Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Adopt a Tiered-Pricing Structure for Additional Limited Service MIAX Express Interface Ports, 46737-46744 [2021-17762]
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Federal Register / Vol. 86, No. 158 / Thursday, August 19, 2021 / Notices
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,54 that the
proposed rule change (SR–NYSE–2020–
98), as amended by Amendment Nos. 2
and 3, be and hereby is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.55
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–17760 Filed 8–18–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92661; File No. SR–MIAX–
2021–37]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Its Fee Schedule To
Adopt a Tiered-Pricing Structure for
Additional Limited Service MIAX
Express Interface Ports
August 13, 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 August 2,
2021, Miami International Securities
Exchange LLC (‘‘MIAX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
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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 Options Fee Schedule
(the ‘‘Fee Schedule’’) to amend certain
port fees.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings, at MIAX’s principal office, and
at the Commission’s Public Reference
Room.
54 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
55 17
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to adopt a tiered-pricing
structure for additional Limited Service
MIAX Express Interface (‘‘MEI’’) Ports 3
available to Market Makers.4 The
Exchange believes a tiered-pricing
structure will encourage Market Makers
to be more efficient and economical
when determining how to connect to the
Exchange. This should also enable the
Exchange to better monitor and provide
access to the Exchange’s network to
ensure sufficient capacity and headroom
in the System.5
Additional Limited Service MEI Port
Tiered-Pricing Structure
The Exchange proposes to amend the
fees for additional Limited Service MEI
Ports. Currently, the Exchange allocates
two (2) Full Service MEI Ports 6 and two
(2) Limited Service MEI Ports 7 per
3 MIAX Express Interface is a connection to MIAX
systems that enables Market Makers to submit
simple and complex electronic quotes to MIAX. See
Fee Schedule, note 26.
4 The term ‘‘Market Makers’’ refers to Lead Market
Makers (‘‘LMMs’’), Primary Lead Market Makers
(‘‘PLMMs’’), and Registered Market Makers
(‘‘RMMs’’) collectively. See Exchange Rule 100.
5 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
6 Full Service MEI Ports provide Market Makers
with the ability to send Market Maker quotes,
eQuotes, and quote purge messages to the MIAX
System. Full Service MEI Ports are also capable of
receiving administrative information. Market
Makers are limited to two Full Service MEI Ports
per matching engine. See Fee Schedule, Section
5)d)ii), note 27.
7 Limited Service MEI Ports provide Market
Makers with the ability to send eQuotes and quote
purge messages only, but not Market Maker Quotes,
to the MIAX System. Limited Service MEI Ports are
also capable of receiving administrative
information. Market Makers initially receive two
Limited Service MEI Ports per matching engine. See
Fee Schedule, Section 5)d)ii), note 28.
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matching engine 8 to which each Market
Maker connects. Market Makers may
also request additional Limited Service
MEI Ports for each matching engine to
which they connect. The Full Service
MEI Ports, Limited Service MEI Ports
and the additional Limited Service MEI
Ports all include access to the
Exchange’s primary and secondary data
centers and its disaster recovery center.
Market Makers may request additional
Limited Service MEI Ports for which
they are assessed a $100 monthly fee for
each additional Limited Service MEI
Port for each matching engine. This fee
has been unchanged since 2016.9
The Exchange now proposes to move
from a flat monthly fee per additional
Limited Service MEI Port for each
matching engine to a tiered-pricing
structure per additional Limited Service
MEI Ports for each matching engine
under which the monthly fee would
vary depending on the number of
additional Limited Service MEI Ports
the Market Maker elects to purchase.
Specifically, the Exchange will continue
to provide the first and second
additional Limited Service MEI Ports for
each matching engine free of charge, as
described above, per the initial
allocation of Limited Service MEI Ports
that Market Makers receive.
Specifically, (i) the third and fourth
additional Limited Service MEI Ports for
each matching engine will increase from
the current flat monthly fee of $100 to
$150 per port; (ii) the fifth and sixth
additional Limited Service MEI Ports for
engine matching engine will increase
from the current flat monthly fee of
$100 to $200 per port; and (iii) the
seventh additional Limited Service MEI
Port, and each Limited Service MEI Port
for each matching engine purchased
thereafter, will increase from the current
monthly flat fee of $100 to $250 per port
(collectively, the ‘‘Proposed Access
Fees’’).
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
8 A ‘‘matching engine’’ is a part of the MIAX
electronic system that processes options quotes and
trades on a symbol-by-symbol basis. Some matching
engines will process option classes with multiple
root symbols, and other matching engines will be
dedicated to one single option root symbol (for
example, options on SPY will be processed by one
single matching engine that is dedicated only to
SPY). 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 Fee Schedule,
Section 5)d)ii), note 29.
9 See Securities Exchange Act Release No. 79666
(December 22, 2016), 81 FR 96133 (December 29,
2016) (SR–MIAX–2016–47).
