Self-Regulatory Organizations; Miami International Securities Exchange, LLC, MIAX PEARL, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Changes To Amend the Fee Schedules To Adopt a Tiered-Pricing Structure for Certain Connectivity Fees, 5901-5906 [2022-02083]
Download as PDF
<![CDATA[
Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.305
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–02086 Filed 2–1–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94088; File Nos. SR–MIAX–
2021–59, SR–PEARL–2021–57]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC, MIAX PEARL, LLC; Suspension of
and Order Instituting Proceedings To
Determine Whether To Approve or
Disapprove Proposed Rule Changes
To Amend the Fee Schedules To Adopt
a Tiered-Pricing Structure for Certain
Connectivity Fees
January 27, 2022.
I. Introduction
On December 1, 2021, Miami
International Securities Exchange LLC,
LLC (‘‘MIAX’’) and MIAX PEARL, LLC
(‘‘MIAX Pearl’’) (collectively, the
‘‘Exchanges’’) each filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’ or ‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change (File Numbers SR–MIAX–2021–
59 and SR–PEARL–2021–57) to amend
the MIAX Fee Schedule and MIAX Pearl
Options Fee Schedule (collectively, the
‘‘Fee Schedules’’) to adopt a tiered
pricing structure for certain connectivity
fees. The proposed rule changes were
immediately effective upon filing with
the Commission pursuant to Section
19(b)(3)(A) of the Act.3 The proposed
rule changes were published for
comment in the Federal Register on
December 20, 2021.4 Under Section
19(b)(3)(C) of the Act,5 the Commission
is hereby: (i) Temporarily suspending
File Numbers SR–MIAX–2021–59 and
SR–PEARL–2021–57; and (ii) instituting
proceedings to determine whether to
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A). A proposed rule change
may take effect upon filing with the Commission if
it is designated by the exchange as ‘‘establishing or
changing a due, fee, or other charge imposed by the
self-regulatory organization on any person, whether
or not the person is a member of the self-regulatory
organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii).
4 See Securities Exchange Act Release Nos. 93775
(December 14, 2021), 86 FR 71996 (‘‘MIAX
Notice’’); 93774 (December 14, 2021), 86 FR 71952
(‘‘Pearl Notice’’). For ease of reference, citations to
statements generally applicable to both notices are
to the MIAX Notice.
5 15 U.S.C. 78s(b)(3)(C).
jspears on DSK121TN23PROD with NOTICES1
2 17
VerDate Sep<11>2014
21:31 Feb 01, 2022
Jkt 256001
approve or disapprove File Numbers
SR–MIAX–2021–59 and SR–PEARL–
2021–57.
II. Background and Description of the
Proposed Rule Changes
MIAX and the MIAX Pearl options
facility have a shared connectivity
infrastructure that permits Members and
non-Members to connect directly to
either or both of the Exchanges, and
thereby access the associated
Exchanges’ trading platforms, market
data systems, test systems, and disaster
recovery facilities via a single, shared
connection.6 Prior to implementation of
the proposed rule changes, a market
participant connecting to the primary or
secondary facility of either or both of
the Exchanges options platforms via a
10 gigabit ultra-low latency (‘‘10Gb
ULL’’) fiber connection was assessed a
monthly fee of $10,000 per connection.7
The Exchanges proposes to modify their
respective Fee Schedules to adopt a
tiered pricing structure for 10Gb ULL
fiber connections as follows:
• $9,000 each for the 1st and 2nd
10Gb ULL connections;
• $11,000 each for the 3rd and 4th
10Gb ULL connections; and
• $13,000 for each additional
connection 10Gb ULL connection.8
These fees (the ‘‘Proposed Access
Fees’’) are assessed in any month the
Member or non-Member is credentialed
to use any of the Exchanges’ APIs or
market data feeds in the Exchanges’
production environment, pro-rated
when a Member or non-Member adds or
deletes a connection.9
6 See
MIAX Notice, supra note 4 at 71998.
id. 1Gb connections to the primary/
secondary facility, and 1Gb and 10Gb connections
to the disaster recovery facility are subject to
separate monthly charges that are not affected by
the proposed rule changes. As the MIAX Pearl filing
relates only the MIAX Pearl Options Fee Schedule,
fees for the MIAX Pearl Equities facility also are
outside the scope of the proposed rule changes.
8 The Exchanges initially filed the proposed fee
changes on July 30, 2021. See Securities Exchange
Act Release Nos. 92643 (August 11, 2021), 86 FR
46034 (August 17, 2021) (SR–MIAX–2021–35),
92644 (August 11, 2021), 86 FR 46055 (August 17,
2021) (SR–PEARL–2021–36). These filings were
withdrawn by the Exchanges. The Exchanges filed
new proposed fee changes with additional
justification (SR–MIAX–2021–41 and SR–PEARL–
2021–45), which were the subject of a Suspension
of and Order Instituting Proceedings. See Securities
Exchange Act Release No. 93639 (November 22,
2021), 86 FR 67758 (November 29, 2021). The
Exchanges subsequently withdrew those filings and
replaced them with the instant filings to provide
additional information and a revised justification
for the proposal, which is discussed herein. See
Securities Exchange Act Release No. 93733
(December 7, 2021), 86 FR 71108 (December 14,
2021) (Notice of Withdrawal); see also MIAX Notice
and Pearl Notice, supra note 4 at 71997, 71984,
respectively.
9 See MIAX Notice, supra note 4, at 71998. The
Exchanges state that they deem connectivity fees to
7 See
PO 00000
Frm 00123
Fmt 4703
Sfmt 4703
5901
III. Suspension of the Proposed Rule
Changes
Pursuant to Section 19(b)(3)(C) of the
Act,10 at any time within 60 days of the
date of filing of an immediately effective
proposed rule change pursuant to
Section 19(b)(1) of the Act,11 the
Commission summarily may
temporarily suspend the change in the
rules of a self-regulatory organization
(‘‘SRO’’) 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. As discussed below, the
Commission believes a temporary
suspension of the proposed rule changes
is necessary and appropriate to allow for
additional analysis of the proposed rule
changes’ consistency with the Act and
the rules thereunder.
In support of the proposals, the
Exchanges argue that the proposed
tiered pricing structure for 10Gb ULL
connections is reasonable, equitable,
and not unfairly discriminatory because
the new tiers result in a majority of
10Gb ULL purchasers either saving
money or paying the same amount.12 As
discussed further below, the Exchanges
state that ‘‘a higher fee to a Member or
non-Member that utilizes numerous
connections is directly related to the
increased costs the Exchange incurs in
providing and maintaining those
additional connections.’’ 13 The
Exchanges also maintain that the tiered
pricing structure will encourage
Members and non-Members to be more
efficient and economical when
determining how to connect to the
Exchanges and should better enable the
Exchanges to monitor and provide
access to the Exchanges’ network to
ensure sufficient capacity and headroom
in the System.14
In further support of the proposals,
the Exchanges argue that the Proposed
Access Fees are reasonable because they
will permit recovery of the Exchange’s
costs in providing the associated
services and will not result in the
Exchange generating a suprabe access fees, and records these fees as part of its
‘‘Access Fees’’ revenue in its financial statements.
Id. at 71999.
10 15 U.S.C. 78s(b)(3)(C).
11 15 U.S.C. 78s(b)(1).
12 See MIAX Notice, supra note 4, at 72004. The
Exchanges state that approximately 80% of the
firms that purchased at least one 10Gb ULL
connection experienced a decrease in their monthly
connectivity fees, while approximately 20% of
firms experienced an increase in their monthly
connectivity fees. See id.
13 See id.
14 See MIAX Notice, supra note 4, at 72004.
E:\FR\FM\02FEN1.SGM
02FEN1
5902
Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices
competitive profit.15 Specifically, the
Exchanges state that the Proposed
Access Fees are based on a ‘‘cost-plus
model,’’ designed to result in ‘‘cost
recovery plus present the possibility of
a reasonable return.’’ 16 According to the
Exchanges, employing a ‘‘conservative
methodology’’ that ‘‘strictly considers
only those costs that are most clearly
directly related to the provision and
maintenance of 10Gb ULL
connectivity,’’ they estimate the total
projected 2021 cost to offer 10Gb ULL
connections at $15.9 million,
representing $3.9 in third-party cost and
$12 million in internal cost.17 To arrive
at these figures, the Exchanges state that
they undertook a thorough internal
analysis of nearly every expense on each
Exchanges’ general expense ledger to
determine whether each such expense
related to the Proposed Access Fees,
and, if such expense did so relate, to
determine what portion (or percentage)
of such expense supported the access
services.18 They state that this process
entailed discussions with each
Exchange department head to identify
the expenses that support the access
services associated with the Proposed
Access Fees, review of the expenses
holistically on an Exchange-wide level
with assistance from the internal
finance department, and then
assessment of the total expense, with no
expense allocated twice.19
The Exchanges state that the $3.9
million projected 2021 third-party
expense is the sum of fees paid to: (1)
Equinix, for data center services
(approximately 62% of the Exchanges’
total applicable Equinix expense); (2)
Zayo Group Holdings, Inc. for network
services (approximately 62%); (3)
various other services providers,
including ‘‘Secure Financial
Transaction Infrastructure’’ (‘‘SFTI’’)
(approximately 75%); and (4) various
other hardware and software providers
(approximately 51%).20 Likewise, the
Exchanges state that the $12 million
15 See
id. at 71998, 72003.
id. at 71999.
