Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Establish Fees for the cToM Market Data Product, 73051-73060 [2021-27816]
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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93811; File No. SR–
EMERALD–2021–44]
Self-Regulatory Organizations; MIAX
Emerald, 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, MIAX Emerald, LLC (‘‘MIAX
Emerald’’ 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 Exchange’s Fee Schedule
(‘‘Fee Schedule’’) to establish fees for
the market data product known as
MIAX Emerald 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/emerald, at MIAX’s principal
office, and at the Commission’s Public
Reference Room.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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, Miami International
Securities Exchange, LLC (‘‘MIAX’’), to
also adopt cToM fees).5 The Exchange
withdrew the First Proposed Rule
Change on September 30, 2021 6 and resubmitted 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. 92358
(July 9, 2021), 86 FR 37361 (July 15, 2021) (SR–
EMERALD–2021–21).
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–EMERALD–2021–32.
8 Securities Exchange Act Release No. 93427
(October 26, 2021), 86 FR 60310 (November 1, 2021)
(SR–EMERALD–2021–34).
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 changes 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 Emerald System 11 in
2018,12 ahead of the Exchange’s planned
launch, which took place on March 1,
2019. Shortly thereafter, 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 three years
since it was first available for
subscription.
In summary, cToM provides
subscribers with the same information
as the MIAX Emerald 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
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 Nos.
84891 (December 20, 2018), 83 FR 67421 (December
28, 2018) (In the Matter of the Application of MIAX
EMERALD, LLC for Registration as a National
Securities Exchange; Findings, Opinion, and Order
of the Commission); and 85345 (March 18, 2019),
84 FR 10848 (March 22, 2019) (SR–EMERALD–
2019–13) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 518, Complex Orders).
13 See Securities Exchange Act Release No. 85207
(February 27, 2019), 84 FR 7963 (March 5, 2019)
(SR–EMERALD–2019–09) (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).
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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, proposes to charge for
its cToM product.
Like it does today for ToM, the
Exchange 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 Emerald (as proposed) ..................................................................................................................................
NYSE American, LLC (‘‘Amex’’) 18 ..........................................................................................................................
NYSE Arca, Inc. (‘‘Arca’’) 19 ....................................................................................................................................
NASDAQ PHLX LLC (‘‘PHLX’’) 20 ...........................................................................................................................
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.
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
15 See
supra note 13.
‘‘Distributor’’ of MIAX Emerald data is any
entity that receives a feed or file of data either
directly from MIAX Emerald 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 Emerald Distributor Agreement. See
Section (6)(a) of the Fee Schedule.
17 The Exchange also proposes to make a minor
related change to remove the phrase ‘‘(as
applicable)’’ from the explanatory paragraph in
Section (6)(a).
18 See NYSE American Options Priprietary
Market Data Fees, American Options Complex Fees,
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to subscribe to cToM can derive much,
if not all, of the same information
provided in the cToM feed from other
Exchange sources, including, for
example, the MIAX Emerald 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 feed.
Specifically, market participants may
deduce that last sale information for
multiple trades in related options series
that are disseminated via the ToM feed
at https://www.nyse.com/publicdocs/nyse/data/
NYSE_American_Options_Proprietary_
Data_Fee_Schedule.pdf.
19 See NYSE Area 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. Deriatives Data,
PHLX Orders Fees, at https://
www.nasdaqtrader.com/Trader.aspx?id
=DPPriceListOptions#PHLX.
21 See MIAX website, Market Data & Offerings, at
https://www.miaxoptions.com/market-dataofferings (last visited December 10, 2021). In
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$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.
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
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
general, MOR provides real-time ulta-low [sic]
latency updates on the following information: New
Simple Orders added to the MIAX Emerald Order
Book; updates to Simple Orders resting on the
MIAX Emerald 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 Emerald listed
series updates; MIAX Emerald Complex Strategy
definitions; the state of the MIAX Emerald System;
and MIAX Emerald’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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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.
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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 cToM data and will not result
in the Exchange generating a supracompetitive profit.
The Guidance defines ‘‘supracompetitive profit’’ as ‘‘profits that
exceed the profits that can be obtained
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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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.
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 nearly three 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
Id.
Id.
29 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.
27
28
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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
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 the Exchange’s internal
finance department, reviewed such
expenses holistically on an Exchangewide 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
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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 2019, when the Exchange
launched operations with 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 no
market participant ceased subscribing to
the cToM feed since July 1, 2021, the
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).