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consistent with Section 6(b) of the Act 10
in general, and furthers the objectives of
Section 6(b)(4) of the Act 11 in
particular, in that it provides for the
equitable allocation of reasonable dues,
fees and other charges among Exchange
Members and issuers and other persons
using any facility or system which the
Exchange operates or controls. The
Exchange also believes the proposal
furthers the objectives of Section 6(b)(5)
of the Act 12 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 notes that it operates in
a highly competitive market in which
market participants can readily favor
competing venues if they deem fee
levels at a particular venue to be
excessive. In such an environment, the
Exchange must continually adjust its
fees for services and products, in
addition to order flow, to remain
competitive with other exchanges. The
Exchange believes that the proposed
changes reflect this competitive
environment.
The Exchange believes the proposal to
move from a flat fee per month to a
tiered-pricing structure is reasonable,
equitably allocated and not unfairly
discriminatory because the Exchange
believes the proposed structure would
encourage firms to be more economical
and efficient in the number of
additional Limited Service MEI Ports
they purchase. The Exchange believes
this will enable the Exchange to better
monitor and provide access to the
Exchange’s network to ensure sufficient
capacity and headroom in the System.
The Exchange notes that the firms that
are primarily order routers seeking bestexecution do not utilize Limited Service
MEI Ports on MIAX. Therefore, the fees
described in the proposed tiered-pricing
structure will only be allocated to
market making firms that engage in
advanced trading strategies and
typically request multiple Limited
Service MEI Ports. Accordingly, the
firms engaged in market making
business generate higher costs by
utilizing more of the Exchange’s
resources. The market making firms that
purchase higher amounts of Limited
Service MEI Ports tend to have specific
business oriented market making and
10 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
12 15 U.S.C. 78f(b)(5).
11 15
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taking strategies, as opposed to firms
simply engaging in best-execution order
routing business. The use of such
additional Limited Service MEI Ports is
entirely voluntary.
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 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
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.
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In order to determine the Exchange’s
projected revenues associated with the
Proposed Access Fees, the Exchange
analyzed the number of Market Makers
currently utilizing Limited Service MEI
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 seven months 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.
*
*
*
*
*
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
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BOX Network (the ‘‘BOX Order’’).13 On
May 21, 2019, the Commission issued
the Staff Guidance on SRO Rule Filings
Relating to Fees.14 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 supracompetitive 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 Pearl and MIAX
Emerald, LLC (‘‘MIAX Emerald’’), to
establish or increase other nontransaction fees.15 Accordingly, the
Exchange believes that the Commission
should find that the Proposed Access
Fees are consistent with the Act.
*
*
*
*
*
As of July 30, 2021, the Exchange had
a market share of only 6.21% of the U.S.
equity options industry for the month of
July 2021.16 The Exchange is not aware
of any evidence that a market share of
approximately 6–7% 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
access the Exchange, and existing
market participants would discontinue
all or some of their access services.
Separately, the Exchange is not aware
of any reason why market participants
could not simply drop their access (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
13 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).
14 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’’).
15 See Securities Exchange Act Release Nos.
90981 (January 25, 2021), 86 FR 7582 (January 29,
2021) (SR–PEARL–2021–01) (proposal to increase
connectivity fees); 91460 (April 2, 2021), 86 FR
18349 (SR–EMERALD–2021–11) (proposal to adopt
port fees, increase connectivity fees, and increase
additional limited service ports); 91033 (February 1,
2021), 86 FR 8455 (February 5, 2021) (SR–
EMERALD–2021–03) (proposal to adopt trading
permit fees).
16 See ‘‘The market at a glance,’’ available at
https://www.miaxoptions.com/ (last visited July 30,
2021).
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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 MIAX Emerald
Member dropped its access to MIAX
Emerald as a result of those fees.17
Accordingly, these examples show that
if an exchange sets too high of a fee for
ports and/or other non-transaction fees,
including other access fees, for its
relevant marketplace, market
participants can choose to drop their
access to such exchange.
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
17 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).
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46739
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
System for market participants 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 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
2021,18 the total annual expense for
providing the access services associated
with the Proposed Access Fees is
projected to be approximately $1.32
million. The approximately $1.32
million in projected total annual
expense is comprised of the following,
all of which are directly related to the
access services associated with the
Proposed Access Fees: (1) Third-party
expense, relating to fees paid by 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.19 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
18 The Exchange has not yet finalized its 2021
year end results.
19 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.
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Unconsolidated Financial Statements.20
The $1.32 million in projected total
annual expense is directly related to the
access services associated with the
Proposed Access Fees, and not any
other product or service offered by the
Exchange. It does not include general
costs of operating matching systems and
other trading technology, and no
expense amount was allocated twice.
As discussed, the Exchange
conducted an extensive cost review in
which the Exchange analyzed expense
items 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 $0.16 million. 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’’),21
20 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. 87875 (December 31,
2019), 85 FR 770 (January 7, 2020) (SR–MIAX–
2019–51). 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.