17 See id. at 72001. The 2021 costs are projected
because each Exchange’s most recent Audited
Unconsolidated Financial Statement is for 2020,
with projections utilizing the same presentation
methodology as used in their previously-filed
Audited Financial Statements. See id. at 72000.
18 See id. at 72001. The Exchanges also state that
expenses associated with the MIAX Pearl equities
market are accounted for separately. See id.; Pearl
Notice at 71957.
19 See id. The Exchanges also state that the $15.9
million in expense is ‘‘directly related to the access
services associated with the Proposed Access Fees,
and not any other product or service offered by the
Exchange or MIAX Pearl, and does not include
general costs of operating matching engines and
other trading technology. Id. at 72001.
20 See id. at 72001.
jspears on DSK121TN23PROD with NOTICES1
16 See
VerDate Sep<11>2014
21:31 Feb 01, 2022
Jkt 256001
projected 2021 internal expense, is the
sum of: (1) Employee compensation and
benefits expense allocated to the
Proposed Access Fees ($6.1 million,
which is 28% of the total projected
expense of $12.6 million for MIAX and
$9.2 million for MIAX Pearl for
employee compensation and
benefits); 21 (2) depreciation and
amortization expense allocated to the
Proposed Access Fees ($5.3 million,
which the Exchanges estimated as 70%
of the total projected expense of $4.8
million for MIAX and $2.9 million for
MIAX Pearl for depreciation and
amortization); and (3) occupancy
expense ($0.6 million, which the
Exchanges estimated as 53% of the
Exchanges’ total projected expense of
$0.6 million for MIAX and $0.5 million
for MIAX Pearl for occupancy).
Converting the projected annualized
expense figure to a monthly figure, the
Exchanges estimate an average monthly
cost of offering the services associated
with the Proposed Access Fees at
$1,325,000.22
Regarding revenue, the Exchanges
represent that revenue for the month of
October 2021 was approximately
$1,684,000 (including pro-rated
charges), attributable to the purchase of
154 10Gb ULL connections at the
proposed tiered rates. Accordingly, the
Exchanges calculated a $359,000
monthly profit for October 2021 and a
profit margin of 21.3%. As a baseline,
the Exchanges used revenue for July
2021 before introduction of the
Proposed Access Fees, which they
represented was $1,547,620, attributable
to the purchases of a total of 156 10Gb
ULL connections, to calculate the
baseline monthly profit margin of
14.4%.
The Exchanges maintain that a 6.9%
profit margin increase from July 2021
(before introduction of the Proposed
Access Fees) to October 2021 (after the
introduction of the Proposed Access
Fees) is reasonable.23 They also argue
that a 21.3% rate of return is reasonable
because it will allow them to ‘‘to
continue to recoup [their] expenses and
continue to invest in [their] technology
21 For employee compensation and benefit costs,
for example, the Exchanges included the time spent
by employees of several departments, including
Technology, Back Office, Systems Operations,
Networking, Business Strategy Development (who
create the business requirement documents that the
Technology staff use to develop network features
and enhancements), Trade Operations, Finance
(who provide billing and accounting services
relating to the network), and Legal (who provide
legal services relating to the network, such as rule
filings and various license agreements and other
contracts). See id. at 72002.
22 See id. at 72003.
23 See id. at 72003.
PO 00000
Frm 00124
Fmt 4703
Sfmt 4703
infrastructure.’’ 24 They add that this
profit margin does not take into account:
(i) Fluctuations in revenue as a result of
Members and non-Members adding and
dropping connections at any time based
on their own business decisions, which
they frequently do; (ii) future price
increases from third parties; and (iv)
inflationary pressure on capital items
that they need to purchase to maintain
the Exchanges’ technology and systems,
which have resulted in price increases
upwards of 30% on network equipment
due to supply chain shortages, and in
turn result in higher overall costs
associated with ongoing system
maintenance.25 In addition, although
they do not assert that competitive
forces constrain the Proposed Access
Fees, they maintain that the Proposed
Access Fees are reasonable when
compared to the fees of other options
exchanges, as the Exchanges’ proposed
fees for 10Gb ULL connections even at
the proposed highest tier are lower than
those of other options exchanges with
similar market share.26
As noted above, the Exchanges also
argue that the tiered structure of the
Proposed Access Fees results in an
equitable allocation of fees that are not
unfairly discriminatory, noting that after
implementation of the Proposed Access
Fees, a majority of 10Gb ULL purchasers
either were saving money or paying the
same amount.27 They further explain
that firms that primarily route orders for
best execution generally only need a
limited number of connections to fulfill
that obligation and connectivity costs
will likely to be lower for these firms.28
Addressing the fee increases
experienced by some 10Gb ULL
purchasers, the Exchanges urge that the
increases for these firms are justified
because the new fees ‘‘apply to all
24 Id.
25 Id.
at 72000.
at 72005. The Exchanges assert that when
compared to fees charged by and market shares (for
the month of November 2021, as of November 26,
2021) for The NASDAQ Stock Market LLC
(‘‘Nasdaq’’), Nasdaq ISE LLC (‘‘ISE’’), Nasdaq PHLX
LLC (‘‘Phlx’’), and NYSE American LLC, that the
Exchanges’ proposed tiered-pricing structure is
‘‘significantly lower’’ than these competing options
exchanges with similar market share. Id. For
example, the Exchanges state that the affiliated
exchanges Nasdaq, ISE and Phlx charge a monthly
fee of $10,000 per 10Gb fiber connection and
$15,000 per 10Gb Ultra fiber connection, while the
highest tier of the Exchanges’ proposed fee structure
is $2,000 less per month. Id.
27 See MIAX Notice, supra note 4, at 72004. The
Exchanges state that approximately 80% of the
firms that purchased at least one 10Gb ULL
connection experienced a decrease in their monthly
connectivity fees, while approximately 20% of
firms experienced an increase in their monthly
connectivity fees as a result of the proposed tieredpricing structure when compared to the flat
monthly fee structure. See id.
28 See id. at 72004.
26 Id.
E:\FR\FM\02FEN1.SGM
02FEN1
jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices
Members and non-Members in the same
manner based on the amount of 10Gb
ULL connectivity they require based on
their own business decisions and usage
of Exchange resources.’’ 29 They explain
that the firms experiencing higher fees
are those engaged in advanced trading
strategies that typically require multiple
connections and generate higher costs
for the Exchanges by utilizing more of
the Exchanges’ resources.30 Responding
to prior comment that the Exchanges
had not demonstrated that a firm
purchasing more than two or four 10Gb
ULL connections would use Exchange
resources at a greater rate per
connection than those purchasing fewer,
the Exchanges state that ‘‘more
connections purchased by a firm likely
results in greater expenditure of
Exchange resources and increased cost
to the Exchange.’’ 31 The Exchanges
describe firms that primarily route
orders seeking best-execution and
purchase only a limited number of
connections as those that ‘‘also
generally send less orders and messages
over those connections, resulting in less
strain on Exchange resources.’’ 32 In
contrast the Exchanges describe firms
that purchase more than two to four
10Gb ULL connections as those that
‘‘essentially do so for competitive
reasons amongst themselves and choose
to utilize numerous connections based
on their business needs and desire to
attempt to access the market quicker by
using the connection with the least
amount of latency.’’ 33 According to the
Exchanges, these firms are generally
engaged in sending liquidity-removing
orders to the Exchange and seek to add
more connections so they can access
resting liquidity ahead of their
competitors, and this type of usage of
the 10Gb ULL connections is more
costly to the Exchange, as a result of,
among other things, frequently adding
and dropping connections mid-month to
determine which connections have the
least latency, which results in increased
costs to the Exchange to constantly
make changes in the data center which
results in ‘‘disproportionate pull on
Exchange resources to provide the
additional connectivity.’’ 34
To date, the Commission has not
received any comment letters on the
revised justifications for the Proposed
Access Fees.
When exchanges file their proposed
rule changes with the Commission,
29 See
id.
id. at 72004, 72006.