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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 $202,657 per
annum or an average of $16,888 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 14 cToM data
feeds for which the Exchange charged
$0, as it has for the past three years. This
resulted in a loss of approximately
$16,888 for that month. For the month
of November 2021, which includes the
proposed fees, Exchange Members and
non-Members purchased 14 cToM data
feeds, for which the Exchange charged
approximately $17,500 for that month.
This resulted in a profit of $612 for that
month (a margin of approximately
3.5%). 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.32 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
three 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
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).
32
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resulted in the Exchange forgoing
revenue it could have generated from
assessing any fees. The Exchange could
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 three 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 $202,657 per annum or
an average of $16,888 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.33 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
33 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.
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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 2019.34 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 2021,35 the total
annual expense for providing the
services associated with the proposed
fees is projected to be approximately
$202,657, or approximately $16,888 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 thirdparties for certain products and services;
and (2) internal expense, relating to the
internal costs of the Exchange to
provide the services associated with the
34 The Exchange has incurred a cumulative loss
of $22 million since its inception in 2019 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://sec.report/Document/
9999999997-21-004557/.
35 The Exchange has not yet finalized its 2021
year end results.
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proposed fees.36 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 previouslyissued Audited Unconsolidated
Financial Statements.37 The $202,657
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 $4,160.
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
36 The percentage allocations used in this
proposed rule change may differ from past filings
from the Exchange or its affiliates due to, among
other things, changes in expenses charged by thirdparties, adjustments to internal resource allocations,
and different system architecture of the Exchange
as compared to its affiliates.
37 For example, the Exchange previously noted
that all third-party expense described in its prior fee
filing was contained in the information technology
and communication costs line item under the
section titled ‘‘Operating Expenses Incurred
Directly or Allocated From Parent,’’ in the
Exchange’s 2019 Form 1 Amendment containing its
financial statements for 2018. See Securities
Exchange Act Release No. 87877 (December 31,
2019), 85 FR 738 (January 7, 2020) (SR–EMERALD–
2019–39). Accordingly, the third-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.
PO 00000
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73055
office locations in Princeton, New Jersey
and Miami, Florida, to all data center
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, 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
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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, 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.38
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, 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.39
The Exchange did not allocate any
expense associated with the proposed
38 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.
39 Id.
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20:50 Dec 22, 2021
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fees towards SFTI and various other
service providers’ (including Thompson
Reuters, NYSE, Nasdaq, and Internap)
because the MIAX Emerald 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.40
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 $198,497. This includes,
but is not limited to, costs associated
with: (1) Employee compensation and
benefits for full-time employees that
support the cToM data 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
associated with the proposed fees,
including equipment, servers, cabling,
purchased software and internally
40
PO 00000
Id.
Frm 00140
developed software used in the
production environment to support the
network for trading; and (3) occupancy
costs for leased office space for staff that
provide the 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 $185,002,
which is only a portion of the $9.74
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.41
The Exchange’s depreciation and
amortization expense relating to
providing the cToM data associated
41
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with the proposed fees is projected to be
$3,635, which is only a portion of the
$1.9 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, 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.42
The Exchange’s occupancy expense
relating to providing the cToM product
associated with the proposed fees is
projected to be $9,860, 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
42
Id.
VerDate Sep<11>2014
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.43
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 $202,657, or
approximately $16,888 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 14 cToM data feeds, for
which the Exchange charged $0, for the
past three years. This resulted in a
month over month loss of $16,888. For
the month of November 2021, which
includes the proposed fees, Members
and non-Members subscribed to 14
cToM data feeds, for which the
Exchange charged approximately
$17,500 for that month. This resulted in
a profit of $612 for that month (a margin
of approximately 3.5%). The Exchange
believes this margin will allow it to
begin to recoup its expenses and
continue to invest in its technology
infrastructure. Therefore, the Exchange
also believes that this proposed margin
is reasonable because it represents a
reasonable rate of return.
Again, the Exchange cautions that this
margin may fluctuate from month to
month based in the uncertainty of
43
20:50 Dec 22, 2021
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PO 00000
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
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 44 orders,
44 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 accounts(s).
The term ‘‘Priority Customer Order’’ means an order
Id.
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thus protecting the priority that is
established in the Simple Order Book.45
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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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 examples [sic] 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.46
Until recently, the Exchange has
operated at a cumulative net annual loss
since it launched operations in 2019.47
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 or 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
when it launched trading operations on
March 1, 2019, all Exchange Members
and non-Members have had the ability
to receive the Exchange’s cToM data
free of charge for the past three years.48
Since 2019, when the Exchange
launched operations with 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.49 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
14 subscribers (12 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
no 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.