21 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
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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.
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 4.95% 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
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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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 Pearl 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 2.64% 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
4.95% 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
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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 4.95% 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 $1.16
million. 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, and
business 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
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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
approximately $0.91 million, which is
only a portion of the $12.6 million total
projected expense for employee
compensation and benefits. The
Exchange believes it is reasonable to
allocate the identified portion of such
expense because this includes the time
spent by employees of several
departments, including Technology,
Back Office, Systems Operations,
Networking, Business Strategy
Development (who create the business
requirement documents that the
Technology staff use to develop network
features and enhancements), and Trade
Operations. 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
7.24% 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 services associated with
the Proposed Access Fees is projected to
be $0.22 million, which is only a
portion of the $4.8 million 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
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46741
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
4.60% 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 services
associated with the Proposed Access
Fees is projected to be $0.03 million,
which is only a portion of the $0.6
million 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
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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
4.69% 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 to recover their costs;
thus, the Exchange believes it is
reasonable to allocate a material portion
of their 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 annualized revenue for providing
the access services associated with the
Proposed Access Fees would be
approximately $3.21 million per annum,
based on a recent billing cycle. The
Exchange projects that its annualized
expense for providing the services
associated with the Proposed Access
Fees will be approximately $1.32
million per annum. Accordingly, on a
fully-annualized basis, the Exchange
believes its total projected revenue for
providing the access services associated
with the Proposed Access Fees will not
result in excessive pricing or supracompetitive profit, as the Exchange will
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make a profit margin of approximately
59% ($3.21 million in total revenue
minus $1.32 million in expense = $1.89
million in profit per annum).
Additionally, this profit margin does not
take into account the cost of capital
expenditures (‘‘CapEx’’) the Exchange
projects to spend each year on CapEx
going forward.
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 or its affiliates. Stated
differently, no expense amount of the
Exchange is allocated twice. The
Exchange notes that, with respect to
expenses associated with the Exchange’s
affiliates, MIAX Pearl and MIAX
Emerald, those expenses 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 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
its System. Accordingly, the Exchange
believes that the Proposed Access Fees
are fair and reasonable because they do
not result in excessive pricing or supracompetitive 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
PO 00000
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Fmt 4703
Sfmt 4703
‘‘supra-competitive’’ 22 profit. Of note,
the Guidance defines ‘‘supracompetitive profit’’ as profits that
exceed the profits that can be obtained
in a competitive market.23 With the
proposed changes, the Exchange
anticipates it will have a profit margin
of approximately 59% based on the
Proposed Access Fees. Based on the
2020 Audited Financial Statements of
competing options exchanges (since the
2021 Audited Financial Statements will
likely not become publicly available
until early July 2022, after the Exchange
has submitted this filing), the
Exchange’s profit margin is similar to or
below the operating profit margins of
other competing exchanges. For
example, Nasdaq ISE, LLC’s (‘‘ISE’’)
operating profit margin for all of 2020
was approximately 85%; Nasdaq PHLX
LLC’s (‘‘PHLX’’) operating profit margin
for all of 2020 was approximately 49%;
Nasdaq’s operating profit margin for all
of 2020 was approximately 62%; NYSE
Arca, Inc.’s (‘‘Arca’’) operating profit
margin for all of 2020 was
approximately 55%; NYSE American
LLC’s (‘‘Amex’’) operating profit margin
for all of 2020 was approximately 59%;
Cboe’s operating profit margin for all of
2020 was approximately 74%; and
BZX’s operating profit margin for all of
2020 was approximately 52%.
The Exchange further believes its
proposed fees are reasonable, equitably
allocated and not unfairly
discriminatory because the Exchange
believes that it benefits overall
competition in the marketplace to allow
relatively new entrants like the
Exchange and its affiliates, MIAX Pearl
and MIAX Emerald, to propose fees that
may help these new entrants recoup
their substantial investment in building
out costly infrastructure. The Exchange
and its affiliates have historically set
their fees purposefully low in order to
attract business and market share. The
Exchange notes that the concept of a
tiered-pricing structure for ports is not
new or novel.24
22 See
supra note 14.
id.
24 See Cboe BZX Exchange, Inc. (‘‘BZX’’) Options
Fee Schedule, Options Logical Port Fees, Ports with
Bulk Quoting Capabilities (charging $1,500/month
for the 1st and 2nd port, $2,500/month for the 3rd
port or more); Cboe Exchange, Inc. (‘‘Cboe’’) Fee
Schedule, Logical Connectivity Fees (charging
$750/month per port for BOE/FIX Logical Ports 1
to 5 and $800/month per port for BOE/FIX Logical
Ports greater than 5; charging $1,500/month per
port for BOE Bulk Logical Ports 1 to 5, $2,500/
month per port for BOE Bulk Logical Ports 6 to 30,
and $3,000/month per port for BOE Bulk Logical
Ports greater than 30); The Nasdaq Stock Market
LLC (‘‘Nasdaq’’), Options 7, Pricing Schedule,
Section 3 Nasdaq Options Market—Ports and Other
Services (charging $1,500/month per port for first
23 See
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The Exchange notes that it operates in
a highly competitive market in which
market participants can readily favor
competing venues if they deem fee
levels at a particular venue to be
excessive. In such an environment, the
Exchange must continually adjust its
fees for services and products, in
addition to order flow, to remain
competitive with other exchanges. The
Exchange believes that the proposed
changes reflect this competitive
environment.