31 See id. at 72004, 72008.
32 See id. at 72004.
33 See id.
34 See id. at 72005.
30 See
VerDate Sep<11>2014
21:31 Feb 01, 2022
Jkt 256001
including fee filings like the Exchanges’
present proposal, they are required to
provide a statement supporting the
proposal’s basis under the Act and the
rules and regulations thereunder
applicable to the exchange.35 The
instructions to Form 19b–4, on which
exchanges file their proposed rule
changes, specify that such statement
‘‘should be sufficiently detailed and
specific to support a finding that the
proposed rule change is consistent with
[those] requirements.’’ 36
Section 6 of the Act, including
Sections 6(b)(4), (5), and (8), require the
rules of an exchange to (1) provide for
the equitable allocation of reasonable
fees among members, issuers, and other
persons using the exchange’s
facilities; 37 (2) perfect the mechanism of
a free and open market and a national
market system, protect investors and the
public interest, and not be designed to
permit unfair discrimination between
customers, issuers, brokers, or
dealers; 38 and (3) not impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act.39
In temporarily suspending the
Exchanges’ fee changes, the Commission
intends to further consider whether the
proposals to modify fees for certain
connectivity options and implement a
tiered pricing fee structure is consistent
with the statutory requirements
applicable to a national securities
exchange under the Act. In particular,
the Commission will consider whether
the proposed rule changes satisfy the
standards under the Act and the rules
thereunder requiring, among other
things, that an exchange’s rules provide
for the equitable allocation of reasonable
fees among members, issuers, and other
persons using its facilities; not permit
unfair discrimination between
customers, issuers, brokers or dealers;
and do not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act.40
Therefore, the Commission finds that
it is appropriate in the public interest,
for the protection of investors, and
otherwise in furtherance of the purposes
35 See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose
of, and Statutory Basis for, the Proposed Rule
Change’’).
36 Id.
37 15 U.S.C. 78f(b)(4).
38 15 U.S.C. 78f(b)(5).
39 15 U.S.C. 78f(b)(8).
40 See 15 U.S.C. 78f(b)(4), (5), and (8),
respectively.
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
5903
of the Act, to temporarily suspend the
proposed rule changes.41
IV. Proceedings To Determine Whether
To Approve or Disapprove the
Proposed Rule Changes
In addition to temporarily suspending
the proposals, the Commission also
hereby institutes proceedings pursuant
to Sections 19(b)(3)(C) 42 and
19(b)(2)(B) 43 of the Act to determine
whether the Exchanges’ proposed rule
changes should be approved or
disapproved. Institution of such
proceedings is appropriate at this time
in view of the legal and policy issues
raised by the proposed rule changes.
Institution of proceedings does not
indicate that the Commission has
reached any conclusions with respect to
any of the issues involved. Rather, as
described below, the Commission seeks
and encourages interested persons to
provide comments on the proposed rule
changes to inform the Commission’s
analysis of whether to approve or
disapprove the proposed rule changes.
Pursuant to Section 19(b)(2)(B) of the
Act,44 the Commission is providing
notice of the grounds for possible
disapproval under consideration. The
Commission is instituting proceedings
to allow for additional analysis of
whether the Exchanges have sufficiently
demonstrated how the proposed rule
changes are consistent with Sections
6(b)(4),45 6(b)(5),46 and 6(b)(8) 47 of the
Act. Section 6(b)(4) of the Act requires
that the rules of a national securities
exchange provide for the equitable
allocation of reasonable dues, fees, and
other charges among its members and
issuers and other persons using its
facilities. Section 6(b)(5) of the Act
requires that the rules of a national
securities exchange be designed, among
41 For purposes of temporarily suspending the
proposed rule changes, the Commission has
considered the proposed rules’ impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
42 15 U.S.C. 78s(b)(3)(C). Once the Commission
temporarily suspends a proposed rule change,
Section 19(b)(3)(C) of the Act requires that the
Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule
change should be approved or disapproved.
43 15 U.S.C. 78s(b)(2)(B).
44 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the
Act also provides that proceedings to determine
whether to disapprove a proposed rule change must
be concluded within 180 days of the date of
publication of notice of the filing of the proposed
rule change. See id. The time for conclusion of the
proceedings may be extended for up to 60 days if
the Commission finds good cause for such
extension and publishes its reasons for so finding,
or if the exchange consents to the longer period. See
id.
45 15 U.S.C. 78f(b)(4).
46 15 U.S.C. 78f(b)(5).
47 15 U.S.C. 78f(b)(8).
E:\FR\FM\02FEN1.SGM
02FEN1
jspears on DSK121TN23PROD with NOTICES1
5904
Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices
other things, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest, and not be designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
Section 6(b)(8) of the Act requires that
the rules of a national securities
exchange not impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
The Commission asks that
commenters address the sufficiency of
the Exchanges’ statements in support of
the proposals, which are set forth in the
MIAX Notice and the Pearl Notice, in
addition to any other comments they
may wish to submit about the proposed
rule changes. In particular, the
Commission seeks comment on the
following aspects of the proposals and
asks commenters to submit data where
appropriate to support their views:
1. Cost Estimates and Allocation. The
Exchanges state that they are not
asserting that the Proposed Access Fees
are constrained by competitive forces,
but rather set forth a ‘‘cost-plus model,’’
employing a ‘‘conservative
methodology’’ that ‘‘strictly considers
only those costs that are most clearly
directly related to the provision and
maintenance of 10Gb ULL connectivity
to estimate such costs.’’ 48 Setting forth
their costs in providing 10Gb ULL
connectivity, and as summarized in
greater detail above, the Exchanges
project $15.9 million in aggregate
annual estimated costs for 2021 as the
sum of: (1) $3.9 million in third-party
expenses paid in total to Equinix (62%
of the total applicable expense) for data
center services; Zayo Group Holdings,
for network services (62% of the total
applicable expense); SFTI for
connectivity support, Thompson
Reuters, NYSE, Nasdaq, and Internap
and others (75% of the total applicable
expense) for content, connectivity
services, and infrastructure services;
and various other hardware and
software providers (51% of the total
applicable expense) supporting the
production environment, and (2) $12
million in internal expenses, allocated
to (a) employee compensation and
benefit costs ($6.1 million,
approximately 28% of the Exchanges’
total applicable employee compensation
and benefits expense); (b) depreciation
and amortization ($5.3 million,
approximately 70% of the Exchanges’
48 See
MIAX Notice, supra note 4, at 71999 and
n.28.
VerDate Sep<11>2014
21:31 Feb 01, 2022
Jkt 256001
total applicable depreciation and
amortization expense); and (c)
occupancy costs ($0.6 million,
approximately 53% of the Exchanges’
total applicable occupancy expense). Do
commenters believe that the Exchanges
have provided sufficient detail about
how they determined which costs are
most clearly directly associated with
providing and maintaining 10Gb ULL
connectivity? The Exchanges describe a
process involving all Exchange
department heads, including the finance
department, but do not specify further
what principles were applied in making
these determinations or arriving at
particular allocations. Do commenters
believe further explanation is necessary?
For employee compensation and benefit
costs, for example, the Exchanges
calculated an allocation of employee
time in several departments, including
Technology, Back Office, Systems
Operations, Networking, Business
Strategy Development, Trade
Operations, Finance, and Legal, but do
not provide the job titles and salaries of
persons whose time was accounted for,
or explain the methodology used to
determine how much of an employee’s
time is devoted to that specific activity.
What are commenters’ views on
whether the Exchanges have provided
sufficient detail on the identity and
nature of services provided by third
parties? Across all of the Exchanges’
projected costs, what are commenters’
views on whether the Exchanges have
provided sufficient detail on the
elements that go into connectivity costs,
including how shared costs are
allocated and attributed to connectivity
expenses, to permit an independent
review and assessment of the
reasonableness of purported cost-based
fees and the corresponding profit
margin thereon? Should the Exchanges
be required to identify for what services
or fees the remaining percentage of unallocated expenses are attributable to
(e.g., what services or fees are associated
with the 30% of applicable depreciation
and amortization expenses the
Exchanges do not allocate to the
Proposed Access Fees)? Do commenters
believe that the costs projected for 2021
are generally representative of expected
costs going forward (to the extent
commenters consider 2021 to be a
typical or atypical year), or should an
exchange present an estimated range of
costs with an explanation of how profit
margins could vary along the range of
estimated costs?
