the Exchange proposes that monthly Trading Permit
fees will be assessed with respect to EEM clearing firms in any month
the clearing firm is certified in the membership system to clear
transactions on the Exchange.
---------------------------------------------------------------------------
\19\ ``FIX Port'' means an interface with MIAX Emerald systems
that enables the Port user to submit simple and complex orders
electronically to MIAX Emerald. See the Definitions Section of the
Fee Schedule.
---------------------------------------------------------------------------
The Exchange proposes to assess EEMs a monthly fee of $1,000 for
each Trading Permit. Below is the proposed table showing the Trading
Permit fees for EEMs:
------------------------------------------------------------------------
Monthly
MIAX
Type of trading permit Emerald
trading
permit fee
------------------------------------------------------------------------
Electronic Exchange Member................................. $1,000.00
------------------------------------------------------------------------
The Exchange proposes to assess monthly Trading Permit fees for
Market Makers in any month the Market Maker (including a Registered
Market Maker, Lead Market Maker, and Primary Lead Market Maker) is
certified in the membership system, is credentialed to use one or more
MIAX Emerald Express Interface (``MEI'') \20\ ports in the production
environment and is assigned to quote in one or more classes.
Specifically, the Exchange proposes to adopt the following Trading
Permit fees for Market Makers: (i) $7,000 for Market Maker Assignments
in up to 10 option classes or up to 20% of option classes by national
average daily volume (``ADV''); (ii) $12,000 for Market Maker
Assignments in up to 40 option classes or up to 35% of option classes
by ADV; (iii) $17,000 for Market Maker Assignments in up to 100 option
classes or up to 50% of option classes by ADV; and (iv) $22,000 for
Market Maker Assignments in over 100 option classes or over 50% of
option classes by ADV up to all option classes listed on MIAX Emerald.
---------------------------------------------------------------------------
\20\ The MEI is a connection to the MIAX Emerald System that
enables Market Makers to submit simple and complex electronic quotes
to MIAX Emerald. The Exchange offers Full Service MEI Ports, which
provide Market Makers with the ability to send Market Maker simple
and complex quotes, eQuotes, and quote purge messages to the MIAX
Emerald System. Full Service MEI Ports are also capable of receiving
administrative information. Market Makers are limited to two Full
Service MEI Ports per Matching Engine. The Exchange also offers
Limited Service MEI Ports, which provide Market Makers with the
ability to send simple and complex eQuotes and quote purge messages
only, but not Market Maker Quotes, to the MIAX Emerald System.
Limited Service MEI Ports are also capable of receiving
administrative information. Market Makers initially receive two
Limited Service MEI Ports per Matching Engine. See the Definitions
Section of the Fee Schedule.
---------------------------------------------------------------------------
The Exchange also proposes to adopt an alternative lower Trading
Permit fee for Market Makers who fall within the following Trading
Permit fee levels, which represent the 3rd and 4th levels of the Market
Maker Trading Permit fee
[[Page 8457]]
table: (i) Market Maker Assignments in up to 100 option classes or up
to 50% of option classes by volume; and (ii) Market Maker Assignments
in over 100 option classes or over 50% of option classes by volume up
to all option classes listed on MIAX Emerald. Specifically, the
Exchange proposes to adopt footnote ``[ssquf]'' following the Market
Maker Trading Permit fee table for these Monthly Trading Permit tier
levels, if the Market Maker's total monthly executed volume during the
relevant month is less than 0.025% of the total monthly executed volume
reported by OCC in the customer account type for MIAX Emerald-listed
option classes for that month, then the fee will be $15,500 instead of
the fee otherwise applicable to such level.
Below is the proposed table showing the Trading Permit fees for
Market Makers:
----------------------------------------------------------------------------------------------------------------
Market maker assignments (the lesser of the applicable
Monthly MIAX measurements below)
Type of trading permit Emerald -------------------------------------------------------
trading permit % of National average
fee Per class daily volume
----------------------------------------------------------------------------------------------------------------
Market Maker (includes RMM, LMM, PLMM).. $7,000.00 Up to 10 Classes.......... Up to 20% of Classes by
volume.
12,000.00 Up to 40 Classes.......... Up to 35% of Classes by
volume.
[ssquf] Up to 100 Classes......... Up to 50% of Classes by
17,000.00 volume
[ssquf] Over 100 Classes.......... Over 50% of Classes by
22,000.00 volume up to all Classes
listed on MIAX Emerald.
----------------------------------------------------------------------------------------------------------------
[ssquf] For these Monthly MIAX Emerald Trading Permit tier levels, if the Market Maker's total monthly executed
volume during the relevant month is less than 0.025% of the total monthly executed volume reported by OCC in
the customer account type for MIAX Emerald-listed option classes for that month, then the fee will be $15,500
instead of the fee otherwise applicable to such level.