The Exchange believes the proposal to
move from a flat fee per month to a
tiered-pricing structure is reasonable,
equitably allocated and not unfairly
discriminatory because the Exchange
believes the proposed structure would
encourage firms to be more economical
and efficient in the number of Limited
Service MEI Ports they purchase. The
Exchange believes this will enable the
Exchange to better monitor and provide
access to the Exchange’s network in
order to ensure that the Exchange meets
its obligations under the Act such that
access to the Exchange is offered on
terms that are not unfairly
discriminatory, as well as to ensure
sufficient capacity and headroom in the
System.
There is also no regulatory
requirement that any market participant
access any one options exchange, that
each Market Maker access the Exchange
utilizing more than the two free Limited
Service MEI Ports that the Exchange
provides, access the Exchange in a
particular capacity, or trade any
particular product offered on the
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.25 Indeed, the Exchange
is unaware of any one options exchange
whose membership includes every
registered broker-dealer. Based on a
recent analysis conducted by 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.26 Additionally, the
5 ports, $1,000/month per port for the next 15 ports,
and $500/month per port for all ports over 20).
25 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.
26 See Securities Exchange Act Release No. 90333
(November 4, 2020), 85 FR 71666 (November 10,
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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.27
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
With respect to intra-market
competition, the Exchange does not
believe that the proposed rule change
would place certain market participants
at the Exchange at a relative
disadvantage compared to other market
participants or affect the ability of such
market participants to compete. As
stated above, the Exchange does not
believe its proposed pricing will impose
a barrier to entry to smaller participants
and notes that the proposed pricing
structure for is associated with relative
usage of the various market participants.
Firms that are primarily order routers
seeking best-execution do not utilize
Limited Service MEI Ports on MIAX and
therefore will not pay the fees
associated with the tiered-pricing
structure. Rather, the fees described in
the proposed tiered-pricing structure
will only be allocated to market making
firms that engage in advanced trading
strategies and typically request multiple
Limited Service MEI Ports. Accordingly,
the firms engaged in market making
business generate higher costs by
utilizing more of the Exchange’s
resources. The market making firms that
purchase higher amounts of Limited
Service MEI Ports tend to have specific
business oriented market making and
taking strategies, as opposed to firms
simply engaging in best-execution order
routing business. Additionally, the use
of such additional Limited Service MEI
Ports is entirely voluntary.
The Exchange also does not believe
that the proposed rule change will result
in any burden on inter-market
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. As discussed
above, options market participants are
not forced to access all options
exchanges. The Exchange operates in a
highly competitive environment, and as
discussed above, its ability to price
access and ports is constrained by
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.
27 Id.
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46743
competition among exchanges and third
parties. There are other options markets
of which market participants may access
in order to trade options. There is also
a possible range of alternative strategies,
including routing to the exchange
through another participant or market
center or accessing the Exchange
indirectly. For example, there are 15
other U.S. options exchanges, which the
Exchange must consider in its pricing
discipline in order to compete for
market participants. In this competitive
environment, market participants are
free to choose which competing
exchange to use to satisfy their business
needs. As a result, the Exchange
believes this proposed rule change
permits fair competition among national
securities exchanges. Accordingly, the
Exchange does not believe its proposed
fee changes impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
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,28 and Rule
19b–4(f)(2) 29 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:
28 15
29 17
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CFR 240.19b–4(f)(2).
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2021–37 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.
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All submissions should refer to File
Number SR–MIAX–2021–37. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–MIAX–2021–37 and should
be submitted on or before September 9,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–17762 Filed 8–18–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92663; File No. SR–
NASDAQ–2021–061]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Listing Rule 5910 To Modify the
Application Fee for Companies Listing
Under IM–5101–2
August 13, 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 August 3,
2021, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Listing Rule 5910 to modify the
application fee for companies listing
under IM–5101–2 (companies whose
business plan is to complete one or
more acquisitions) on the Nasdaq Global
Market.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
CFR 200.30–3(a)(12).
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1. Purpose
Nasdaq proposes to revise the
application fee payable by Acquisition
Companies listing on the Nasdaq Global
Market to make it the same as the
application fee payable by Acquisition
Companies listing on the Nasdaq Capital
Market, as described in more details
below.