2. Revenue Estimates and Profit
Margin Range. The Exchanges provide a
single monthly revenue figure as the
basis for calculating the profit margin of
PO 00000
Frm 00126
Fmt 4703
Sfmt 4703
21.3%. Do commenters believe this is
reasonable? If not, why not? The
Exchanges state that their proposed fee
structure is ‘‘designed to cover [their]
costs with a limited return in excess of
such costs,’’ and believes that a 21.3%
margin is such a limited return over
such costs.49 The profit margin is also
dependent on the accuracy of the cost
projections which, if inflated
(intentionally or unintentionally), may
render the projected profit margin
meaningless. The Exchanges
acknowledge that this margin may
fluctuate from month to month due to
changes in the number of connections
purchased, and that costs may
increase.50 The Exchanges do not
account for the possibility of cost
decreases, however. What are
commenters’ views on the extent to
which actual costs (or revenues) deviate
from projected costs (or revenues)? Do
commenters believe that the Exchanges’
methodology for estimating the profit
margin is reasonable? Should the
Exchanges provide a range of profit
margins that they believe are reasonably
possible, and the reasons therefor?
3. Reasonable Rate of Return. Do
commenters agree with the Exchanges
that their expected 21.3% profit margin
would constitute a reasonable rate of
return over cost for 10GB ULL
connectivity? If not, what would
commenters consider to be a reasonable
rate of return and/or what methodology
would they consider to be appropriate
for determining a reasonable rate of
return? What are commenters’ views
regarding what factors should be
considered in determining what
constitutes a reasonable rate of return
for 10Gb ULL connectivity fees? Do
commenters believe it relevant to an
assessment of reasonableness that the
Exchanges’ proposed fees for 10Gb ULL
connections, even at the highest tier, are
lower than those of other options
exchanges to which the Exchanges have
compared the Proposed Access Fees?
Should an assessment of reasonable rate
of return include consideration of
factors other than costs; and if so, what
factors should be considered, and why?
4. Periodic Reevaluation. The
Exchanges have not addressed whether
they believe a material deviation from
the anticipated profit margin would
warrant the need to make a rule filing
pursuant to Section 19(b) of the Act to
increase or decrease the fees
accordingly. In light of the impact that
the number of subscribers has on
connectivity profit margins, and the
49 See MIAX Notice, supra note 4, at 71999,
72000.
50 See id.
E:\FR\FM\02FEN1.SGM
02FEN1
jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices
potential for costs to decrease (or
increase) over time, what are
commenters’ views on the need for
exchanges to commit to reevaluate, on
an ongoing and periodic basis, their
cost-based connectivity fees to ensure
that they stay in line with their stated
profitability target and do not become
unreasonable over time, for example, by
failing to adjust for efficiency gains, cost
increases or decreases, and changes in
subscribers? How formal should that
process be, how often should that
reevaluation occur, and what metrics
and thresholds should be considered?
How soon after a new connectivity fee
change is implemented should an
exchange assess whether its subscriber
estimates were accurate and at what
threshold should an exchange commit
to file a fee change if its estimates were
inaccurate? Should an initial review
take place within the first 30 days after
a connectivity fee is implemented? 60
days? 90 days? Some other period?
5. Tiered Structure for 10Gb ULL
Connections. The Exchanges state that
the proposed tiered fee structure is
designed to decrease the monthly fees
for those firms that connect to the
Exchange(s) as part of their best
execution obligations and generally tend
to send the least amount of orders and
messages over those connections,
because such firms generally only
purchase a limited number of
connections, and also ‘‘generally send
less orders and messages over those
connections, resulting in less strain on
Exchange resources.’’ 51 According to
the Exchanges, 80% of firms have not
experienced a fee increase as a result of
the tiered structure. However, firms that
purchase five or more connections will
see a 30% increase in their fees for each
connection above the fourth. Regarding
these firms, the Exchanges have not
asserted that it is 30% more costly for
the Exchanges to offer such connections
to these firms, but instead argue
generally that these firms are ‘‘likely’’ to
result in greater expenditure of
Exchange resources and increased cost
to the Exchange.52 Do commenters
believe that the price differences
between the tiers are supported by the
Exchanges’ assertions that it set the
level of its proposed fees in a manner
that it is equitable and not unfairly
discriminatory? Do commenters believes
the Exchanges should demonstrate how
the proposed tiered fee levels correlate
with tiered costs (e.g., by providing cost
information broken down by tier,
messaging and order volumes through
the additional 10Gb ULL connections by
51 See
52 See
MIAX Notice, supra note 4, at 72004.
id.
VerDate Sep<11>2014
21:31 Feb 01, 2022
Jkt 256001
tier, and/or mid-month add/drop of
connection rates by tier)? Do
commenters believe that the Exchanges
should provide more detail about the
costs that firms purchasing three or
more or five or more 10Gb ULL
connections impose on the Exchanges,
to permit an assessment of the
Exchanges’ statement that the Proposed
Access Fees ‘‘do not depend on any
distinctions between Members,
customers, broker-dealers, or any other
entity, because they are solely
determined by the individual Member’s
or non-Member’s business needs and its
impact on the Exchanges resources?’’ 53
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the Exchange Act and
the rules and regulations issued
thereunder . . . is on the [SRO] that
proposed the rule change.’’ 54 The
description of a proposed rule change,
its purpose and operation, its effect, and
a legal analysis of its consistency with
applicable requirements must all be
sufficiently detailed and specific to
support an affirmative Commission
finding,55 and any failure of an SRO to
provide this information may result in
the Commission not having a sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Act and the applicable rules
and regulations.56 Moreover,
‘‘unquestioning reliance’’ on an SRO’s
representations in a proposed rule
change would not be sufficient to justify
Commission approval of a proposed rule
change.57
The Commission believes it is
appropriate to institute proceedings to
allow for additional consideration and
comment on the issues raised herein,
including as to whether the proposals
are consistent with the Act, any
potential comments or supplemental
information provided by the Exchanges,
and any additional independent
analysis by the Commission.
V. Request for Written Comments
The Commission requests written
views, data, and arguments with respect
to the concerns identified above as well
as any other relevant concerns. In
particular, the Commission invites the
written views of interested persons
concerning whether the proposal is
53 See
id.
CFR 201.700(b)(3).
55 See id.
56 See id.
57 See Susquehanna Int’l Group, LLP v. Securities
and Exchange Commission, 866 F.3d 442, 446–47
(D.C. Cir. 2017) (rejecting the Commission’s reliance
on an SRO’s own determinations without sufficient
evidence of the basis for such determinations).
54 17
PO 00000
Frm 00127
Fmt 4703
Sfmt 4703
5905
consistent with Sections 6(b)(4), 6(b)(5),
and 6(b)(8), or any other provision of the
Act, or the rules and regulations
thereunder. The Commission asks that
commenters address the sufficiency and
merit of the Exchanges’ statements in
support of the proposals, in addition to
any other comments they may wish to
submit about the proposed rule changes.
Although there do not appear to be any
issues relevant to approval or
disapproval that would be facilitated by
an oral presentation of views, data, and
arguments, the Commission will
consider, pursuant to Rule 19b–4, any
request for an opportunity to make an
oral presentation.58
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposals should be approved or
disapproved by February 23, 2022. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by March 9, 2022.
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 Nos. SR–
MIAX–2021–59 and SR–PEARL–2021–
57 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
Numbers SR–MIAX–2021–59 and SR–
PEARL–2021–57. These file numbers
should be included on the subject line
if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
changes that are filed with the
Commission, and all written
communications relating to the
proposed rule changes between the
58 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act
grants the Commission flexibility to determine what
type of proceeding—either oral or notice and
opportunity for written comments—is appropriate
for consideration of a particular proposal by an
SRO. See Securities Acts Amendments of 1975,
Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249,
S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
E:\FR\FM\02FEN1.SGM
02FEN1
5906
Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices
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
filings also will be available for
inspection and copying at the principal
office of each 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
Numbers SR–MIAX–2021–59 and SR–
PEARL–2021–57 and should be
submitted on or before February 23,
2022. Rebuttal comments should be
submitted by March 9, 2022.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(3)(C) of the Act,59 that File
Numbers SR–MIAX–2021–59 and SR–
PEARL–2021–57 be, and hereby are,
temporarily suspended. In addition, the
Commission is instituting proceedings
to determine whether the proposed rule
changes should be approved or
disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.60
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–02083 Filed 2–1–22; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94086; File No. SR–
NYSEAMER–2022–06]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the NYSE
American Options Fee Schedule
jspears on DSK121TN23PROD with NOTICES1
January 27, 2022.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on January
21, 2022, NYSE American LLC (‘‘NYSE
U.S.C. 78s(b)(3)(C).
