Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Pearl Options Fee Schedule, 37347-37356 [2021-15035]
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Federal Register / Vol. 86, No. 133 / Thursday, July 15, 2021 / Notices
III. Request for Comment and Public
Meeting
The NRC will hold a public meeting
to discuss the PSDAR and receive
comments on Thursday, July 29, 2021,
from 6:00 p.m. until 9:00 p.m. (ET), at
the Sleepy Hollow Hotel and
Conference Center (previously the
DoubleTree Hotel), located at 455 South
Broadway, in Tarrytown, NY. The NRC
requests that comments that are not
provided during the meeting be
submitted in writing, as noted in section
I, ‘‘Obtaining Information and
Submitting Comments,’’ of this
document, by October 22, 2021.
Dated: July 12, 2021.
For the Nuclear Regulatory Commission.
James G. Danna,
Chief, Plant Licensing Branch I, Division of
Operating Reactor Licensing, Office of
Nuclear Reactor Regulation.
[FR Doc. 2021–15068 Filed 7–14–21; 8:45 am]
BILLING CODE 7590–01–P
POSTAL REGULATORY COMMISSION
[Docket Nos. MC2021–110 and CP2021–112]
New Postal Product
Postal Regulatory Commission.
Notice.
AGENCY:
ACTION:
The Commission is noticing a
recent Postal Service filing for the
Commission’s consideration concerning
a negotiated service agreement. This
notice informs the public of the filing,
invites public comment, and takes other
administrative steps.
DATES: Comments are due: July 19,
2021.
ADDRESSES: Submit comments
electronically via the Commission’s
Filing Online system at https://
www.prc.gov. Those who cannot submit
comments electronically should contact
the person identified in the FOR FURTHER
INFORMATION CONTACT section by
telephone for advice on filing
alternatives.
FOR FURTHER INFORMATION CONTACT:
David A. Trissell, General Counsel, at
202–789–6820.
SUPPLEMENTARY INFORMATION:
SUMMARY:
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Table of Contents
I. Introduction
II. Docketed Proceeding(s)
I. Introduction
The Commission gives notice that the
Postal Service filed request(s) for the
Commission to consider matters related
to negotiated service agreement(s). The
request(s) may propose the addition or
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removal of a negotiated service
agreement from the market dominant or
the competitive product list, or the
modification of an existing product
currently appearing on the market
dominant or the competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s website (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3011.301.1
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3030, and 39
CFR part 3040, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3035, and
39 CFR part 3040, subpart B. Comment
deadline(s) for each request appear in
section II.
II. Docketed Proceeding(s)
1. Docket No(s).: MC2021–110 and
CP2021–112; Filing Title: USPS Request
to Add Priority Mail & First-Class
Package Service Contract 198 to
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: July 9, 2021; Filing
Authority: 39 U.S.C. 3642, 39 CFR
3040.130 through 3040.135, and 39 CFR
3035.105; Public Representative:
Kenneth R. Moeller; Comments Due:
July 19, 2021.
1 See Docket No. RM2018–3, Order Adopting
Final Rules Relating to Non-Public Information,
June 27, 2018, Attachment A at 19–22 (Order No.
4679).
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37347
This Notice will be published in the
Federal Register.
Erica A. Barker,
Secretary.
[FR Doc. 2021–15074 Filed 7–14–21; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92365; File No. SR–
PEARL–2021–33]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the MIAX Pearl
Options Fee Schedule
July 9, 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 July 1,
2021, MIAX PEARL, LLC (‘‘MIAX Pearl’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Pearl Options Fee
Schedule (the ‘‘Fee Schedule’’) to
amend the fees for the Exchange’s MIAX
Express Network Full Service (‘‘MEO’’) 3
Ports.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX Pearl’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 ‘‘MEO Interface’’ or ‘‘MEO’’ means a binary
order interface for certain order types as set forth
in Rule 516 into the MIAX Pearl System. See the
Definitions Section of the Fee Schedule and
Exchange Rule 100.
2 17
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Federal Register / Vol. 86, No. 133 / Thursday, July 15, 2021 / Notices
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to amend the
Fee Schedule to increase the fees for its
Full Service MEO Ports (the ‘‘Proposed
Access Fees’’), which allow Members 4
to submit electronic orders in all
products to the Exchange. The Exchange
currently offers different options of
MEO Ports depending on the services
required by the Member, including a
Full Service MEO Port-Bulk,5 a Full
Service MEO Port-Single,6 and a
Limited Service MEO Port.7 A Member
may be allocated two (2) Full-Service
MEO Ports of either type per matching
engine 8 and may request Limited
Service MEO Ports for which MIAX
Pearl will assess Members Limited
Service MEO Port fees per Matching
Engine based on the table above. The
two (2) Full-Service MEO Ports that may
be allocated per matching engine to a
Member may consist of: (a) Two (2) Full
Service MEO Ports—Bulk; (b) two (2)
Full Service MEO Ports—Single; or (c)
one (1) Full Service MEO Port—Bulk
and one (1) Full Service MEO Port—
Single.
Unlike other options exchanges that
provide similar port functionality and
4 ‘‘Member’’ means an individual or organization
that is registered with the Exchange pursuant to
Chapter II of Exchange Rules for purposes of trading
on the Exchange as an ‘‘Electronic Exchange
Member’’ or ‘‘Market Maker.’’ Members are deemed
‘‘members’’ under the Exchange Act. See the
Definitions Section of the Fee Schedule and
Exchange Rule 100.
5 ‘‘Full Service MEO Port—Bulk’’ means an MEO
port that supports all MEO input message types and
binary bulk order entry. See the Definitions Section
of the Fee Schedule.
6 ‘‘Full Service MEO Port—Single’’ means an
MEO port that supports all MEO input message
types and binary order entry on a single order-byorder basis, but not bulk orders. See the Definitions
Section of the Fee Schedule.
7 ‘‘Limited Service MEO Port’’ means an MEO
port that supports all MEO input message types, but
does not support bulk order entry and only
supports limited order types, as specified by the
Exchange via Regulatory Circular. See the
Definitions Section of the Fee Schedule.
8 ‘‘Matching Engine’’ is a part of the MIAX Pearl
electronic system that processes options orders and
trades on a symbol-by-symbol basis. Some Matching
Engines will process option classes with multiple
root symbols, and other Matching Engines may be
dedicated to one single option root symbol. A
particular root symbol may only be assigned to a
single designated Matching Engine. A particular
root symbol may not be assigned to multiple
Matching Engines. See the Definitions Section of
the Fee Schedule.
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charge fees on a per port basis,9 the
Exchange offers Full Service MEO Ports
as a package and provides Members
with the option to receive up to two Full
Service MEO Ports (described above)
per matching engine to which it
connects. The Exchange currently has
twelve (12) matching engines, which
means Members may receive up to
twenty-four (24) Full Service MEO Ports
for a single monthly fee, that can vary
based on certain volume percentages, as
described below. For illustrative
purposes and as described in more
detail below, the Exchange currently
assesses Members a fee of $5,000 per
month in the highest Full Service MEO
Port—Bulk Tier, regardless of the
number of Full Service MEO Ports
allocated to the Member. For example,
assuming a Member connects to all
twelve (12) matching engines during a
month, with two Full Service MEO
Ports per matching engine, this results
in a cost of $208.33 per Full Service
MEO Port ($5,000 divided by 24) for the
month. This fee has been unchanged
since the Exchange adopted Purge Port
fees in 2018.10 The Exchange now
proposes to increase the Full Service
MEO Port fees as described below, with
the highest Tier fee for a Full Service
MEO Port—Bulkof $10,000 per month.
Members will continue to receive two
(2) Full Service MEO Ports to each
matching engine to which they are
connected for the single flat monthly
fee. Assuming a Member connects to all
twelve (12) matching engines during the
month, with two Full Service MEO
Ports per matching engine, this would
result in a cost of $416.67 per Full
Service MEO Port ($10,000 divided by
24).
The Exchange assesses Members Full
Service MEO Port Fees, either for a Full
Service MEO Port—Bulk and/or for a
Full Service MEO Port—Single, based
9 See Cboe Exchange, Inc. Fee Schedule, Logical
Connectivity Fees ($750 per port per month for the
first 5 BOE/FIX Logical Ports and $800 per port per
month for each port over 5; $1,500 per port per
month for the first 5 BOE Bulk Logical Ports, $2,500
per port per month for ports 6–30, and $3,000 per
port per month for each port over 30); Cboe BXZ
Exchange, Inc. (‘‘BZX’’) Options Fee Schedule,
Options Logical Port Fees, Logical Ports ($750 per
port per month), Ports with Bulk Quoting
Capabilities ($1,500 per port per month for the first
and second ports, $2,500 per port per month for
three or more); Cboe EDGX Exchange, Inc.