Historically, companies whose
business plan is to complete an initial
public offering and engage in a merger
or acquisition with one or more
unidentified companies within a
specific period of time, as described in
IM–5101–2, (‘‘Acquisition Companies’’)
would choose to list on the Nasdaq
Capital Market instead of the Nasdaq
Global Market, primarily because it had
lower fees. Recently Nasdaq modified
the Entry and All-Inclusive Annual
Listing Fees for Acquisition Companies
listing on the Nasdaq Global Market.3
As a result, the Entry and All-Inclusive
Annual Listing Fees for Global Market
Acquisition Companies are currently
identical to the fees charged to Capital
Market Acquisition Companies.
A company applying to list on Nasdaq
is required to submit a non-refundable
initial application fee with its
application, which is subsequently
credited towards the Entry Fee payable
upon listing. A company listing on the
Global Market is required to submit a
non-refundable $25,000 initial
application fee, whereas the application
fee on the Capital Market is $5,000.4
Nasdaq proposes to revise the
application fee for Acquisition
Companies listing on the Nasdaq Global
Market to make it the same as the
application fee Acquisition companies
pay on the Capital Market.
Nasdaq has limited resources and
charges companies applying to list on
Nasdaq an application fee to offset the
cost of conducting its regulatory review
in connection with the initial listing of
the company. As explained above, the
application fee is subsequently credited
towards the Entry Fee payable upon
listing. In Nasdaq’s experience,
conducting an initial listing review for
an Acquisition Company is less costly
than conducting an initial listing review
for other types of companies for a
number of reasons. Specifically, review
of an Acquisition Company’s IPO
application is generally much simpler
3 Securities Exchange Act Release No. 92345 (July
7, 2021), 86 FR 36807 (July 13, 2021).
4 See Listing Rules 5910(a)(11) and 5920(a)(11).
1 15
30 17
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Sfmt 4703
E:\FR\FM\19AUN1.SGM
19AUN1
]]>Agencies
[Federal Register Volume 86, Number 158 (Thursday, August 19, 2021)]
[Notices]
[Pages 46737-46744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-17762]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92661; File No. SR-MIAX-2021-37]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Its Fee Schedule To Adopt a Tiered-
Pricing Structure for Additional Limited Service MIAX Express Interface
Ports
August 13, 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 August 2, 2021, Miami International Securities Exchange LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX Options Fee
Schedule (the ``Fee Schedule'') to amend certain port fees.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings, at MIAX's principal
office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to adopt a tiered-
pricing structure for additional Limited Service MIAX Express Interface
(``MEI'') Ports \3\ available to Market Makers.\4\ The Exchange
believes a tiered-pricing structure will encourage Market Makers to be
more efficient and economical when determining how to connect to the
Exchange. This should also enable the Exchange to better monitor and
provide access to the Exchange's network to ensure sufficient capacity
and headroom in the System.\5\
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\3\ MIAX Express Interface is a connection to MIAX systems that
enables Market Makers to submit simple and complex electronic quotes
to MIAX. See Fee Schedule, note 26.
\4\ The term ``Market Makers'' refers to Lead Market Makers
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered
Market Makers (``RMMs'') collectively. See Exchange Rule 100.
\5\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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Additional Limited Service MEI Port Tiered-Pricing Structure
The Exchange proposes to amend the fees for additional Limited
Service MEI Ports. Currently, the Exchange allocates two (2) Full
Service MEI Ports \6\ and two (2) Limited Service MEI Ports \7\ per
matching engine \8\ to which each Market Maker connects. Market Makers
may also request additional Limited Service MEI Ports for each matching
engine to which they connect. The Full Service MEI Ports, Limited
Service MEI Ports and the additional Limited Service MEI Ports all
include access to the Exchange's primary and secondary data centers and
its disaster recovery center. Market Makers may request additional
Limited Service MEI Ports for which they are assessed a $100 monthly
fee for each additional Limited Service MEI Port for each matching
engine. This fee has been unchanged since 2016.\9\
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\6\ Full Service MEI Ports provide Market Makers with the
ability to send Market Maker quotes, eQuotes, and quote purge
messages to the MIAX System. Full Service MEI Ports are also capable
of receiving administrative information. Market Makers are limited
to two Full Service MEI Ports per matching engine. See Fee Schedule,
Section 5)d)ii), note 27.
\7\ Limited Service MEI Ports provide Market Makers with the
ability to send eQuotes and quote purge messages only, but not
Market Maker Quotes, to the MIAX System. Limited Service MEI Ports
are also capable of receiving administrative information. Market
Makers initially receive two Limited Service MEI Ports per matching
engine. See Fee Schedule, Section 5)d)ii), note 28.
\8\ A ``matching engine'' is a part of the MIAX electronic
system that processes options quotes and trades on a symbol-by-
symbol basis. Some matching engines will process option classes with
multiple root symbols, and other matching engines will be dedicated
to one single option root symbol (for example, options on SPY will
be processed by one single matching engine that is dedicated only to
SPY). 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 Fee Schedule, Section
5)d)ii), note 29.