CFR 200.30–3(a)(57) and (58).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
60 17
VerDate Sep<11>2014
21:31 Feb 01, 2022
Jkt 256001
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE American Options Fee Schedule
(the ‘‘Fee Schedule’’) regarding the
Floor Broker Fixed Cost Prepayment
Incentive Program. The Exchange
proposes to implement the fee change
effective January 21, 2022.4 The
proposed change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
59 15
American’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
1. Purpose
The purpose of this filing is to modify
the Floor Broker Fixed Cost Prepayment
Incentive Program (the ‘‘FB Prepay
Program’’), a prepayment incentive
program that allows Floor Broker
organizations (each, a ‘‘Floor Broker’’) to
prepay certain of their annual Eligible
Fixed Costs in exchange for volume
rebates, as set forth in the Fee
Schedule.5
4 The Exchange originally filed to amend the Fee
Schedule on December 29, 2021 (SR–NYSEAmer–
2021–50), with an effective date of January 3, 2022,
then withdrew such filing and amended the Fee
Schedule on January 12, 2022 (SR–NYSEAmer–
2022–02), which latter filing the Exchange
withdrew on January 21, 2022.
5 See Fee Schedule, Section III.E.1, Floor Broker
Fixed Cost Prepayment Incentive Program (the ‘‘FB
Prepay Program’’), available here: https://
PO 00000
Frm 00128
Fmt 4703
Sfmt 4703
Currently, the FB Prepay Program
offers participating Floor Brokers an
opportunity to qualify for rebates by
achieving growth in billable manual
volume by a certain percentage as
measured against one of two
benchmarks (the ‘‘Percentage Growth
Incentive’’). Specifically, the Percentage
Growth Incentive is designed to
encourage Floor Brokers to increase
their average daily volume (‘‘ADV’’) in
billable manual contract sides to qualify
for a Tier; each Tier of the FB Prepay
Program corresponds to an annual
rebate equal to the greater of the ‘‘Total
Percentage Reduction of pre-paid
annual Eligible Fixed Costs’’ or the
annualization of the monthly
‘‘Alternative Rebate.’’ 6 In either case,
participating Floor Brokers receive their
annual rebate amount in the following
January.7 Floor Brokers that wish to
participate in the FB Prepay Program for
the following calendar year must notify
the Exchange no later than the last
business day of December in the current
year.8
As further described below, the
Exchange proposes to modify the
qualifying benchmarks, growth
percentage requirements, and rebate
amounts for the FB Prepay Program, and
further proposes to offer Floor Brokers
that participate in the FB Prepay
Program additional per contract credits
for certain QCC trades. The Exchange
also proposes to adjust the basis for the
calculation of a participating Floor
Broker’s Eligible Fixed Costs for the
following calendar year.
The Exchange proposes to implement
the fee changes effective January 21,
2022.
Proposed Rule Change
The Exchange proposes to modify the
benchmarks that Floor Brokers that
participate in the FB Prepay Program
must meet to qualify for the Percentage
Growth Incentive. Currently, to qualify
for the Percentage Growth Incentive, a
Floor Broker must increase their ADV
for the calendar year above the greater
www.nyse.com/publicdocs/nyse/markets/americanoptions/NYSE_American_Options_Fee_
Schedule.pdf. ‘‘Eligible Fixed Costs’’ include
monthly ATP Fees, the Floor Access Fee, and
certain monthly Floor communication,
connectivity, equipment and booth or podia fees, as
set forth in the table in Section III.E.1.
6 See id. The Percentage Growth Incentive
excludes Customer volume, Firm Facilitation
trades, and QCCs. Any volume calculated to
achieve the Firm Monthly Fee Cap and the Strategy
Execution Fee Cap, regardless of whether either of
these caps is achieved, will likewise be excluded
from the Percentage Growth Incentive because fees
on such volume are already capped and therefore
do not increase billable manual volume. See id.
7 See Fee Schedule, Section III.E.1.
8 See id.
E:\FR\FM\02FEN1.SGM
02FEN1
]]>Agencies
[Federal Register Volume 87, Number 22 (Wednesday, February 2, 2022)]
[Notices]
[Pages 5901-5906]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02083]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94088; File Nos. SR-MIAX-2021-59, SR-PEARL-2021-57]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC, MIAX PEARL, LLC; Suspension of and Order Instituting
Proceedings To Determine Whether To Approve or Disapprove Proposed Rule
Changes To Amend the Fee Schedules To Adopt a Tiered-Pricing Structure
for Certain Connectivity Fees
January 27, 2022.
I. Introduction
On December 1, 2021, Miami International Securities Exchange LLC,
LLC (``MIAX'') and MIAX PEARL, LLC (``MIAX Pearl'') (collectively, the
``Exchanges'') each filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'' or ``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change (File Numbers SR-MIAX-2021-59 and
SR-PEARL-2021-57) to amend the MIAX Fee Schedule and MIAX Pearl Options
Fee Schedule (collectively, the ``Fee Schedules'') to adopt a tiered
pricing structure for certain connectivity fees. The proposed rule
changes were immediately effective upon filing with the Commission
pursuant to Section 19(b)(3)(A) of the Act.\3\ The proposed rule
changes were published for comment in the Federal Register on December
20, 2021.\4\ Under Section 19(b)(3)(C) of the Act,\5\ the Commission is
hereby: (i) Temporarily suspending File Numbers SR-MIAX-2021-59 and SR-
PEARL-2021-57; and (ii) instituting proceedings to determine whether to
approve or disapprove File Numbers SR-MIAX-2021-59 and SR-PEARL-2021-
57.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take
effect upon filing with the Commission if it is designated by the
exchange as ``establishing or changing a due, fee, or other charge
imposed by the self-regulatory organization on any person, whether
or not the person is a member of the self-regulatory organization.''
15 U.S.C. 78s(b)(3)(A)(ii).
\4\ See Securities Exchange Act Release Nos. 93775 (December 14,
2021), 86 FR 71996 (``MIAX Notice''); 93774 (December 14, 2021), 86
FR 71952 (``Pearl Notice''). For ease of reference, citations to
statements generally applicable to both notices are to the MIAX
Notice.
\5\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------
II. Background and Description of the Proposed Rule Changes
MIAX and the MIAX Pearl options facility have a shared connectivity
infrastructure that permits Members and non-Members to connect directly
to either or both of the Exchanges, and thereby access the associated
Exchanges' trading platforms, market data systems, test systems, and
disaster recovery facilities via a single, shared connection.\6\ Prior
to implementation of the proposed rule changes, a market participant
connecting to the primary or secondary facility of either or both of
the Exchanges options platforms via a 10 gigabit ultra-low latency
(``10Gb ULL'') fiber connection was assessed a monthly fee of $10,000
per connection.\7\ The Exchanges proposes to modify their respective
Fee Schedules to adopt a tiered pricing structure for 10Gb ULL fiber
connections as follows:
---------------------------------------------------------------------------
\6\ See MIAX Notice, supra note 4 at 71998.
\7\ See id. 1Gb connections to the primary/secondary facility,
and 1Gb and 10Gb connections to the disaster recovery facility are
subject to separate monthly charges that are not affected by the
proposed rule changes. As the MIAX Pearl filing relates only the
MIAX Pearl Options Fee Schedule, fees for the MIAX Pearl Equities
facility also are outside the scope of the proposed rule changes.
---------------------------------------------------------------------------
$9,000 each for the 1st and 2nd 10Gb ULL connections;
$11,000 each for the 3rd and 4th 10Gb ULL connections; and
$13,000 for each additional connection 10Gb ULL
connection.\8\
---------------------------------------------------------------------------
\8\ The Exchanges initially filed the proposed fee changes on
July 30, 2021. See Securities Exchange Act Release Nos. 92643
(August 11, 2021), 86 FR 46034 (August 17, 2021) (SR-MIAX-2021-35),
92644 (August 11, 2021), 86 FR 46055 (August 17, 2021) (SR-PEARL-
2021-36). These filings were withdrawn by the Exchanges. The
Exchanges filed new proposed fee changes with additional
justification (SR-MIAX-2021-41 and SR-PEARL-2021-45), which were the
subject of a Suspension of and Order Instituting Proceedings. See
Securities Exchange Act Release No. 93639 (November 22, 2021), 86 FR
67758 (November 29, 2021). The Exchanges subsequently withdrew those
filings and replaced them with the instant filings to provide
additional information and a revised justification for the proposal,
which is discussed herein. See Securities Exchange Act Release No.
93733 (December 7, 2021), 86 FR 71108 (December 14, 2021) (Notice of
Withdrawal); see also MIAX Notice and Pearl Notice, supra note 4 at
71997, 71984, respectively.
---------------------------------------------------------------------------
These fees (the ``Proposed Access Fees'') are assessed in any month
the Member or non-Member is credentialed to use any of the Exchanges'
APIs or market data feeds in the Exchanges' production environment,
pro-rated when a Member or non-Member adds or deletes a connection.\9\
---------------------------------------------------------------------------
\9\ See MIAX Notice, supra note 4, at 71998. The Exchanges state
that they deem connectivity fees to be access fees, and records
these fees as part of its ``Access Fees'' revenue in its financial
statements. Id. at 71999.
