Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Establish Fees for the cToM Market Data Product, 73011-73020 [2021-27813]
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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Notices
is designed to achieve more consistent
results for participants across U.S.
options exchanges than under the
current harmonized rules, while
maintaining a fair and orderly market,
protecting investors, and protecting the
public interest. Specifically, the
proposed change to Rule 6.87–O(b)(3) is
designed to increase the consistency
and transparency in the handling of
erroneous options transactions in
situations immediately after an opening
or re-opening where there is no 10second period prior to the transaction
by allowing for the calculation of a
Theoretical Price during the 10-second
period immediately following an
opening and reopening.27
The Commission also believes that the
Exchange’s proposed change to Rule
6.87–O(c)(4) is consistent with the Act
and would further the goal of providing
increased transparency and uniformity
in the handling of erroneous options
transactions involving customers and
non-customers. As the Exchange
observes, the proposed rule change
would better harmonize the treatment of
non-customer transactions and customer
transactions under the Rule and provide
greater certainty of execution for all
participants to options transactions,
while still respecting a customer’s limit
price.28
The proposed rule change will
become operative no sooner than six
months following its approval, on a date
to be announced in a Trader Update
made available by the Exchange to its
OTP Holders and OTP Firms. This
delayed implementation is designed to
allow other options exchanges time to
adopt rules consistent with this
proposal and for all options exchanges
to coordinate the date of
implementation of such harmonized
rules.
IV. Conclusion
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It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,29 that the
proposed rule change (SR–NYSEArca–
2021–91) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–27821 Filed 12–22–21; 8:45 am]
BILLING CODE 8011–01–P
27 See
Notice, supra note 3, at 60928.
id. at 60928–29.
29 15 U.S.C. 78s(b)(2).
30 17 CFR 200.30–3(a)(12).
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93808; File No. SR–MIAX–
2021–62]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Establish Fees for the
cToM Market Data Product
December 17, 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 December
10, 2021, Miami International Securities
Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘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 is filing a proposal to
amend the MIAX Options Fee Schedule
(the ‘‘Fee Schedule’’) to establish fees
for the market data product known as
MIAX Complex Top of Market
(‘‘cToM’’).
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.
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.
28 See
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2
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15 U.S.C. 78s(b)(1).
17 CFR 240.19b–4.
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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
Section (6)(a) of the Fee Schedule to
establish fees for the cToM data
product. The Exchange initially filed
this proposal on June 30, 2021 with the
proposed fees to be effective beginning
July 1, 2021 (‘‘First Proposed Rule
Change’’).3 The First Proposed Rule
Change was published for comment in
the Federal Register on July 15, 2021.4
Although the Commission did not
receive any comment letters on the First
Proposed Rule Change, on August 27,
2021, the Commission issued its
Suspension of and Order Instituting
Proceedings to Determine Whether to
Approve or Disapprove Proposed Rule
Changes to Establish Fees for the
Exchanges’ cToM Market Data Products
(relating to the First Proposed Rule
Change and a similar filing by the
Exchange’s affiliate, MIAX Emerald,
LLC (‘‘MIAX Emerald’’), to also adopt
cToM fees).5 The Exchange withdrew
the First Proposed Rule Change on
September 30, 2021 6 and re-submitted
the proposal, with the proposed fee
changes being immediately effective
(‘‘Second Proposed Rule Change’’).7 The
Second Proposed Rule Change provided
additional justification for the proposed
fee changes and addressed comments
provided by the Commission Staff. On
October 14, 2021, the Exchange
withdrew the Second Proposed Rule
Change and submitted its proposal to
adopt cToM fees to again provide
additional justification for the proposed
fee changes and address comments
provided by the Commission Staff
(‘‘Third Proposed Rule Change’’).8 The
Third Proposed Rule Change was
published for comment in the Federal
Register on November 1, 2021.9
Although the Commission did not again
receive any comment letters on the
Third Proposed Rule Change, the
Exchange withdrew the Third Proposed
3 See Securities Exchange Act Release No. 92359
(July 9, 2021), 86 FR 37393 (July 15, 2021) (SR–
MIAX–2021–28).
4 Id.
5 See Securities Exchange Act Release No. 92789
(August 27, 2021), 86 FR 49364 (September 2, 2021)
(SR–MIAX–2021–28, SR–EMERALD–2021–21) (the
‘‘Suspension Order’’).
6 See Securities Exchange Act Release No. 93471
(October 29, 2021), 86 FR 60947 (November 4,
2021).
7 See SR–MIAX–2021–44.
8 Securities Exchange Act Release No. 93426
(October 26, 2021), 86 FR 60314 (November 1, 2021)
(SR–MIAX–2021–50).
9 Id.
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Rule Change on December 10, 2021 and
now submits this proposal for
immediate effectiveness (‘‘Fourth
Proposed Rule Change’’). This Fourth
Proposed Rule Change meaningfully
attempts to provide additional
justification and explanation for the
proposed fee change in response to a
telephone conversation with
Commission Staff on December 7, 2021
relating to the Third Proposed Rule
Change.
Background
The Exchange previously adopted
rules governing the trading of Complex
Orders 10 on the MIAX System 11 in
2016.12 At that time, the Exchange also
adopted the market data product cToM
and expressly waived fees for cToM to
provide an incentive to prospective
market participants to subscribe to that
market data feed.13 The Exchange has
not charged fees to cToM subscribers in
the nearly five years since it was first
available for subscription.
In summary, cToM provides
subscribers with the same information
as the MIAX Top of Market (‘‘ToM’’)
data product as it relates to the Strategy
Book,14 i.e., the Exchange’s best bid and
offer for a complex strategy, with
aggregate size, based on displayable
order and quoting interest in the
complex strategy on the Exchange.
However, cToM provides subscribers
with the following additional
information that is not included in ToM:
(i) The identification of the complex
strategies currently trading on the
Exchange; (ii) complex strategy last sale
information; and (iii) the status of
securities underlying the complex
strategy (e.g., halted, open, or resumed).
cToM is a distinct market data product
from ToM. ToM subscribers are not
required to subscribe to cToM, and
cToM subscribers are not required to
subscribe to ToM.15
Proposal
The Exchange now proposes to amend
Section (6)(a) of the Fee Schedule to
charge monthly fees to Distributors 16 of
cToM. Specifically, the Exchange
proposes to assess Internal Distributors
$1,250 per month and External
Distributors $1,750 per month for the
cToM data feed.17 The Exchange notes
that the proposed monthly cToM fees
for Internal and External Distributor are
the same prices that the Exchange
charges for its ToM data product, and
are identical to the prices the
Exchange’s affiliate, MIAX Emerald,
proposes to charge for its cToM product.
Like it does today for ToM, MIAX
proposes to assess cToM fees on Internal
and External Distributors in each month
the Distributor is credentialed to use
cToM in the production environment.
Also, like the Exchange does today for
ToM, market data fees for cToM will be
reduced for new Distributors for the first
month during which they subscribe to
cToM, based on the number of trading
days that have been held during the
month prior to the date on which that
subscriber has been credentialed to use
cToM in the production environment.
Such new Distributors will be assessed
a pro-rata percentage of the fees in the
table in Section (6)(a) of the Fee
Schedule, which is the percentage of the
number of trading days remaining in the
affected calendar month as of the date
on which they have been credentialed to
use cToM in the production
environment, divided by the total
number of trading days in the affected
calendar month.
The Exchange believes that other
exchange’s fees for complex market data
are useful examples and provides the
below table for comparison purposes
only to show how the Exchange’s
proposed fees compare to fees currently
charged by other options exchanges for
similar data. As shown by the below
table, the Exchange’s proposed fees
similar to or less than fees charged for
similar data products provided by other
options exchanges.
Exchange
Monthly fee
MIAX (as proposed) .................................................................................
NYSE American, LLC (‘‘Amex’’) 18 ...........................................................
NYSE Arca, Inc. (‘‘Arca’’) 19 ......................................................................
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NASDAQ PHLX LLC (‘‘PHLX’’) 20 ............................................................
$1,250—Internal Distributor.
$1,750—External Distributor.
$1,500 Access Fee.
$1,000 Redistribution Fee.
$1,500 Access Fee.
$1,000 Redistribution Fee.
$3,000—Internal Distributor.
$3,500—External Distributor.
The Exchange also proposes to amend
the paragraph below the table of fees for
ToM and cToM in Section (6)(a) of the
Fee Schedule to make a minor, nonsubstantive corrective edit. In particular,
the Exchange proposes to delete the
phrase ‘‘(as applicable)’’ in the first
sentence following the table of fees for
ToM and cToM. The purpose of this
proposed change is to remove
unnecessary text from the Fee Schedule.
10 See Exchange Rule 518(a)(5) for the definition
of Complex Orders.
11 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
12 See Securities Exchange Act Release No. 79072
(October 7, 2016), 81 FR 71131 (October 14, 2016)
(SR–MIAX–2016–26) (Order Approving a Proposed
Rule Change to Adopt New Rules to Govern the
Trading of Complex Orders).
13 See Securities Exchange Act Release No. 79146
(October 24, 2016), 81 FR 75171 (October 28, 2016)
(SR–MIAX–2016–36) (providing a complete
description of the cToM data feed).
14 The ‘‘Strategy Book’’ is the Exchange’s
electronic book of complex orders and complex
quotes. See Exchange Rule 518(a)(17).
15 See supra note 13.
16 A ‘‘Distributor’’ of MIAX data is any entity that
receives a feed or file of data either directly from
MIAX or indirectly through another entity and then
distributes it either internally (within that entity) or
externally (outside that entity). All Distributors are
required to execute a MIAX Distributor Agreement.
See Section (6)(a) of the Fee Schedule.
17 The Exchange also proposes to make a minor
related change to remove ‘‘(as applicable)’’ from the
explanatory paragraph in Section (6)(a) as it will not
change fees for both the ToM and cToM data feeds.
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cToM Content Is Available From
Alternative Sources
cToM is also not the exclusive source
for Complex Order information from the
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Exchange and market participants may
choose to subscribe to the Exchange’s
other data products to receive such
information. It is a business decision of
market participants whether to
subscribe to the cToM data product or
not. Market participants that choose not
to subscribe to cToM can derive much,
18 See NYSE American Options Proprietary
Market Data Fees, American Options Complex Fees,
at https://www.nyse.com/publicdocs/nyse/data/
NYSE_American_Options_Market_Data_Fee_
Schedule.pdf.
19 See NYSE Arca Options Proprietary Market
Data Fees, Arca Options Complex Fees, at https://
www.nyse.com/publicdocs/nyse/data/NYSE_Arca_
Options_Proprietary_Data_Fee_Schedule.pdf.
20 See PHLX Price List—U.S. Derivatives Data,
PHLX Orders Fees, at https://
www.nasdaqtrader.com/Trader.aspx?id=DPPrice
ListOptions#PHLX.
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if not all, of the same information
provided in the cToM feed from other
Exchange sources, including, for
example, the MIAX Options Order Feed
(‘‘MOR’’).21 The following cToM
information is provided to subscribers
of MOR: The Exchange’s best bid and
offer for a complex strategy, with
aggregate size, based on displayable
order and quoting interest in the
complex strategy on the Exchange; the
identification of the complex strategies
currently trading on the Exchange; and
the status of securities underlying the
complex strategy (e.g., halted, open, or
resumed). In addition to the cToM
information contained in MOR, complex
strategy last sale information can be
derived from the Exchange’s ToM data
feed. Specifically, market participants
may deduce that last sale information
for multiple trades in related options
series that are disseminated via the ToM
data feed with the same timestamp are
likely part of a Complex Order
transaction and last sale.