For the calculation of the monthly Market Maker Trading Permit
fees, the number of classes is defined as the greatest number of
classes the Market Maker was assigned to quote in on any given day
within the calendar month and the class volume percentage is based on
the total national ADV in classes listed on MIAX Emerald in the prior
calendar quarter. Newly listed option classes are excluded from the
calculation of the monthly Market Maker Trading Permit fee until the
calendar quarter following their listing, at which time the newly
listed option classes will be included in both the per class count and
the percentage of total national average daily volume. The Exchange
proposes to assess MIAX Emerald Market Makers the monthly Market Maker
Trading Permit fee based on the greatest number of classes listed on
MIAX Emerald that the Market Maker was assigned to quote in on any
given day within a calendar month and the applicable fee rate that is
the lesser of either the per class basis or percentage of total
national ADV measurement.
The purpose of the alternative lower fee designated in proposed
footnote ``[ssquf]'' is to provide a lower fixed cost to those Market
Makers who are willing to quote the entire Exchange market (or
substantial amount of the Exchange market), as objectively measured by
either number of classes assigned or national ADV, but who do not
otherwise execute a significant amount of volume on the Exchange. The
Exchange believes that, by offering lower fixed costs to Market Makers
that execute less volume, the Exchange will retain and attract smaller-
scale Market Makers, which are an integral component of the option
marketplace, but have been decreasing in number in recent years, due to
industry consolidation and lower market maker profitability. Since
these smaller-scale Market Makers utilize less Exchange capacity due to
lower overall volume executed, the Exchange believes it is reasonable
and equitable to offer such Market Makers a lower fixed cost. The
Exchange notes that the Exchange's affiliate, MIAX, provides a similar
alternative lower Trading Permit fee for Market Makers who quote the
entire MIAX market (or substantial amount of the MIAX market), as
objectively measured by either number of classes assigned or national
ADV, but who do not otherwise execute a significant amount of volume on
MIAX.\21\ The Exchange also notes that other options exchanges assess
certain of their membership fees at different rates, based upon a
member's participation on that exchange,\22\ and, as such, this concept
is not new or novel. The proposed changes to the Trading Permit fees
for Market Makers who fall within the 3rd and 4th levels of the fee
table are based upon a business determination of current Market Maker
assignments and trading volume.
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\21\ See supra note 18.
\22\ See e.g., NYSE Arca Options Fees and Charges, p.1
(assessing market makers $6,000 for up to 175 option issues, an
additional $5,000 for up to 350 option issues, an additional $4,000
for up to 1,000 option issues, an additional $3,000 for all option
issues on the exchange, and an additional $1,000 for the fifth
trading permit and for each trading permit thereafter); NYSE
American Options Fee Schedule, p. 23 (assessing market makers $8,000
for up to 60 plus the bottom 45% of option issues, an additional
$6,000 for up to 150 plus the bottom 45% of option issues, an
additional $5,000 for up to 500 plus the bottom 45% of option
issues, and additional $4,000 for up to 1,100 plus the bottom 45% of
option issues, an additional $3,000 for all issues traded on the
exchange, and an additional $2,000 for 6th to 9th ATPs; plus an
addition fee for premium products). See also Cboe BZX Options
Exchange (``BZX Options'') assesses the Participant Fee, which is a
membership fee, according to a member's ADV. See Cboe BZX Options
Exchange Fee Schedule under ``Membership Fees''. The Participant Fee
is $500 if the member ADV is less than 5000 contracts and $1,000 if
the member ADV is equal to or greater than 5000 contracts. Id.
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MIAX Emerald believes that exchanges, in setting fees of all types,
should meet very high standards of transparency to demonstrate why each
new fee or fee increase meets the requirements of the Act that fees be
reasonable, equitably allocated, not unfairly discriminatory, and not
create an undue burden on competition among members and markets. MIAX
Emerald believes this high standard is especially important when an
exchange imposes various access fees for market participants to access
an exchange's marketplace. MIAX Emerald deems Trading Permit fees to be
access fees. It records these fees as part of its ``Access Fees''
revenue in its financial statements. The Exchange believes that it is
important to demonstrate that these fees are based on its costs and
reasonable business needs. 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
[[Page 8458]]
an analysis of its revenues, costs, and profitability associated with
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 to provide the access
services associated with 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 access services. The sum of all such
portions of expenses represents the total cost of the Exchange to
provide the access services associated with 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 cost to the Exchange to provide the access services
associated with the Proposed Access Fees.