(‘‘EDGX’’) Options Fee Schedule, Options Logical
Port Fees, Logical Ports ($500 per port per month),
Ports with Bulk Quoting Capabilities ($600 per port
per month). See also Nasdaq Stock Market LLC,
Options 7, Pricing Schedule, Section 3 ($1,500 per
port per month for the first 5 SQF ports; $1,000 per
port per month for SQF ports 15–20; and $500 per
port per month for all SQF ports over 21).
10 See Securities Exchange Act Release No. 82867
(March 13, 2018), 83 FR 12044 (March 19, 2018)
(SR–PEARL–2018–07).
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upon the monthly total volume
executed by a Member and its
Affiliates 11 on the Exchange across all
origin types, not including Excluded
Contracts 12, as compared to the Total
Consolidated Volume (‘‘TCV’’),13 in all
MIAX Pearl-listed options. The
Exchange adopted a tier-based fee
structure based upon the volume-based
tiers detailed in the definition of ‘‘NonTransaction Fees Volume-Based Tiers’’
described in the Definitions section of
the Fee Schedule. The Exchange
assesses these and other monthly Port
fees on Members in each month the
market participant is credentialed to use
a Port in the production environment.
Current Full Service MEO Port—Bulk
Fees. Currently, the Exchange assesses
Members monthly Full Service MEO
Port—Bulk fees as follows:
(i) If its volume falls within the
parameters of Tier 1 of the NonTransaction Fees Volume-Based Tiers,
or volume up to 0.30%, $3,000;
11 ‘‘Affiliate’’ means (i) an affiliate of a Member
of at least 75% common ownership between the
firms as reflected on each firm’s Form BD, Schedule
A, or (ii) the Appointed Market Maker of an
Appointed EEM (or, conversely, the Appointed
EEM of an Appointed Market Maker). An
‘‘Appointed Market Maker’’ is a MIAX Pearl Market
Maker (who does not otherwise have a corporate
affiliation based upon common ownership with an
EEM) that has been appointed by an EEM and an
‘‘Appointed EEM’’ is an EEM (who does not
otherwise have a corporate affiliation based upon
common ownership with a MIAX Pearl Market
Maker) that has been appointed by a MIAX Pearl
Market Maker, pursuant to the following process. A
MIAX Pearl Market Maker appoints an EEM and an
EEM appoints a MIAX Pearl Market Maker, for the
purposes of the Fee Schedule, by each completing
and sending an executed Volume Aggregation
Request Form by email to membership@
miaxoptions.com no later than 2 business days
prior to the first business day of the month in which
the designation is to become effective. Transmittal
of a validly completed and executed form to the
Exchange along with the Exchange’s
acknowledgement of the effective designation to
each of the Market Maker and EEM will be viewed
as acceptance of the appointment. The Exchange
will only recognize one designation per Member. A
Member may make a designation not more than
once every 12 months (from the date of its most
recent designation), which designation shall remain
in effect unless or until the Exchange receives
written notice submitted 2 business days prior to
the first business day of the month from either
Member indicating that the appointment has been
terminated. Designations will become operative on
the first business day of the effective month and
may not be terminated prior to the end of the
month. Execution data and reports will be provided
to both parties. See the Definitions Section of the
Fee Schedule.
12 ‘‘Excluded Contracts’’ means any contracts
routed to an away market for execution. See the
Definitions Section of the Fee Schedule.
13 ‘‘TCV’’ means total consolidated volume
calculated as the total national volume in those
classes listed on MIAX Pearl for the month for
which the fees apply, excluding consolidated
volume executed during the period of time in
which the Exchange experiences an Exchange
System Disruption (solely in the option classes of
the affected Matching Engine). See the Definitions
Section of the Fee Schedule.
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(ii) if its volume falls within the
parameters of Tier 2 of the NonTransaction Fees Volume-Based Tiers,
or volume above 0.30% up to 0.60%,
$4,500; and
(iii) if its volume falls with the
parameters of Tier 3 of the NonTransaction Fees Volume-Based Tiers,
or volume above 0.60%, $5,000.
Proposed Full Service MEO Port—
Bulk Fees. The Exchange now proposes
to assess Members monthly Full Service
MEO Port—Bulk fees as follows:
(i) If its volume falls within the
parameters of Tier 1 of the NonTransaction Fees Volume-Based Tiers,
or volume up to 0.30%, $5,000;
(ii) if its volume falls within the
parameters of Tier 2 of the NonTransaction Fees Volume-Based Tiers,
or volume above 0.30% up to 0.60%,
$7,500; and
(iii) if its volume falls with the
parameters of Tier 3 of the NonTransaction Fees Volume-Based Tiers,
or volume above 0.60%, $10,000.
Current Full Service MEO Port—
Single Fees. Currently, the Exchange
assesses Members monthly Full Service
MEO Port—Single fees as follows:
(i) If its volume falls within the
parameters of Tier 1 of the NonTransaction Fees Volume-Based Tiers,
or volume up to 0.30%, $2,000;
(ii) if its volume falls within the
parameters of Tier 2 of the NonTransaction Fees Volume-Based Tiers,
or volume above 0.30% up to 0.60%,
$3,375; and
(iii) if its volume falls with the
parameters of Tier 3 of the NonTransaction Fees Volume-Based Tiers,
or volume above 0.60%, $3,750.
Proposed Full Service MEO Port—
Single Fees. The Exchange now
proposes to assess Members monthly
Full Service MEO Port—Single fees as
follows:
(i) If its volume falls within the
parameters of Tier 1 of the NonTransaction Fees Volume-Based Tiers,
or volume up to 0.30%, $2,500;
(ii) if its volume falls within the
parameters of Tier 2 of the NonTransaction Fees Volume-Based Tiers,
or volume above 0.30% up to 0.60%,
$3,500; and
(iii) if its volume falls with the
parameters of Tier 3 of the NonTransaction Fees Volume-Based Tiers,
or volume above 0.60%, $4,500.
The Exchange offers various types of
ports with differing prices because each
port accomplishes different tasks, are
suited to different types of Members,
and consume varying capacity amounts
of the network. For instance, MEO ports
allow for a higher throughput and can
handle much higher quote/order rates
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than FIX ports. Members that are Market
Makers 14 or high frequency trading
firms utilize these ports (typically
coupled with 10Gb ULL connectivity)
because they transact in significantly
higher amounts of messages being sent
to and from the Exchange, versus FIX
port users, who are traditionally
customers sending only orders to the
Exchange (typically coupled with 1Gb
connectivity). The different types of
ports cater to the different types of
Exchange Memberships and different
capabilities of the various Exchange
Members. Certain Members need ports
and connections that can handle using
far more of the network’s capacity for
message throughput, risk protections,
and the amount of information that has
to be assessed. Those Members may
account for the vast majority of network
capacity utilization and volume
executed on the Exchange, as discussed
throughout.
The Exchange now proposes to
increase its monthly Full Service MEO
Port fees since it has not done so since
the fees were first adopted in 2018 15
and are designed to recover a portion of
the costs associated with directly
accessing the Exchange. The Exchange
notes that its affiliates, Miami
International Securities Exchange, LLC
(‘‘MIAX’’) and MIAX Emerald, LLC
(‘‘MIAX Emerald’’), charge fees for their
high throughput, low latency MEI Ports
in a similar fashion as the Exchange
charges for its MEO Ports—generally,
the more active user the Member (i.e.,
the greater number/greater national
ADV of classes assigned to quote on
MIAX and MIAX Emerald), the higher
the MEI Port fee.16 This concept is not
new or novel. The Exchange also notes
that the proposed increased Full Service
MEO Port fees are in line with, or
cheaper than, the similar port fees or
similar membership fees charged by
other options exchanges.17
The Exchange has historically
undercharged for Full Service MEO
Ports as compared to other options
exchanges 18 because the Exchange
provides Full Service MEO Ports as a
package for a single monthly fee. As
described above, this package includes
two Full Service MEO Ports for each of
the Exchange’s twelve (12) matching
14 ‘‘Market Maker’’ means a Member registered
with the Exchange for the purpose of making
markets in options contracts traded on the
Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of Exchange
Rules. See the Definitions Section of the Fee
Schedule and Exchange Rule 100.