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
See supra note 13.
See Securities Exchange Act Release Nos.
85345 (March 18, 2019), 84 FR 10848 (March 22,
2019) (SR–EMERALD–2019–13) (adopting complex
stock-option order functionality); 85346 (March 18,
2019), 84 FR 10854 (March 22, 2019) (SR–
EMERALD–2019–14) (adopting additional price
protection during a Complex Auction and the
Complex Liquidity Exposure Process to provide
additional price discovery).
48
49
for the account of a Priority Customer. See
Exchange Rule 100.
45 The ‘‘Simple Order Book’’ is the Exchange’s
regular electronic book of orders and quotes. See
Exchange Rule 518(a)(5) [sic].
46 See supra notes 18, 19 and 20.
47 See supra note 34.
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20:50 Dec 22, 2021
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and MIAX), must first execute, among
other things, the MIAX Exchange Group
Exchange Data Agreement (the
‘‘Exchange Data Agreement’’).50
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.51 External Distributors
may distribute the Exchange’s market
data to persons who are not officers,
employees or affiliates of the External
Distributor,52 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
50 See Exchange Data Agreement, available at
https://miaxweb2.pairsite.com/sites/default/files/
page-files/MIAX_Exchange_Group_Data_
Agreement_09032020.pdf.
51 See id.
52 See id.
E:\FR\FM\23DEN1.SGM
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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Notices
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.
jspears on DSK121TN23PROD with NOTICES1
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 2019 53
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 launched
operations with the cToM data product
in 2019, all Exchange Members and
non-Members have had the ability to
receive the Exchange’s cToM data free
of charge for the past three years.54
Since 2019, 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.55 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
54
53
See supra note 34.
VerDate Sep<11>2014
20:50 Dec 22, 2021
55
Jkt 256001
PO 00000
See supra note 13.
See supra note 49.
Frm 00143
Fmt 4703
intended to protect investors by
providing further transparency
regarding the Exchange’s Fee Schedule.
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,56 and Rule
19b–4(f)(2) 57 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
EMERALD–2021–44 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–EMERALD–2021–44. 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
56
57
Sfmt 4703
73059
15 U.S.C. 78s(b)(3)(A)(ii).
17 CFR 240.19b–4(f)(2).
E:\FR\FM\23DEN1.SGM
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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Notices
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–EMERALD–2021–44, and
should be submitted on or before
January 13, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.58
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–27816 Filed 12–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93809; File No. SR–NYSE–
2021–44]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Amend
NYSE Rules 7.31, 7.35, 7.35B, 7.35C,
98, and 104 Relating to the Closing
Auction
jspears on DSK121TN23PROD with NOTICES1
December 17, 2021.
I. Introduction
On September 3, 2021, New York
Stock Exchange LLC (‘‘NYSE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend Rules 7.31 (Orders and
Modifiers), 7.35 (General), 7.35B (DMM17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
58
1 15
VerDate Sep<11>2014
20:50 Dec 22, 2021
Jkt 256001
Facilitated Closing Auctions), 7.35C
(Exchange-Facilitated Auctions), 98
(Operation of a DMM Unit), and 104
(Dealings and Responsibilities of
DMMs) relating to the Closing Auction.
The proposed rule change was
published for comment in the Federal
Register on September 22, 2021.3 The
Commission has received one comment
letter on the proposal.4
On November 1, 2021, the
Commission extended the time period
within which to either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
approve or disapprove the proposed
rule change, to December 21, 2021.5
This order institutes proceedings under
Section 19(b)(2)(B) of the Act to
determine whether to approve or
disapprove the proposal.