\9\ See Securities Exchange Act Release No. 79666 (December 22,
2016), 81 FR 96133 (December 29, 2016) (SR-MIAX-2016-47).
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The Exchange now proposes to move from a flat monthly fee per
additional Limited Service MEI Port for each matching engine to a
tiered-pricing structure per additional Limited Service MEI Ports for
each matching engine under which the monthly fee would vary depending
on the number of additional Limited Service MEI Ports the Market Maker
elects to purchase. Specifically, the Exchange will continue to provide
the first and second additional Limited Service MEI Ports for each
matching engine free of charge, as described above, per the initial
allocation of Limited Service MEI Ports that Market Makers receive.
Specifically, (i) the third and fourth additional Limited Service MEI
Ports for each matching engine will increase from the current flat
monthly fee of $100 to $150 per port; (ii) the fifth and sixth
additional Limited Service MEI Ports for engine matching engine will
increase from the current flat monthly fee of $100 to $200 per port;
and (iii) the seventh additional Limited Service MEI Port, and each
Limited Service MEI Port for each matching engine purchased thereafter,
will increase from the current monthly flat fee of $100 to $250 per
port (collectively, the ``Proposed Access Fees'').
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is
[[Page 46738]]
consistent with Section 6(b) of the Act \10\ in general, and furthers
the objectives of Section 6(b)(4) of the Act \11\ in particular, in
that it provides for the equitable allocation of reasonable dues, fees
and other charges among Exchange Members and issuers and other persons
using any facility or system which the Exchange operates or controls.
The Exchange also believes the proposal furthers the objectives of
Section 6(b)(5) of the Act \12\ 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.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4).
\12\ 15 U.S.C. 78f(b)(5).
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The Exchange notes that it operates in a highly competitive market
in which market participants can readily favor competing venues if they
deem fee levels at a particular venue to be excessive. In such an
environment, the Exchange must continually adjust its fees for services
and products, in addition to order flow, to remain competitive with
other exchanges. The Exchange believes that the proposed changes
reflect this competitive environment.
The Exchange believes the proposal to move from a flat fee per
month to a tiered-pricing structure is reasonable, equitably allocated
and not unfairly discriminatory because the Exchange believes the
proposed structure would encourage firms to be more economical and
efficient in the number of additional Limited Service MEI Ports they
purchase. The Exchange believes this will enable the Exchange to better
monitor and provide access to the Exchange's network to ensure
sufficient capacity and headroom in the System.
The Exchange notes that the firms that are primarily order routers
seeking best-execution do not utilize Limited Service MEI Ports on
MIAX. Therefore, the fees described in the proposed tiered-pricing
structure will only be allocated to market making firms that engage in
advanced trading strategies and typically request multiple Limited
Service MEI Ports. Accordingly, the firms engaged in market making
business generate higher costs by utilizing more of the Exchange's
resources. The market making firms that purchase higher amounts of
Limited Service MEI Ports tend to have specific business oriented
market making and taking strategies, as opposed to firms simply
engaging in best-execution order routing business. The use of such
additional Limited Service MEI Ports is entirely voluntary.
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 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 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
Market Makers currently utilizing Limited Service MEI 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 seven months 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.
* * * * *
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
[[Page 46739]]
BOX Network (the ``BOX Order'').\13\ On May 21, 2019, the Commission
issued the Staff Guidance on SRO Rule Filings Relating to Fees.\14\
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 Pearl and MIAX Emerald, LLC (``MIAX Emerald''), to
establish or increase other non-transaction fees.\15\ Accordingly, the
Exchange believes that the Commission should find that the Proposed
Access Fees are consistent with the Act.
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\13\ 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).
\14\ 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'').
\15\ See Securities Exchange Act Release Nos. 90981 (January 25,
2021), 86 FR 7582 (January 29, 2021) (SR-PEARL-2021-01) (proposal to
increase connectivity fees); 91460 (April 2, 2021), 86 FR 18349 (SR-
EMERALD-2021-11) (proposal to adopt port fees, increase connectivity
fees, and increase additional limited service ports); 91033
(February 1, 2021), 86 FR 8455 (February 5, 2021) (SR-EMERALD-2021-
03) (proposal to adopt trading permit fees).
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* * * * *
As of July 30, 2021, the Exchange had a market share of only 6.21%
of the U.S. equity options industry for the month of July 2021.\16\ The
Exchange is not aware of any evidence that a market share of
approximately 6-7% 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 access the Exchange,
and existing market participants would discontinue all or some of their
access services.
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\16\ See ``The market at a glance,'' available at https://www.miaxoptions.com/ (last visited July 30, 2021).