15 See supra note 10.
16 See MIAX Fee Schedule, Section 5)d)ii); MIAX
Emerald Fee Schedule, Section 5)d)ii).
17 See supra note 9.
18 See id.
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37349
engines. The Exchange understands
other options exchanges charge fees on
a per port basis. The proposed monthly
fee increases for Full Service MEO Ports
would bring the Exchange’s fees more in
line with that of other options
exchanges, while maintaining a
competitive fee structure for Full
Service MEO Ports.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 19
in general, and furthers the objectives of
Section 6(b)(4) of the Act 20 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 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
market participants. The Exchange
believes this high standard is especially
important when an exchange imposes
various access fees for market
participants to access an exchange’s
marketplace. The Exchange deems the
Full Service MEO Port 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
an analysis of its revenues, costs, and
profitability associated with the
Proposed Access Fees. This analysis
includes information regarding its
19 15
20 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
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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 Full Service MEO
Ports, and, utilizing a recent monthly
billing cycle representative of 2021
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 2020.
However, since the revenue and
expense associated with the Proposed
Access Fees were not in place in 2020
or for the first two quarters of 2021, the
Exchange believes its 2020 Audited
Unconsolidated Financial Statement is
not useful for analyzing the
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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 2021 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.
The Exchange notes that this is the
same process utilized by the Exchange’s
affiliate, MIAX Emerald, in a filing
recently noticed by the Commission
when MIAX Emerald adopted its own
MEI Port fees.21
*
*
*
*
*
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’’).22 On
May 21, 2019, the Commission issued
the Staff Guidance on SRO Rule Filings
Relating to Fees.23 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 will not result
in excessive pricing or supra21 See Securities Exchange Act Release No. 91460
(April 2, 2021), 86 FR 18349 (April 8, 2021) (SR–
EMERALD–2021–11) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Amend Its Fee Schedule To Adopt Port Fees,
Increase Certain Network Connectivity Fees, and
Increase the Number of Additional Limited Service
MIAX Emerald Express Interface Ports Available to
Market Makers) (adopting tiered MEI Port fee
structure ranging from $5,000 to $20,500 per
month).
22 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).
23 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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competitive profit; and (iv) utilize a
cost-based justification framework that
is substantially similar to a framework
previously used by the Exchange, and
its affiliates MIAX and MIAX Emerald,
to establish or increase other nontransaction fees. Accordingly, the
Exchange believes that the Commission
should find that the Proposed Access
Fees are consistent with the Act.
*
*
*
*
*
As of June 30, 2021, the Exchange had
only a 5.31% market share of the U.S.
equity options industry for the month of
June 2021.24 The Exchange is not aware
of any evidence that a market share of
approximately 5–6% 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;
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.’’ Similarly, the Exchange’s
affiliate, MIAX Emerald, noted in a
recent filing that once MIAX Emerald
issued a notice that it was instituting
MEI Port fees, among other nontransaction fees, one Member dropped
its access to the Exchange as a result of
those fees.25 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
24 See ‘‘The market at a glance’’, available at
www.miaxoptions.com (last visited June 30, 2021).
25 See supra note 21.
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participants can choose to drop their
access to such exchange.
The Exchange’s high performance
network solutions and supporting
infrastructure (including employee
support), provides unparalleled system
throughput and the capacity to handle
approximately 10.7 million order
messages per second. On an average
day, the Exchange handles over
approximately 2.7 billion total
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.
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
Members 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 the
Exchange and its affiliates provide.
Further, as the total number Members
increases, the Exchange 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 the Exchange
and its affiliates to provide access to its
Members is not fixed. The Exchange
believes the Proposed Access Fees are
reasonable in order to offset a portion of
the costs to the Exchange associated
with providing access to its network
infrastructure.
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.
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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 services associated
with the Proposed Access Fees. For
2021 26, the total annual expense for
providing the access services associated
with the Proposed Access Fees for the
Exchange is projected to be
approximately $897,084. The $897,084
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 the Exchange to thirdparties for certain products and services;
and (2) internal expense, relating to the
internal costs of the Exchange to
provide the services associated with the
Proposed Access Fees.27 As noted
above, the Exchange believes it is more
appropriate to analyze the Proposed
Access Fees utilizing its 2021 revenue
and costs, which utilize the same
presentation methodology as set forth in
the Exchange’s previously-issued
Audited Unconsolidated Financial
Statements.28 The $897,084 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.
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
26 The Exchange has not yet finalized its 2021
year end results.
27 The percentage allocations used in this
proposed rule change may differ from past filings
from the Exchange or its affiliates due to, among
other things, changes in expenses charged by thirdparties, adjustments to internal resource allocations,
and different system architecture of the Exchange
as compared to its affiliates.
28 For example, the Exchange previously noted
that all third-party expense described in its prior fee
filing was contained in the information technology
and communication costs line item under the
section titled ‘‘Operating Expenses Incurred
Directly or Allocated From Parent,’’ in the
Exchange’s 2019 Form 1 Amendment containing its
financial statements for 2018. See Securities
Exchange Act Release No. 87876 (December 31,
2019), 85 FR 757 (January 7, 2020) (SR–PEARL–
2019–36). Accordingly, the third-party expense
described in this filing is attributed to the same line
item for the Exchange’s 2021 Form 1 Amendment,
which will be filed in 2022.
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37351
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 2021, total third-party expense,
relating to fees paid by the Exchange 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 $40,166. 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
Exchange’s trading system
infrastructure; (2) Zayo Group Holdings,
Inc. (‘‘Zayo’’) for network services (fiber
and bandwidth products and services)
linking the Exchange’s office locations
in Princeton, New Jersey and Miami,
Florida, to all data center locations; (3)
Secure Financial Transaction
Infrastructure (‘‘SFTI’’) 29, 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.).
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, the Exchange does not
allocate its entire information
technology and communication costs to
the access services associated with the
Proposed Access Fees. Further, the
29 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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Exchange notes that, with respect to the
MIAX Pearl expenses included herein,
those expenses only cover the MIAX
Pearl options market; expenses
associated with the MIAX Pearl equities
market are accounted for separately and
are not included within the scope of this
filing.
The Exchange 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 1.80% of the total
applicable 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 the Exchange with its
affiliates, MIAX and MIAX Emerald, as
well as the data center and disaster
recovery locations. As such, all of the
trade data, including the billions of
messages each day per exchange, flow
through Zayo’s infrastructure over the
Exchange’s network. Without these
services from Zayo, the Exchange would
not be able to operate and support the
network and provide the access services
associated with the Proposed Access
Fees. The Exchange did not allocate all
of the Zayo expense toward the cost of
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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 0.90% of the total
applicable 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
0.90% of the total applicable 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 0.90% of the total
applicable hardware and software
provider expense. The Exchange
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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 2021, total projected internal
expense, relating to the internal costs of
the Exchange to provide the access
services associated with the Proposed
Access Fees, is projected to be $856,918.
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, the Exchange 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, the
Exchange’s employee compensation and
benefits expense relating to providing
the access services associated with the
Proposed Access Fees is projected to be
$783,513, which is only a portion of the
$9,163,894 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
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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
8.55% of the total applicable 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.
The Exchange’s depreciation and
amortization expense relating to
providing the access services associated
with the Proposed Access Fees is
projected to be $64,456, which is only
a portion of the $2,864,716 30 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
30 The Exchange notes that the total depreciation
expense is different from the total for the
Exchange’s recent Trading Permit filing (SR–
PEARL–2021–32) because the Exchange factors in
the depreciation of its own internally developed
software when assessing costs for Full Service MEO
Ports, resulting in a higher depreciation expense
number in this filing.
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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
2.25% of the total applicable
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.
The Exchange’s occupancy expense
relating to providing the access services
associated with the Proposed Access
Fees is projected to be $8,949, which is
only a portion of the $497,180 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 Access 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
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37353
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
1.80% of the total applicable 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 $1,476,000 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 $897,084 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 39% profit margin on the Proposed
Access Fees ($1,476,000 in revenue
minus $897,084 in expense = $578,916
profit per annum). The Exchange notes
that the fees charged to each Member for
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Full Service MEO Ports can vary from
month to month depending on the type
used and the Non-Transaction Fees
Volume-Based Tier that the Member
achieves for that month. As such, the
revenue projection is not a static
number, with monthly Full Service
MEO Port 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 the Exchange. Stated differently, no
expense amount of the Exchange is
allocated twice. The Exchange notes
that, with respect to the MIAX Pearl
expenses included herein, those
expenses only cover the MIAX Pearl
options market; expenses associated
with the MIAX Pearl equities market
and the Exchange’s affiliate exchanges,
MIAX and MIAX Emerald, 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
Pearl Equites, MIAX or MIAX Emerald.