II. Description of the Proposal 6
The Exchange has proposed to amend
NYSE Rules 7.31 (Orders and
Modifiers), 7.35 (General), 7.35B (DMMFacilitated Closing Auctions), 7.35C
(Exchange-Facilitated Auctions), 98
(Operation of a DMM Unit), and 104
(Dealings and Responsibilities of
DMMs) relating to the Closing Auction.7
Proposed Amendments to NYSE Rules
7.31, 7.35, 7.35B, and 7.35C
The Exchange proposes to amend
NYSE Rules 7.31, 7.35, and 7.35B to
revise the DMM-facilitated Closing
Auction process. According to the
Exchange, the proposed changes would
modify how the Closing Auction Price
would be determined and how DMMs
would be able to participate in the
Closing Auction, but would not change
DMMs’ NYSE Rule 104 obligation to
facilitate the Closing Auction, including
to supply liquidity as needed. The
Exchange asserts that the proposed
changes would make the Closing
Auction more transparent and
deterministic, while still retaining the
DMMs’ unique obligation to facilitate
the Closing Auction.8
The Exchange also proposes to make
conforming changes to NYSE Rule 7.35C
to revise the orders eligible to
3 See Securities Exchange Act Release No. 93037
(Sept. 16, 2021), 86 FR 52719 (Sept. 22, 2021) (SR–
NYSE–2021–44) (‘‘Notice’’).
4 See Anonymous Letter (Sept. 27, 2021).
5 See Securities Exchange Act Release No. 93488
(Nov. 1, 2021), 86 FR 61352 (Nov. 5, 2021).
6 For further details about the proposal, see the
Notice, supra note 3.
7 Capitalized terms used in connection with
Auctions on the Exchange are defined in NYSE
Rule 7.35(a). See Notice, supra note 3, 86 FR 52719
n.4.
8 See id. at 52720.
PO 00000
Frm 00144
Fmt 4703
Sfmt 4703
participate in Exchange-facilitated
Closing Auctions.9
Proposed Changes to Closing Auction
Price. The Exchange proposes to amend
NYSE Rule 7.35B(g) to add explicit
price parameters to the Closing Auction
Price. Under current Exchange rules, the
DMM is responsible for determining a
Closing Auction Price that is able to
satisfy all better-priced orders on the
Side of the Imbalance. This requirement
would not change. The Exchange
proposes to add that the Closing
Auction Price determined by the DMM
must also be at a price that is at or
between the last-published Imbalance
Reference Price and Continuous Book
Clearing Price. The Exchange asserts
that adding this proposed Closing
Auction Price parameter is consistent
with how the Closing Auction Price has
been determined for the vast majority of
Closing Auctions and that, in the period
January 1, 2021 to July 23, 2021, 96.5%
of all Closing Auctions were priced at or
between the last-published Imbalance
Reference Price and Continuous Book
Clearing Price, and, during this same
period, 94.9% of closing auction volume
priced within these parameters.10 The
Exchange further asserts that this
proposed change would eliminate any
potential for a Closing Auction Price to
be lower (higher) than the lastpublished Imbalance Reference Price in
the case of a Buy (Sell) Imbalance. The
Exchange further asserts that this
proposed change would also promote
transparency and determinism with
respect to the Closing Auction because
the Closing Auction Price would be
required to be within a pre-determined
range of prices that have been
disseminated via the Closing Auction
Imbalance Information and that cannot
be changed after the end of Core Trading
Hours.11
Proposed Changes to How DMMs
Would Participate in the Closing
Auction. The Exchange proposes to
change how DMMs would be able to
enter buy and sell interest to participate
in the Closing Auction by limiting the
circumstances of when a DMM could
enter or cancel interest after the end of
Core Trading Hours.12
Currently, NYSE Rule 7.35B(a)(2)
provides that a DMM may enter or
9 See
id.
id. at 52720.
11 According to the Exchange, the only
circumstance in which the Continuous Book
Clearing Price could change after the end of Core
Trading Hours would be if NYSE Rule
7.35B(j)(2)(A), described below, were invoked and
the requirement to enter all order instructions by
the end of Core Trading Hours were temporarily
suspended for a security. See id. at 52721.
12 See id.
10 See
E:\FR\FM\23DEN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 244 (Thursday, December 23, 2021)]
[Notices]
[Pages 73051-73060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27816]
[[Page 73051]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93811; File No. SR-EMERALD-2021-44]
Self-Regulatory Organizations; MIAX Emerald, 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, MIAX Emerald, LLC (``MIAX Emerald'' 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 Exchange's Fee
Schedule (``Fee Schedule'') to establish fees for the market data
product known as MIAX Emerald 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/emerald, at MIAX's
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend 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, Miami International Securities Exchange, LLC
(``MIAX''), 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 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 changes 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. 92358 (July 9,
2021), 86 FR 37361 (July 15, 2021) (SR-EMERALD-2021-21).
\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-EMERALD-2021-32.
\8\ Securities Exchange Act Release No. 93427 (October 26,
2021), 86 FR 60310 (November 1, 2021) (SR-EMERALD-2021-34).
\9\ Id.