Implementation
The proposed rule change is
immediately effective.
2. Statutory Basis
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The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 22
in general, and furthers the objectives of
Section 6(b)(4) of the Act 23 in
particular, in that it is an equitable
allocation of reasonable dues, fees and
other charges among its members and
issuers and other persons using its
facilities. The Exchange also believes
the proposal furthers the objectives of
Section 6(b)(5) of the Act in that it is
designed to promote just and equitable
principles of trade, remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general protect investors and the public
interest and is not designed to permit
unfair discrimination between
customers, issuers, brokers and dealers.
21 See MIAX website, Market Data & Offerings, at
https://www.miaxoptions.com/market-dataofferings (last visited December 10, 2021). In
general, MOR provides real-time ulta-low [sic]
latency updates on the following information: New
Simple Orders added to the MIAX Order Book;
updates to Simple Orders resting on the MIAX
Order Book; new Complex Orders added to the
Strategy Book (i.e., the book of Complex Orders);
updates to Complex Orders resting on the Strategy
Book; MIAX listed series updates; MIAX Complex
Strategy definitions; the state of the MIAX System;
and MIAX’s underlying trading state.
22 15 U.S.C. 78f(b).
23 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Fees Will Not Result in a
Supra-Competitive Profit
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 sets
certain non-transaction fees, including
market data fees. The Exchange believes
that it is important to demonstrate that
these fees are based on its costs to
provide these products and reasonable
business needs.
In its Guidance, the Commission Staff
stated that, ‘‘[a]s an initial step in
assessing the reasonableness of a fee,
staff considers whether the fee is
constrained by significant competitive
forces.’’ 24 The Commission Staff
Guidance further states that, ‘‘. . . even
where an SRO cannot demonstrate, or
does not assert, that significant
competitive forces constrain the fee at
issue, a cost-based discussion may be an
alternative basis upon which to show
consistency with the Exchange Act.’’ 25
In its Guidance, the Commission Staff
further states that, ‘‘[i]f an SRO seeks to
support its claims that a proposed fee is
fair and reasonable because it will
permit recovery of the SRO’s costs, or
will not result in excessive pricing or
supracompetitive profit, specific
information, including quantitative
information, should be provided to
support that argument.’’ 26 The
Exchange does not assert that the
proposed fees are constrained by
competitive forces. Rather, the Exchange
asserts that the proposed fees are
reasonable because they will permit
recovery of the Exchange’s costs in
providing services to supply cToM data
and will not result in the Exchange
generating a supra-competitive profit.
The Guidance defines ‘‘supracompetitive profit’’ as ‘‘profits that
exceed the profits that can be obtained
in a competitive market.’’ 27 The
Commission Staff further states in the
Guidance that ‘‘the SRO should provide
an analysis of the SRO’s baseline
revenues, costs, and profitability (before
the proposed fee change) and the SRO’s
24 See Staff Guidance on SRO Rule Filings
Relating to Fees (May 21, 2019), at https://
www.sec.gov/tm/staff-guidance-sro-rule-filings-fees
(the ‘‘Guidance’’).
25 Id.
26 Id.
27 Id.
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expected revenues, costs, and
profitability (following the proposed fee
change) for the product or service in
question.’’ 28 The Exchange provides
this analysis below.
Based on this analysis, the Exchange
believes the proposed fees are
reasonable and do not result in a
‘‘supra-competitive’’ 29 profit. The
Exchange believes that it is important to
demonstrate that the proposed fees are
based on its costs and reasonable
business needs. The Exchange believes
the proposed fees will allow the
Exchange to offset expenses the
Exchange has and will incur, and that
the Exchange provides sufficient
transparency (described below) into the
costs and revenue underlying the
proposed fees. Accordingly, the
Exchange provides an analysis of its
revenues, costs, and profitability
associated with the proposed fees. This
analysis includes information regarding
its methodology for determining the
costs and revenues associated with the
proposed fees. As a result of this
analysis, the Exchange believes the
proposed fees are fair and reasonable as
a form of cost recovery plus present the
possibility of a reasonable return for the
Exchange’s aggregate costs of offering
cToM data, which has been offered for
free for over five years.
The proposed fees are based on a costplus model. In determining the
appropriate fees to charge, the Exchange
considered its costs to provide cToM
data, using what it believes to be a
conservative methodology (i.e., that
strictly considers only those costs that
are most clearly directly related to the
provision and maintenance of cToM
data) to estimate such costs,30 as well as
the relative costs of providing and
maintaining cToM data feeds, and set
fees that are designed to cover its costs
with a limited return in excess of such
costs. However, as discussed more fully
below, such fees may also result in the
Exchange recouping less than all of its
costs of providing and maintaining
cToM data feeds because of the
uncertainty of forecasting subscriber
decision making with respect to firms’
needs for cToM data and the likely
potential for increased costs to procure
Id.
Id.
30 For example, the Exchange only included the
costs associated with providing and supporting
cToM data feeds and excluded from its cost
calculations any cost not directly associated with
providing and maintaining such cToM data feeds.
Thus, the Exchange notes that this methodology
underestimates the total costs of providing and
maintaining cToM data feeds.
28
29
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the third-party services described
below.
To determine the Exchange’s costs to
provide cToM data associated with the
proposed fees, the Exchange conducted
an extensive cost review in which the
Exchange analyzed nearly every
expense item in the Exchange’s general
expense ledger to determine whether
each such expense relates to the
proposed fees, and, if such expense did
so relate, what portion (or percentage) of
such expense actually supports the
cToM data product associated with the
proposed fees.
The Exchange also provides 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 services associated with the
proposed fees. The Exchange conducted
a thorough internal analysis to
determine the portion (or percentage) of
each expense to allocate to the support
of services associated with the proposed
fees. This analysis included discussions
with each Exchange department head to
determine the expenses that support
services associated with the proposed
fees. Once the expenses were identified,
the Exchange department heads, with
the assistance of our internal finance
department, reviewed such expenses
holistically on an Exchange-wide level
to determine what portion of that
expense supports providing services for
the proposed fees. The sum of all such
portions of expenses represents the total
cost to the Exchange to provide services
associated with the proposed fees. For
the avoidance of doubt, no expense
amount was allocated twice.
To determine the Exchange’s
projected revenue associated with the
proposed fees, the Exchange analyzed
the number of Members and nonMembers currently subscribing to the
cToM data feeds and used a recent
monthly billing cycle representative of
2021 monthly revenue. The Exchange
also provided its baseline by analyzing
June 2021, the monthly billing cycle
prior to the proposed fees going into
effect, and compared it to its expenses
for that month. As discussed below, 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 market data needs of market
participants and potential increase in
internal and third party expenses. The
Exchange is presenting its revenue and
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expense associated with the proposed
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 fees were not in place
in 2020 or for the first six months of
2021, the Exchange believes its 2020
Audited Unconsolidated Financial
Statement is not representative of its
current total annualized revenue and
costs associated with the proposed fees.
Accordingly, the Exchange believes it is
more appropriate to analyze the
proposed 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 fees are
reasonable because they will allow the
Exchange to recover its costs associated
with providing services related to the
proposed fees and not result in
excessive pricing or supra-competitive
profit. Since 2016, when the Exchange
adopted Complex Order functionality,
the Exchange has spent time and
resources building out various Complex
Order functionality in its System to
provide better trading strategies and risk
functionality for market participants in
order to better compete with other
exchanges’ complex functionality and
similar data products focused on
complex orders.31 The cToM data
product allows market participants to
better utilize the Exchange’s Complex
Order functionality by providing
insights into the Exchange’s Complex
Order flow. The Exchange notes that
one market participant ceased
subscribing to the cToM feed since July
1, 2021, the date on which the fees
became effective when proposed in the
First Proposed Rule Change.
As outlined in more detail below, the
Exchange projects that its annualized
expense for 2021 to provide cToM data
to be approximately $273,494 per
See Securities Exchange Act Release Nos.
79405 (November 28, 2016), 81 FR 87086
(December 2, 2016) (SR–MIAX–2016–44)
(amendment to clarify the manner in which the
System allocates contracts at the end of a Complex
Auction); 80089 (February 22, 2017), 82 FR 12153
(February 28, 2017) (SR–MIAX–2017–06) (adopting
the Complex MIAX Options Price Collar, an
additional price protection feature); 81229 (July 27,
2017), 82 FR 36023 (August 2, 2017) (SR–MIAX–
2017–34) (amendment to ensure price and trade
protections apply to Complex Orders); 89085 (June
17, 2020), 85 FR 37719 (June 23, 2020) (SR–MIAX–
2020–16) (adopting new order type, Complex
Attributable Order).
31
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annum or an average of $22,791.17 per
month. The Exchange implemented the
proposed fees on July 1, 2021 in the
First Proposed Rule Change. For June
2021, prior to the proposed fees,
Exchange Members and non-Members
subscribed to a total of 17 cToM data
feeds for which the Exchange charged
$0, as it has for the past five years. This
resulted in a loss of approximately
$22,791.17 for that month. For the
month of November 2021, which
includes the proposed fees, Exchange
Members and non-Members purchased
16 cToM data feeds, for which the
Exchange charged approximately
$21,000 for that month.32 This resulted
in a loss of approximately $1,791.17 for
that month (a margin of approximately
¥8.5%). The Exchange cautions that
this margin may fluctuate from month to
month based on the uncertainty of
predicting how many cToM data feeds
may be purchased from month to month
as Members and non-Members are able
to add and drop subscriptions at any
time based on their own business
decisions. This margin may also
decrease due to the significant
inflationary pressure on capital items
that the Exchange needs to purchase to
maintain the Exchange’s technology and
systems.33 The Exchange has been
subject to price increases upwards of
30% on network equipment due to
supply chain shortages. This, in turn,
results in higher overall costs for
ongoing system maintenance, but also to
purchase the items necessary to ensure
ongoing system resiliency, performance,
and determinism. These costs are
expected to continue to go up as the
U.S. economy continues to struggle with
supply chain and inflation related
issues.
Further, the Exchange chose to
provide cToM data for free for the past
five years to attract order flow and
encourage market participants to
experience the determinism and
resiliency of the Exchange’s trading
systems and market data products. This
resulted in the Exchange forgoing
revenue it could have generated from
assessing any fees. The Exchange could
32 The Exchange notes that one market participant
cancelled its cToM subscription since the First
Proposed Rule change became effective on July 1,
2021.
33 See ‘‘Supply chain chaos is already hitting
global growth. And it’s about to get worse’’, by
Holly Ellyatt, CNBC, available at https://
www.cnbc.com/2021/10/18/supply-chain-chaos-ishitting-global-growth-and-could-get-worse.html
(October 18, 2021); and ‘‘There will be things that
people can’t get, at Christmas, White House warns’’
by Jarrett Renshaw and Trevor Hunnicutt, Reuters,
available at https://www.reuters.com/world/us/
americans-may-not-get-some-christmas-treatswhite-house-officials-warn-2021-10-12/ (October 12,
2021).
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have sought to charge some fees at the
outset, but that could have served to
discourage participation on the
Exchange. Instead, the Exchange chose
to provide a free exchange product to
the options industry, which resulted in
no initial revenues, going on five years.
The Exchange now proposes to amend
its fee structure to enable it to continue
to maintain and improve its overall
market and systems while also
providing a highly reliable and
deterministic trading system to the
marketplace, complete with robust
market data products, including cToM.