In order to determine the Exchange's projected revenues associated
with the Proposed Access Fees, the Exchange analyzed the number of
Members currently utilizing the Trading Permits, and, utilizing a
recent monthly billing cycle representative of 2020 monthly revenue,
extrapolated annualized revenue on a going-forward basis. The Exchange
does not believe it is appropriate to factor into its analysis future
revenue growth or decline into its projections for purposes of these
calculations, given the uncertainty of such projections due to the
continually changing access needs of market participants, discounts
that can be achieved due to lower trading volume and vice versa, market
participant consolidation, etc. Additionally, the Exchange similarly
does not factor into its analysis future cost growth or decline. The
Exchange is presenting its revenue and expense associated with the
Proposed Access Fees in this filing in a manner that is consistent with
how the Exchange presents its revenue and expense in its Audited
Unconsolidated Financial Statements. The Exchange's most recent Audited
Unconsolidated Financial Statement is for 2019. However, since the
revenue and expense associated with the Proposed Access Fees were not
in place in 2019 or for the first three quarters of 2020, the Exchange
believes its 2019 Audited Unconsolidated Financial Statement is not
useful for analyzing the reasonableness of the total annual revenue and
costs associated with the Proposed Access Fees. Accordingly, the
Exchange believes it is more appropriate to analyze the Proposed Access
Fees utilizing its 2020 revenue and costs, as described herein, which
utilize the same presentation methodology as set forth in the
Exchange's previously-issued Audited Unconsolidated Financial
Statements. Based on this analysis, the Exchange believes that the
Proposed Access Fees are fair and reasonable because they will not
result in excessive pricing or supra-competitive profit when comparing
the Exchange's total annual expense associated with providing the
services associated with the Proposed Access Fees versus the total
projected annual revenue the Exchange will collect for providing those
services.
* * * * *
On March 29, 2019, the Commission issued its Order Disapproving
Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC
Options Facility to Establish BOX Connectivity Fees for Participants
and Non-Participants Who Connect to the BOX Network (the ``BOX
Order'').\23\ On May 21, 2019, the Commission issued the Staff Guidance
on SRO Rule Filings Relating to Fees.\24\ Accordingly, the Exchange
believes that the Proposed Access Fees are consistent with the Act
because they (i) are reasonable, equitably allocated, not unfairly
discriminatory, and not an undue burden on competition; (ii) comply
with the BOX Order and the Guidance; (iii) are supported by evidence
(including comprehensive revenue and cost data and analysis) that they
are fair and reasonable because they not result in excessive pricing or
supra-competitive profit; and (iv) utilize a cost-based justification
framework that is substantially similar to a framework previously used
by the Exchange to establish other non-transaction fees. Accordingly,
the Exchange believes that the Commission should find that the Proposed
Access Fees are consistent with the Act.
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\23\ 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).
\24\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
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The proposed rule change is immediately effective upon filing with
the Commission pursuant to Section 19(b)(3)(A) of the Act.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \25\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \26\ in
particular, in that it is an equitable allocation of reasonable dues,
fees and other charges among its members and issuers and other persons
using its facilities. The Exchange also believes the proposal furthers
the objectives of Section 6(b)(5) of the Act in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest and is not designed to permit unfair discrimination between
customers, issuers, brokers and dealers.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange launched trading on March 1, 2019. For the month of
December 2020, the Exchange had only a 3.58% market share of the U.S.
options industry.\27\ The Exchange is not aware of any evidence that a
market share of approximately 3.6% 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.
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\27\ 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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Separately, the Exchange is not aware of any reason why market
participants could not simply drop their access to an exchange (or not
initially access an exchange) if an exchange were to establish prices
for its non-transaction fees that, in the determination of such market
participant, did not make business or economic sense for such market
participant to access such exchange. 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 drop their access to exchanges based on non-transaction fee 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). The R2G Letter stated, ``[w]hen BOX
instituted a $10,000/month price increase for connectivity;
[[Page 8459]]
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.'' Since the Exchange
issued its notice instituting the Proposed Access Fees, one Member
dropped its access to the Exchange as a result of the Proposed Access
Fees. Accordingly, these examples show that if an exchange sets too
high of a fee for connectivity and/or other non-transaction fees for
its relevant marketplace, market participants can choose to drop their
access to such 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-over-year, and are projected to increase year-over-
year in the future. In particular, the Exchange has experienced a
material increase in its costs in 2020, in connection with a project to
make its network environment more transparent and deterministic, based
on customer demand. This project will allow the Exchange to enhance its
network architecture with the intent of ensuring a best-in-class,
transparent and deterministic trading system while maintaining its
industry leading latency and throughput capabilities. In order to
provide this greater amount of transparency and higher determinism,
MIAX Emerald has made significant capital expenditures (``CapEx''),
incurred increased ongoing operational expenditures (``OpEx''), and
undertaken additional engineering research and development (``R&D'') in
the following areas: (i) Implementing an improved network design to
ensure the minimum latency between multicast market data signals
disseminated by the Exchange across the extranet switches, improving
the unicast jitter profile to reduce the occurrence of message sequence
inversions from Members to the Exchange quoting gateway processors, and
introducing a new optical fiber network infrastructure that ensures the
optical fiber path for participants within extremely tight tolerances;
(ii) introducing a re-architected and engineered participant quoting
gateway that ensures the delivery of messages to the match engine with
absolute determinism, eliminating the message processing inversions
that can occur with messages received nanoseconds apart; and (iii)
designing an improved monitoring platform to better measure the
performance of the network and systems at extremely tight tolerances
and to provide Members with reporting on the performance of their
systems. The CapEx associated with only phase 1 of this project in 2020
was approximately $1.85 million. This expense does not include the
significant increase in employee time and other resources necessary to
maintain and service this network, which expense is captured in the
operating expense discussed below. This project, which results in a
material increase in expense of the Exchange, is, among other things,
intended to enhance the overall trading experience at the Exchange,
making it a venue that market participants want to access.