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Separately, the Exchange is not aware of any reason why market
participants could not simply drop their access (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 MIAX Emerald Member dropped its access
to MIAX Emerald as a result of those fees.\17\ Accordingly, these
examples show that if an exchange sets too high of a fee for ports and/
or other non-transaction fees, including other access fees, for its
relevant marketplace, market participants can choose to drop their
access to such exchange.
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\17\ 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).
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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 System for market participants 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,\18\ the total annual expense for providing the access
services associated with the Proposed Access Fees is projected to be
approximately $1.32 million. The approximately $1.32 million in
projected total annual expense is comprised of the following, all of
which are directly related to the access services associated with the
Proposed Access Fees: (1) Third-party expense, relating to fees paid by
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.\19\ 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
[[Page 46740]]
Unconsolidated Financial Statements.\20\ The $1.32 million in projected
total annual expense is directly related to the access services
associated with the Proposed Access Fees, and not any other product or
service offered by the Exchange. It does not include general costs of
operating matching systems and other trading technology, and no expense
amount was allocated twice.
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\18\ The Exchange has not yet finalized its 2021 year end
results.
\19\ 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.
\20\ 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. 87875 (December 31, 2019), 85 FR 770 (January 7, 2020)
(SR-MIAX-2019-51). 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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As discussed, the Exchange conducted an extensive cost review in
which the Exchange analyzed expense items 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 $0.16 million. 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''),\21\ 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.
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\21\ 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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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 4.95%
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 Pearl 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 2.64% 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 4.95% 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
[[Page 46741]]
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 4.95% 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 $1.16
million. 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, and business 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 approximately $0.91 million,
which is only a portion of the $12.6 million total projected expense
for employee compensation and benefits. The Exchange believes it is
reasonable to allocate the identified portion of such expense because
this includes the time spent by employees of several departments,
including Technology, Back Office, Systems Operations, Networking,
Business Strategy Development (who create the business requirement
documents that the Technology staff use to develop network features and
enhancements), and Trade Operations. 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 7.24% 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 services associated with the Proposed Access Fees is
projected to be $0.22 million, which is only a portion of the $4.8
million 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 4.60% 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 services
associated with the Proposed Access Fees is projected to be $0.03
million, which is only a portion of the $0.6 million 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
[[Page 46742]]
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 4.69% 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 to recover their costs;
thus, the Exchange believes it is reasonable to allocate a material
portion of their 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 annualized revenue for
providing the access services associated with the Proposed Access Fees
would be approximately $3.21 million per annum, based on a recent
billing cycle. The Exchange projects that its annualized expense for
providing the services associated with the Proposed Access Fees will be
approximately $1.32 million per annum. Accordingly, on a fully-
annualized basis, the Exchange believes its total projected revenue for
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 a profit margin of approximately 59% ($3.21
million in total revenue minus $1.32 million in expense = $1.89 million
in profit per annum). Additionally, this profit margin does not take
into account the cost of capital expenditures (``CapEx'') the Exchange
projects to spend each year on CapEx going forward.
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 or its affiliates. Stated differently, no expense amount of
the Exchange is allocated twice. The Exchange notes that, with respect
to expenses associated with the Exchange's affiliates, MIAX Pearl and
MIAX Emerald, those expenses 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 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 its System. 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'' \22\ profit. Of note, the Guidance defines
``supra-competitive profit'' as profits that exceed the profits that
can be obtained in a competitive market.\23\ With the proposed changes,
the Exchange anticipates it will have a profit margin of approximately
59% based on the Proposed Access Fees. Based on the 2020 Audited
Financial Statements of competing options exchanges (since the 2021
Audited Financial Statements will likely not become publicly available
until early July 2022, after the Exchange has submitted this filing),
the Exchange's profit margin is similar to or below the operating
profit margins of other competing exchanges. For example, Nasdaq ISE,
LLC's (``ISE'') operating profit margin for all of 2020 was
approximately 85%; Nasdaq PHLX LLC's (``PHLX'') operating profit margin
for all of 2020 was approximately 49%; Nasdaq's operating profit margin
for all of 2020 was approximately 62%; NYSE Arca, Inc.'s (``Arca'')
operating profit margin for all of 2020 was approximately 55%; NYSE
American LLC's (``Amex'') operating profit margin for all of 2020 was
approximately 59%; Cboe's operating profit margin for all of 2020 was
approximately 74%; and BZX's operating profit margin for all of 2020
was approximately 52%.
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\22\ See supra note 14.
\23\ See id.