---------------------------------------------------------------------------
III. Suspension of the Proposed Rule Changes
Pursuant to Section 19(b)(3)(C) of the Act,\10\ at any time within
60 days of the date of filing of an immediately effective proposed rule
change pursuant to Section 19(b)(1) of the Act,\11\ the Commission
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. As discussed below, the Commission believes a temporary
suspension of the proposed rule changes is necessary and appropriate to
allow for additional analysis of the proposed rule changes' consistency
with the Act and the rules thereunder.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78s(b)(3)(C).
\11\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
In support of the proposals, the Exchanges argue that the proposed
tiered pricing structure for 10Gb ULL connections is reasonable,
equitable, and not unfairly discriminatory because the new tiers result
in a majority of 10Gb ULL purchasers either saving money or paying the
same amount.\12\ As discussed further below, the Exchanges state that
``a higher fee to a Member or non-Member that utilizes numerous
connections is directly related to the increased costs the Exchange
incurs in providing and maintaining those additional connections.''
\13\ The Exchanges also maintain that the tiered pricing structure will
encourage Members and non-Members to be more efficient and economical
when determining how to connect to the Exchanges and should better
enable the Exchanges to monitor and provide access to the Exchanges'
network to ensure sufficient capacity and headroom in the System.\14\
---------------------------------------------------------------------------
\12\ See MIAX Notice, supra note 4, at 72004. The Exchanges
state that approximately 80% of the firms that purchased at least
one 10Gb ULL connection experienced a decrease in their monthly
connectivity fees, while approximately 20% of firms experienced an
increase in their monthly connectivity fees. See id.
\13\ See id.
\14\ See MIAX Notice, supra note 4, at 72004.
---------------------------------------------------------------------------
In further support of the proposals, the Exchanges argue that the
Proposed Access Fees are reasonable because they will permit recovery
of the Exchange's costs in providing the associated services and will
not result in the Exchange generating a supra-
[[Page 5902]]
competitive profit.\15\ Specifically, the Exchanges state that the
Proposed Access Fees are based on a ``cost-plus model,'' designed to
result in ``cost recovery plus present the possibility of a reasonable
return.'' \16\ According to the Exchanges, employing a ``conservative
methodology'' that ``strictly considers only those costs that are most
clearly directly related to the provision and maintenance of 10Gb ULL
connectivity,'' they estimate the total projected 2021 cost to offer
10Gb ULL connections at $15.9 million, representing $3.9 in third-party
cost and $12 million in internal cost.\17\ To arrive at these figures,
the Exchanges state that they undertook a thorough internal analysis of
nearly every expense on each Exchanges' general expense ledger to
determine whether each such expense related to the Proposed Access
Fees, and, if such expense did so relate, to determine what portion (or
percentage) of such expense supported the access services.\18\ They
state that this process entailed discussions with each Exchange
department head to identify the expenses that support the access
services associated with the Proposed Access Fees, review of the
expenses holistically on an Exchange-wide level with assistance from
the internal finance department, and then assessment of the total
expense, with no expense allocated twice.\19\
---------------------------------------------------------------------------
\15\ See id. at 71998, 72003.
\16\ See id. at 71999.
\17\ See id. at 72001. The 2021 costs are projected because each
Exchange's most recent Audited Unconsolidated Financial Statement is
for 2020, with projections utilizing the same presentation
methodology as used in their previously-filed Audited Financial
Statements. See id. at 72000.
\18\ See id. at 72001. The Exchanges also state that expenses
associated with the MIAX Pearl equities market are accounted for
separately. See id.; Pearl Notice at 71957.
\19\ See id. The Exchanges also state that the $15.9 million in
expense is ``directly related to the access services associated with
the Proposed Access Fees, and not any other product or service
offered by the Exchange or MIAX Pearl, and does not include general
costs of operating matching engines and other trading technology.
Id. at 72001.
---------------------------------------------------------------------------
The Exchanges state that the $3.9 million projected 2021 third-
party expense is the sum of fees paid to: (1) Equinix, for data center
services (approximately 62% of the Exchanges' total applicable Equinix
expense); (2) Zayo Group Holdings, Inc. for network services
(approximately 62%); (3) various other services providers, including
``Secure Financial Transaction Infrastructure'' (``SFTI'')
(approximately 75%); and (4) various other hardware and software
providers (approximately 51%).\20\ Likewise, the Exchanges state that
the $12 million projected 2021 internal expense, is the sum of: (1)
Employee compensation and benefits expense allocated to the Proposed
Access Fees ($6.1 million, which is 28% of the total projected expense
of $12.6 million for MIAX and $9.2 million for MIAX Pearl for employee
compensation and benefits); \21\ (2) depreciation and amortization
expense allocated to the Proposed Access Fees ($5.3 million, which the
Exchanges estimated as 70% of the total projected expense of $4.8
million for MIAX and $2.9 million for MIAX Pearl for depreciation and
amortization); and (3) occupancy expense ($0.6 million, which the
Exchanges estimated as 53% of the Exchanges' total projected expense of
$0.6 million for MIAX and $0.5 million for MIAX Pearl for occupancy).
Converting the projected annualized expense figure to a monthly figure,
the Exchanges estimate an average monthly cost of offering the services
associated with the Proposed Access Fees at $1,325,000.\22\
---------------------------------------------------------------------------
\20\ See id. at 72001.
\21\ For employee compensation and benefit costs, for example,
the Exchanges included the time spent by employees of several
departments, including Technology, Back Office, Systems Operations,
Networking, Business Strategy Development (who create the business
requirement documents that the Technology staff use to develop
network features and enhancements), Trade Operations, Finance (who
provide billing and accounting services relating to the network),
and Legal (who provide legal services relating to the network, such
as rule filings and various license agreements and other contracts).
See id. at 72002.
\22\ See id. at 72003.
---------------------------------------------------------------------------
Regarding revenue, the Exchanges represent that revenue for the
month of October 2021 was approximately $1,684,000 (including pro-rated
charges), attributable to the purchase of 154 10Gb ULL connections at
the proposed tiered rates. Accordingly, the Exchanges calculated a
$359,000 monthly profit for October 2021 and a profit margin of 21.3%.
As a baseline, the Exchanges used revenue for July 2021 before
introduction of the Proposed Access Fees, which they represented was
$1,547,620, attributable to the purchases of a total of 156 10Gb ULL
connections, to calculate the baseline monthly profit margin of 14.4%.
The Exchanges maintain that a 6.9% profit margin increase from July
2021 (before introduction of the Proposed Access Fees) to October 2021
(after the introduction of the Proposed Access Fees) is reasonable.\23\
They also argue that a 21.3% rate of return is reasonable because it
will allow them to ``to continue to recoup [their] expenses and
continue to invest in [their] technology infrastructure.'' \24\ They
add that this profit margin does not take into account: (i)
Fluctuations in revenue as a result of Members and non-Members adding
and dropping connections at any time based on their own business
decisions, which they frequently do; (ii) future price increases from
third parties; and (iv) inflationary pressure on capital items that
they need to purchase to maintain the Exchanges' technology and
systems, which have resulted in price increases upwards of 30% on
network equipment due to supply chain shortages, and in turn result in
higher overall costs associated with ongoing system maintenance.\25\ In
addition, although they do not assert that competitive forces constrain
the Proposed Access Fees, they maintain that the Proposed Access Fees
are reasonable when compared to the fees of other options exchanges, as
the Exchanges' proposed fees for 10Gb ULL connections even at the
proposed highest tier are lower than those of other options exchanges
with similar market share.\26\
---------------------------------------------------------------------------
\23\ See id. at 72003.
\24\ Id.
\25\ Id. at 72000.
\26\ Id. at 72005. The Exchanges assert that when compared to
fees charged by and market shares (for the month of November 2021,
as of November 26, 2021) for The NASDAQ Stock Market LLC
(``Nasdaq''), Nasdaq ISE LLC (``ISE''), Nasdaq PHLX LLC (``Phlx''),
and NYSE American LLC, that the Exchanges' proposed tiered-pricing
structure is ``significantly lower'' than these competing options
exchanges with similar market share. Id. For example, the Exchanges
state that the affiliated exchanges Nasdaq, ISE and Phlx charge a
monthly fee of $10,000 per 10Gb fiber connection and $15,000 per
10Gb Ultra fiber connection, while the highest tier of the
Exchanges' proposed fee structure is $2,000 less per month. Id.