The Exchange believes the proposed Trading Permit fees are
equitably allocated between EEMs and Market Makers, when these fees are
viewed in the context of the overall trading volume on the Exchange, as
Market Makers: (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. Further, the Exchange believes the Proposed Access Fees are
equitably allocated because of customer demand for an even more
transparent and deterministic network, as described above, which has
resulted in higher CapEx, increasingly higher OpEx, and increased costs
to engineering R&D. The Proposed Access Fees are equitably allocated in
this regard because the majority of customer demand is coming from
Market Makers, who transact the vast majority of volume on the
Exchange. Accordingly, the Exchange believes it is reasonable,
equitably allocated and not unfairly discriminatory to recoup the
majority of its costs associated with providing Trading Permits from
Market Makers quoting the most classes on the Exchange.
The Exchange believes that the proposed Trading Permit fees are
equitably allocated between EEMs and Market Makers, as Market Makers
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 EEMs account for
approximately less than 1% of message traffic over the network. In the
Exchange's experience, most EEMs do not have a business need for the
high performance network solutions required by Market Makers. The
Exchange's high performance network solutions and supporting
infrastructure (including employee support), provides unparalleled
system throughput and the capacity to handle approximately 18 million
quote messages per second. On an average day, the Exchange handles over
approximately 3 billion total messages. Of those, Market Makers
generate approximately 3 billion messages, and EEMs generate 500,000
messages. However, in order to achieve a consistent, premium network
performance, the Exchange must build out and maintain a network that
has the capacity to handle the message rate requirements of its most
heavy network consumers. These billions of messages per day consume the
Exchange's resources and significantly contribute to the overall
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 Market
Makers pay for the vast majority of the access costs designed to be
recovered via Trading Permit fees.
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 Market Makers to the Exchange may require
the purchase of additional hardware to support those Members as well as
enhanced monitoring and reporting of customer performance that MIAX
Emerald and its affiliates provide. Further, as the total number Market
Makers increase, MIAX Emerald and its affiliates may need to increase
their data center footprint and consume more power, resulting in
increased costs charged by their third-party data center provider.
Accordingly, the cost to MIAX Emerald and its affiliates to provide
access to its Members is not fixed. The Exchange believes the Proposed
Access
[[Page 8460]]
Fees are reasonable in order to offset a portion of the costs to the
Exchange associated with providing access to its network
infrastructure.
Market Makers account for the vast majority of network capacity
utilization and volume executed on the Exchange, as discussed
throughout. Accordingly, the Exchange believes that it is reasonable
and appropriate to charge Market Makers more than EEMs for Trading
Permits to access the Exchange.
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 that the
Exchange projects to incur in connection with providing these access
services versus the total annual revenue that the Exchange projects to
collect in connection with the associated Trading Permit fees. For
2020,\28\ the total annual expense for providing the access services
associated with the Proposed Access Fees for MIAX Emerald is projected
to be approximately $2.5 million. The $2.5 million in projected total
annual expense is comprised of the following, all of which are directly
related to the access services associated with the Proposed Access
Fees: (1) Third-party expense, relating to fees paid by MIAX Emerald to
third-parties for certain products and services; and (2) internal
expense, relating to the internal costs of MIAX Emerald to provide the
services associated with the Proposed Access Fees. As noted above, the
Exchange believes it is more appropriate to analyze the Proposed Access
Fees utilizing its 2020 revenue and costs, which utilize the same
presentation methodology as set forth in the Exchange's previously-
issued Audited Unconsolidated Financial Statements.\29\ The $2.5
million in projected total annual expense is directly related to the
access services associated with the Proposed Access Fees, and not any
other product or service offered by the Exchange. It does not include
general costs of operating matching systems and other trading
technology, and no expense amount was allocated twice.
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\28\ The Exchange has not yet finalized its 2020 year end
results.