As mentioned above, the Exchange
projects that its annualized expense for
2021 to provide cToM data to be
approximately $273,494 per annum or
an average of $22,791.17 per month and
that these costs are expected to increase
not only due to anticipated significant
inflationary pressure, but also periodic
fee increases by third parties.34 The
Exchange notes that there are material
costs associated with providing the
infrastructure and headcount to fullysupport access to the Exchange and
various Exchange products. 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 the cost
to the Exchange to provide services
associated with the proposed fees. 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 services and
products to its Members is not fixed.
The Exchange believes the proposed
fees are a reasonable attempt to offset a
portion of the costs to the Exchange
associated with providing certain
Exchange products.
The Exchange only has four primary
sources of revenue and cost recovery
mechanisms: transaction fees, access
fees, regulatory fees, and market data
fees. Accordingly, the Exchange must
cover all of its expenses from these four
primary sources of revenue and cost
recovery mechanisms. Until recently,
the Exchange has operated at a
cumulative net annual loss since it
launched operations in 2008.35 This is
a result of providing a low cost
alternative to attract order flow and
encourage market participants to
experience the high determinism and
resiliency of the Exchange’s trading
Systems. To do so, the Exchange chose
to waive the fees for some nontransaction related services and market
data products or provide them at a very
marginal cost, which has not been
profitable to the Exchange, but
beneficial to the overall options
industry. This resulted in the Exchange
forgoing revenue it could have
generated from assessing any amount of
fees.
The Exchange believes that the
proposed 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 services versus the total annual
revenue that the Exchange projects to
collect in connection with services
associated with the proposed fees. As
mentioned above, for 2021,36 the total
annual expense for providing the
services associated with the proposed
fees is projected to be approximately
$273,494 per annum, or approximately
$22,791.17 per month. This projected
total annual expense is comprised of the
following, all of which are directly
related to the services associated with
the proposed 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 fees.37 As
34 For example, on October 20, 2021, ICE Data
Services announced a 3.5% price increase effective
January 1, 2022 for most services. The price
increase by ICE Data Services includes their Secure
Financial Transaction Infrastructure (‘‘SFTI’’)
network, which is relied on by a majority of market
participants, including the Exchange. See email
from ICE Data Services to the Exchange, dated
October 20, 2021. The Exchange further notes that
on October 22, 2019, the Exchange was notified by
ICE Data Services that it was raising its fees charged
to the Exchange by approximately 11% for the SFTI
network.
35 The Exchange has incurred a cumulative loss
of $175 million since its inception in 2008 to 2020,
the last year for which the Exchange’s Form 1 data
is available. See Exchange’s Form 1/A, Application
for Registration or Exemption from Registration as
a National Securities Exchange, filed July 28 [sic],
2021, available at https://www.sec.gov/Archives/
edgar/vprr/2100/21000460.pdf.
36 The Exchange has not yet finalized its 2021
year end results.
37 The percentage allocations used in this
proposed rule change may differ from past filings
from the Exchange or its affiliates due to, among
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noted above, the Exchange believes it is
more appropriate to analyze the
proposed fees utilizing its 2021 revenue
and costs, which utilize the same
presentation methodology as set forth in
the Exchange’s previously-issued
Audited Unconsolidated Financial
Statements.38 The $273,494 projected
total annual expense is directly related
to the services associated with the
proposed fees, and not any other
product or service offered by the
Exchange. It does not include general
costs of operating matching engines and
other trading technology. No expense
amount was allocated twice.
As discussed above, the Exchange
conducted an extensive cost review in
which the Exchange analyzed nearly
every expense item in the Exchange’s
general expense ledger (this includes
over 150 separate and distinct expense
items) to determine whether each such
expense relates to the services
associated with the proposed fees, and,
if such expense did so relate, what
portion (or percentage) of such expense
actually supports those services, and
thus bears a relationship that is, ‘‘in
nature and closeness,’’ directly related
to those services. The sum of all such
portions of expenses represents the total
cost of the Exchange to provide services
associated with the proposed fees.
External Expense Allocations
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 services associated with the
proposed fees, is projected to be $5,398.
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
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.
38 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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locations; and (3) 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 services associated with the
proposed fees.
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 market data product associated with
the proposed fees. Further, the
Exchange notes that, with respect to the
expenses included herein, those
expenses only cover the MIAX market;
expenses associated with MIAX PEARL,
LLC (‘‘MIAX Pearl’’) for its options and
equities markets and MIAX Emerald, are
accounted for separately and are not
included within the scope of this filing.
As noted above, 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. Further, as
part its ongoing assessment of costs and
expenses, the Exchange recently
conducted a periodic thorough review
of its expenses and resource allocations,
which, in turn, resulted in a revised
percentage allocations in this filing.
The Exchange believes it is reasonable
to allocate such third-party expense
described above towards the total cost to
the Exchange to provide the services
associated with the proposed 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
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support the network and provide the
cToM product associated with the
proposed fees to its Members, nonMembers and their customers. The
Exchange did not allocate all of the
Equinix expense toward the cost of
providing the cToM product associated
with the proposed fees, only that
portion which the Exchange identified
as being specifically mapped to
providing the cToM product associated
with the proposed fees, approximately
0.20% of the total applicable Equinix
expense. The Exchange believes this
allocation is reasonable because it
represents the Exchange’s actual cost to
provide the cToM product associated
with the proposed fees, and not any
other service, as supported by its cost
review.39
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 cToM data
associated with the proposed fees. The
Exchange did not allocate all of the
Zayo expense toward the cost of
providing the cToM data associated
with the proposed fees, only the portion
which the Exchange identified as being
specifically mapped to providing the
cToM data associated with the proposed
fees, approximately 0.20% of the total
applicable Zayo expense. The Exchange
believes this allocation is reasonable
because it represents the Exchange’s
actual cost to provide the cToM data
associated with the proposed fees, and
not any other service, as supported by
its cost review.40
The Exchange did not allocate any
expense associated with the proposed
fees towards SFTI and various other
service providers’ (including Thompson
Reuters, NYSE, Nasdaq, and Internap)
39 As noted above, 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. Again, as
part its ongoing assessment of costs and expenses,
the Exchange recently conducted a periodic
thorough review of its expenses and resource
allocations which, in turn, resulted in a revised
percentage allocations in this filing.
40 Id.
PO 00000
Frm 00100
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because the MIAX architecture takes
advantage of an advance in design to
eliminate the need for a market data
distribution gateway layer. The
computation and dissemination via an
API is done solely within the match
engine environment and is then
delivered via the Member and nonMember connectivity infrastructure.
This architecture delivers a market data
system that is more efficient both in cost
and performance. Accordingly, the
Exchange determined not to allocate any
expense associated with SFTI and
various other service providers.
The Exchange believes it is reasonable
to allocate the identified portion of the
other hardware and software provider
expense because this includes costs for
dedicated hardware licenses for
switches and servers, as well as
dedicated software licenses for security
monitoring and reporting across the
network. Without this hardware and
software, the Exchange would not be
able to operate and support the network
and provide cToM data to its Members,
non-Members and their customers. The
Exchange did not allocate all of the
hardware and software provider
expense toward the cost of providing
the cToM data associated with the
proposed fees, only the portions which
the Exchange identified as being
specifically mapped to providing the
cToM data associated with the proposed
fees, approximately 0.20% 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 cToM data
associated with the proposed fees.41
Internal Expense Allocations
For 2021, total projected internal
expense, relating to the internal costs of
the Exchange to provide the cToM data
associated with the proposed fees, is
projected to be $268,096. This includes,
but is not limited to, costs associated
with: (1) Employee compensation and
benefits for full-time employees that
support the cToM data product
associated with the proposed fees,
including staff in network operations,
trading operations, development, system
operations, and business that support
those employees and functions; (2)
depreciation and amortization of
hardware and software used to provide
the cToM data product associated with
the proposed fees, including equipment,
servers, cabling, purchased software and
internally developed software used in
the production environment to support
the network for trading; and (3)
41 Id.
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occupancy costs for leased office space
for staff that provide the cToM data
associated with the proposed fees. The
breakdown of these costs is more fullydescribed 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 cToM data associated
with the proposed fees.
The Exchange believes it is reasonable
to allocate such internal expense
described above towards the total cost to
the Exchange to provide the cToM data
associated with the proposed fees. In
particular, the Exchange’s employee
compensation and benefits expense
relating to providing the cToM data
associated with the proposed fees is
projected to be approximately $251,427,
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, products 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 nearly every
employee on matters relating to cToM.
Without these employees, the Exchange
would not be able to provide the cToM
product to its Members, non-Members
and their customers. The Exchange did
not allocate all of the employee
compensation and benefits expense
toward the cost of the cToM product,
only the portion which the Exchange
identified as being specifically mapped
to providing the cToM product
associated with the proposed fees,
approximately 2.0% 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 cToM data associated with
the proposed fees, and not any other
service, as supported by its cost
review.42
The Exchange’s depreciation and
amortization expense relating to
providing the cToM data associated
with the proposed fees is projected to be
$3,884, which is only a portion of the
$4.8 million total projected expense for
42 Id.
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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 cToM product. Without this
equipment, the Exchange would not be
able to operate the network and provide
the cToM product to its Members, nonMembers and their customers. The
Exchange did not allocate all of the
depreciation and amortization expense
toward the cost of providing the cToM
product, only the portion which the
Exchange identified as being
specifically mapped to providing the
cToM product, approximately 0.20% of
the total applicable depreciation and
amortization expense, as this product
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 cToM product associated
with the proposed fees, and not any
other service, as supported by its cost
review.43
The Exchange’s occupancy expense
relating to providing the cToM product
associated with the proposed fees is
projected to be $12,785, which is only
a portion of the $0.60 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 cToM product.
This amount consists primarily of rent
for the Exchange’s Princeton, New
Jersey 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 and Exchange products. The
Exchange currently has approximately
200 employees. Approximately twothirds of the Exchange’s staff are in the
Technology department, and the
majority of those staff have some role in
the operation and performance of the
43 Id.
20:50 Dec 22, 2021
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services associated with the proposed
fees. Accordingly, the Exchange believes
it is reasonable to allocate the identified
portion of its occupancy expense
because such amount represents the
Exchange’s actual cost to house the
equipment and personnel who operate
and support the Exchange’s network
infrastructure and the market data
services associated with the proposed
fees. The Exchange did not allocate all
of the occupancy expense toward the
cost of providing the market data
services associated with the proposed
fees, only the portion which the
Exchange identified as being
specifically mapped to operating and
supporting the network, approximately
2.0% of the total applicable occupancy
expense. The Exchange believes this
allocation is reasonable because it
represents the Exchange’s cost to
provide the market data services
associated with the proposed fees, and
not any other service, as supported by
its cost review.44
Based on the above, the Exchange
believes that its provision of market data
services associated with the proposed
fees will not result in excessive pricing
or supra-competitive profit. As
discussed above, the Exchange projects
that its annualized expense for 2021 to
provide the cToM data associated with
the proposed fees is projected to be
approximately $273,494, or
approximately $22,791.17 per month on
average. The Exchange implemented the
proposed fees on July 1, 2021 in the
First Proposed Rule Change. For June
2021, prior to the proposed fees,
Members and non-Members subscribed
to a total of 17 cToM data feeds, for
which the Exchange charged $0, for the
past five years. This resulted in a month
over month loss of approximately
$22,791.17. For the month of November
2021, which includes the proposed fees,
Members and non-Members subscribed
to 16 cToM data feeds, for which the
Exchange charged approximately
$21,000 for that month. This resulted in
a loss of $1,791.17 for that month (a
margin of approximately ¥8.5%).