---------------------------------------------------------------------------
As noted above, the Exchanges also argue that the tiered structure
of the Proposed Access Fees results in an equitable allocation of fees
that are not unfairly discriminatory, noting that after implementation
of the Proposed Access Fees, a majority of 10Gb ULL purchasers either
were saving money or paying the same amount.\27\ They further explain
that firms that primarily route orders for best execution generally
only need a limited number of connections to fulfill that obligation
and connectivity costs will likely to be lower for these firms.\28\
Addressing the fee increases experienced by some 10Gb ULL purchasers,
the Exchanges urge that the increases for these firms are justified
because the new fees ``apply to all
[[Page 5903]]
Members and non-Members in the same manner based on the amount of 10Gb
ULL connectivity they require based on their own business decisions and
usage of Exchange resources.'' \29\ They explain that the firms
experiencing higher fees are those engaged in advanced trading
strategies that typically require multiple connections and generate
higher costs for the Exchanges by utilizing more of the Exchanges'
resources.\30\ Responding to prior comment that the Exchanges had not
demonstrated that a firm purchasing more than two or four 10Gb ULL
connections would use Exchange resources at a greater rate per
connection than those purchasing fewer, the Exchanges state that ``more
connections purchased by a firm likely results in greater expenditure
of Exchange resources and increased cost to the Exchange.'' \31\ The
Exchanges describe firms that primarily route orders seeking best-
execution and purchase only a limited number of connections as those
that ``also generally send less orders and messages over those
connections, resulting in less strain on Exchange resources.'' \32\ In
contrast the Exchanges describe firms that purchase more than two to
four 10Gb ULL connections as those that ``essentially do so for
competitive reasons amongst themselves and choose to utilize numerous
connections based on their business needs and desire to attempt to
access the market quicker by using the connection with the least amount
of latency.'' \33\ According to the Exchanges, these firms are
generally engaged in sending liquidity-removing orders to the Exchange
and seek to add more connections so they can access resting liquidity
ahead of their competitors, and this type of usage of the 10Gb ULL
connections is more costly to the Exchange, as a result of, among other
things, frequently adding and dropping connections mid-month to
determine which connections have the least latency, which results in
increased costs to the Exchange to constantly make changes in the data
center which results in ``disproportionate pull on Exchange resources
to provide the additional connectivity.'' \34\
---------------------------------------------------------------------------
\27\ See MIAX Notice, supra note 4, at 72004. The Exchanges
state that approximately 80% of the firms that purchased at least
one 10Gb ULL connection experienced a decrease in their monthly
connectivity fees, while approximately 20% of firms experienced an
increase in their monthly connectivity fees as a result of the
proposed tiered-pricing structure when compared to the flat monthly
fee structure. See id.
\28\ See id. at 72004.
\29\ See id.
\30\ See id. at 72004, 72006.
\31\ See id. at 72004, 72008.
\32\ See id. at 72004.
\33\ See id.
\34\ See id. at 72005.
---------------------------------------------------------------------------
To date, the Commission has not received any comment letters on the
revised justifications for the Proposed Access Fees.
When exchanges file their proposed rule changes with the
Commission, including fee filings like the Exchanges' present proposal,
they are required to provide a statement supporting the proposal's
basis under the Act and the rules and regulations thereunder applicable
to the exchange.\35\ The instructions to Form 19b-4, on which exchanges
file their proposed rule changes, specify that such statement ``should
be sufficiently detailed and specific to support a finding that the
proposed rule change is consistent with [those] requirements.'' \36\
---------------------------------------------------------------------------
\35\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory
Organization's Statement of the Purpose of, and Statutory Basis for,
the Proposed Rule Change'').
\36\ Id.
---------------------------------------------------------------------------
Section 6 of the Act, including Sections 6(b)(4), (5), and (8),
require the rules of an exchange to (1) provide for the equitable
allocation of reasonable fees among members, issuers, and other persons
using the exchange's facilities; \37\ (2) perfect the mechanism of a
free and open market and a national market system, protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers; \38\
and (3) not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\39\
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78f(b)(4).
\38\ 15 U.S.C. 78f(b)(5).
\39\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
In temporarily suspending the Exchanges' fee changes, the
Commission intends to further consider whether the proposals to modify
fees for certain connectivity options and implement a tiered pricing
fee structure is consistent with the statutory requirements applicable
to a national securities exchange under the Act. In particular, the
Commission will consider whether the proposed rule changes satisfy the
standards under the Act and the rules thereunder requiring, among other
things, that an exchange's rules provide for the equitable allocation
of reasonable fees among members, issuers, and other persons using its
facilities; not permit unfair discrimination between customers,
issuers, brokers or dealers; and do not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act.\40\
---------------------------------------------------------------------------
\40\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------
Therefore, the Commission finds that it is appropriate in the
public interest, for the protection of investors, and otherwise in
furtherance of the purposes of the Act, to temporarily suspend the
proposed rule changes.\41\
---------------------------------------------------------------------------
\41\ For purposes of temporarily suspending the proposed rule
changes, the Commission has considered the proposed rules' impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Changes
In addition to temporarily suspending the proposals, the Commission
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C)
\42\ and 19(b)(2)(B) \43\ of the Act to determine whether the
Exchanges' proposed rule changes should be approved or disapproved.
Institution of such proceedings is appropriate at this time in view of
the legal and policy issues raised by the proposed rule changes.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, as described below, the Commission seeks and encourages
interested persons to provide comments on the proposed rule changes to
inform the Commission's analysis of whether to approve or disapprove
the proposed rule changes.
---------------------------------------------------------------------------
\42\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
\43\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\44\ the Commission is
providing notice of the grounds for possible disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of whether the Exchanges have sufficiently
demonstrated how the proposed rule changes are consistent with Sections
6(b)(4),\45\ 6(b)(5),\46\ and 6(b)(8) \47\ of the Act. Section 6(b)(4)
of the Act requires that the rules of a national securities exchange
provide for the equitable allocation of reasonable dues, fees, and
other charges among its members and issuers and other persons using its
facilities. Section 6(b)(5) of the Act requires that the rules of a
national securities exchange be designed, among
[[Page 5904]]
other things, to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system and, in general, to protect
investors and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers. Section
6(b)(8) of the Act requires that the rules of a national securities
exchange not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\44\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
See id. The time for conclusion of the proceedings may be extended
for up to 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding, or if the
exchange consents to the longer period. See id.
\45\ 15 U.S.C. 78f(b)(4).
\46\ 15 U.S.C. 78f(b)(5).
\47\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
The Commission asks that commenters address the sufficiency of the
Exchanges' statements in support of the proposals, which are set forth
in the MIAX Notice and the Pearl Notice, in addition to any other
comments they may wish to submit about the proposed rule changes. In
particular, the Commission seeks comment on the following aspects of
the proposals and asks commenters to submit data where appropriate to
support their views:
1. Cost Estimates and Allocation. The Exchanges state that they are
not asserting that the Proposed Access Fees are constrained by
competitive forces, but rather set forth a ``cost-plus model,''
employing a ``conservative methodology'' that ``strictly considers only
those costs that are most clearly directly related to the provision and
maintenance of 10Gb ULL connectivity to estimate such costs.'' \48\
Setting forth their costs in providing 10Gb ULL connectivity, and as
summarized in greater detail above, the Exchanges project $15.9 million
in aggregate annual estimated costs for 2021 as the sum of: (1) $3.9
million in third-party expenses paid in total to Equinix (62% of the
total applicable expense) for data center services; Zayo Group
Holdings, for network services (62% of the total applicable expense);
SFTI for connectivity support, Thompson Reuters, NYSE, Nasdaq, and
Internap and others (75% of the total applicable expense) for content,
connectivity services, and infrastructure services; and various other
hardware and software providers (51% of the total applicable expense)
supporting the production environment, and (2) $12 million in internal
expenses, allocated to (a) employee compensation and benefit costs
($6.1 million, approximately 28% of the Exchanges' total applicable
employee compensation and benefits expense); (b) depreciation and
amortization ($5.3 million, approximately 70% of the Exchanges' total
applicable depreciation and amortization expense); and (c) occupancy
costs ($0.6 million, approximately 53% of the Exchanges' total
applicable occupancy expense). Do commenters believe that the Exchanges
have provided sufficient detail about how they determined which costs
are most clearly directly associated with providing and maintaining
10Gb ULL connectivity? The Exchanges describe a process involving all
Exchange department heads, including the finance department, but do not
specify further what principles were applied in making these
determinations or arriving at particular allocations. Do commenters
believe further explanation is necessary? For employee compensation and
benefit costs, for example, the Exchanges calculated an allocation of
employee time in several departments, including Technology, Back
Office, Systems Operations, Networking, Business Strategy Development,
Trade Operations, Finance, and Legal, but do not provide the job titles
and salaries of persons whose time was accounted for, or explain the
methodology used to determine how much of an employee's time is devoted
to that specific activity. What are commenters' views on whether the
Exchanges have provided sufficient detail on the identity and nature of
services provided by third parties? Across all of the Exchanges'
projected costs, what are commenters' views on whether the Exchanges
have provided sufficient detail on the elements that go into
connectivity costs, including how shared costs are allocated and
attributed to connectivity expenses, to permit an independent review
and assessment of the reasonableness of purported cost-based fees and
the corresponding profit margin thereon? Should the Exchanges be
required to identify for what services or fees the remaining percentage
of un-allocated expenses are attributable to (e.g., what services or
fees are associated with the 30% of applicable depreciation and
amortization expenses the Exchanges do not allocate to the Proposed
Access Fees)? Do commenters believe that the costs projected for 2021
are generally representative of expected costs going forward (to the
extent commenters consider 2021 to be a typical or atypical year), or
should an exchange present an estimated range of costs with an
explanation of how profit margins could vary along the range of
estimated costs?