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
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.
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The Exchange believes the proposed
changes are reasonable, equitably
allocated and not unfairly
discriminatory, and do not result in a
‘‘supra-competitive’’ 31 profit. Of note,
the Guidance defines ‘‘supracompetitive profit’’ as profits that
exceed the profits that can be obtained
in a competitive market.32 With the
proposed changes, the Exchange
anticipates it will have a profit margin
of 39% for its Full Service MEO Ports.
Based on the 2019 Audited Financial
Statements of the competing options
exchanges (since the 2020 Audited
Financial Statements will likely not
become publicly available until early
July 2021, after the Exchange has
submitted this filing), the Exchange’s
profit margin is well below the
operating profit margins of other
competing exchanges. For example,
Nasdaq ISE, LLC’s (‘‘ISE’’) operating
profit margin, for all of 2019, was 83%.
Nasdaq PHLX LLC’s (‘‘PHLX’’) operating
profit margin, for all of 2019, was 67%.
The Exchange further believes its
proposed fees are reasonable, equitably
allocated and not unfairly
discriminatory because the Exchange,
and its affiliates, are still recouping the
initial expenditures from building out
their systems while the legacy
exchanges have already paid for and
built their systems.
The Exchange believes that the
proposed fees are reasonable, equitably
allocated and not unfairly
discriminatory because, for the flat fee,
the Exchange provides each Member
two (2) Full Service MEO Ports for each
matching engine to which that Member
is connected. Unlike other options
exchanges that provide similar port
functionality and charge fees on a per
port basis,33 the Exchange offers Full
Service MEO Ports as a package and
provides Members with the option to
receive up to two Full Service MEO
Ports per matching engine to which it
connects. The Exchange currently has
twelve (12) matching engines, which
means Members may receive up to
twenty-four (24) Full Service MEO Ports
for a single monthly fee, that can vary
based on certain volume percentages.
The Exchange currently assesses
Members a fee of $5,000 per month in
the highest Full Service MEO Port—
Bulk Tier, regardless of the number of
Full Service MEO Ports allocated to the
Member. Assuming a Member connects
to all twelve (12) matching engines
during a month, with two Full Service
MEO Ports per matching engine, this
PO 00000
results in a cost of $208.33 per Full
Service MEO Port—Bulk ($5,000
divided by 24) for the month. This fee
has been unchanged since the Exchange
adopted Purge Port fees in 2018.34 The
Exchange now proposes to increase the
Full Service MEO Port fees, with the
highest Tier fee for a Full Service MEO
Port—Bulk of $10,000 per month.
Members will continue to receive two
(2) Full Service MEO Ports to each
matching engine to which they are
connected for the single flat monthly
fee. Assuming a Member connects to all
twelve (12) matching engines during the
month, and achieves the highest Tier for
that month, with two Full Service MEO
Ports—Bulk per matching engine, this
would result in a cost of $416.67 per
Full Service MEO Port ($10,000 divided
by 24).
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 Guidance provides that in
determining whether a proposed fee is
constrained by significant competitive
forces, the Commission will consider
whether there are reasonable substitutes
for the product or service that is the
subject of a proposed fee. As described
below, the Exchange believes substitute
products and services are available to
market participants, including, among
other things, other options exchanges
that market participants may connect to
in lieu of the Exchange, indirect
connectivity to the Exchange via a thirdparty reseller and/or trading of any
options products, including proprietary
products, in the Over-the-Counter
(‘‘OTC’’) markets.
There is also no regulatory
requirement that any market participant
connect to any one options exchange,
that any market participant connect at a
particular connection speed or act in a
particular capacity on the Exchange, or
trade any particular product offered on
an exchange. Moreover, membership is
not a requirement to participate on the
Exchange. A market participant may
submit orders to the Exchange via a
Sponsored User.35 Indeed, the Exchange
34 See
supra note 10.
Exchange Rule 210. The Sponsored User is
subject to the fees, if any, of the Sponsoring
Member. The Exchange notes that the Sponsoring
31 See
supra note 23.
32 See id.
33 See supra note 9.
Frm 00081
Fmt 4703
35 See
Sfmt 4703
E:\FR\FM\15JYN1.SGM
15JYN1
Federal Register / Vol. 86, No. 133 / Thursday, July 15, 2021 / Notices
is unaware of any one options exchange
whose membership includes every
registered broker-dealer. Based on a
recent analysis conducted by the Cboe
Exchange, Inc. (‘‘Cboe’’), as of October
21, 2020, only three (3) of the brokerdealers, out of approximately 250
broker-dealers, were members of at least
one exchange that lists options for
trading and were members of all 16
options exchanges.36 Additionally, the
Cboe Fee Filing found that several
broker-dealers were members of only a
single exchange that lists options for
trading and that the number of members
at each exchange that trades options
varies greatly.37
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would place
certain market participants at the
Exchange at a relative disadvantage
compared to other market participants
or affect the ability of such market
participants to compete.
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 allocation of the
Proposed Access Fees reflects the
network resources consumed by the
various size of market participants—
lowest bandwidth consuming members
pay the least, and highest bandwidth
consuming members pays the most,
particularly since higher bandwidth
consumption translates to higher costs
to the Exchange.
khammond on DSKJM1Z7X2PROD with NOTICES
Inter-Market Competition
The Exchange believes the Proposed
Access Fees do not place an undue
burden on competition on other options
exchanges that is not necessary or
appropriate. In particular, options
market participants are not forced to
connect to (and purchase MEO Ports
Member is not required to publicize, let alone
justify or file with the Commission its fees, and as
such could charge the Sponsored User any fees it
deems appropriate, even if such fees would
otherwise be considered supra-competitive, or
otherwise potentially unreasonable or
uncompetitive.
36 See Securities Exchange Act Release No. 90333
(November 4, 2020), 85 FR 71666 (November 10,
2020) (SR–CBOE–2020–105) (the ‘‘Cboe Fee
Filing’’). The Cboe Fee Filing cited to the October
2020 Active Broker Dealer Report, provided by the
Commission’s Office of Managing Executive, on
October 8, 2020.
37 Id.
VerDate Sep<11>2014
17:11 Jul 14, 2021
Jkt 253001
from) all options exchanges. The
Exchange also notes that it has far less
Members as compared to the much
greater number of members at other
options exchanges. Not only does MIAX
Pearl have less than half the number of
members as certain other options
exchanges, but there are also a number
of the Exchange’s Members that do not
connect directly to MIAX Pearl. There
are a number of large users of the MEO
Interface and broker-dealers that are
members of other options exchange but
not Members of MIAX Pearl. The
Exchange is also unaware of any
assertion that its existing fee levels or
the Proposed Access Fees would
somehow unduly impair its competition
with other options exchanges. To the
contrary, if the fees charged are deemed
too high by market participants, they
can simply disconnect.
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. As of June 30,
2021, the Exchange had only a 5.31%
market share of the U.S. equity options
industry for the month of June 2021.38
The Exchange is not aware of any
evidence that a market share of
approximately 5–6% 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. The
Exchange believes that the ever-shifting
market share among exchanges from
month to month demonstrates that
market participants can discontinue or
reduce use of certain categories of
products, or shift order flow, in
response to fee changes. In such an
environment, the Exchange must
continually adjust its fees and fee
waivers to remain competitive with
other exchanges and to attract order
flow to the Exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
38 See ‘‘The market at a glance’’, available at
www.miaxoptions.com (last visited June 30, 2021).
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
37355
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,39 and Rule
19b–4(f)(2) 40 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
PEARL–2021–33 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–PEARL–2021–33. 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
39 15
40 17
E:\FR\FM\15JYN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
15JYN1
37356
Federal Register / Vol. 86, No. 133 / Thursday, July 15, 2021 / Notices
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2021–33 and
should be submitted on or before
August 5, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.41
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–15035 Filed 7–14–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92368; File Nos. SR–NYSE–
2021–25, SR–NYSEAMER–2021–21, SR–
NYSEArca–2021–24, SR–NYSECHX–2021–
07, SR–NYSENAT–2021–09]
Self-Regulatory Organizations; New
York Stock Exchange LLC, NYSE
American LLC, NYSE Arca, Inc., NYSE
Chicago, Inc., and NYSE National, Inc.;
Order Instituting Proceedings To
Determine Whether To Approve or
Disapprove Proposed Rule Changes
To Amend the Fee Schedule To Add
Meet-Me-Room Connectivity Services
Available at the Mahwah Data Center
khammond on DSKJM1Z7X2PROD with NOTICES
July 9, 2021.