\29\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the
information technology and communication costs line item under the
section titled ``Operating Expenses Incurred Directly or Allocated
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing
its financial statements for 2018. See Securities Exchange Act
Release No. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020)
(SR-EMERALD-2019-39). Accordingly, the third-part expense described
in this filing is attributed to the same line item for the
Exchange's 2020 Form 1 Amendment, which will be filed in 2021.
---------------------------------------------------------------------------
As discussed, the Exchange conducted an extensive cost review in
which the Exchange analyzed every expense item in the Exchange's
general expense ledger (this includes over 150 separate and distinct
expense items) to determine whether each such expense relates to the
access services associated with the Proposed Access Fees, and, if such
expense did so relate, what portion (or percentage) of such expense
actually supports those services, and thus bears a relationship that
is, ``in nature and closeness,'' directly related to those services.
The sum of all such portions of expenses represents the total cost of
the Exchange to provide access services associated with the Proposed
Access Fees.
For 2020, total third-party expense, relating to fees paid by MIAX
Emerald to third-parties for certain products and services for the
Exchange to be able to provide the access services associated with the
Proposed Access Fees, is projected to be $190,621. This includes, but
is not limited to, a portion of the fees paid to: (1) Equinix, for data
center services, for the primary, secondary, and disaster recovery
locations of the MIAX Emerald trading system infrastructure; (2) Zayo
Group Holdings, Inc. (``Zayo'') for network services (fiber and
bandwidth products and services) linking MIAX Emerald's office
locations in Princeton, NJ and Miami, FL to all data center locations;
(3) Secure Financial Transaction Infrastructure (``SFTI''),\30\, which
supports connectivity and feeds for the entire U.S. options industry;
(4) various other services providers (including Thompson Reuters, NYSE,
Nasdaq, and Internap), which provide content, connectivity services,
and infrastructure services for critical components of options
connectivity and network services; and (5) various other hardware and
software providers (including Dell and Cisco, which support the
production environment in which Members connect to the network to
trade, receive market data, etc.).
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\30\ 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 Emerald does not allocate its entire
information technology and communication costs to the access 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 access services associated with the Proposed Access Fees.
In particular, the Exchange believes it is reasonable to allocate the
identified portion of the Equinix expense because Equinix operates the
data centers (primary, secondary, and disaster recovery) that host the
Exchange's network infrastructure. This includes, among other things,
the necessary storage space, which continues to expand and increase in
cost, power to operate the network infrastructure, and cooling
apparatuses to ensure the Exchange's network infrastructure maintains
stability. Without these services from Equinix, the Exchange would not
be able to operate and support the network and provide the access
services associated with the Proposed Access Fees to its Members and
their customers. The Exchange did not allocate all of the Equinix
expense toward the cost of providing the access services associated
with the Proposed Access Fees, only that portion which the Exchange
identified as being specifically mapped to providing the access
services associated with the Proposed Access Fees, approximately 10% of
the total Equinix expense. The Exchange believes this allocation is
reasonable because it represents the Exchange's actual cost to provide
the access services associated with the Proposed Access Fees, and not
any other service, as supported by its cost review.
The Exchange believes it is reasonable to allocate the identified
portion of the Zayo expense because Zayo provides the internet, fiber
and bandwidth connections with respect to the network, linking MIAX
Emerald with its affiliates, MIAX and MIAX PEARL, LLC (``MIAX PEARL''),
as well as the data center and disaster recovery locations. As such,
all of the trade data, including the billions of messages each day per
exchange, flow through Zayo's
[[Page 8461]]
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 access services associated with the Proposed Access
Fees. The Exchange did not allocate all of the Zayo expense toward the
cost of providing the access services associated with the Proposed
Access Fees, only the portion which the Exchange identified as being
specifically mapped to providing the Proposed Access Fees,
approximately 1% of the total Zayo expense. The Exchange believes this
allocation is reasonable because it represents the Exchange's actual
cost to provide the access services associated with the Proposed Access
Fees, and not any other service, as supported by its cost review.
The Exchange believes it is reasonable to allocate the identified
portions of the SFTI expense and various other service providers'
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense
because those entities provide connectivity and feeds for the entire
U.S. options industry, as well as the content, connectivity services,
and infrastructure services for critical components of the network.
Without these services from SFTI and various other service providers,
the Exchange would not be able to operate and support the network and
provide access to its Members and their customers. The Exchange did not
allocate all of the SFTI and other service providers' expense toward
the cost of providing the access services associated with the Proposed
Access Fees, only the portions which the Exchange identified as being
specifically mapped to providing the access services associated with
the Proposed Access Fees, approximately 1% of the total SFTI and other
service providers' expense. The Exchange believes this allocation is
reasonable because it represents the Exchange's actual cost to provide
the access services associated with the Proposed Access Fees.