Therefore, the Exchange believes that
the proposed fees are reasonable
because the Exchange is operating at a
negative margin for this product.
Again, the Exchange cautions that this
margin may fluctuate from month to
month based in the uncertainty of
predicting how many market data feeds
may be purchased from month to month
as Members and non-Members are free
to add and drop subscriptions at any
time based on their own business
decisions. This margin may also
44 Id.
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decrease due to the significant
inflationary pressure on capital items
that it needs to purchase to maintain the
Exchange’s technology and systems.
Accordingly, the Exchange believes its
total projected revenue for the providing
the market data services associated with
the proposed fees will not result in
excessive pricing or supra-competitive
profit.
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 market data services
associated with the proposed fees
because the Exchange performed a lineby-line item analysis of nearly every
expense of the Exchange, and has
determined the expenses that directly
relate to providing market data services
to the Exchange. Further, the Exchange
notes that, without the specific thirdparty and internal expense items listed
above, the Exchange would not be able
to provide the market data services
associated with the proposed fees to its
Members, non-Members and their
customers. Each of these expense items,
including physical hardware, software,
employee compensation and benefits,
occupancy costs, and the depreciation
and amortization of equipment, have
been identified through a line-by-line
item analysis to be integral to providing
market data services. The proposed fees
are intended to recover the costs of
providing cToM data. Accordingly, the
Exchange believes that the proposed
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 fees.
No market participant is required by
any rule or regulation to utilize the
Exchange’s Complex Order functionality
or subscribe to the cToM data feed.
Further, unlike orders on the Exchange’s
Simple Order Book, Complex Orders are
not protected and will never trade
through Priority Customer 45 orders,
thus protecting the priority that is
established in the Simple Order Book.46
Additionally, unlike the continuous
45 The term ‘‘Priority Customer’’ means a person
or entity that (i) is not a broker or dealer in
securities and (ii) does not place more than 390
orders in listed options per day on average during
a calendar month for its own beneficial account(s).
The term ‘‘Priority Customer Order’’ means an order
for the account of a Priority Customer. See
Exchange Rule 100.
46 The ‘‘Simple Order Book’’ is the Exchange’s
regular electronic book of orders and quotes. See
Exchange Rule 100 [sic].
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20:50 Dec 22, 2021
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quoting requirements of Market Makers
in the simple order market, there are no
continuous quoting requirements
respecting Complex Orders. It is a
business decision whether market
participants utilize Complex Order
strategies on the Exchange and whether
to purchase cToM data to help effect
those strategies.
The Proposed Fees are Reasonable
When Compared to the Fees of Other
Options Exchanges With Similar Market
Share
The Exchange does not have visibility
into other options exchanges’ costs to
provide market data or their fee markup
over those costs, and therefore cannot
use other exchange’s market data fees as
a benchmark to determine a reasonable
markup over the costs of providing
market data. Nevertheless, the Exchange
believes the other exchange’s market
data fees are a useful example of
alternative approaches to providing and
charging for market data. To that end,
the Exchange believes the proposed
pricing is reasonable because the
proposed rates are similar to or less than
the fees charged by other options
exchanges for similar data products.47
Until recently, the Exchange has
operated at a cumulative net annual loss
since it launched operations in 2008.48
This is a result of providing a low cost
alternative to attract order flow and
encourage market participants to
experience the high determinism and
resiliency of the Exchange’s trading
Systems. To do so, the Exchange chose
to waive the fees for some nontransaction related services and
Exchange products or provide them at a
very marginal cost, which was not
profitable to the Exchange. This resulted
in the Exchange forgoing revenue it
could have generated from assessing any
fees or higher fees. The Exchange could
have sought to charge higher fees at the
outset, but that could have served to
discourage participation on the
Exchange. Instead, the Exchange chose
to provide a low cost exchange
alternative to the options industry
which resulted in lower initial
revenues. An example of this is cToM,
for which the Exchange only now seeks
to adopt fees at a level similar to or
lower than those of other options
exchanges.
Since the Exchange initially
established the cToM data product in
2016, all Exchange Members and nonMembers have had the ability to receive
the Exchange’s cToM data free of charge
47 See
48 See
PO 00000
supra notes 18, 19 and 20.
supra notes 35.
Frm 00102
Fmt 4703
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for the past five years.49 Since 2016,
when the Exchange adopted Complex
Order functionality, the Exchange has
spent time and resources building out
various Complex Order functionality in
its System to provide better trading
strategies and risk functionality for
market participants in order to better
compete with other exchanges’ complex
functionality and similar data products
focused on complex orders.50 The cToM
data product allows market participants
to better utilize the Exchange’s Complex
Order functionality by providing
insights into the Exchange’s Complex
Order flow. The Exchange currently has
16 subscribers (14 Members and 2 nonMembers) for its cToM data product.
Each one of these subscribers have not
paid any cToM data fees (other than the
five months in which the First, Second
and Third Proposed Rule Changes were
in effect) but have received the benefit
of the Exchange building out its
Complex Order functionality to better
compete with other exchanges complex
functionality. The Exchange notes that
one market participant ceased
subscribing to the cToM feed since July
1, 2021, the date on which the fees
became effective when established in
the First Proposed Rule Change.
The Proposed Pricing Is Not Unfairly
Discriminatory and Provides for the
Equitable Allocation of Fees, Dues, and
Other Charges
The Exchange believes that it is
reasonable, equitable and not unfairly
discriminatory to assess Internal
Distributors fees that are less than the
fees assessed for External Distributors
for subscriptions to the cToM data feed
because Internal Distributors have
limited, restricted usage rights to the
market data, as compared to External
Distributors, which have more
expansive usage rights. All Members
and non-Members that determine to
receive any market data feed of the
Exchange (or its affiliates, MIAX Pearl
and MIAX Emerald), must first execute,
among other things, the MIAX Exchange
Group Exchange Data Agreement (the
49 See
supra note 13.
Securities Exchange Act Release Nos.
79405 (November 28, 2016), 81 FR 87086
(December 2, 2016) (SR–MIAX–2016–44)
(amendment to clarify the manner in which the
System allocates contracts at the end of a Complex
Auction); 80089 (February 22, 2017), 82 FR 12153
(February 28, 2017) (SR–MIAX–2017–06) (adopting
the Complex MIAX Options Price Collar, an
additional price protection feature); 81229 (July 27,
2017), 82 FR 36023 (August 2, 2017) (SR–MIAX–
2017–34) (amendment to ensure price and trade
protections apply to Complex Orders); 89085 (June
17, 2020), 85 FR 37719 (June 23, 2020) (SR–MIAX–
2020–16) (adopting new order type, Complex
Attributable Order).
50 See
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‘‘Exchange Data Agreement’’).51
Pursuant to the Exchange Data
Agreement, Internal Distributors are
restricted to the ‘‘internal use’’ of any
market data they receive. This means
that Internal Distributors may only
distribute the Exchange’s market data to
the recipient’s officers and employees
and its affiliates.52 External Distributors
may distribute the Exchange’s market
data to persons who are not officers,
employees or affiliates of the External
Distributor,53 and may charge their own
fees for the distribution of such market
data. Accordingly, the Exchange
believes it is fair, reasonable and not
unfairly discriminatory to assess
External Distributors a higher fee for the
Exchange’s market data products as
External Distributors have greater usage
rights to commercialize such market
data. The Exchange also utilizes more
resources to support External
Distributors versus Internal Distributors,
as External Distributors have reporting
and monitoring obligations that Internal
Distributors do not have, thus requiring
additional time and effort of Exchange
staff. The Exchange believes the
proposed cToM fees are equitable and
not unfairly discriminatory because the
fee level results in a reasonable and
equitable allocation of fees amongst
subscribers for similar services,
depending on whether the subscribers is
an Internal or External Distributor.
Moreover, the decision as to whether or
not to purchase market data is entirely
optional to all market participants.
Potential purchasers are not required to
purchase the market data, and the
Exchange is not required to make the
market data available. Purchasers may
request the data at any time or may
decline to purchase such data. The
allocation of fees among users is fair and
reasonable because, if market
participants deem the proposed fees to
be unfair or inequitable, firms can
discontinue their use of the cToM data.
Further, the Exchange believes that
the proposal is equitable and not
unfairly discriminatory because the
proposed cToM fees will apply to all
market participants of the Exchange on
a uniform basis. The Exchange also
notes that the proposed monthly cToM
fees for Internal and External
Distributors are the same prices that the
Exchange charges for its ToM data
product.
The Exchange believes the proposed
change to delete certain text from
51 See Exchange Data Agreement, available at
https://miaxweb2.pairsite.com/sites/default/files/
page-files/MIAX_Exchange_Group_Data_
Agreement_09032020.pdf.
52 See id.
53 See id.
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Section (6)(a) of the Fee Schedule
promotes just and equitable principles
of trade and removes impediments to
and perfects the mechanism of a free
and open market and a national market
system because the proposed change is
a non-substantive edit to the Fee
Schedule to remove unnecessary text.
The Exchange believes that this
proposed change will provide greater
clarity to Members and the public
regarding the Exchange’s Fee Schedule
and that it is in the public interest for
the Fee Schedule to be accurate and
concise so as to eliminate the potential
for confusion.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
Intra-Market Competition
The Exchange believes the proposed
fees will not result in any burden on
intra-market competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because the
proposed fees will allow the Exchange
to recoup some of its costs in providing
cToM to market participants. As
described above, the Exchange has
operated at a cumulative net annual loss
since it launched operations in 2008 54
due to providing a low cost alternative
to attract order flow and encourage
market participants to experience the
high determinism and resiliency of the
Exchange’s trading Systems. To do so,
the Exchange chose to waive the fees for
some non-transaction related services
and Exchange products or provide them
at a very marginal cost, which was not
profitable to the Exchange. This resulted
in the Exchange forgoing revenue it
could have generated from assessing any
fees or higher fees. The Exchange could
have sought to charge higher fees at the
outset, but that could have served to
discourage participation on the
Exchange. Instead, the Exchange chose
to provide a low cost exchange
alternative to the options industry
which resulted in lower initial
revenues. An example of this is cToM,
for which the Exchange only now seeks
to adopt fees at a level similar to or
lower than those of other options
exchanges.
Since the Exchange initially
established the cToM data product in
2016, all Exchange Members and nonMembers have had the ability to receive
the Exchange’s cToM data free of charge
for the past five years.55 Since 2016,
when the Exchange adopted Complex
Order functionality, the Exchange has
spent time and resources building out
various Complex Order functionality in
its System to provide better trading
strategies and risk functionality for
market participants in order to better
compete with other exchanges’ complex
functionality and similar data products
focused on complex orders.56 The
Exchange now seeks to recoup its costs
for providing cToM to market
participants and believes the proposed
fees will not result in excessive pricing
or supracompetitive profit.
Inter-Market Competition
The Exchange also does not believe
the proposed fees would cause any
unnecessary or in appropriate burden
on intermarket competition as other
exchanges are free to introduce their
own comparable data product and lower
their prices to better compete with the
Exchange’s offering. The Exchange does
not believe the proposed rule change
would cause any unnecessary or
inappropriate burden on intramarket
competition. Particularly, the proposed
product and fees apply uniformly to any
purchaser, in that it does not
differentiate between subscribers that
purchase cToM. The proposed fees are
set at a modest level that would allow
any interested Member or non-Member
to purchase such data based on their
business needs.