---------------------------------------------------------------------------
Background
The Exchange previously adopted rules governing the trading of
Complex Orders \10\ on the Emerald System \11\ in 2018,\12\ ahead of
the Exchange's planned launch, which took place on March 1, 2019.
Shortly thereafter, 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 three 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 Nos. 84891 (December
20, 2018), 83 FR 67421 (December 28, 2018) (In the Matter of the
Application of MIAX EMERALD, LLC for Registration as a National
Securities Exchange; Findings, Opinion, and Order of the
Commission); and 85345 (March 18, 2019), 84 FR 10848 (March 22,
2019) (SR-EMERALD-2019-13) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518,
Complex Orders).
\13\ See Securities Exchange Act Release No. 85207 (February 27,
2019), 84 FR 7963 (March 5, 2019) (SR-EMERALD-2019-09) (providing a
complete description of the cToM data feed).
---------------------------------------------------------------------------
In summary, cToM provides subscribers with the same information as
the MIAX Emerald 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
[[Page 73052]]
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, proposes to charge for its cToM
product.
---------------------------------------------------------------------------
\16\ A ``Distributor'' of MIAX Emerald data is any entity that
receives a feed or file of data either directly from MIAX Emerald 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 Emerald Distributor
Agreement. See Section (6)(a) of the Fee Schedule.
\17\ The Exchange also proposes to make a minor related change
to remove the phrase ``(as applicable)'' from the explanatory
paragraph in Section (6)(a).
---------------------------------------------------------------------------
Like it does today for ToM, the Exchange 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 Emerald (as proposed).... $1,250--Internal Distributor.
$1,750--External Distributor.
NYSE American, LLC (``Amex'') $1,500 Access Fee.
\18\.
$1,000 Redistribution Fee.
NYSE Arca, Inc. (``Arca'') $1,500 Access Fee.
\19\.
$1,000 Redistribution Fee.
NASDAQ PHLX LLC (``PHLX'') $3,000--Internal Distributor.
\20\.
$3,500--External Distributor.
------------------------------------------------------------------------
---------------------------------------------------------------------------
\18\ See NYSE American Options Priprietary Market Data Fees,
American Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Proprietary_Data_Fee_Schedule.pdf.
\19\ See NYSE Area 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. Deriatives Data, PHLX Orders
Fees, at https://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX.
---------------------------------------------------------------------------
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.
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, if not all, of the same information
provided in the cToM feed from other Exchange sources, including, for
example, the MIAX Emerald 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 feed. Specifically,
market participants may deduce that last sale information for multiple
trades in related options series that are disseminated via the ToM 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 Emerald Order Book; updates to Simple Orders resting on the
MIAX Emerald 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 Emerald listed series updates;
MIAX Emerald Complex Strategy definitions; the state of the MIAX
Emerald System; and MIAX Emerald'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
[[Page 73053]]
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.
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\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 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 nearly three 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 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 the Exchange's 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
[[Page 73054]]
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 2019, when the Exchange launched operations with 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 no 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.
---------------------------------------------------------------------------
\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
$202,657 per annum or an average of $16,888 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 14 cToM data feeds for
which the Exchange charged $0, as it has for the past three years. This
resulted in a loss of approximately $16,888 for that month. For the
month of November 2021, which includes the proposed fees, Exchange
Members and non-Members purchased 14 cToM data feeds, for which the
Exchange charged approximately $17,500 for that month. This resulted in
a profit of $612 for that month (a margin of approximately 3.5%). 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.\32\ 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\ 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 three 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 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 three 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 $202,657 per
annum or an average of $16,888 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.\33\ 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
[[Page 73055]]
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.
---------------------------------------------------------------------------
\33\ 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 2019.\34\ 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.
---------------------------------------------------------------------------
\34\ The Exchange has incurred a cumulative loss of $22 million
since its inception in 2019 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://sec.report/Document/9999999997-21-004557/.
---------------------------------------------------------------------------
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,\35\ the total annual expense for providing
the services associated with the proposed fees is projected to be
approximately $202,657, or approximately $16,888 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.\36\ 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.\37\ The $202,657
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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\35\ The Exchange has not yet finalized its 2021 year end
results.
\36\ 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.