The Exchange believes it is reasonable to allocate the identified
portion of the other hardware and software provider expense because
this includes costs for dedicated hardware licenses for switches and
servers, as well as dedicated software licenses for security monitoring
and reporting across the network. Without this hardware and software,
the Exchange would not be able to operate and support the network and
provide access to its Members and their customers. The Exchange did not
allocate all of the hardware and software provider expense toward the
cost of providing the access services associated with the Proposed
Access Fees, only the portions which the Exchange identified as being
specifically mapped to providing the access services associated with
the Proposed Access Fees, approximately 10% of the total hardware and
software provider expense. The Exchange believes this allocation is
reasonable because it represents the Exchange's actual cost to provide
the access services associated with the Proposed Access Fees.
For 2020, total projected internal expense, relating to the
internal costs of MIAX Emerald to provide the access services
associated with the Proposed Access Fees, is projected to be
$2,046,137. This includes, but is not limited to, costs associated
with: (1) employee compensation and benefits for full-time employees
that support the access services associated with the Proposed Access
Fees, including staff in network operations, trading operations,
development, system operations, business, as well as staff in general
corporate departments (such as legal, regulatory, and finance) that
support those employees and functions (including an increase as a
result of the higher determinism project); (2) depreciation and
amortization of hardware and software used to provide the access
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 access services associated with the Proposed Access Fees. The
breakdown of these costs is more fully-described below. For clarity,
only a portion of all such internal expenses are included in the
internal expense herein, and no expense amount is allocated twice.
Accordingly, MIAX Emerald does not allocate its entire costs contained
in those items to the access 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 access services associated with the Proposed Access Fees.
In particular, MIAX Emerald's employee compensation and benefits
expense relating to providing the access services associated with the
Proposed Access Fees is projected to be $1,403,101, which is only a
portion of the $9,354,009 total projected expense for employee
compensation and benefits. The Exchange believes it is reasonable to
allocate the identified portion of such expense because this includes
the time spent by employees of several departments, including
Technology, Back Office, Systems Operations, Networking, Business
Strategy Development (who create the business requirement documents
that the Technology staff use to develop network features and
enhancements), Trade Operations, Finance (who provide billing and
accounting services relating to the network), and Legal (who provide
legal services relating to the network, such as rule filings and
various license agreements and other contracts). As part of the
extensive cost review conducted by the Exchange, the Exchange reviewed
the amount of time spent by each employee on matters relating to the
provision of access services associated with the Proposed Access Fees.
Without these employees, the Exchange would not be able to provide the
access services associated with the Proposed Access Fees to its Members
and their customers. The Exchange did not allocate all of the employee
compensation and benefits expense toward the cost of the access
services associated with the Proposed Access Fees, only the portions
which the Exchange identified as being specifically mapped to providing
the access services associated with the Proposed Access Fees,
approximately 15% of the total employee compensation and benefits
expense. The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to provide the access services
associated with the Proposed Access Fees, and not any other service, as
supported by its cost review.
MIAX Emerald's depreciation and amortization expense relating to
providing the access services associated with the Proposed Access Fees
is projected to be $571,888, which is only a portion of the $3,812,590
total projected expense for depreciation and amortization. The Exchange
believes it is reasonable to allocate the identified portion of such
expense because such expense includes the actual cost of the computer
equipment, such as dedicated servers, computers, laptops, monitors,
information security appliances and storage, and network switching
infrastructure equipment, including switches and taps that were
purchased to operate and support the network and provide the access
services associated with the Proposed Access Fees. Without this
equipment, the Exchange would not be able to operate the network and
provide the access services associated with the Proposed Access Fees to
its Members and their customers. The
[[Page 8462]]
Exchange did not allocate all of the depreciation and amortization
expense toward the cost of providing the access services associated
with the Proposed Access Fees, only the portion which the Exchange
identified as being specifically mapped to providing the access
services associated with the Proposed Access Fees, approximately 15% of
the total depreciation and amortization expense, as these access
services would not be possible without relying on such. The Exchange
believes this allocation is reasonable because it represents the
Exchange's actual cost to provide the access services associated with
the Proposed Access Fees, and not any other service, as supported by
its cost review.
MIAX Emerald's occupancy expense relating to providing the access
services associated with the Proposed Access Fees is projected to be
$71,148, which is only a portion of the $474,323 total projected
expense for occupancy. The Exchange believes it is reasonable to
allocate the identified portion of such expense because such expense
represents the portion of the Exchange's cost to rent and maintain a
physical location for the Exchange's staff who operate and support the
network, including providing the access 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
access services associated with the proposed Trading Permit fees.
Without this office space, the Exchange would not be able to operate
and support the network and provide the access services associated with
the Proposed Access Fees to its Members and their customers.