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The Exchange further believes its proposed fees are reasonable,
equitably allocated and not unfairly discriminatory because the
Exchange believes that it benefits overall competition in the
marketplace to allow relatively new entrants like the Exchange and its
affiliates, MIAX Pearl and MIAX Emerald, to propose fees that may help
these new entrants recoup their substantial investment in building out
costly infrastructure. The Exchange and its affiliates have
historically set their fees purposefully low in order to attract
business and market share. The Exchange notes that the concept of a
tiered-pricing structure for ports is not new or novel.\24\
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\24\ See Cboe BZX Exchange, Inc. (``BZX'') Options Fee Schedule,
Options Logical Port Fees, Ports with Bulk Quoting Capabilities
(charging $1,500/month for the 1st and 2nd port, $2,500/month for
the 3rd port or more); Cboe Exchange, Inc. (``Cboe'') Fee Schedule,
Logical Connectivity Fees (charging $750/month per port for BOE/FIX
Logical Ports 1 to 5 and $800/month per port for BOE/FIX Logical
Ports greater than 5; charging $1,500/month per port for BOE Bulk
Logical Ports 1 to 5, $2,500/month per port for BOE Bulk Logical
Ports 6 to 30, and $3,000/month per port for BOE Bulk Logical Ports
greater than 30); The Nasdaq Stock Market LLC (``Nasdaq''), Options
7, Pricing Schedule, Section 3 Nasdaq Options Market--Ports and
Other Services (charging $1,500/month per port for first 5 ports,
$1,000/month per port for the next 15 ports, and $500/month per port
for all ports over 20).
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[[Page 46743]]
The Exchange notes that it operates in a highly competitive market
in which market participants can readily favor competing venues if they
deem fee levels at a particular venue to be excessive. In such an
environment, the Exchange must continually adjust its fees for services
and products, in addition to order flow, to remain competitive with
other exchanges. The Exchange believes that the proposed changes
reflect this competitive environment.
The Exchange believes the proposal to move from a flat fee per
month to a tiered-pricing structure is reasonable, equitably allocated
and not unfairly discriminatory because the Exchange believes the
proposed structure would encourage firms to be more economical and
efficient in the number of Limited Service MEI Ports they purchase. The
Exchange believes this will enable the Exchange to better monitor and
provide access to the Exchange's network in order to ensure that the
Exchange meets its obligations under the Act such that access to the
Exchange is offered on terms that are not unfairly discriminatory, as
well as to ensure sufficient capacity and headroom in the System.
There is also no regulatory requirement that any market participant
access any one options exchange, that each Market Maker access the
Exchange utilizing more than the two free Limited Service MEI Ports
that the Exchange provides, access the Exchange in a particular
capacity, or trade any particular product offered on the 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.\25\ Indeed, the Exchange is unaware of any one options
exchange whose membership includes every registered broker-dealer.
Based on a recent analysis conducted by 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.\26\ 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.\27\
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\25\ 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.
\26\ 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.
\27\ 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 will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
With respect to intra-market competition, the Exchange does not
believe that the proposed rule change would place certain market
participants at the Exchange at a relative disadvantage compared to
other market participants or affect the ability of such market
participants to compete. As stated above, the Exchange does not believe
its proposed pricing will impose a barrier to entry to smaller
participants and notes that the proposed pricing structure for is
associated with relative usage of the various market participants.
Firms that are primarily order routers seeking best-execution do not
utilize Limited Service MEI Ports on MIAX and therefore will not pay
the fees associated with the tiered-pricing structure. Rather, the fees
described in the proposed tiered-pricing structure will only be
allocated to market making firms that engage in advanced trading
strategies and typically request multiple Limited Service MEI Ports.
Accordingly, the firms engaged in market making business generate
higher costs by utilizing more of the Exchange's resources. The market
making firms that purchase higher amounts of Limited Service MEI Ports
tend to have specific business oriented market making and taking
strategies, as opposed to firms simply engaging in best-execution order
routing business. Additionally, the use of such additional Limited
Service MEI Ports is entirely voluntary.
The Exchange also does not believe that the proposed rule change
will result in any burden on inter-market competition that is not
necessary or appropriate in furtherance of the purposes of the Act. As
discussed above, options market participants are not forced to access
all options exchanges. The Exchange operates in a highly competitive
environment, and as discussed above, its ability to price access and
ports is constrained by competition among exchanges and third parties.
There are other options markets of which market participants may access
in order to trade options. There is also a possible range of
alternative strategies, including routing to the exchange through
another participant or market center or accessing the Exchange
indirectly. For example, there are 15 other U.S. options exchanges,
which the Exchange must consider in its pricing discipline in order to
compete for market participants. In this competitive environment,
market participants are free to choose which competing exchange to use
to satisfy their business needs. As a result, the Exchange believes
this proposed rule change permits fair competition among national
securities exchanges. Accordingly, the Exchange does not believe its
proposed fee changes impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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,\28\ and Rule 19b-4(f)(2) \29\ 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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\28\ 15 U.S.C. 78s(b)(3)(A)(ii).
\29\ 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:
[[Page 46744]]
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-MIAX-2021-37 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-MIAX-2021-37. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MIAX-2021-37 and should be submitted on
or before September 9, 2021.
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\30\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-17762 Filed 8-18-21; 8:45 am]
BILLING CODE 8011-01-P