The Exchange does not believe that
the proposed rule change to make a
minor, non-substantive edit to Section
(6)(a) of the Fee Schedule by deleting
unnecessary text will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. This
proposed rule change is not being made
for competitive reasons, but rather is
designed to remedy a minor nonsubstantive issue and will provide
added clarity to the Fee Schedule. The
Exchange believes that it is in the public
interest for the Fee Schedule to be
accurate and concise so as to eliminate
the potential for confusion on the part
of market participants. In addition, the
Exchange does not believe the proposal
will impose any burden on inter-market
competition as the proposal does not
address any competitive issues and is
intended to protect investors by
providing further transparency
regarding the Exchange’s Fee Schedule.
55 See
54 See
PO 00000
supra notes 35.
Frm 00103
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56 See
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supra note 50.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act,57 and Rule
19b–4(f)(2) 58 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:
jspears on DSK121TN23PROD with NOTICES1
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–2021–62 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–2021–62. 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–2021–62, and
should be submitted on or before
January 13, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.59
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–27813 Filed 12–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93826; File No. SR–
NASDAQ–2021–100]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Equity 7, Section 118 of the Fee
Schedule
December 17, 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 December
10, 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.
59 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
57 15
U.S.C. 78s(b)(3)(A)(ii).
58 17 CFR 240.19b–4(f)(2).
VerDate Sep<11>2014
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s pricing schedule at Equity 7,
Section 118(a), as described further
below.
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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend the Exchange’s
schedule of credits, at Equity 7, Section
118. Specifically, the Exchange
proposes to add a new supplemental
credit in Tapes A, B and C for displayed
quotes/orders (other than Supplemental
Orders or Designated Retail Orders) that
provide liquidity.
The Exchange currently provides
supplemental credits to members for
displayed quotes/orders (other than
Supplemental Orders or Designated
Retail Orders). The Exchange is
proposing to add a supplemental credit
of $0.0001 per share executed to Tapes
A, B and C. The credit will be available
to a member that, through one or more
of its Nasdaq Market Center MPIDs, (i)
increases its shares of liquidity provided
in all securities by at least 30% as a
percentage of Consolidated Volume
during the month relative to the month
of October 2021 and (ii) has shares of
liquidity provided of least 15 million
average daily volume during the month.
The credit will be in addition to other
credits otherwise available to members
for adding displayed liquidity to the
Exchange (other than Supplemental
Orders or Designated Retail Orders). The
Exchange hopes that by proposing the
E:\FR\FM\23DEN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 244 (Thursday, December 23, 2021)]
[Notices]
[Pages 73011-73020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27813]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93808; File No. SR-MIAX-2021-62]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Establish Fees for the cToM Market Data Product
December 17, 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 December 10, 2021, Miami International Securities Exchange, LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX Options Fee
Schedule (the ``Fee Schedule'') to establish fees for the market data
product known as MIAX Complex Top of Market (``cToM'').
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 Section (6)(a) of the Fee Schedule
to establish fees for the cToM data product. The Exchange initially
filed this proposal on June 30, 2021 with the proposed fees to be
effective beginning July 1, 2021 (``First Proposed Rule Change'').\3\
The First Proposed Rule Change was published for comment in the Federal
Register on July 15, 2021.\4\ Although the Commission did not receive
any comment letters on the First Proposed Rule Change, on August 27,
2021, the Commission issued its Suspension of and Order Instituting
Proceedings to Determine Whether to Approve or Disapprove Proposed Rule
Changes to Establish Fees for the Exchanges' cToM Market Data Products
(relating to the First Proposed Rule Change and a similar filing by the
Exchange's affiliate, MIAX Emerald, LLC (``MIAX Emerald''), to also
adopt cToM fees).\5\ The Exchange withdrew the First Proposed Rule
Change on September 30, 2021 \6\ and re-submitted the proposal, with
the proposed fee changes being immediately effective (``Second Proposed
Rule Change'').\7\ The Second Proposed Rule Change provided additional
justification for the proposed fee changes and addressed comments
provided by the Commission Staff. On October 14, 2021, the Exchange
withdrew the Second Proposed Rule Change and submitted its proposal to
adopt cToM fees to again provide additional justification for the
proposed fee changes and address comments provided by the Commission
Staff (``Third Proposed Rule Change'').\8\ The Third Proposed Rule
Change was published for comment in the Federal Register on November 1,
2021.\9\ Although the Commission did not again receive any comment
letters on the Third Proposed Rule Change, the Exchange withdrew the
Third Proposed
[[Page 73012]]
Rule Change on December 10, 2021 and now submits this proposal for
immediate effectiveness (``Fourth Proposed Rule Change''). This Fourth
Proposed Rule Change meaningfully attempts to provide additional
justification and explanation for the proposed fee change in response
to a telephone conversation with Commission Staff on December 7, 2021
relating to the Third Proposed Rule Change.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 92359 (July 9,
2021), 86 FR 37393 (July 15, 2021) (SR-MIAX-2021-28).
\4\ Id.
\5\ See Securities Exchange Act Release No. 92789 (August 27,
2021), 86 FR 49364 (September 2, 2021) (SR-MIAX-2021-28, SR-EMERALD-
2021-21) (the ``Suspension Order'').
\6\ See Securities Exchange Act Release No. 93471 (October 29,
2021), 86 FR 60947 (November 4, 2021).
\7\ See SR-MIAX-2021-44.
\8\ Securities Exchange Act Release No. 93426 (October 26,
2021), 86 FR 60314 (November 1, 2021) (SR-MIAX-2021-50).
\9\ Id.
---------------------------------------------------------------------------
Background
The Exchange previously adopted rules governing the trading of
Complex Orders \10\ on the MIAX System \11\ in 2016.\12\ At that time,
the Exchange also adopted the market data product cToM and expressly
waived fees for cToM to provide an incentive to prospective market
participants to subscribe to that market data feed.\13\ The Exchange
has not charged fees to cToM subscribers in the nearly five years since
it was first available for subscription.
---------------------------------------------------------------------------
\10\ See Exchange Rule 518(a)(5) for the definition of Complex
Orders.
\11\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\12\ See Securities Exchange Act Release No. 79072 (October 7,
2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26) (Order
Approving a Proposed Rule Change to Adopt New Rules to Govern the
Trading of Complex Orders).
\13\ See Securities Exchange Act Release No. 79146 (October 24,
2016), 81 FR 75171 (October 28, 2016) (SR-MIAX-2016-36) (providing a
complete description of the cToM data feed).
---------------------------------------------------------------------------
In summary, cToM provides subscribers with the same information as
the MIAX Top of Market (``ToM'') data product as it relates to the
Strategy Book,\14\ i.e., the Exchange's best bid and offer for a
complex strategy, with aggregate size, based on displayable order and
quoting interest in the complex strategy on the Exchange. However, cToM
provides subscribers with the following additional information that is
not included in ToM: (i) The identification of the complex strategies
currently trading on the Exchange; (ii) complex strategy last sale
information; and (iii) the status of securities underlying the complex
strategy (e.g., halted, open, or resumed). cToM is a distinct market
data product from ToM. ToM subscribers are not required to subscribe to
cToM, and cToM subscribers are not required to subscribe to ToM.\15\
---------------------------------------------------------------------------
\14\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).
\15\ See supra note 13.
---------------------------------------------------------------------------
Proposal
The Exchange now proposes to amend Section (6)(a) of the Fee
Schedule to charge monthly fees to Distributors \16\ of cToM.
Specifically, the Exchange proposes to assess Internal Distributors
$1,250 per month and External Distributors $1,750 per month for the
cToM data feed.\17\ The Exchange notes that the proposed monthly cToM
fees for Internal and External Distributor are the same prices that the
Exchange charges for its ToM data product, and are identical to the
prices the Exchange's affiliate, MIAX Emerald, proposes to charge for
its cToM product.
---------------------------------------------------------------------------
\16\ A ``Distributor'' of MIAX data is any entity that receives
a feed or file of data either directly from MIAX or indirectly
through another entity and then distributes it either internally
(within that entity) or externally (outside that entity). All
Distributors are required to execute a MIAX Distributor Agreement.
See Section (6)(a) of the Fee Schedule.
\17\ The Exchange also proposes to make a minor related change
to remove ``(as applicable)'' from the explanatory paragraph in
Section (6)(a) as it will not change fees for both the ToM and cToM
data feeds.
---------------------------------------------------------------------------
Like it does today for ToM, MIAX proposes to assess cToM fees on
Internal and External Distributors in each month the Distributor is
credentialed to use cToM in the production environment. Also, like the
Exchange does today for ToM, market data fees for cToM will be reduced
for new Distributors for the first month during which they subscribe to
cToM, based on the number of trading days that have been held during
the month prior to the date on which that subscriber has been
credentialed to use cToM in the production environment. Such new
Distributors will be assessed a pro-rata percentage of the fees in the
table in Section (6)(a) of the Fee Schedule, which is the percentage of
the number of trading days remaining in the affected calendar month as
of the date on which they have been credentialed to use cToM in the
production environment, divided by the total number of trading days in
the affected calendar month.
The Exchange believes that other exchange's fees for complex market
data are useful examples and provides the below table for comparison
purposes only to show how the Exchange's proposed fees compare to fees
currently charged by other options exchanges for similar data. As shown
by the below table, the Exchange's proposed fees similar to or less
than fees charged for similar data products provided by other options
exchanges.
------------------------------------------------------------------------
Exchange Monthly fee
------------------------------------------------------------------------
MIAX (as proposed)..................... $1,250--Internal Distributor.
$1,750--External Distributor.
NYSE American, LLC (``Amex'') \18\..... $1,500 Access Fee.
$1,000 Redistribution Fee.
NYSE Arca, Inc. (``Arca'') \19\........ $1,500 Access Fee.
$1,000 Redistribution Fee.
NASDAQ PHLX LLC (``PHLX'') \20\........ $3,000--Internal Distributor.
$3,500--External Distributor.
------------------------------------------------------------------------
The Exchange also proposes to amend the paragraph below the table
of fees for ToM and cToM in Section (6)(a) of the Fee Schedule to make
a minor, non-substantive corrective edit. In particular, the Exchange
proposes to delete the phrase ``(as applicable)'' in the first sentence
following the table of fees for ToM and cToM. The purpose of this
proposed change is to remove unnecessary text from the Fee Schedule.
---------------------------------------------------------------------------
\18\ See NYSE American Options Proprietary Market Data Fees,
American Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf.
\19\ See NYSE Arca Options Proprietary Market Data Fees, Arca
Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
\20\ See PHLX Price List--U.S. Derivatives Data, PHLX Orders
Fees, at https://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX.
---------------------------------------------------------------------------
cToM Content Is Available From Alternative Sources
cToM is also not the exclusive source for Complex Order information
from the Exchange and market participants may choose to subscribe to
the Exchange's other data products to receive such information. It is a
business decision of market participants whether to subscribe to the
cToM data product or not. Market participants that choose not to
subscribe to cToM can derive much,
[[Page 73013]]
if not all, of the same information provided in the cToM feed from
other Exchange sources, including, for example, the MIAX Options Order
Feed (``MOR'').\21\ The following cToM information is provided to
subscribers of MOR: The Exchange's best bid and offer for a complex
strategy, with aggregate size, based on displayable order and quoting
interest in the complex strategy on the Exchange; the identification of
the complex strategies currently trading on the Exchange; and the
status of securities underlying the complex strategy (e.g., halted,
open, or resumed). In addition to the cToM information contained in
MOR, complex strategy last sale information can be derived from the
Exchange's ToM data feed. Specifically, market participants may deduce
that last sale information for multiple trades in related options
series that are disseminated via the ToM data feed with the same
timestamp are likely part of a Complex Order transaction and last sale.