\37\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the
information technology and communication costs line item under the
section titled ``Operating Expenses Incurred Directly or Allocated
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing
its financial statements for 2018. See Securities Exchange Act
Release No. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020)
(SR-EMERALD-2019-39). Accordingly, the third-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 $4,160. This includes, but is not
limited to, a portion of the fees paid to: (1) Equinix, for data center
services, for the primary, secondary, and disaster recovery locations
of the Exchange's trading system infrastructure; (2) Zayo Group
Holdings, Inc. (``Zayo'') for network services (fiber and bandwidth
products and services) linking the Exchange's office locations in
Princeton, New Jersey and Miami, Florida, to all data center locations;
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, 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
[[Page 73056]]
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.\38\
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\38\ 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, 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.\39\
---------------------------------------------------------------------------
\39\ 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 Emerald 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.\40\
---------------------------------------------------------------------------
\40\ Id.
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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 $198,497. This includes, but is
not limited to, costs associated with: (1) Employee compensation and
benefits for full-time employees that support the cToM data 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 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) 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 $185,002, which is only a portion of the $9.74
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.\41\
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\41\ Id.
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The Exchange's depreciation and amortization expense relating to
providing the cToM data associated
[[Page 73057]]
with the proposed fees is projected to be $3,635, which is only a
portion of the $1.9 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.\42\
---------------------------------------------------------------------------
\42\ Id.
---------------------------------------------------------------------------
The Exchange's occupancy expense relating to providing the cToM
product associated with the proposed fees is projected to be $9,860,
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.\43\
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\43\ Id.
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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 $202,657, or approximately $16,888 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 14 cToM data feeds,
for which the Exchange charged $0, for the past three years. This
resulted in a month over month loss of $16,888. For the month of
November 2021, which includes the proposed fees, Members and non-
Members subscribed to 14 cToM data feeds, for which the Exchange
charged approximately $17,500 for that month. This resulted in a profit
of $612 for that month (a margin of approximately 3.5%). The Exchange
believes this margin will allow it to begin to recoup its expenses and
continue to invest in its technology infrastructure. Therefore, the
Exchange also believes that this proposed margin is reasonable because
it represents a reasonable rate of return.
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 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 \44\ orders,
[[Page 73058]]
thus protecting the priority that is established in the Simple Order
Book.\45\ 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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\44\ 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 accounts(s). The term
``Priority Customer Order'' means an order for the account of a
Priority Customer. See Exchange Rule 100.
\45\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(5)
[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 examples [sic] 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.\46\
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\46\ 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 2019.\47\ 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 or 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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\47\ See supra note 34.
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Since, the Exchange initially established the cToM data product
when it launched trading operations on March 1, 2019, all Exchange
Members and non-Members have had the ability to receive the Exchange's
cToM data free of charge for the past three years.\48\ Since 2019, when
the Exchange launched operations with 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.\49\ 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 14 subscribers (12 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 no 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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\48\ See supra note 13.
\49\ See Securities Exchange Act Release Nos. 85345 (March 18,
2019), 84 FR 10848 (March 22, 2019) (SR-EMERALD-2019-13) (adopting
complex stock-option order functionality); 85346 (March 18, 2019),
84 FR 10854 (March 22, 2019) (SR-EMERALD-2019-14) (adopting
additional price protection during a Complex Auction and the Complex
Liquidity Exposure Process to provide additional price discovery).
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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), must first execute,
among other things, the MIAX Exchange Group Exchange Data Agreement
(the ``Exchange Data Agreement'').\50\ 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.\51\ External Distributors
may distribute the Exchange's market data to persons who are not
officers, employees or affiliates of the External Distributor,\52\ 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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\50\ See Exchange Data Agreement, available at https://miaxweb2.pairsite.com/sites/default/files/page-files/MIAX_Exchange_Group_Data_Agreement_09032020.pdf.
\51\ See id.
\52\ 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
[[Page 73059]]
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 2019
\53\ 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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\53\ See supra note 34.
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Since the Exchange initially launched operations with the cToM data
product in 2019, all Exchange Members and non-Members have had the
ability to receive the Exchange's cToM data free of charge for the past
three years.\54\ Since 2019, 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.\55\ 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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\54\ See supra note 13.
\55\ See supra note 49.
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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.
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,\56\ and Rule 19b-4(f)(2) \57\ 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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\56\ 15 U.S.C. 78s(b)(3)(A)(ii).
\57\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-EMERALD-2021-44 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-EMERALD-2021-44. 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
[[Page 73060]]
with respect to the proposed rule change that are filed with the
Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-EMERALD-2021-44, and should be submitted
on or before January 13, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27816 Filed 12-22-21; 8:45 am]
BILLING CODE 8011-01-P