I. Introduction
On April 9, 2021, New York Stock
Exchange LLC (‘‘NYSE’’), NYSE
American LLC (‘‘NYSE American’’),
NYSE Arca, Inc. (‘‘NYSE Arca’’), NYSE
Chicago, Inc. (‘‘NYSE Chicago’’), and
NYSE National, Inc. (‘‘NYSE National’’)
(collectively, the ‘‘Exchanges’’) each
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Exchange Act’’
or ‘‘Act’’) 1 and Rule 19b–4 thereunder,2
a proposed rule change to amend the
schedule (‘‘Fee Schedule’’) to set forth
several ‘‘Meet-Me-Room’’ connectivity
services available at the data center in
Mahwah, New Jersey (‘‘Mahwah Data
41 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
20:16 Jul 14, 2021
Jkt 253001
Center’’) for associated fees, and
establish procedures for the allocation
of cabinets and power to such customers
should availability become limited. The
proposed rule changes were published
for comment in the Federal Register on
April 22, 2021.3 On June 2, 2021,
pursuant to Section 19(b)(2) of the Act,4
the Commission designated a longer
period within which to either approve
the proposed rule changes, disapprove
the proposed rule changes, or institute
proceedings to determine whether to
disapprove the proposed rule changes.5
The Commission has received no
comment letters on the proposed rule
changes. This order institutes
proceedings under Section 19(b)(2)(B) of
the Exchange Act 6 to determine
whether to approve or disapprove the
proposed rule changes.
II. Description of the Proposed Rule
Changes
The Exchanges propose to amend the
Fee Schedule to set forth several ‘‘MeetMe-Room’’ (or ‘‘MMR’’) connectivity
services available at the data center in
Mahwah, New Jersey (‘‘Mahwah Data
Center’’), and associated fees, and
establish procedures for the allocation
of cabinets and power to MMR
customers should availability become
limited.7
The Exchanges state that
Intercontinental Exchange, Inc. (‘‘ICE’’),
through its ICE Data Services (‘‘IDS’’)
business, operates the Mahwah Data
Center.8 From the Mahwah Data Center,
the Exchanges provide co-location
services to any market participant that
requests to receive co-location services
directly from the Exchange (‘‘Users’’).9
Services are also available to customers
that are not co-location Users (‘‘NCL
Customers’’) 10 (Users and NCL
3 See Securities Exchange Act Release Nos. 91598
(April 16, 2021), 86 FR 21373 (April 22, 2021) (SR–
NYSE–2021–25); 91599 (April 16, 2021), 86 FR
21365 (April 22, 2021) (SR–NYSEAMER–2021–21);
91600 (April 16, 2021), 86 FR 21384 (April 22,
2021) (SR–NYSEArca–2021–24); 91601 (April 16,
2021), 86 FR 21410 (April 22, 2021) (SR–
NYSECHX–2021–07); and 91602 (April 16, 2021),
86 FR 21393 (April 22, 2021) (SR–NYSENAT–2021–
09) (collectively, the ‘‘Notices’’). For ease of
reference, citations to the Notice(s) are to the Notice
for SR–NYSE–2021–25.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 92089
(June 2, 2021), 86 FR 30510 (June 8, 2021). The
Commission designated July 21, 2021, as the date
by which it should approve, disapprove, or institute
proceedings to determine whether to disapprove the
proposed rule changes.
6 15 U.S.C. 78s(b)(2)(B).
7 See Notice, supra note 3, at 21373.
8 See id. The Exchanges themselves are indirect
subsidiaries of ICE. See id. at 21373 n.6.
9 See id. at 21373.
10 See id. The Exchanges recently filed proposed
rule changes regarding the IDS circuits and certain
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
Customers, together the ‘‘Mahwah
Customers’’).11
The Exchanges state that Mahwah
Customers require circuits connecting
into and out of the Mahwah Data Center
in order to connect their equipment
outside of the Mahwah Data Center to
their equipment or port within the
Mahwah Data Center.12 They state that
IDS and numerous third-party
telecommunications service providers
(‘‘Telecoms’’) provide these connections
to Mahwah Customers in the form of
wired circuits into and out of the
Mahwah Data Center.13 The Exchanges
explain that a Telecom completes a
wired circuit by placing equipment in
an MMR and installing carrier circuits
between the Telecom’s MMR equipment
and one or more points outside the
Mahwah Data Center.14 Mahwah
Customers that contract with a Telecom
to use its circuit connection connect to
the Telecom’s MMR equipment using a
cross connect.15 Once connected to the
Telecom’s equipment, the Mahwah
Customers can then use the Telecom’s
circuit to transport data into and out of
the Mahwah Data Center.16
The Exchanges state that they make
the current proposals solely as a result
of their determination that the
Commission’s interpretations of the
Act’s definitions of the terms
other services offered to NCL Customers. See, e.g.,
Securities Exchange Act Release No. 91217
(February 26, 2021), 86 FR 12715 (March 4, 2021)
(SR–NYSE–2021–14).
11 See Notice, supra note 3, at 21373.
12 See id.
13 See id. Mahwah Customers may also use a third
party wireless connection, including a proprietary
wireless connection, to the Mahwah Data Center, in
which case the portion of the connection closest to
the Mahwah Data Center is wired. See id. at 21373
n.8. Regarding services offered by Telecoms, the
Exchanges state that Telecoms are licensed by the
Federal Communications Commission and are not
required to be, or be affiliated with, a member of
the Exchanges. See id. at 21373 n.9.
14 See id. at 21373–74. The Exchanges state that
a Telecom elects which MMR it will use, or if it
will use both, and that neither IDS nor the
Exchange knows the termination point of a
Telecom’s circuit or the content of any data sent on
a circuit. See id. at 21374 n.10.
15 See id. at 21374.
16 In addition, the Exchanges state that a Telecom
may sell access to its circuits to a second Telecom,
which allows the second Telecom to use the first
Telecom’s circuit to access the Mahwah Data
Center. The second Telecom thereby gains access to
the Mahwah Data Center, where it installs its
equipment in an MMR, without incurring the cost
of installing its own proprietary circuits to the
Mahwah Data Center. According to the Exchanges,
IDS does not consent to, and need not be informed
of, a Telecom’s sale of a circuit to another Telecom.
See id. at 21374.
E:\FR\FM\15JYN1.SGM
15JYN1
]]>Agencies
[Federal Register Volume 86, Number 133 (Thursday, July 15, 2021)]
[Notices]
[Pages 37347-37356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15035]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92365; File No. SR-PEARL-2021-33]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
Pearl Options Fee Schedule
July 9, 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 July 1, 2021, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change as described in Items I, II, and III below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX Pearl Options
Fee Schedule (the ``Fee Schedule'') to amend the fees for the
Exchange's MIAX Express Network Full Service (``MEO'') \3\ Ports.
---------------------------------------------------------------------------
\3\ ``MEO Interface'' or ``MEO'' means a binary order interface
for certain order types as set forth in Rule 516 into the MIAX Pearl
System. See the Definitions Section of the Fee Schedule and Exchange
Rule 100.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/pearl at MIAX
Pearl's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the
[[Page 37348]]
places specified in Item IV below. The Exchange has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to increase the
fees for its Full Service MEO Ports (the ``Proposed Access Fees''),
which allow Members \4\ to submit electronic orders in all products to
the Exchange. The Exchange currently offers different options of MEO
Ports depending on the services required by the Member, including a
Full Service MEO Port-Bulk,\5\ a Full Service MEO Port-Single,\6\ and a
Limited Service MEO Port.\7\ A Member may be allocated two (2) Full-
Service MEO Ports of either type per matching engine \8\ and may
request Limited Service MEO Ports for which MIAX Pearl will assess
Members Limited Service MEO Port fees per Matching Engine based on the
table above. The two (2) Full-Service MEO Ports that may be allocated
per matching engine to a Member may consist of: (a) Two (2) Full
Service MEO Ports--Bulk; (b) two (2) Full Service MEO Ports--Single; or
(c) one (1) Full Service MEO Port--Bulk and one (1) Full Service MEO
Port--Single.