Accordingly, the Exchange believes it is reasonable to allocate the
identified portion of its occupancy expense because such amount
represents the Exchange's actual cost to house the equipment and
personnel who operate and support the Exchange's network infrastructure
and the access services associated with the Proposed Access Fees. The
Exchange did not allocate all of the occupancy expense toward the cost
of providing the access services associated with the Proposed Access
Fees, only the portion which the Exchange identified as being
specifically mapped to operating and supporting the network,
approximately 15% of the total occupancy expense. The Exchange believes
this allocation is reasonable because it represents the Exchange's cost
to provide the access services associated with the Proposed Access
Fees, and not any other service, as supported by its cost review.
The Exchange notes that a material portion of its total overall
expense is allocated to the provision of access services (including
connectivity, ports, and trading permits). The Exchange believes this
is reasonable and in line, as the Exchange operates a technology-based
business that differentiates itself from its competitors based on its
trading systems that rely on access to a high performance network,
resulting in significant technology expense. Over two-thirds of
Exchange staff are technology-related employees. The majority of the
Exchange's expense is technology-based. As described above, the
Exchange has only four primary sources of fees in to recover its costs,
thus the Exchange believes it is reasonable to allocate a material
portion of its total overall expense towards access fees.
Accordingly, based on the facts and circumstances presented, the
Exchange believes that its provision of the access services associated
with the Proposed Access Fees will not result in excessive pricing or
supra-competitive profit. To illustrate, on a going-forward, fully-
annualized basis, the Exchange projects that its annualized revenue for
providing the access services associated with the Proposed Access Fees
would be approximately $2.5 million per annum, based on a recent
billing cycle. The Exchange projects that its annualized expense for
providing the access services associated with the Proposed Access Fees
would be approximately $2,236,758 per annum. Accordingly, on a fully-
annualized basis, the Exchange believes its total projected revenue for
the providing the access services associated with the Proposed Access
Fees will not result in excessive pricing or supra-competitive profit,
as the Exchange will make only a 10% profit margin on the Proposed
Access Fees ($2.5 million-$2,236,758 = $263,242 per annum). The
Exchange notes that the fee charged to each Market Maker for Trading
Permits can vary from month to month depending on the number of classes
in which the Market Maker was assigned to quote on any given day within
the calendar month, and upon certain class volume percentages. The
Exchange also provides a further discount for a Market Maker's Trading
Permit fees if the Market Maker's total monthly executed volume during
the relevant month is less than 0.025% of the total monthly executed
volume reported by OCC in the customer account type for MIAX Emerald-
listed option classes for that month. As such, the revenue projection
is not a static number, with monthly Trading Permit fees likely to
fluctuate month to month.
For the avoidance of doubt, none of the expenses included herein
relating to the access services associated with the Proposed Access
Fees relate to the provision of any other services offered by MIAX
Emerald. Stated differently, no expense amount of the Exchange is
allocated twice. The Exchange notes that, with respect to the MIAX
Emerald expenses included herein, those expenses only cover the MIAX
Emerald market; expenses associated with the Exchange's affiliate
exchanges, MIAX and MIAX PEARL, are accounted for separately and are
not included within the scope of this filing. Stated differently, no
expense amount of the Exchange is also allocated to MIAX or MIAX PEARL.
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 access
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
providing access to the Exchange. Further, the Exchange notes that,
without the specific third-party and internal items listed above, the
Exchange would not be able to provide the access services associated
with the Proposed Access Fees to its Members and their customers. Each
of these expense items, including physical hardware, software, employee
compensation and benefits, occupancy costs, and the depreciation and
amortization of equipment, have been identified through a line-by-line
item analysis to be integral to providing access services. The Proposed
Access Fees are intended to recover the Exchange's costs of providing
access to Exchange Systems. Accordingly, the Exchange believes that the
Proposed Access Fees are fair and reasonable
[[Page 8463]]
because they do not result in excessive pricing or supra-competitive
profit, when comparing the actual costs to the Exchange versus the
projected annual revenue from the Proposed Access Fees.
Further, the Exchange no longer believes it is necessary to waive
these fees to attract market participants to MIAX Emerald since this
market is now established and MIAX Emerald no longer needs to rely on
such waivers to attract market participants. The Exchange believes that
the proposal is equitable and not unfairly discriminatory because the
elimination of the fee waiver for the Proposed Access Fees will
uniformly apply to all EEMs and Market Makers of the Exchange. The
Exchange also notes that the Exchange's affiliate, MIAX, charges a
similar, fixed trading permit fee to its EEMs, and a similar, varying
trading permit fee to its Market Makers, based upon the number of
assignments of option classes or the percentage of volume in option
classes.\31\
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\31\ See supra note 18.