---------------------------------------------------------------------------
\21\ See MIAX website, Market Data & Offerings, at https://www.miaxoptions.com/market-data-offerings (last visited December 10,
2021). In general, MOR provides real-time ulta-low [sic] latency
updates on the following information: New Simple Orders added to the
MIAX Order Book; updates to Simple Orders resting on the MIAX Order
Book; new Complex Orders added to the Strategy Book (i.e., the book
of Complex Orders); updates to Complex Orders resting on the
Strategy Book; MIAX listed series updates; MIAX Complex Strategy
definitions; the state of the MIAX System; and MIAX's underlying
trading state.
---------------------------------------------------------------------------
Implementation
The proposed rule change is immediately effective.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \22\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \23\ in
particular, in that it is an equitable allocation of reasonable dues,
fees and other charges among its members and issuers and other persons
using its facilities. The Exchange also believes the proposal furthers
the objectives of Section 6(b)(5) of the Act in that it is designed to
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general protect investors and the public
interest and is not designed to permit unfair discrimination between
customers, issuers, brokers and dealers.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Proposed Fees Will Not Result in a Supra-Competitive Profit
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 sets certain non-transaction fees, including market data fees.
The Exchange believes that it is important to demonstrate that these
fees are based on its costs to provide these products and reasonable
business needs.
In its Guidance, the Commission Staff stated that, ``[a]s an
initial step in assessing the reasonableness of a fee, staff considers
whether the fee is constrained by significant competitive forces.''
\24\ The Commission Staff Guidance further states that, ``. . . even
where an SRO cannot demonstrate, or does not assert, that significant
competitive forces constrain the fee at issue, a cost-based discussion
may be an alternative basis upon which to show consistency with the
Exchange Act.'' \25\ In its Guidance, the Commission Staff further
states that, ``[i]f an SRO seeks to support its claims that a proposed
fee is fair and reasonable because it will permit recovery of the SRO's
costs, or will not result in excessive pricing or supracompetitive
profit, specific information, including quantitative information,
should be provided to support that argument.'' \26\ The Exchange does
not assert that the proposed fees are constrained by competitive
forces. Rather, the Exchange asserts that the proposed fees are
reasonable because they will permit recovery of the Exchange's costs in
providing services to supply cToM data and will not result in the
Exchange generating a supra-competitive profit.
---------------------------------------------------------------------------
\24\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
\25\ Id.
\26\ Id.
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The Guidance defines ``supra-competitive profit'' as ``profits that
exceed the profits that can be obtained in a competitive market.'' \27\
The Commission Staff further states in the Guidance that ``the SRO
should provide an analysis of the SRO's baseline revenues, costs, and
profitability (before the proposed fee change) and the SRO's expected
revenues, costs, and profitability (following the proposed fee change)
for the product or service in question.'' \28\ The Exchange provides
this analysis below.
---------------------------------------------------------------------------
\27\ Id.
\28\ Id.
---------------------------------------------------------------------------
Based on this analysis, the Exchange believes the proposed fees are
reasonable and do not result in a ``supra-competitive'' \29\ profit.
The Exchange believes that it is important to demonstrate that the
proposed fees are based on its costs and reasonable business needs. The
Exchange believes the proposed fees will allow the Exchange to offset
expenses the Exchange has and will incur, and that the Exchange
provides sufficient transparency (described below) into the costs and
revenue underlying the proposed fees. Accordingly, the Exchange
provides an analysis of its revenues, costs, and profitability
associated with the proposed fees. This analysis includes information
regarding its methodology for determining the costs and revenues
associated with the proposed fees. As a result of this analysis, the
Exchange believes the proposed fees are fair and reasonable as a form
of cost recovery plus present the possibility of a reasonable return
for the Exchange's aggregate costs of offering cToM data, which has
been offered for free for over five years.
---------------------------------------------------------------------------
\29\ Id.
---------------------------------------------------------------------------
The proposed fees are based on a cost-plus model. In determining
the appropriate fees to charge, the Exchange considered its costs to
provide cToM data, using what it believes to be a conservative
methodology (i.e., that strictly considers only those costs that are
most clearly directly related to the provision and maintenance of cToM
data) to estimate such costs,\30\ as well as the relative costs of
providing and maintaining cToM data feeds, and set fees that are
designed to cover its costs with a limited return in excess of such
costs. However, as discussed more fully below, such fees may also
result in the Exchange recouping less than all of its costs of
providing and maintaining cToM data feeds because of the uncertainty of
forecasting subscriber decision making with respect to firms' needs for
cToM data and the likely potential for increased costs to procure
[[Page 73014]]
the third-party services described below.
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\30\ For example, the Exchange only included the costs
associated with providing and supporting cToM data feeds and
excluded from its cost calculations any cost not directly associated
with providing and maintaining such cToM data feeds. Thus, the
Exchange notes that this methodology underestimates the total costs
of providing and maintaining cToM data feeds.
---------------------------------------------------------------------------
To determine the Exchange's costs to provide cToM data associated
with the proposed fees, the Exchange conducted an extensive cost review
in which the Exchange analyzed nearly every expense item in the
Exchange's general expense ledger to determine whether each such
expense relates to the proposed fees, and, if such expense did so
relate, what portion (or percentage) of such expense actually supports
the cToM data product associated with the proposed fees.
The Exchange also provides 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 services associated
with the proposed fees. The Exchange conducted a thorough internal
analysis to determine the portion (or percentage) of each expense to
allocate to the support of services associated with the proposed fees.
This analysis included discussions with each Exchange department head
to determine the expenses that support services associated with the
proposed fees. Once the expenses were identified, the Exchange
department heads, with the assistance of our internal finance
department, reviewed such expenses holistically on an Exchange-wide
level to determine what portion of that expense supports providing
services for the proposed fees. The sum of all such portions of
expenses represents the total cost to the Exchange to provide services
associated with the proposed fees. For the avoidance of doubt, no
expense amount was allocated twice.
To determine the Exchange's projected revenue associated with the
proposed fees, the Exchange analyzed the number of Members and non-
Members currently subscribing to the cToM data feeds and used a recent
monthly billing cycle representative of 2021 monthly revenue. The
Exchange also provided its baseline by analyzing June 2021, the monthly
billing cycle prior to the proposed fees going into effect, and
compared it to its expenses for that month. As discussed below, 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 market data needs of market participants and
potential increase in internal and third party expenses. The Exchange
is presenting its revenue and expense associated with the proposed 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 fees were not in place in 2020 or for the
first six months of 2021, the Exchange believes its 2020 Audited
Unconsolidated Financial Statement is not representative of its current
total annualized revenue and costs associated with the proposed fees.
Accordingly, the Exchange believes it is more appropriate to analyze
the proposed 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 fees are reasonable because they will allow the Exchange to
recover its costs associated with providing services related to the
proposed fees and not result in excessive pricing or supra-competitive
profit. Since 2016, when the Exchange adopted Complex Order
functionality, the Exchange has spent time and resources building out
various Complex Order functionality in its System to provide better
trading strategies and risk functionality for market participants in
order to better compete with other exchanges' complex functionality and
similar data products focused on complex orders.\31\ The cToM data
product allows market participants to better utilize the Exchange's
Complex Order functionality by providing insights into the Exchange's
Complex Order flow. The Exchange notes that one market participant
ceased subscribing to the cToM feed since July 1, 2021, the date on
which the fees became effective when proposed in the First Proposed
Rule Change.
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\31\ See Securities Exchange Act Release Nos. 79405 (November
28, 2016), 81 FR 87086 (December 2, 2016) (SR-MIAX-2016-44)
(amendment to clarify the manner in which the System allocates
contracts at the end of a Complex Auction); 80089 (February 22,
2017), 82 FR 12153 (February 28, 2017) (SR-MIAX-2017-06) (adopting
the Complex MIAX Options Price Collar, an additional price
protection feature); 81229 (July 27, 2017), 82 FR 36023 (August 2,
2017) (SR-MIAX-2017-34) (amendment to ensure price and trade
protections apply to Complex Orders); 89085 (June 17, 2020), 85 FR
37719 (June 23, 2020) (SR-MIAX-2020-16) (adopting new order type,
Complex Attributable Order).
---------------------------------------------------------------------------
As outlined in more detail below, the Exchange projects that its
annualized expense for 2021 to provide cToM data to be approximately
$273,494 per annum or an average of $22,791.17 per month. The Exchange
implemented the proposed fees on July 1, 2021 in the First Proposed
Rule Change. For June 2021, prior to the proposed fees, Exchange
Members and non-Members subscribed to a total of 17 cToM data feeds for
which the Exchange charged $0, as it has for the past five years. This
resulted in a loss of approximately $22,791.17 for that month. For the
month of November 2021, which includes the proposed fees, Exchange
Members and non-Members purchased 16 cToM data feeds, for which the
Exchange charged approximately $21,000 for that month.\32\ This
resulted in a loss of approximately $1,791.17 for that month (a margin
of approximately -8.5%). The Exchange cautions that this margin may
fluctuate from month to month based on the uncertainty of predicting
how many cToM data feeds may be purchased from month to month as
Members and non-Members are able to add and drop subscriptions at any
time based on their own business decisions. This margin may also
decrease due to the significant inflationary pressure on capital items
that the Exchange needs to purchase to maintain the Exchange's
technology and systems.\33\ The Exchange has been subject to price
increases upwards of 30% on network equipment due to supply chain
shortages. This, in turn, results in higher overall costs for ongoing
system maintenance, but also to purchase the items necessary to ensure
ongoing system resiliency, performance, and determinism. These costs
are expected to continue to go up as the U.S. economy continues to
struggle with supply chain and inflation related issues.
---------------------------------------------------------------------------
\32\ The Exchange notes that one market participant cancelled
its cToM subscription since the First Proposed Rule change became
effective on July 1, 2021.
\33\ See ``Supply chain chaos is already hitting global growth.
And it's about to get worse'', by Holly Ellyatt, CNBC, available at
https://www.cnbc.com/2021/10/18/supply-chain-chaos-is-hitting-global-growth-and-could-get-worse.html (October 18, 2021); and
``There will be things that people can't get, at Christmas, White
House warns'' by Jarrett Renshaw and Trevor Hunnicutt, Reuters,
available at https://www.reuters.com/world/us/americans-may-not-get-some-christmas-treats-white-house-officials-warn-2021-10-12/
(October 12, 2021).
---------------------------------------------------------------------------
Further, the Exchange chose to provide cToM data for free for the
past five years to attract order flow and encourage market participants
to experience the determinism and resiliency of the Exchange's trading
systems and market data products. This resulted in the Exchange
forgoing revenue it could have generated from assessing any fees. The
Exchange could
[[Page 73015]]
have sought to charge some fees at the outset, but that could have
served to discourage participation on the Exchange. Instead, the
Exchange chose to provide a free exchange product to the options
industry, which resulted in no initial revenues, going on five years.
The Exchange now proposes to amend its fee structure to enable it to
continue to maintain and improve its overall market and systems while
also providing a highly reliable and deterministic trading system to
the marketplace, complete with robust market data products, including
cToM.
As mentioned above, the Exchange projects that its annualized
expense for 2021 to provide cToM data to be approximately $273,494 per
annum or an average of $22,791.17 per month and that these costs are
expected to increase not only due to anticipated significant
inflationary pressure, but also periodic fee increases by third
parties.\34\ The Exchange notes that there are material costs
associated with providing the infrastructure and headcount to fully-
support access to the Exchange and various Exchange products. 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 the cost to
the Exchange to provide services associated with the proposed fees. 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 services and products to its
Members is not fixed. The Exchange believes the proposed fees are a
reasonable attempt to offset a portion of the costs to the Exchange
associated with providing certain Exchange products.