---------------------------------------------------------------------------
\4\ ``Member'' means an individual or organization that is
registered with the Exchange pursuant to Chapter II of Exchange
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See the Definitions Section of
the Fee Schedule and Exchange Rule 100.
\5\ ``Full Service MEO Port--Bulk'' means an MEO port that
supports all MEO input message types and binary bulk order entry.
See the Definitions Section of the Fee Schedule.
\6\ ``Full Service MEO Port--Single'' means an MEO port that
supports all MEO input message types and binary order entry on a
single order-by-order basis, but not bulk orders. See the
Definitions Section of the Fee Schedule.
\7\ ``Limited Service MEO Port'' means an MEO port that supports
all MEO input message types, but does not support bulk order entry
and only supports limited order types, as specified by the Exchange
via Regulatory Circular. See the Definitions Section of the Fee
Schedule.
\8\ ``Matching Engine'' is a part of the MIAX Pearl electronic
system that processes options orders and trades on a symbol-by-
symbol basis. Some Matching Engines will process option classes with
multiple root symbols, and other Matching Engines may be dedicated
to one single option root symbol. A particular root symbol may only
be assigned to a single designated Matching Engine. A particular
root symbol may not be assigned to multiple Matching Engines. See
the Definitions Section of the Fee Schedule.
---------------------------------------------------------------------------
Unlike other options exchanges that provide similar port
functionality and charge fees on a per port basis,\9\ the Exchange
offers Full Service MEO Ports as a package and provides Members with
the option to receive up to two Full Service MEO Ports (described
above) per matching engine to which it connects. The Exchange currently
has twelve (12) matching engines, which means Members may receive up to
twenty-four (24) Full Service MEO Ports for a single monthly fee, that
can vary based on certain volume percentages, as described below. For
illustrative purposes and as described in more detail below, the
Exchange currently assesses Members a fee of $5,000 per month in the
highest Full Service MEO Port--Bulk Tier, regardless of the number of
Full Service MEO Ports allocated to the Member. For example, assuming a
Member connects to all twelve (12) matching engines during a month,
with two Full Service MEO Ports per matching engine, this results in a
cost of $208.33 per Full Service MEO Port ($5,000 divided by 24) for
the month. This fee has been unchanged since the Exchange adopted Purge
Port fees in 2018.\10\ The Exchange now proposes to increase the Full
Service MEO Port fees as described below, with the highest Tier fee for
a Full Service MEO Port--Bulkof $10,000 per month. Members will
continue to receive two (2) Full Service MEO Ports to each matching
engine to which they are connected for the single flat monthly fee.
Assuming a Member connects to all twelve (12) matching engines during
the month, with two Full Service MEO Ports per matching engine, this
would result in a cost of $416.67 per Full Service MEO Port ($10,000
divided by 24).
---------------------------------------------------------------------------
\9\ See Cboe Exchange, Inc. Fee Schedule, Logical Connectivity
Fees ($750 per port per month for the first 5 BOE/FIX Logical Ports
and $800 per port per month for each port over 5; $1,500 per port
per month for the first 5 BOE Bulk Logical Ports, $2,500 per port
per month for ports 6-30, and $3,000 per port per month for each
port over 30); Cboe BXZ Exchange, Inc. (``BZX'') Options Fee
Schedule, Options Logical Port Fees, Logical Ports ($750 per port
per month), Ports with Bulk Quoting Capabilities ($1,500 per port
per month for the first and second ports, $2,500 per port per month
for three or more); Cboe EDGX Exchange, Inc. (``EDGX'') Options Fee
Schedule, Options Logical Port Fees, Logical Ports ($500 per port
per month), Ports with Bulk Quoting Capabilities ($600 per port per
month). See also Nasdaq Stock Market LLC, Options 7, Pricing
Schedule, Section 3 ($1,500 per port per month for the first 5 SQF
ports; $1,000 per port per month for SQF ports 15-20; and $500 per
port per month for all SQF ports over 21).
\10\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
---------------------------------------------------------------------------
The Exchange assesses Members Full Service MEO Port Fees, either
for a Full Service MEO Port--Bulk and/or for a Full Service MEO Port--
Single, based upon the monthly total volume executed by a Member and
its Affiliates \11\ on the Exchange across all origin types, not
including Excluded Contracts \12\, as compared to the Total
Consolidated Volume (``TCV''),\13\ in all MIAX Pearl-listed options.
The Exchange adopted a tier-based fee structure based upon the volume-
based tiers detailed in the definition of ``Non-Transaction Fees
Volume-Based Tiers'' described in the Definitions section of the Fee
Schedule. The Exchange assesses these and other monthly Port fees on
Members in each month the market participant is credentialed to use a
Port in the production environment.
---------------------------------------------------------------------------
\11\ ``Affiliate'' means (i) an affiliate of a Member of at
least 75% common ownership between the firms as reflected on each
firm's Form BD, Schedule A, or (ii) the Appointed Market Maker of an
Appointed EEM (or, conversely, the Appointed EEM of an Appointed
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market
Maker (who does not otherwise have a corporate affiliation based
upon common ownership with an EEM) that has been appointed by an EEM
and an ``Appointed EEM'' is an EEM (who does not otherwise have a
corporate affiliation based upon common ownership with a MIAX Pearl
Market Maker) that has been appointed by a MIAX Pearl Market Maker,
pursuant to the following process. A MIAX Pearl Market Maker
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for
the purposes of the Fee Schedule, by each completing and sending an
executed Volume Aggregation Request Form by email to
[email protected] no later than 2 business days prior to
the first business day of the month in which the designation is to
become effective. Transmittal of a validly completed and executed
form to the Exchange along with the Exchange's acknowledgement of
the effective designation to each of the Market Maker and EEM will
be viewed as acceptance of the appointment. The Exchange will only
recognize one designation per Member. A Member may make a
designation not more than once every 12 months (from the date of its
most recent designation), which designation shall remain in effect
unless or until the Exchange receives written notice submitted 2
business days prior to the first business day of the month from
either Member indicating that the appointment has been terminated.
Designations will become operative on the first business day of the
effective month and may not be terminated prior to the end of the
month. Execution data and reports will be provided to both parties.
See the Definitions Section of the Fee Schedule.
\12\ ``Excluded Contracts'' means any contracts routed to an
away market for execution. See the Definitions Section of the Fee
Schedule.
\13\ ``TCV'' means total consolidated volume calculated as the
total national volume in those classes listed on MIAX Pearl for the
month for which the fees apply, excluding consolidated volume
executed during the period of time in which the Exchange experiences
an Exchange System Disruption (solely in the option classes of the
affected Matching Engine). See the Definitions Section of the Fee
Schedule.
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Current Full Service MEO Port--Bulk Fees. Currently, the Exchange
assesses Members monthly Full Service MEO Port--Bulk fees as follows:
(i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $3,000;
[[Page 37349]]
(ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $4,500; and
(iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $5,000.
Proposed Full Service MEO Port--Bulk Fees. The Exchange now
proposes to assess Members monthly Full Service MEO Port--Bulk fees as
follows:
(i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $5,000;
(ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $7,500; and
(iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $10,000.
Current Full Service MEO Port--Single Fees. Currently, the Exchange
assesses Members monthly Full Service MEO Port--Single fees as follows:
(i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $2,000;
(ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $3,375; and
(iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $3,750.
Proposed Full Service MEO Port--Single Fees. The Exchange now
proposes to assess Members monthly Full Service MEO Port--Single fees
as follows:
(i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $2,500;
(ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $3,500; and
(iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $4,500.
The Exchange offers various types of ports with differing prices
because each port accomplishes different tasks, are suited to different
types of Members, and consume varying capacity amounts of the network.
For instance, MEO ports allow for a higher throughput and can handle
much higher quote/order rates than FIX ports. Members that are Market
Makers \14\ or high frequency trading firms utilize these ports
(typically coupled with 10Gb ULL connectivity) because they transact in
significantly higher amounts of messages being sent to and from the
Exchange, versus FIX port users, who are traditionally customers
sending only orders to the Exchange (typically coupled with 1Gb
connectivity). The different types of ports cater to the different
types of Exchange Memberships and different capabilities of the various
Exchange Members. Certain Members need ports and connections that can
handle using far more of the network's capacity for message throughput,
risk protections, and the amount of information that has to be
assessed. Those Members may account for the vast majority of network
capacity utilization and volume executed on the Exchange, as discussed
throughout.