---------------------------------------------------------------------------
\48\ See MIAX Notice, supra note 4, at 71999 and n.28.
---------------------------------------------------------------------------
2. Revenue Estimates and Profit Margin Range. The Exchanges provide
a single monthly revenue figure as the basis for calculating the profit
margin of 21.3%. Do commenters believe this is reasonable? If not, why
not? The Exchanges state that their proposed fee structure is
``designed to cover [their] costs with a limited return in excess of
such costs,'' and believes that a 21.3% margin is such a limited return
over such costs.\49\ The profit margin is also dependent on the
accuracy of the cost projections which, if inflated (intentionally or
unintentionally), may render the projected profit margin meaningless.
The Exchanges acknowledge that this margin may fluctuate from month to
month due to changes in the number of connections purchased, and that
costs may increase.\50\ The Exchanges do not account for the
possibility of cost decreases, however. What are commenters' views on
the extent to which actual costs (or revenues) deviate from projected
costs (or revenues)? Do commenters believe that the Exchanges'
methodology for estimating the profit margin is reasonable? Should the
Exchanges provide a range of profit margins that they believe are
reasonably possible, and the reasons therefor?
---------------------------------------------------------------------------
\49\ See MIAX Notice, supra note 4, at 71999, 72000.
\50\ See id.
---------------------------------------------------------------------------
3. Reasonable Rate of Return. Do commenters agree with the
Exchanges that their expected 21.3% profit margin would constitute a
reasonable rate of return over cost for 10GB ULL connectivity? If not,
what would commenters consider to be a reasonable rate of return and/or
what methodology would they consider to be appropriate for determining
a reasonable rate of return? What are commenters' views regarding what
factors should be considered in determining what constitutes a
reasonable rate of return for 10Gb ULL connectivity fees? Do commenters
believe it relevant to an assessment of reasonableness that the
Exchanges' proposed fees for 10Gb ULL connections, even at the highest
tier, are lower than those of other options exchanges to which the
Exchanges have compared the Proposed Access Fees? Should an assessment
of reasonable rate of return include consideration of factors other
than costs; and if so, what factors should be considered, and why?
4. Periodic Reevaluation. The Exchanges have not addressed whether
they believe a material deviation from the anticipated profit margin
would warrant the need to make a rule filing pursuant to Section 19(b)
of the Act to increase or decrease the fees accordingly. In light of
the impact that the number of subscribers has on connectivity profit
margins, and the
[[Page 5905]]
potential for costs to decrease (or increase) over time, what are
commenters' views on the need for exchanges to commit to reevaluate, on
an ongoing and periodic basis, their cost-based connectivity fees to
ensure that they stay in line with their stated profitability target
and do not become unreasonable over time, for example, by failing to
adjust for efficiency gains, cost increases or decreases, and changes
in subscribers? How formal should that process be, how often should
that reevaluation occur, and what metrics and thresholds should be
considered? How soon after a new connectivity fee change is implemented
should an exchange assess whether its subscriber estimates were
accurate and at what threshold should an exchange commit to file a fee
change if its estimates were inaccurate? Should an initial review take
place within the first 30 days after a connectivity fee is implemented?
60 days? 90 days? Some other period?
5. Tiered Structure for 10Gb ULL Connections. The Exchanges state
that the proposed tiered fee structure is designed to decrease the
monthly fees for those firms that connect to the Exchange(s) as part of
their best execution obligations and generally tend to send the least
amount of orders and messages over those connections, because such
firms generally only purchase a limited number of connections, and also
``generally send less orders and messages over those connections,
resulting in less strain on Exchange resources.'' \51\ According to the
Exchanges, 80% of firms have not experienced a fee increase as a result
of the tiered structure. However, firms that purchase five or more
connections will see a 30% increase in their fees for each connection
above the fourth. Regarding these firms, the Exchanges have not
asserted that it is 30% more costly for the Exchanges to offer such
connections to these firms, but instead argue generally that these
firms are ``likely'' to result in greater expenditure of Exchange
resources and increased cost to the Exchange.\52\ Do commenters believe
that the price differences between the tiers are supported by the
Exchanges' assertions that it set the level of its proposed fees in a
manner that it is equitable and not unfairly discriminatory? Do
commenters believes the Exchanges should demonstrate how the proposed
tiered fee levels correlate with tiered costs (e.g., by providing cost
information broken down by tier, messaging and order volumes through
the additional 10Gb ULL connections by tier, and/or mid-month add/drop
of connection rates by tier)? Do commenters believe that the Exchanges
should provide more detail about the costs that firms purchasing three
or more or five or more 10Gb ULL connections impose on the Exchanges,
to permit an assessment of the Exchanges' statement that the Proposed
Access Fees ``do not depend on any distinctions between Members,
customers, broker-dealers, or any other entity, because they are solely
determined by the individual Member's or non-Member's business needs
and its impact on the Exchanges resources?'' \53\
---------------------------------------------------------------------------
\51\ See MIAX Notice, supra note 4, at 72004.
\52\ See id.
\53\ See id.
---------------------------------------------------------------------------
Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
[SRO] that proposed the rule change.'' \54\ The description of a
proposed rule change, its purpose and operation, its effect, and a
legal analysis of its consistency with applicable requirements must all
be sufficiently detailed and specific to support an affirmative
Commission finding,\55\ and any failure of an SRO to provide this
information may result in the Commission not having a sufficient basis
to make an affirmative finding that a proposed rule change is
consistent with the Act and the applicable rules and regulations.\56\
Moreover, ``unquestioning reliance'' on an SRO's representations in a
proposed rule change would not be sufficient to justify Commission
approval of a proposed rule change.\57\
---------------------------------------------------------------------------
\54\ 17 CFR 201.700(b)(3).
\55\ See id.
\56\ See id.
\57\ See Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 446-47 (D.C. Cir. 2017) (rejecting the
Commission's reliance on an SRO's own determinations without
sufficient evidence of the basis for such determinations).
---------------------------------------------------------------------------
The Commission believes it is appropriate to institute proceedings
to allow for additional consideration and comment on the issues raised
herein, including as to whether the proposals are consistent with the
Act, any potential comments or supplemental information provided by the
Exchanges, and any additional independent analysis by the Commission.
V. Request for Written Comments
The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. In particular, the Commission invites the written views of
interested persons concerning whether the proposal is consistent with
Sections 6(b)(4), 6(b)(5), and 6(b)(8), or any other provision of the
Act, or the rules and regulations thereunder. The Commission asks that
commenters address the sufficiency and merit of the Exchanges'
statements in support of the proposals, in addition to any other
comments they may wish to submit about the proposed rule changes.
Although there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of views,
data, and arguments, the Commission will consider, pursuant to Rule
19b-4, any request for an opportunity to make an oral presentation.\58\
---------------------------------------------------------------------------
\58\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposals should be approved or
disapproved by February 23, 2022. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
March 9, 2022.
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 Nos. SR-MIAX-2021-59 and SR-PEARL-2021-57 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 Numbers SR-MIAX-2021-59 and SR-
PEARL-2021-57. These file numbers should be included on the subject
line if email is used. To help the Commission process and review your
comments more efficiently, please use only one method. The Commission
will post all comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent
amendments, all written statements with respect to the proposed rule
changes that are filed with the Commission, and all written
communications relating to the proposed rule changes between the
[[Page 5906]]
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 filings also will be available for inspection and copying at the
principal office of each 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 Numbers SR-
MIAX-2021-59 and SR-PEARL-2021-57 and should be submitted on or before
February 23, 2022. Rebuttal comments should be submitted by March 9,
2022.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\59\ that File Numbers SR-MIAX-2021-59 and SR-PEARL-2021-57 be, and
hereby are, temporarily suspended. In addition, the Commission is
instituting proceedings to determine whether the proposed rule changes
should be approved or disapproved.
---------------------------------------------------------------------------
\59\ 15 U.S.C. 78s(b)(3)(C).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
---------------------------------------------------------------------------
\60\ 17 CFR 200.30-3(a)(57) and (58).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02083 Filed 2-1-22; 8:45 am]
BILLING CODE 8011-01-P