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The Exchange believes that the Proposed Access Fees are reasonable,
equitable and not unfairly discriminatory because they are within the
range of comparable fees at other competing options exchanges.\32\ The
Proposed Access Fees are fair and equitable and not unreasonably
discriminatory because they apply equally to all Market Makers
regardless of type and access to the Exchange is offered on terms that
are not unfairly discriminatory. The Exchange designed the fee rates in
order to provide objective criteria for Market Makers of different
sizes and business models that best matches their quoting activity on
the Exchange. The Exchange notes that trading volume and quoting
activity in the options market tends to be concentrated in the top
ranked options classes; with the vast majority of options classes being
thinly quoted and traded. The Exchange believes that the proposed fee
rates and criteria provide an objective and flexible framework that
will encourage Market Makers to be assigned and quote in option classes
with lower total national average daily volume while also equitably
allocating the fees in a reasonable manner amongst Market Maker
assignments to account for quoting and trading activity.
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\32\ See supra note 22.
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Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive. In such an environment, the Exchange must continually adjust
its fees for services and products, in addition to order flow, to
remain competitive with other exchanges. The Exchange believes that the
proposed changes reflect this competitive environment.
The Exchange also points out that it is not seeking to recoup any
of its past costs associated with the provision of any Trading Permits
during the Waiver Period. The Exchange currently has 35 Members,\33\
all of whom did not pay Trading Permit fees during the Waiver Period
from the time these firms all became Members of the Exchange. Further,
the majority of firms that are Members of the Exchange's affiliate
options exchanges, MIAX and MIAX PEARL, also became Members of those
exchanges during similar Waiver Periods for the MIAX and MIAX PEARL
Trading Permit fees. Accordingly, the Exchange (and MIAX and MIAX
PEARL) have assumed approximately 100% of the costs associated with
providing Trading Permits for the majority of Member firms of the
Exchange, MIAX, and MIAX PEARL during their respective Waiver Periods.
Accordingly, the Exchange believes that it is reasonable, equitable,
and not unfairly discriminatory to now adopt Trading Permit fees that
are reasonably related to (and designed to recover) the Exchange's cost
associated with the provision of such Trading Permits.
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\33\ See https://www.miaxoptions.com/exchange-members/emerald.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange believes that the Proposed Access Fees do not place
certain market participants at a relative disadvantage to other market
participants because the Proposed Access Fees do not favor certain
categories of market participants in a manner that would impose a
burden on competition; rather, the fee rates are designed in order to
provide objective criteria for Market Makers of different sizes and
business models that best matches their quoting activity on the
Exchange. The Exchange notes that trading volume and quoting activity
in the options market tends to be concentrated in the top ranked
options classes; with the vast majority of options classes being thinly
quoted and traded. The Exchange believes that the proposed fee rates
and criteria provide an objective and flexible framework that will
encourage Market Makers to be assigned and quote in option classes with
lower total national average daily volume while also equitably
allocating the fees in a reasonable manner amongst Market Maker
assignments to account for quoting and trading activity.
Inter-Market Competition
The Exchange believes the Proposed Access Fees do not place an
undue burden on competition on other SROs that is not necessary or
appropriate. In particular, options market participants are not forced
to become members of all options exchanges. The Exchange notes that it
has far less Members as compared to the much greater number of members
at other options exchanges. There are a number of large market makers
and broker-dealers that are members of other options exchange but not
Members of MIAX Emerald. The Exchange is also unaware of any assertion
that its existing fee levels or the Proposed Access Fees would somehow
unduly impair its competition with other options exchanges. To the
contrary, if the fees charged are deemed too high by market
participants, they can simply discontinue their membership with the
Exchange.
The Exchange operates in a highly competitive market in which
market participants can readily favor one of the 15 competing options
venues if they deem fee levels at a particular venue to be excessive.
Based on publicly-available information, and excluding index-based
options, no single exchange has more than 16% market share. Therefore,
no exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. For the month of
December 2020, the Exchange had a market share of approximately 3.6% of
executed multiply-listed equity options \34\ and the Exchange believes
that the ever-shifting market share among exchanges from month to month
demonstrates that market participants can discontinue or reduce use of
certain categories of products, or shift order flow, in response to fee
changes. In such an environment, the Exchange must continually adjust
its fees and fee waivers to remain competitive with other exchanges and
to attract order flow to the Exchange.
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\34\ See supra note 27.
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[[Page 8464]]
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,\35\ and Rule 19b-4(f)(2) \36\ 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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\35\ 15 U.S.C. 78s(b)(3)(A)(ii).
\36\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-EMERALD-2021-03 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-EMERALD-2021-03. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-EMERALD-2021-03 and should be submitted
on or before February 26, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02405 Filed 2-4-21; 8:45 am]
BILLING CODE 8011-01-P