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\14\ ``Market Maker'' means a Member registered with the
Exchange for the purpose of making markets in options contracts
traded on the Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of Exchange Rules. See the
Definitions Section of the Fee Schedule and Exchange Rule 100.
---------------------------------------------------------------------------
The Exchange now proposes to increase its monthly Full Service MEO
Port fees since it has not done so since the fees were first adopted in
2018 \15\ and are designed to recover a portion of the costs associated
with directly accessing the Exchange. The Exchange notes that its
affiliates, Miami International Securities Exchange, LLC (``MIAX'') and
MIAX Emerald, LLC (``MIAX Emerald''), charge fees for their high
throughput, low latency MEI Ports in a similar fashion as the Exchange
charges for its MEO Ports--generally, the more active user the Member
(i.e., the greater number/greater national ADV of classes assigned to
quote on MIAX and MIAX Emerald), the higher the MEI Port fee.\16\ This
concept is not new or novel. The Exchange also notes that the proposed
increased Full Service MEO Port fees are in line with, or cheaper than,
the similar port fees or similar membership fees charged by other
options exchanges.\17\
---------------------------------------------------------------------------
\15\ See supra note 10.
\16\ See MIAX Fee Schedule, Section 5)d)ii); MIAX Emerald Fee
Schedule, Section 5)d)ii).
\17\ See supra note 9.
---------------------------------------------------------------------------
The Exchange has historically undercharged for Full Service MEO
Ports as compared to other options exchanges \18\ because the Exchange
provides Full Service MEO Ports as a package for a single monthly fee.
As described above, this package includes two Full Service MEO Ports
for each of the Exchange's twelve (12) matching engines. The Exchange
understands other options exchanges charge fees on a per port basis.
The proposed monthly fee increases for Full Service MEO Ports would
bring the Exchange's fees more in line with that of other options
exchanges, while maintaining a competitive fee structure for Full
Service MEO Ports.
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\18\ See id.
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2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \19\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \20\ 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.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange believes that exchanges, in setting fees of all types,
should meet very high standards of transparency to demonstrate why each
new fee or fee increase meets the requirements of the Act that fees be
reasonable, equitably allocated, not unfairly discriminatory, and not
create an undue burden on competition among market participants. The
Exchange believes this high standard is especially important when an
exchange imposes various access fees for market participants to access
an exchange's marketplace. The Exchange deems the Full Service MEO Port
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 an analysis of
its revenues, costs, and profitability associated with the Proposed
Access Fees. This analysis includes information regarding its
[[Page 37350]]
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 Full Service MEO Ports, and, utilizing
a recent monthly billing cycle representative of 2021 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 2020. However, since the
revenue and expense associated with the Proposed Access Fees were not
in place in 2020 or for the first two quarters of 2021, the Exchange
believes its 2020 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 2021 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.
The Exchange notes that this is the same process utilized by the
Exchange's affiliate, MIAX Emerald, in a filing recently noticed by the
Commission when MIAX Emerald adopted its own MEI Port fees.\21\
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\21\ See Securities Exchange Act Release No. 91460 (April 2,
2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule To Adopt Port Fees, Increase Certain Network
Connectivity Fees, and Increase the Number of Additional Limited
Service MIAX Emerald Express Interface Ports Available to Market
Makers) (adopting tiered MEI Port fee structure ranging from $5,000
to $20,500 per month).
---------------------------------------------------------------------------
* * * * *
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'').\22\ On May 21, 2019, the Commission issued the Staff Guidance
on SRO Rule Filings Relating to Fees.\23\ 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 will 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, and its affiliates MIAX and MIAX
Emerald, to establish or increase other non-transaction fees.
Accordingly, the Exchange believes that the Commission should find that
the Proposed Access Fees are consistent with the Act.
---------------------------------------------------------------------------
\22\ 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).
\23\ 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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* * * * *
As of June 30, 2021, the Exchange had only a 5.31% market share of
the U.S. equity options industry for the month of June 2021.\24\ The
Exchange is not aware of any evidence that a market share of
approximately 5-6% 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.
---------------------------------------------------------------------------
\24\ See ``The market at a glance'', available at
www.miaxoptions.com (last visited June 30, 2021).
---------------------------------------------------------------------------
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; 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.'' Similarly, the Exchange's
affiliate, MIAX Emerald, noted in a recent filing that once MIAX
Emerald issued a notice that it was instituting MEI Port fees, among
other non-transaction fees, one Member dropped its access to the
Exchange as a result of those fees.\25\ 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
[[Page 37351]]
participants can choose to drop their access to such exchange.
---------------------------------------------------------------------------
\25\ See supra note 21.
---------------------------------------------------------------------------
The Exchange's high performance network solutions and supporting
infrastructure (including employee support), provides unparalleled
system throughput and the capacity to handle approximately 10.7 million
order messages per second. On an average day, the Exchange handles over
approximately 2.7 billion total 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.
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 Members 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 the
Exchange and its affiliates provide. Further, as the total number
Members increases, the Exchange 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 the Exchange and its affiliates to provide
access to its Members is not fixed. The Exchange believes the Proposed
Access Fees are reasonable in order to offset a portion of the costs to
the Exchange associated with providing access to its network
infrastructure.
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 services associated with the Proposed Access
Fees. For 2021 \26\, the total annual expense for providing the access
services associated with the Proposed Access Fees for the Exchange is
projected to be approximately $897,084. The $897,084 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 the Exchange to
third-parties for certain products and services; and (2) internal
expense, relating to the internal costs of the Exchange to provide the
services associated with the Proposed Access Fees.\27\ As noted above,
the Exchange believes it is more appropriate to analyze the Proposed
Access Fees utilizing its 2021 revenue and costs, which utilize the
same presentation methodology as set forth in the Exchange's
previously-issued Audited Unconsolidated Financial Statements.\28\ The
$897,084 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.
---------------------------------------------------------------------------
\26\ The Exchange has not yet finalized its 2021 year end
results.
\27\ The percentage allocations used in this proposed rule
change may differ from past filings from the Exchange or its
affiliates due to, among other things, changes in expenses charged
by third-parties, adjustments to internal resource allocations, and
different system architecture of the Exchange as compared to its
affiliates.
\28\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the
information technology and communication costs line item under the
section titled ``Operating Expenses Incurred Directly or Allocated
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing
its financial statements for 2018. See Securities Exchange Act
Release No. 87876 (December 31, 2019), 85 FR 757 (January 7, 2020)
(SR-PEARL-2019-36). Accordingly, the third-party expense described
in this filing is attributed to the same line item for the
Exchange's 2021 Form 1 Amendment, which will be filed in 2022.
---------------------------------------------------------------------------
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 2021, total third-party expense, relating to fees paid by the
Exchange 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 $40,166. 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 Exchange's trading system infrastructure; (2) Zayo
Group Holdings, Inc. (``Zayo'') for network services (fiber and
bandwidth products and services) linking the Exchange's office
locations in Princeton, New Jersey and Miami, Florida, to all data
center locations; (3) Secure Financial Transaction Infrastructure
(``SFTI'') \29\, 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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\29\ 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, the Exchange does not allocate its entire
information technology and communication costs to the access services
associated with the Proposed Access Fees. Further, the
[[Page 37352]]
Exchange notes that, with respect to the MIAX Pearl expenses included
herein, those expenses only cover the MIAX Pearl options market;
expenses associated with the MIAX Pearl equities market are accounted
for separately and are not included within the scope of this filing.
The Exchange 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 1.80%
of the total applicable 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 the
Exchange with its affiliates, MIAX and MIAX Emerald, as well as the
data center and disaster recovery locations. As such, all of the trade
data, including the billions of messages each day per exchange, flow
through Zayo's infrastructure over the Exchange's network. Without
these services from Zayo, the Exchange would not be able to operate and
support the network and provide the 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 0.90% of the total applicable 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 0.90% of the total applicable
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 0.90% of the total applicable
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 2021, total projected internal expense, relating to the
internal costs of the Exchange to provide the access services
associated with the Proposed Access Fees, is projected to be $856,918.
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, the Exchange 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, the Exchange's employee compensation and benefits
expense relating to providing the access services associated with the
Proposed Access Fees is projected to be $783,513, which is only a
portion of the $9,163,894 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
[[Page 37353]]
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 8.55% of the total applicable 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.