---------------------------------------------------------------------------
\34\ For example, on October 20, 2021, ICE Data Services
announced a 3.5% price increase effective January 1, 2022 for most
services. The price increase by ICE Data Services includes their
Secure Financial Transaction Infrastructure (``SFTI'') network,
which is relied on by a majority of market participants, including
the Exchange. See email from ICE Data Services to the Exchange,
dated October 20, 2021. The Exchange further notes that on October
22, 2019, the Exchange was notified by ICE Data Services that it was
raising its fees charged to the Exchange by approximately 11% for
the SFTI network.
---------------------------------------------------------------------------
The Exchange only has four primary sources of revenue and cost
recovery mechanisms: transaction fees, access fees, regulatory fees,
and market data fees. Accordingly, the Exchange must cover all of its
expenses from these four primary sources of revenue and cost recovery
mechanisms. Until recently, the Exchange has operated at a cumulative
net annual loss since it launched operations in 2008.\35\ This is a
result of providing a low cost alternative to attract order flow and
encourage market participants to experience the high determinism and
resiliency of the Exchange's trading Systems. To do so, the Exchange
chose to waive the fees for some non-transaction related services and
market data products or provide them at a very marginal cost, which has
not been profitable to the Exchange, but beneficial to the overall
options industry. This resulted in the Exchange forgoing revenue it
could have generated from assessing any amount of fees.
---------------------------------------------------------------------------
\35\ The Exchange has incurred a cumulative loss of $175 million
since its inception in 2008 to 2020, the last year for which the
Exchange's Form 1 data is available. See Exchange's Form 1/A,
Application for Registration or Exemption from Registration as a
National Securities Exchange, filed July 28 [sic], 2021, available
at https://www.sec.gov/Archives/edgar/vprr/2100/21000460.pdf.
---------------------------------------------------------------------------
The Exchange believes that the proposed 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 services
versus the total annual revenue that the Exchange projects to collect
in connection with services associated with the proposed fees. As
mentioned above, for 2021,\36\ the total annual expense for providing
the services associated with the proposed fees is projected to be
approximately $273,494 per annum, or approximately $22,791.17 per
month. This projected total annual expense is comprised of the
following, all of which are directly related to the services associated
with the proposed 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 fees.\37\ As noted
above, the Exchange believes it is more appropriate to analyze the
proposed fees utilizing its 2021 revenue and costs, which utilize the
same presentation methodology as set forth in the Exchange's
previously-issued Audited Unconsolidated Financial Statements.\38\ The
$273,494 projected total annual expense is directly related to the
services associated with the proposed fees, and not any other product
or service offered by the Exchange. It does not include general costs
of operating matching engines and other trading technology. No expense
amount was allocated twice.
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\36\ The Exchange has not yet finalized its 2021 year end
results.
\37\ 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.
\38\ 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.
---------------------------------------------------------------------------
As discussed above, the Exchange conducted an extensive cost review
in which the Exchange analyzed nearly every expense item in the
Exchange's general expense ledger (this includes over 150 separate and
distinct expense items) to determine whether each such expense relates
to the services associated with the proposed fees, and, if such expense
did so relate, what portion (or percentage) of such expense actually
supports those services, and thus bears a relationship that is, ``in
nature and closeness,'' directly related to those services. The sum of
all such portions of expenses represents the total cost of the Exchange
to provide services associated with the proposed fees.
External Expense Allocations
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 services associated with the
proposed fees, is projected to be $5,398. 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
[[Page 73016]]
locations; and (3) 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
services associated with the proposed fees.
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 market data
product associated with the proposed fees. Further, the Exchange notes
that, with respect to the expenses included herein, those expenses only
cover the MIAX market; expenses associated with MIAX PEARL, LLC (``MIAX
Pearl'') for its options and equities markets and MIAX Emerald, are
accounted for separately and are not included within the scope of this
filing. As noted above, 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. Further, as part its ongoing assessment of costs and
expenses, the Exchange recently conducted a periodic thorough review of
its expenses and resource allocations, which, in turn, resulted in a
revised percentage allocations in this filing.
The Exchange believes it is reasonable to allocate such third-party
expense described above towards the total cost to the Exchange to
provide the services associated with the proposed 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 cToM product
associated with the proposed fees to its Members, non-Members and their
customers. The Exchange did not allocate all of the Equinix expense
toward the cost of providing the cToM product associated with the
proposed fees, only that portion which the Exchange identified as being
specifically mapped to providing the cToM product associated with the
proposed fees, approximately 0.20% of the total applicable Equinix
expense. The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to provide the cToM product
associated with the proposed fees, and not any other service, as
supported by its cost review.\39\
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\39\ As noted above, 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. Again, as part its ongoing assessment of
costs and expenses, the Exchange recently conducted a periodic
thorough review of its expenses and resource allocations which, in
turn, resulted in a revised percentage allocations in this filing.
---------------------------------------------------------------------------
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 cToM data associated with the
proposed fees. The Exchange did not allocate all of the Zayo expense
toward the cost of providing the cToM data associated with the proposed
fees, only the portion which the Exchange identified as being
specifically mapped to providing the cToM data associated with the
proposed fees, approximately 0.20% of the total applicable Zayo
expense. The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to provide the cToM data
associated with the proposed fees, and not any other service, as
supported by its cost review.\40\
---------------------------------------------------------------------------
\40\ Id.
---------------------------------------------------------------------------
The Exchange did not allocate any expense associated with the
proposed fees towards SFTI and various other service providers'
(including Thompson Reuters, NYSE, Nasdaq, and Internap) because the
MIAX architecture takes advantage of an advance in design to eliminate
the need for a market data distribution gateway layer. The computation
and dissemination via an API is done solely within the match engine
environment and is then delivered via the Member and non-Member
connectivity infrastructure. This architecture delivers a market data
system that is more efficient both in cost and performance.
Accordingly, the Exchange determined not to allocate any expense
associated with SFTI and various other service providers.
The Exchange believes it is reasonable to allocate the identified
portion of the other hardware and software provider expense because
this includes costs for dedicated hardware licenses for switches and
servers, as well as dedicated software licenses for security monitoring
and reporting across the network. Without this hardware and software,
the Exchange would not be able to operate and support the network and
provide cToM data to its Members, non-Members and their customers. The
Exchange did not allocate all of the hardware and software provider
expense toward the cost of providing the cToM data associated with the
proposed fees, only the portions which the Exchange identified as being
specifically mapped to providing the cToM data associated with the
proposed fees, approximately 0.20% 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 cToM data associated with the proposed fees.\41\
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\41\ Id.
---------------------------------------------------------------------------
Internal Expense Allocations
For 2021, total projected internal expense, relating to the
internal costs of the Exchange to provide the cToM data associated with
the proposed fees, is projected to be $268,096. This includes, but is
not limited to, costs associated with: (1) Employee compensation and
benefits for full-time employees that support the cToM data product
associated with the proposed fees, including staff in network
operations, trading operations, development, system operations, and
business that support those employees and functions; (2) depreciation
and amortization of hardware and software used to provide the cToM data
product associated with the proposed fees, including equipment,
servers, cabling, purchased software and internally developed software
used in the production environment to support the network for trading;
and (3)
[[Page 73017]]
occupancy costs for leased office space for staff that provide the cToM
data associated with the proposed 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 cToM data
associated with the proposed fees.
The Exchange believes it is reasonable to allocate such internal
expense described above towards the total cost to the Exchange to
provide the cToM data associated with the proposed fees. In particular,
the Exchange's employee compensation and benefits expense relating to
providing the cToM data associated with the proposed fees is projected
to be approximately $251,427, 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, products 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 nearly
every employee on matters relating to cToM. Without these employees,
the Exchange would not be able to provide the cToM product to its
Members, non-Members and their customers. The Exchange did not allocate
all of the employee compensation and benefits expense toward the cost
of the cToM product, only the portion which the Exchange identified as
being specifically mapped to providing the cToM product associated with
the proposed fees, approximately 2.0% 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 cToM data associated with the proposed fees, and
not any other service, as supported by its cost review.\42\
---------------------------------------------------------------------------
\42\ Id.
---------------------------------------------------------------------------
The Exchange's depreciation and amortization expense relating to
providing the cToM data associated with the proposed fees is projected
to be $3,884, 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 cToM
product. Without this equipment, the Exchange would not be able to
operate the network and provide the cToM product to its Members, non-
Members and their customers. The Exchange did not allocate all of the
depreciation and amortization expense toward the cost of providing the
cToM product, only the portion which the Exchange identified as being
specifically mapped to providing the cToM product, approximately 0.20%
of the total applicable depreciation and amortization expense, as this
product 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 cToM product associated with the
proposed fees, and not any other service, as supported by its cost
review.\43\
---------------------------------------------------------------------------
\43\ Id.
---------------------------------------------------------------------------
The Exchange's occupancy expense relating to providing the cToM
product associated with the proposed fees is projected to be $12,785,
which is only a portion of the $0.60 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 cToM product. This amount consists primarily of rent for
the Exchange's Princeton, New Jersey 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 and
Exchange products. The Exchange currently has approximately 200
employees. Approximately two-thirds of the Exchange's staff are in the
Technology department, and the majority of those staff have some role
in the operation and performance of the services associated with the
proposed fees. Accordingly, the Exchange believes it is reasonable to
allocate the identified portion of its occupancy expense because such
amount represents the Exchange's actual cost to house the equipment and
personnel who operate and support the Exchange's network infrastructure
and the market data services associated with the proposed fees. The
Exchange did not allocate all of the occupancy expense toward the cost
of providing the market data services associated with the proposed
fees, only the portion which the Exchange identified as being
specifically mapped to operating and supporting the network,
approximately 2.0% of the total applicable occupancy expense. The
Exchange believes this allocation is reasonable because it represents
the Exchange's cost to provide the market data services associated with
the proposed fees, and not any other service, as supported by its cost
review.\44\
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\44\ Id.
---------------------------------------------------------------------------
Based on the above, the Exchange believes that its provision of
market data services associated with the proposed fees will not result
in excessive pricing or supra-competitive profit. As discussed above,
the Exchange projects that its annualized expense for 2021 to provide
the cToM data associated with the proposed fees is projected to be
approximately $273,494, or approximately $22,791.17 per month on
average. The Exchange implemented the proposed fees on July 1, 2021 in
the First Proposed Rule Change. For June 2021, prior to the proposed
fees, Members and non-Members subscribed to a total of 17 cToM data
feeds, for which the Exchange charged $0, for the past five years. This
resulted in a month over month loss of approximately $22,791.17. For
the month of November 2021, which includes the proposed fees, Members
and non-Members subscribed to 16 cToM data feeds, for which the
Exchange charged approximately $21,000 for that month. This resulted in
a loss of $1,791.17 for that month (a margin of approximately -8.5%).
Therefore, the Exchange believes that the proposed fees are reasonable
because the Exchange is operating at a negative margin for this
product.
Again, the Exchange cautions that this margin may fluctuate from
month to month based in the uncertainty of predicting how many market
data feeds may be purchased from month to month as Members and non-
Members are free to add and drop subscriptions at any time based on
their own business decisions. This margin may also
[[Page 73018]]
decrease due to the significant inflationary pressure on capital items
that it needs to purchase to maintain the Exchange's technology and
systems. Accordingly, the Exchange believes its total projected revenue
for the providing the market data services associated with the proposed
fees will not result in excessive pricing or supra-competitive profit.
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 market
data services associated with the proposed fees because the Exchange
performed a line-by-line item analysis of nearly every expense of the
Exchange, and has determined the expenses that directly relate to
providing market data services to the Exchange. Further, the Exchange
notes that, without the specific third-party and internal expense items
listed above, the Exchange would not be able to provide the market data
services associated with the proposed fees to its Members, non-Members
and their customers. Each of these expense items, including physical
hardware, software, employee compensation and benefits, occupancy
costs, and the depreciation and amortization of equipment, have been
identified through a line-by-line item analysis to be integral to
providing market data services. The proposed fees are intended to
recover the costs of providing cToM data. Accordingly, the Exchange
believes that the proposed 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 fees.
No market participant is required by any rule or regulation to
utilize the Exchange's Complex Order functionality or subscribe to the
cToM data feed. Further, unlike orders on the Exchange's Simple Order
Book, Complex Orders are not protected and will never trade through
Priority Customer \45\ orders, thus protecting the priority that is
established in the Simple Order Book.\46\ Additionally, unlike the
continuous quoting requirements of Market Makers in the simple order
market, there are no continuous quoting requirements respecting Complex
Orders. It is a business decision whether market participants utilize
Complex Order strategies on the Exchange and whether to purchase cToM
data to help effect those strategies.
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\45\ The term ``Priority Customer'' means a person or entity
that (i) is not a broker or dealer in securities and (ii) does not
place more than 390 orders in listed options per day on average
during a calendar month for its own beneficial account(s). The term
``Priority Customer Order'' means an order for the account of a
Priority Customer. See Exchange Rule 100.
\46\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 100 [sic].
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The Proposed Fees are Reasonable When Compared to the Fees of Other
Options Exchanges With Similar Market Share
The Exchange does not have visibility into other options exchanges'
costs to provide market data or their fee markup over those costs, and
therefore cannot use other exchange's market data fees as a benchmark
to determine a reasonable markup over the costs of providing market
data. Nevertheless, the Exchange believes the other exchange's market
data fees are a useful example of alternative approaches to providing
and charging for market data. To that end, the Exchange believes the
proposed pricing is reasonable because the proposed rates are similar
to or less than the fees charged by other options exchanges for similar
data products.\47\
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\47\ See supra notes 18, 19 and 20.
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Until recently, the Exchange has operated at a cumulative net
annual loss since it launched operations in 2008.\48\ This is a result
of providing a low cost alternative to attract order flow and encourage
market participants to experience the high determinism and resiliency
of the Exchange's trading Systems. To do so, the Exchange chose to
waive the fees for some non-transaction related services and Exchange
products or provide them at a very marginal cost, which was not
profitable to the Exchange. This resulted in the Exchange forgoing
revenue it could have generated from assessing any fees or higher fees.
The Exchange could have sought to charge higher fees at the outset, but
that could have served to discourage participation on the Exchange.
Instead, the Exchange chose to provide a low cost exchange alternative
to the options industry which resulted in lower initial revenues. An
example of this is cToM, for which the Exchange only now seeks to adopt
fees at a level similar to or lower than those of other options
exchanges.
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\48\ See supra notes 35.
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Since the Exchange initially established the cToM data product in
2016, all Exchange Members and non-Members have had the ability to
receive the Exchange's cToM data free of charge for the past five
years.\49\ Since 2016, when the Exchange adopted Complex Order
functionality, the Exchange has spent time and resources building out
various Complex Order functionality in its System to provide better
trading strategies and risk functionality for market participants in
order to better compete with other exchanges' complex functionality and
similar data products focused on complex orders.\50\ The cToM data
product allows market participants to better utilize the Exchange's
Complex Order functionality by providing insights into the Exchange's
Complex Order flow. The Exchange currently has 16 subscribers (14
Members and 2 non-Members) for its cToM data product. Each one of these
subscribers have not paid any cToM data fees (other than the five
months in which the First, Second and Third Proposed Rule Changes were
in effect) but have received the benefit of the Exchange building out
its Complex Order functionality to better compete with other exchanges
complex functionality. The Exchange notes that one market participant
ceased subscribing to the cToM feed since July 1, 2021, the date on
which the fees became effective when established in the First Proposed
Rule Change.
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\49\ See supra note 13.
\50\ See Securities Exchange Act Release Nos. 79405 (November
28, 2016), 81 FR 87086 (December 2, 2016) (SR-MIAX-2016-44)
(amendment to clarify the manner in which the System allocates
contracts at the end of a Complex Auction); 80089 (February 22,
2017), 82 FR 12153 (February 28, 2017) (SR-MIAX-2017-06) (adopting
the Complex MIAX Options Price Collar, an additional price
protection feature); 81229 (July 27, 2017), 82 FR 36023 (August 2,
2017) (SR-MIAX-2017-34) (amendment to ensure price and trade
protections apply to Complex Orders); 89085 (June 17, 2020), 85 FR
37719 (June 23, 2020) (SR-MIAX-2020-16) (adopting new order type,
Complex Attributable Order).
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The Proposed Pricing Is Not Unfairly Discriminatory and Provides for
the Equitable Allocation of Fees, Dues, and Other Charges
The Exchange believes that it is reasonable, equitable and not
unfairly discriminatory to assess Internal Distributors fees that are
less than the fees assessed for External Distributors for subscriptions
to the cToM data feed because Internal Distributors have limited,
restricted usage rights to the market data, as compared to External
Distributors, which have more expansive usage rights. All Members and
non-Members that determine to receive any market data feed of the
Exchange (or its affiliates, MIAX Pearl and MIAX Emerald), must first
execute, among other things, the MIAX Exchange Group Exchange Data
Agreement (the
[[Page 73019]]
``Exchange Data Agreement'').\51\ Pursuant to the Exchange Data
Agreement, Internal Distributors are restricted to the ``internal use''
of any market data they receive. This means that Internal Distributors
may only distribute the Exchange's market data to the recipient's
officers and employees and its affiliates.\52\ External Distributors
may distribute the Exchange's market data to persons who are not
officers, employees or affiliates of the External Distributor,\53\ and
may charge their own fees for the distribution of such market data.
Accordingly, the Exchange believes it is fair, reasonable and not
unfairly discriminatory to assess External Distributors a higher fee
for the Exchange's market data products as External Distributors have
greater usage rights to commercialize such market data. The Exchange
also utilizes more resources to support External Distributors versus
Internal Distributors, as External Distributors have reporting and
monitoring obligations that Internal Distributors do not have, thus
requiring additional time and effort of Exchange staff. The Exchange
believes the proposed cToM fees are equitable and not unfairly
discriminatory because the fee level results in a reasonable and
equitable allocation of fees amongst subscribers for similar services,
depending on whether the subscribers is an Internal or External
Distributor. Moreover, the decision as to whether or not to purchase
market data is entirely optional to all market participants. Potential
purchasers are not required to purchase the market data, and the
Exchange is not required to make the market data available. Purchasers
may request the data at any time or may decline to purchase such data.
The allocation of fees among users is fair and reasonable because, if
market participants deem the proposed fees to be unfair or inequitable,
firms can discontinue their use of the cToM data.
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\51\ See Exchange Data Agreement, available at https://miaxweb2.pairsite.com/sites/default/files/page-files/MIAX_Exchange_Group_Data_Agreement_09032020.pdf.
\52\ See id.
\53\ See id.
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Further, the Exchange believes that the proposal is equitable and
not unfairly discriminatory because the proposed cToM fees will apply
to all market participants of the Exchange on a uniform basis. The
Exchange also notes that the proposed monthly cToM fees for Internal
and External Distributors are the same prices that the Exchange charges
for its ToM data product.
The Exchange believes the proposed change to delete certain text
from Section (6)(a) of the Fee Schedule promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanism of a free and open market and a national market system
because the proposed change is a non-substantive edit to the Fee
Schedule to remove unnecessary text. The Exchange believes that this
proposed change will provide greater clarity to Members and the public
regarding the Exchange's Fee Schedule and that it is in the public
interest for the Fee Schedule to be accurate and concise so as to
eliminate the potential for confusion.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange believes the proposed fees will not result in any
burden on intra-market competition that is not necessary or appropriate
in furtherance of the purposes of the Act because the proposed fees
will allow the Exchange to recoup some of its costs in providing cToM
to market participants. As described above, the Exchange has operated
at a cumulative net annual loss since it launched operations in 2008
\54\ due to providing a low cost alternative to attract order flow and
encourage market participants to experience the high determinism and
resiliency of the Exchange's trading Systems. To do so, the Exchange
chose to waive the fees for some non-transaction related services and
Exchange products or provide them at a very marginal cost, which was
not profitable to the Exchange. This resulted in the Exchange forgoing
revenue it could have generated from assessing any fees or higher fees.
The Exchange could have sought to charge higher fees at the outset, but
that could have served to discourage participation on the Exchange.
Instead, the Exchange chose to provide a low cost exchange alternative
to the options industry which resulted in lower initial revenues. An
example of this is cToM, for which the Exchange only now seeks to adopt
fees at a level similar to or lower than those of other options
exchanges.
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\54\ See supra notes 35.
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Since the Exchange initially established the cToM data product in
2016, all Exchange Members and non-Members have had the ability to
receive the Exchange's cToM data free of charge for the past five
years.\55\ Since 2016, when the Exchange adopted Complex Order
functionality, the Exchange has spent time and resources building out
various Complex Order functionality in its System to provide better
trading strategies and risk functionality for market participants in
order to better compete with other exchanges' complex functionality and
similar data products focused on complex orders.\56\ The Exchange now
seeks to recoup its costs for providing cToM to market participants and
believes the proposed fees will not result in excessive pricing or
supracompetitive profit.
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\55\ See supra note 13.
\56\ See supra note 50.
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Inter-Market Competition
The Exchange also does not believe the proposed fees would cause
any unnecessary or in appropriate burden on intermarket competition as
other exchanges are free to introduce their own comparable data product
and lower their prices to better compete with the Exchange's offering.
The Exchange does not believe the proposed rule change would cause any
unnecessary or inappropriate burden on intramarket competition.
Particularly, the proposed product and fees apply uniformly to any
purchaser, in that it does not differentiate between subscribers that
purchase cToM. The proposed fees are set at a modest level that would
allow any interested Member or non-Member to purchase such data based
on their business needs.
The Exchange does not believe that the proposed rule change to make
a minor, non-substantive edit to Section (6)(a) of the Fee Schedule by
deleting unnecessary text will result in any burden on competition that
is not necessary or appropriate in furtherance of the purposes of the
Act. This proposed rule change is not being made for competitive
reasons, but rather is designed to remedy a minor non-substantive issue
and will provide added clarity to the Fee Schedule. The Exchange
believes that it is in the public interest for the Fee Schedule to be
accurate and concise so as to eliminate the potential for confusion on
the part of market participants. In addition, the Exchange does not
believe the proposal will impose any burden on inter-market competition
as the proposal does not address any competitive issues and is intended
to protect investors by providing further transparency regarding the
Exchange's Fee Schedule.
[[Page 73020]]
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,\57\ and Rule 19b-4(f)(2) \58\ 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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\57\ 15 U.S.C. 78s(b)(3)(A)(ii).
\58\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MIAX-2021-62 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-2021-62. 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-2021-62, and should be
submitted on or before January 13, 2022.
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\59\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\59\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27813 Filed 12-22-21; 8:45 am]
BILLING CODE 8011-01-P