The Exchange's depreciation and amortization expense relating to
providing the access services associated with the Proposed Access Fees
is projected to be $64,456, which is only a portion of the $2,864,716
\30\ 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 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 2.25% of the total applicable 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.
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\30\ The Exchange notes that the total depreciation expense is
different from the total for the Exchange's recent Trading Permit
filing (SR-PEARL-2021-32) because the Exchange factors in the
depreciation of its own internally developed software when assessing
costs for Full Service MEO Ports, resulting in a higher depreciation
expense number in this filing.
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The Exchange's occupancy expense relating to providing the access
services associated with the Proposed Access Fees is projected to be
$8,949, which is only a portion of the $497,180 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 Access 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 1.80% of the total applicable
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 $1,476,000 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 $897,084 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 39% profit margin on the Proposed Access
Fees ($1,476,000 in revenue minus $897,084 in expense = $578,916 profit
per annum). The Exchange notes that the fees charged to each Member for
[[Page 37354]]
Full Service MEO Ports can vary from month to month depending on the
type used and the Non-Transaction Fees Volume-Based Tier that the
Member achieves for that month. As such, the revenue projection is not
a static number, with monthly Full Service MEO Port 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 the
Exchange. Stated differently, no expense amount of the Exchange is
allocated twice. The Exchange notes that, with respect to the MIAX
Pearl expenses included herein, those expenses only cover the MIAX
Pearl options market; expenses associated with the MIAX Pearl equities
market and the Exchange's affiliate exchanges, MIAX and MIAX Emerald,
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 Pearl Equites, MIAX or MIAX Emerald.
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 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.
The Exchange believes the proposed changes are reasonable,
equitably allocated and not unfairly discriminatory, and do not result
in a ``supra-competitive'' \31\ profit. Of note, the Guidance defines
``supra-competitive profit'' as profits that exceed the profits that
can be obtained in a competitive market.\32\ With the proposed changes,
the Exchange anticipates it will have a profit margin of 39% for its
Full Service MEO Ports. Based on the 2019 Audited Financial Statements
of the competing options exchanges (since the 2020 Audited Financial
Statements will likely not become publicly available until early July
2021, after the Exchange has submitted this filing), the Exchange's
profit margin is well below the operating profit margins of other
competing exchanges. For example, Nasdaq ISE, LLC's (``ISE'') operating
profit margin, for all of 2019, was 83%. Nasdaq PHLX LLC's (``PHLX'')
operating profit margin, for all of 2019, was 67%.
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\31\ See supra note 23.
\32\ See id.
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The Exchange further believes its proposed fees are reasonable,
equitably allocated and not unfairly discriminatory because the
Exchange, and its affiliates, are still recouping the initial
expenditures from building out their systems while the legacy exchanges
have already paid for and built their systems.
The Exchange believes that the proposed fees are reasonable,
equitably allocated and not unfairly discriminatory because, for the
flat fee, the Exchange provides each Member two (2) Full Service MEO
Ports for each matching engine to which that Member is connected.
Unlike other options exchanges that provide similar port functionality
and charge fees on a per port basis,\33\ the Exchange offers Full
Service MEO Ports as a package and provides Members with the option to
receive up to two Full Service MEO Ports per matching engine to which
it connects. The Exchange currently has twelve (12) matching engines,
which means Members may receive up to twenty-four (24) Full Service MEO
Ports for a single monthly fee, that can vary based on certain volume
percentages. The Exchange currently assesses Members a fee of $5,000
per month in the highest Full Service MEO Port--Bulk Tier, regardless
of the number of Full Service MEO Ports allocated to the Member.
Assuming a Member connects to all twelve (12) matching engines during a
month, with two Full Service MEO Ports per matching engine, this
results in a cost of $208.33 per Full Service MEO Port--Bulk ($5,000
divided by 24) for the month. This fee has been unchanged since the
Exchange adopted Purge Port fees in 2018.\34\ The Exchange now proposes
to increase the Full Service MEO Port fees, with the highest Tier fee
for a Full Service MEO Port--Bulk of $10,000 per month. Members will
continue to receive two (2) Full Service MEO Ports to each matching
engine to which they are connected for the single flat monthly fee.
Assuming a Member connects to all twelve (12) matching engines during
the month, and achieves the highest Tier for that month, with two Full
Service MEO Ports--Bulk per matching engine, this would result in a
cost of $416.67 per Full Service MEO Port ($10,000 divided by 24).
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\33\ See supra note 9.
\34\ See supra note 10.
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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 Guidance provides that in determining whether a proposed fee is
constrained by significant competitive forces, the Commission will
consider whether there are reasonable substitutes for the product or
service that is the subject of a proposed fee. As described below, the
Exchange believes substitute products and services are available to
market participants, including, among other things, other options
exchanges that market participants may connect to in lieu of the
Exchange, indirect connectivity to the Exchange via a third-party
reseller and/or trading of any options products, including proprietary
products, in the Over-the-Counter (``OTC'') markets.
There is also no regulatory requirement that any market participant
connect to any one options exchange, that any market participant
connect at a particular connection speed or act in a particular
capacity on the Exchange, or trade any particular product offered on an
exchange. Moreover, membership is not a requirement to participate on
the Exchange. A market participant may submit orders to the Exchange
via a Sponsored User.\35\ Indeed, the Exchange
[[Page 37355]]
is unaware of any one options exchange whose membership includes every
registered broker-dealer. Based on a recent analysis conducted by the
Cboe Exchange, Inc. (``Cboe''), as of October 21, 2020, only three (3)
of the broker-dealers, out of approximately 250 broker-dealers, were
members of at least one exchange that lists options for trading and
were members of all 16 options exchanges.\36\ Additionally, the Cboe
Fee Filing found that several broker-dealers were members of only a
single exchange that lists options for trading and that the number of
members at each exchange that trades options varies greatly.\37\
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\35\ See Exchange Rule 210. The Sponsored User is subject to the
fees, if any, of the Sponsoring Member. The Exchange notes that the
Sponsoring Member is not required to publicize, let alone justify or
file with the Commission its fees, and as such could charge the
Sponsored User any fees it deems appropriate, even if such fees
would otherwise be considered supra-competitive, or otherwise
potentially unreasonable or uncompetitive.
\36\ See Securities Exchange Act Release No. 90333 (November 4,
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105) (the
``Cboe Fee Filing''). The Cboe Fee Filing cited to the October 2020
Active Broker Dealer Report, provided by the Commission's Office of
Managing Executive, on October 8, 2020.
\37\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
place certain market participants at the Exchange at a relative
disadvantage compared to other market participants or affect the
ability of such market participants to compete.
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 allocation of the Proposed Access
Fees reflects the network resources consumed by the various size of
market participants--lowest bandwidth consuming members pay the least,
and highest bandwidth consuming members pays the most, particularly
since higher bandwidth consumption translates to higher costs to the
Exchange.
Inter-Market Competition
The Exchange believes the Proposed Access Fees do not place an
undue burden on competition on other options exchanges that is not
necessary or appropriate. In particular, options market participants
are not forced to connect to (and purchase MEO Ports from) all options
exchanges. The Exchange also notes that it has far less Members as
compared to the much greater number of members at other options
exchanges. Not only does MIAX Pearl have less than half the number of
members as certain other options exchanges, but there are also a number
of the Exchange's Members that do not connect directly to MIAX Pearl.
There are a number of large users of the MEO Interface and broker-
dealers that are members of other options exchange but not Members of
MIAX Pearl. The Exchange is also unaware of any assertion that its
existing fee levels or the Proposed Access Fees would somehow unduly
impair its competition with other options exchanges. To the contrary,
if the fees charged are deemed too high by market participants, they
can simply disconnect.
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. As of June 30, 2021,
the Exchange had only a 5.31% market share of the U.S. equity options
industry for the month of June 2021.\38\ The Exchange is not aware of
any evidence that a market share of approximately 5-6% 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. 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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\38\ See ``The market at a glance'', available at
www.miaxoptions.com (last visited June 30, 2021).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\39\ and Rule 19b-4(f)(2) \40\ 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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\39\ 15 U.S.C. 78s(b)(3)(A)(ii).
\40\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-PEARL-2021-33 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-PEARL-2021-33. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public
[[Page 37356]]
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
PEARL-2021-33 and should be submitted on or before August 5, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15035 Filed 7-14-21; 8:45 am]
BILLING CODE 8011-01-P
